The Government has recently introduced significant changes affecting superannuation contributions and pension, most of which apply from 1 July 2017. The purpose of this post is to inform you of the key changes, as they may influence your future contribution plans or impact you if you currently receive a superannuation pension or plan to commence a pension from your superannuation fund on or after that date.
From 1 July 2017, the key changes affecting superannuation include the following:
- New $1.6 million limit – The total amount an individual can transfer into tax-free retirement phase pensions will be capped at $1.6 million. Generally, where the $1.6 million threshold is exceeded, an individual will be:
- taxed on the (notional) earnings amount that relates to the excess (at the rate of 15% for the first breach, and at the rate of 30% for each subsequent breach); and
- required to transfer the excess amount into an accumulation account (or withdraw the excess amount from superannuation, if applicable), otherwise the individual’s fund can lose the tax exemption that normally applies for income earned from pension assets (‘the pension earnings exemption’).
- Removal of the tax exemption for Transition to Retirement Income Streams (‘TRISs’) – From 1 July 2017, the pension earnings exemption will be removed for assets supporting a TRIS, regardless of the date the pension commenced. As a result, earnings on these assets will generally be taxed at 15% in the fund.
- Transitional CGT relief for pre-July 2017 pension assets – CGT relief may be available for pension assets supporting a retirement phase pension or a TRIS before 1 July 2017, without a fund having to sell these assets. This is important relief as it can help minimise any potential future CGT exposure when these assets are eventually sold.
- Personal non-deductible contributions
- Reduced contribution limits – The annual contribution limit has been reduced from $180,000 to $100,000 per person. Furthermore, the $540,000 bring forward amount has been reduced to $300,000.
- New $1.6 million superannuation balance restriction – An individual who has total superannuation entitlements of at least $1.6 million at the start of an income year will not be able to make non-concessional contributions in that year without breaching their limit.
- A reduced deductible contributions limit – The annual limit in respect of deductible contributions has been reduced from $30,000 or $35,000 (depending on the individual’s age) to $25,000 for all individuals.
- Claiming deductions for personal (after-tax) contributions – From 1 July 2017, an individual will generally be able to deduct personal (after-tax) contributions irrespective of their work status (i.e., whether or not they are an employee) and irrespective of the level of any salary income derived during the relevant income year.
- Additional 15% tax liability on contributions for people earning more than $250,000 – From 1 July 2017, individuals earning more than $250,000 will generally be liable to pay an extra 15% tax on deductible contributions (including employer contributions) received by their superannuation fund.
- Extending the tax offset for spouse superannuation contributions – From 1 July 2017, the existing tax offset of $540 (maximum) for spouse contributions will generally be available to a taxpayer who makes superannuation contributions for the benefit of a spouse whose income is less than $40,000 (up from $13,800).
Please contact our office if you would like further information about how these changes might affect you. Lee Fox, who is an Authorised Representative (1251071) of the SMSF Advisers Network, will be able to assist you further.