By Peter Kelly, Retirement Strategies and Solutions Specialist, Centrepoint Alliance. Published 25th July 2016.
Now, that we know the Coalition will be forming government, what does that mean for superannuation?
The Coalition’s superannuation policy was ostensibly announced in their May 2016 budget, let’s recap the top ten key features of their policy and the changes they’re likely to bring.
- Non-concessional contributions (NCC)
Lifetime limit of $500,000 effective from 3 May 2016. The proposed cap will be indexed in $50,000 increments in line with movements in wages. NCCs made since 1 July 2007 will be included but will not give rise to an excess NCC assessment if lifetime cap was exceeded before 3 May 2016. Small business CGT and personal injury caps are likely to remain outside of the lifetime cap. Possible concessions may be applied for members of SMSFs required to make NCCs to support asset purchases contracted before 3 May 2016 that are dependent on a NCC being made, and contributions required for SMSFs with non-bank LRBAs in order to comply with the safe harbour terms.
- Concessional contribution cap (CC)
The present $30,000 and $35,000 CC caps are to be replaced with a single CC cap of $25,000 per annum effective from 1 July 2017. The cap will be indexed to movements in wages, in $5,000 increments. CC caps will also apply to members of defined benefit and constitutionally protected funds.
- Five year concessional contribution (CC) catch-up
People with less than $500,000 in super will be able to carry forward any unused portion of their CC cap for up to five years. This is to commence from 1 July 2017.
- Division 293 tax
The threshold at which Division 293 tax applies is to be reduced from $300,000 to $250,000 from 1 July 2017.
- Low income contributions
The present Low Income Superannuation Contribution is due to cease from 30 June 2017. The Coalition proposes to replace it with a Low Income Superannuation Tax Offset (LISTO) from 1 July 2017. The LISTO provides an amount of up to $500 to compensate people with an income of less than $37,000, for the contributions tax paid on eligible employer contributions.
- Remove 10 per cent rule for personal deductible contributions
The current requirement that less than 10 per cent of assessable income is derived from employment activities in order to be eligible to claim a personal tax deduction is proposed to be removed from 1 July 2017.
- Remove the work test for people aged 65 to 74
With effect from 1 July 2017, people aged between 65 and 74 will no longer be required to meet a work test in order to be able to make superannuation contributions.
- Increase the income threshold for eligible spouse contributions
The current income threshold of $10,800 to qualify for the maximum spouse superannuation tax offset of 18 per cent (up to $540) is to be increased to $37,000 effective from 1 July 2017.
- Pension account limitations
The maximum amount that can be transferred to a pension account will be limited to $1.6m. Amounts in excess of this must remain in an accumulation account or be withdrawn from super. Pension accounts in force as at 1 July 2017 with account balances in excess of $1.6m will need to be reduced to $1.6m by 1 July 2017. The $1.6m cap will be indexed in $100,000 increments. Similar arrangements will be imposed on members of defined benefit and constitutionally protected funds where annual pension income exceeds $100,000.
- Transition to retirement pensions (TTR)
Income of superannuation funds paying pensions under TTR rules will no longer be exempt from tax in the superannuation fund. This is due to apply from 1 July 2017. Additionally, the ability to elect to have income paid from a TTR pension taxed as a lump sum, rather than as income, is to be removed from 1 July 2017.
Currently – it is simply a matter of waiting to see the make-up of the new Senate. The large number of independent crossbenchers that are likely to be elected will make for some very interesting times ahead!