Key Super Changes from 1 July

The rules around super continue to change as well, and it’s important for you to understand the impact these changes can have on your current super savings strategy.

The 2016 Federal Budget contained a number of super changes that are due to be implemented on 1 July 2017, and include the following:

Contribution limits

• Concessional contributions cap – from 1 July the annual cap will reduce to $25,000.

Previously, it was $35,000 for people 50 years and older, and $30,000 for everyone else.

Concessional contributions are contributions that you or your employer make to your super with before-tax income or claim as a tax deduction. They are also referred to as employer or before-tax contributions.

• Non-concessional contributions cap – from 1 July, this annual cap will reduce from $180,000 to $100,000.

If you are under age 65 on 1 July and your super balance is under $1.5 million, you can also bring forward an extra two years’ worth of personal contributions and make a lump sum contribution of up to $300,000 in the one financial year.

From 1 July, anyone that has super worth $1.6 million or over (as at the end of the previous financial year) will not be eligible to make any personal (non-concessional) contributions to super.

Non-concessional contributions are contributions you or your spouse makes to your super from your after-tax income. They are also referred to as personal or after-tax voluntary contributions.

Personal deductible contributions

Currently, if you are a sole trader or partner in a business, you can make personal contributions throughout the year and then generally claim up to 100% of these contributions as a deduction on your tax return, to reduce the tax you pay.

From 1 July 2017, anyone under age 75 (including those aged 65 to 74 who meet the work test), regardless of their employment status will be allowed to claim a tax deduction on personal super contributions.

Pension balance transfer cap

The government is introducing a $1.6 million cap limiting the amount of super that can be transferred to pension phase from 1 July 2017. Any super balance held over $1.6 million must be retained in accumulation phase, and subject to the standard concessional 15% tax on investment earnings.

Tax on transition to retirement pension earnings

From 1 July 2017, the government is removing the tax exemption that applies to earnings on investments of a pre-retirement (or transition to retirement) pension.

This means that pre-retirement pension investment earnings will be subject to the same tax rate that applies to super in accumulation phase – a maximum rate of 15%.

Spouse tax offset

From 1 July 2017, the spouse income threshold for the spouse super tax offset will be increased from $10,800. This will allow eligible individuals to receive a tax offset of up to $540 for yearly super contributions of $3,000 or more on behalf of a low-income or non-working spouse, earning less than $37,000.

The offset amount will gradually reduce for spouse incomes above $37,000 and will cut out at $40,000 per annum.

Low income government contribution

From 1 July 2017, the current Low Income Superannuation Contribution will be replaced with a Low Income Superannuation Tax Offset to continue to ensure reduced tax on super contributions for low income earners.

People earning less than $37,000 per annum will benefit from a tax offset of up to $500 per financial year, based on tax paid on concessional contributions. The tax offset will be paid directly to the super fund and the fund will then deposit the amount to the member’s super account.

Anti-Detriment Payment

Currently, any death benefits paid to a spouse, former spouse or child (of any age) of a deceased member include an additional anti-detriment payment. An anti-detriment payment broadly represents a refund of the 15% contributions tax paid by the deceased member during their lifetime.

Anti-detriment payments are not able to be paid for members that die on or after 1 July 2017 or for earlier deaths, if the death benefit is paid after 30 June 2019.

Division 293 (high income) tax

From 1 July 2017, the high income threshold for Division 293 tax will reduce from $300,000 to $250,000 in annual income, beyond which additional tax of 15% is payable on concessional contributions.

For more information on any of these changes, please go to ato.gov.au/superchanges.

If you would like to discuss how these changes may impact your super, simply contact the Nationwide Super team on 1800 025 241.