Government amends key super reforms

The Government has announced it will amend some of the super reforms proposed in the May 2016 Federal Budget.

Summary of amendments:

• The lifetime limit of $500,000 on non-concessional super contributions won’t proceed.

• People aged 65 to 74 will still need to meet a ‘work test’ to be able to contribute to super.

• The opportunity to make ‘catch-up’ concessional super contributions will be delayed by 12 months.

These amendments and the proposals announced in the 2016 Federal Budget could impact your retirement and how you save for it. But at this stage they are not law and could be refined before they are passed by Parliament.

$500k lifetime cap to be scrapped

The original proposal was to replace the existing cap on non-concessional contributions (NCCs) with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

Instead, from 1 July 2017:

• the annual NCC cap (currently $180,000 pa) will be reduced to $100,000 pa

• the maximum NCCs that can be made in one year under the ‘bring-forward rule’ by people aged 64 or less will be reduced from $540,000 to $300,000, and

• no additional NCCs will be allowed if your superannuation balance is more than $1.6 million.

Like the current rules, a range of conditions will apply and tax penalties may be payable if ‘excess’ NCCs are made.

If these reforms go ahead, the vast majority of Australians will still be able to make additional NCCs. Also, most people will still have the opportunity to contribute some (or all) of the proceeds from an inheritance, downsizing the family home or other lump sum payment.

Contributions between 65 and 74

Currently, you need to work 40 hours in 30 days in the relevant financial year to make super contributions between 65 and 74. On Budget night, the Government announced they would remove this ‘work test’, but are no longer proceeding with this change.

‘Catch-up’ concessional contributions

The Government will continue with the proposal to reduce the cap on concessional contributions (CCs) to $25,000 pa from 1 July 2017. However, the start date for making ‘catch-up’ CCs will be delayed by 12 months to 1 July 2018.

Under the ‘catch-up’ rules, it will be possible to contribute more than the annual CC cap if you haven't fully utilised the cap in previous years and your super balance is $500,000 or less. This is done by allowing unused cap amounts to be carried forward for up to five consecutive years.

Budget super proposals not amended

At this stage, the Government has indicated they intend to proceed with the other super proposals announced in the Federal Budget. These include:

1. Introducing the Low Income Superannuation Tax Offset which operates in the same way as the Low Income Superannuation Contribution which was otherwise due to expire 30 June 2017.

2. An extension in the eligibility for individuals to claim a tax offset when making super contributions for a low income spouse by increasing the spouse low income threshold.

3. The ability to claim personal super contributions as a tax deduction, regardless of employment arrangements.

4. The requirement for people with incomes greater than $250,000 (currently $300,000) to pay an additional 15% tax on CCs.

5. The introduction of a lifetime limit of $1.6 million on the amount of superannuation that can be transferred into ‘retirement phase’ accounts.

6. An increase in the tax paid on earnings on investments held in ‘transition to retirement’ pensions from 0% to 15%.

To find out more about the super proposals contact your financial adviser.

Contact us

To find out more about the information in this article, please contact Charles Choong on 03 9654 9886, or you can send an email to firstpacificfs@gmail.com for more information.

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