What they are and how they may affect you
The Federal Government made headlines last May after it introduced a number of changes to superannuation, especially in relation to the way it is taxed. Legislation on those super changes was passed into law in November, and they will come into effect on July 1 this year.
- Personal Super Contributions
As of July 1, the restriction limiting tax deductions on personal super contributions to those who earned less than 10% of their income from salary or wages will be lifted. Traditionally aimed at self-employed individuals, the new changes now mean that anyone under 75 can claim a tax deduction of up to $25,000 on personal super contributions they make to their super fund.
- Pension Transfer Cap Introduction
A $1.6 million cap will be imposed on funds that are transferred into a tax-free super retirement pension account. The transfer balance cap will be reviewed every year and indexed in line with the Consumer Price Index (CPI) in $100,000 increments. Those who have more than the allowed $1.6 million will need to make one of the following choices:
* Move the excess amount into a super accumulation account – this will be taxed at 15%
* Completely remove the excess from super.
- Expansion of Spouse Tax Offset
Individuals who make a contribution to their spouse’s superannuation or retirement savings account will be eligible to claim a tax offset provided the spouse’s income was less than $40,000 (up from $13,800). For the purposes of the offset, the $40,000 includes any and all of the following:
* Assessable Income
* Reportable Fringe Benefits
* Reportable Employer Super Contributions
The maximum offset that can be claimed will remain at $540, or 18 percent of $3,000 contributed to a spouse’s super account. Offsets for contributions below $3,000 will also continue to be calculated at 18% of the contributed amount.
- Reduction of Division 293 Threshold
Introduced in the 2012-13 financial year, Division 293 imposed a 15% tax on certain concessional super contributions when an individual’s total income and concessional contributions exceeded $300,000 over a financial year. As of July 1, the threshold will be reduced to $250,000, and an additional 15% tax rate will be imposed on the excess contributions over that amount.
- After-Tax Contributions Cap Reduced
The annual non-concessional (after-tax) super contributions cap will be reduced from $180,000 to $100,000 as of July 1. However, those who are under 65 and have a total super balance that is less than $1.5 million in 2017-18 may enter into a ‘bring forward arrangement’ which allows them to contribute three years’ worth of annual contributions ($300,000) in one financial year.
Individuals who decide to enter a ‘bring forward arrangement’ are not allowed to contribute more than an amount that takes their super balance over $1.6 million, even if the amount is less than $300,000.
- Removal of Tax-Free Status from TRIS earnings
A Transition to Retirement Income Stream (TRIS) supports individuals of preservation age (55 for those born before 1 July 1960) as they move towards retirement by allowing them to draw on a certain amount of super.
From the beginning of the 2017-18 financial year, the Government will remove tax exemptions on the earnings on assets of an individual’s TRIS. The new changes mean that all earnings from assets supporting a TRIS will now be taxed at 15%, regardless of when it commenced.
Also from July 1, individuals who have a TRIS will not be allowed to treat payments a lump sum for tax purposes.
For more information visit https://www.ato.gov.au/Individuals/Super/Super-changes/.
For help and advice on managing your Superannuation, our friendly team at Hart Partners in Melbourne are on hand to speak with you. Call us on 03 9600 3220 or email us today.
* * * Disclaimer: No person should act on the general information in this article without taking specific advice from a qualified advisor. * * *