Australia:
Superannuation slammed and carved up in budget – the reform cycle continues
04 May 2016
Corrs Chambers Westgarth
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Sweeping superannuation changes that will significantly
impact industry and all superannuants have been announced by the
Federal Government in its 2016/2017 Budget under the mantra of a
new purpose for superannuation – "to provide income in
retirement to substitute or supplement the Age
Pension".
Industry reaction has been swift and relatively consistent. The
reforms are the most significant we have seen in terms of
superannuation and tax since the so-called Simpler Super changes in
2007.
Despite the Government's pre-election commitment to not
introduce any adverse changes to superannuation in this term of
Parliament, there are many who will be disappointed with the
Government's cuts to the concessional contributions cap and the
introduction of a lifetime cap for non-concessional
contributions.
Service providers and industry participants will be justifiably
concerned with the complexity associated with measures seeking to
limit retirement balances in super to $1.6 million. Coupled with
other aspects of the proposed superannuation reforms, these
measures will mean investors may need to look elsewhere to house
their money.
It remains to be seen what impact the proposals will have on the
Government's retirement income strategy and reliance on the Age
Pension. What is certain is that the reform cycle for
superannuation will continue in earnest and confidence in the
system will continue to dive.
The table below (and attached by clicking download at the top of
this article) provides a high level summary of the major
superannuation and regulator reforms announced in the Budget. If
you have any queries about how these changes impact you, please
contact a member of our team.
SNAPSHOT
Amendment |
Need to know |
What's new: |
1 |
Maximum $1.6 million balance for retirement accounts from 1 July
2017 (ie those in the payment phase cycle).
Read more:
Budget Paper No 2 at pages 25-26
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 2
|
- Any excess above must be retained in an accumulation account
where it will continue to be taxed at a 15% rate.
- The maximum cap applies to existing accounts as well. The
excess over $1.6 million must be transferred back to an
accumulation account or withdrawn.
- Similar measures will apply for defined benefit schemes.
|
2
|
Lifetime cap of $500,000 on non-concessional contributions. The
cap will commence from 7.30 pm on 3 May 2016.
Read more:
Budget Paper No 2 at page 27
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 4
|
- The existing cap of $180,000 per year or $540,000 every 3 years
is being removed.
- The cap is retrospective and will include all non-concessional
contributions made after 1 July 2007.
- Exceeding the cap will trigger penalty tax, although anyone who
has already exceeded the cap is exempt (unless new contributions
are made in breach of the cap).
|
3
|
"Catch up" for account balances less than $500,000
from 1 July 2017.
Read more:
Budget Paper No 2 at page 24
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 8
|
- The unused portion of each year's concessional contribution
limit can now be carried forward.
- The cap is carried forward on a rolling basis for a consecutive
period of 5 years.
|
4
|
Tax exemption extended for retirement income products.
Read more:
Treasurer's media release, 3 May 2016
Superannuation fact sheet 11
|
- The tax exemption on earnings in retirement phase will be
extended.
- This should enable the development of deferred lifetime
annuities and group self-annuitisation products.
|
What's being tinkered with:
|
5
|
Annual cap of $25,000 on concessional contributions from 1 July
2017.
Read more:
Budget Paper No 2 at pages 28-29
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 3
|
- The existing cap of $30,000 or $35,000 (depending on age) will
be removed.
- A $25,000 cap applies to all individuals regardless of
age.
- Penalty tax for excess concessional contributions will
continue.
|
6
|
Division 293 tax commences from $250,000 threshold.
Read more:
Budget Paper No 2 at pages 28-29
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 3
|
- The existing $300,000 threshold is being lowered.
- Division 293 tax effectively doubles the contributions tax rate
on concessional contributions.
- The special definition of income for the purpose of Division
293 tax can result in those with incomes lower than $250,000 being
caught.
|
7
|
Changed tax treatment for transition to retirement pensions from
1 July 2017.
Read more:
Budget Paper No 2 at page 3
Superannuation fact sheet 12
|
- Earnings on assets supporting a transition to retirement
pension will be taxed at 15%, instead of 0%.
- All existing transition to retirement pensions are
affected.
|
8
|
Low income super tax offset to be introduced. Read
more:
Budget Paper No 2 at page 28
Superannuation fact sheet 6
|
- The new offset replaces the existing Low Income Superannuation
Contribution.
- The offset is being paid to super funds and applies to members
with an adjusted taxable income of $37,000.
|
9
|
Low income spouse super tax offset to be extended.
Read more:
Budget Paper No 2 at page 25
Superannuation fact sheet 10
|
- A new method for calculating the offset enables limited
contributions on behalf of a spouse where their salary exceeds
$37,000.
- Effectively the value of the offset reduces to zero after the
spouse's income exceeds $40,000.
|
10
|
Work test for contributions to be removed for age 65 to 74.
Read more:
Budget Paper No 2 at pages 24-25
Treasurer's press release, 3 May 2016
Budget Superannuation Fact Sheet 9
|
- Those under the age of 75 will no longer have to satisfy a work
test.
|
11
|
Tax deductions for personal superannuation contributions
extended from 1 July 2017.
Read more:
Budget Paper No 2 at page 28
Superannuation fact sheet 7
|
- All individuals up to age 75 will be able to claim an income
tax deduction for personal contributions.
|
12
|
Anti-detriment deduction to be removed for super benefits from 1
July 2017. Read more:
Budget Paper No 2 at page 29
Treasurer's press release, 3 May 2016
|
- The purpose of the reform is to align the treatment of lump sum
death benefits across all superannuation funds and the treatment of
bequests outside superannuation.
|
New regulator funding – who gets
what?
|
13
|
APRA.
Read more:
Budget Paper No 2 at pages 172
|
- Additional $9.7 million over 3 years for data collection and
dissemination systems and $11.2 million for maintaining those
systems.
- Supervisory levies to be increased from 2016/17 to pay for the
above.
|
14
|
ASIC.
Read more:
Budget Paper No 2 at pages 148-149 and 172
|
- $121.3 million over 4 years for surveillance and enforcement
activities in financial services. A particular focus for the money
is on financial advice, responsible lending, life insurance, breach
reporting and data analytics. Commentators have acknowledged that
this is effectively a reinstatement of cuts to ASIC's budgets
in previous years.
- $6.2 million in 2016/17 to support the commencement of the
industry funding model for ASIC. The money is marked for developing
a levy calculator and improving internal billing and time recording
systems.
- Provision of $144.5 million over 3 years from 2017/18 pending
the development of industry charging arrangements for ASIC has been
made.
|
15
|
Superannuation Complaints Tribunal (previously announced on 20
April 2016).
Read more:
Budget Paper No 2 at page 153
|
- $5.2 million for hearing existing complaints and improving
internal funding.
|
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
|
|
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