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Budget 2016 announcements that impact superannuation

2016 Federal budget

Here is a summary of the announcements made that will impact superannuation.

The Good

Simplifying contributions rules to age 74

From 1 July 2017, individuals aged 65 to 74 will no longer have to meet the work test to qualify to make contributions to super.  People in that age bracket are now subject to the same contribution rules as everyone else.

Australian lady

Catch up contributions

Members with a balance of $500,000 or less will now be able to make higher contributions in future years to compensate for years where they have not fully utilised the concessional cap.  This can be done over a 5 year rolling period beginning from 1 July 2017. 

This essentially means that concessional contributions can be made in ‘lumps’ in arrears rather than utilising the maximum cap every year.  For example if a contribution is made in the 2017-18 financial year that is $10,000 below the contribution limit, that $10,000 can be contributed anytime within the following 5 years over and above the normal contribution limit without penalty.

tax payer budget

Low Income Superannuation Offset

From 1 July 2017 this offset will reduce tax on super contributions for low income earners whose income is less than $37,000.  This offset will be capped at $500.

Abolition of the 10% rule

The 10% rule has previously stopped anyone who has made more than 10% of their income by way of employment from contributing directly to superannuation.   The removal of this rule means that anyone up to the age of 74, regardless of their employment circumstances, will be able to claim a tax deduction up to the contribution limit for their personal contributions to super.  The claiming of a superannuation contribution as a tax deduction also has some other basic provisions to meet to qualify, but these have not changed.

employee tax payer

The Bad

Lifetime cap for non-concessional contributions

From budget day 3 May 2016, individuals up to the age of 74 will be limited to a $500,000 lifetime cap on their non-concessional contributions.  Any non-concessional contributions made since 2007 will count towards this cap.  If the cap has already been exceeded there won’t be any penalties involved, but no further non-concessional contributions will be possible.

Previously it has been possible to contribute $180,000 per year or $540,000 over 3 years.

tax budgeting

Lower concessional superannuation contributions

From the 1 July 2017 the amount of super contributions you can claim as a tax deduction will be reduced to $25,000.  This limit will apply to everyone up to age 75.

$1.6 million cap on transfer to pension

This cap restricts the total amount per member that can be transferred into pension phase and receive the taxation benefits associated with doing so.

If a member already has a balance in pension over $1.6 million, then it will need to be reduced and the excess can be transferred back to accumulation accounts where they will be subject to normal accumulation taxation rules.

Autralian transfer of pension

Change in the taxation treatment of a balance in Transition to Retirement

Previously, income generated within the fund on a member balance that was in Transition to Retirement was tax exempt.  From 1 July 2017 that income will be subjected to the normal superannuation tax rates.

Autralian retirees

Reduction in the income threshold for Div 293 concessional contributions

From 1 July, where an individual’s income is above $250,000 (income + concessional superannuation contributions) any concessional contributions that fall over that threshold will be taxed at 30% instead of the normal 15%.  Currently the threshold is $300,000.

Australian taxpayer

A number of these announcements won’t take effect until 1 July 2017.  Given that we are due to have a federal election in July 2016, it is possible that a new government, especially a new labour government, might change a number of these measures.