In May last year, the government proposed changes to super as part of the 2016/17 Federal Budget. These changes have now successfully passed through both houses of parliament and most will come into effect from 1 July 2017.
Your super is a very important tool for building your retirement savings and achieving your lifestyle goals in the future. So it’s important that you stay on top of any changes and understand their impacts on your super.
This page has information you need to understand what the changes are, how they affect you and what you can do if you are impacted.
What are the changes?
Understanding the upcoming changes doesn’t have to be daunting. To help you prepare for the 1 July 2017 changes to super, we’ve broken them up to help you work out if they apply to you.
Do you make voluntary personal (after-tax) contributions into super?
Do you want to make personal before-tax contributions but your employer doesn’t offer salary sacrifice?
Do you make concessional (before-tax) contribution into super?
Do you or your spouse earn less than $40k each year?
Do you (or will you) have a Transition to Retirement or retirement account (account-based pension)?
Do you have combined income and concessional super contributions of more than $250,000 each financial year?
Are you a beneficiary of a superannuation death benefit?
Are you a working holiday maker (visa type 417 and 462)?
Have more questions or need help?
If you think you might be impacted, or would like to find out more about these changes, our team at REST is here to help you.
You can contact us online at rest.com.au or call us on 1300 300 778 between 8 am – 8 pm weekdays. You can also chat to us via Live Chat at rest.com.au weekdays 8 am – 10 pm and Saturday 9 am – 6 pm.
Total Superannuation balance2 is a new term that will assist you in working out your eligibility for:
- voluntary personal (after-tax) contributions and the two or three year bring forward period
- the government co-contribution
- the tax offset for spouse contributions
- the unused concessional (before-tax) contributions cap carry forward.
Your total superannuation balance is calculated by the total sum of:
- accumulation phase superannuation interests (in any superannuation fund), including Transition to Retirement (TTR) and deferred income streams
- rollovers in transit between superannuation funds not already reflected in your accumulation phase accounts
- transfer balance account reflecting the current value of account based income streams
less any structured settlement contributions. These are payments received as part of a personal injury claim (usually through a court settlement) and must be contributed to your super within set timeframes.
From 1 July 2017, the maximum amount of after-tax contributions you can make into super will reduce down from $180,000 to $100,000 per year (this is called the non-concessional contributions cap).
Non-concessional contributions include personal contributions (for which you don’t claim a tax deduction) and spouse contributions. If you’re aged between 65 and 74 years old, you must satisfy the work test1 to be eligible to make non-concessional contributions. However, under the new rules if your super balance exceeds the total superannuation balance of $1.6 million, you’ll no longer be able to make non-concessional contributions or receive the Government co-contribution.
The existing bring-forward rule, which allows you to add the equivalent of three years after-tax contributions into your super in one year (by bringing forward your future cap) still remains, which means that the maximum after-tax contribution you can make into super in one year is $300,000. If you contribute the whole $300,000 in one year, you won’t be able to make any more after-tax contributions for the next two financial years. It’s important to note that you must be under the age of 65 to use the bring-forward rule.
Please visit the Australian Tax Office (ATO) website for more information on the bring-forward rule.
Other important information you should know about this change
If you’ve already triggered the ‘bring-forward’ rule but haven’t used the full amount before 1 July 2017, transitional arrangements will apply. Your ‘bring forward’ amount will reduce to reflect the new cap, provided your total superannuation balance2 is under $1.6 million. For more information about the transitional caps go to rest.com.au/facts
Currently, only a self-employed or substantially self-employed person can claim a tax deduction on their personal super contributions. This gives them the advantage of paying the concessional tax rate of 15% on their super contribution rather than their marginal tax rate outside of super.
From 1 July 2017, if you’re under the age of 65, or aged 65 to 74 and meet the Work test 1, you may be able to claim a full tax deduction on personal (after-tax) contributions. This essentially means that your after-tax contribution can end up enjoying the same advantage as a before-tax contribution.
It’s worth noting that there will still be some restrictions, for example, for members under 18 years old, or over the age of 75. Please make sure you understand these restrictions before making a contribution.
These contributions will be treated as concessional contribution and therefore the concessional cap of $25,000 per year will apply.
How does it work?
To help you understand this change, here is an example (assuming you meet the eligibility criteria above):
- It’s after 1 July 2017 and you decide to make a personal (after-tax) contribution of $1,000 to your super
- Before the end of the financial year, you submit a ‘Notice of Intent to Claim a Tax Deduction’ form to REST. We will then take out 15% contribution tax
- Then, when you complete your tax return, you can claim a full deduction on the whole $1,000 personal contribution.
In other words, after the full deduction, you will only end up paying the 15% concessional tax rate on your personal contribution (which will change to a concessional contribution).
Claiming the tax deduction is not for everyone, so please make sure you do your research, consult your accountant, or get advice. REST Advice is all about helping you make good decisions with your super and provides access to calculators, seminars and online advice tools.
Concessional contributions are when money is added to your super before-tax has been paid on the contribution amount (this includes Superannuation Guarantee (SG) and salary sacrifice contributions).
Currently, you can add up to $30,000 each year of before-tax contributions into super if you are under the age of 50 or $35,000 each year if you are 50 or over. However, from 1 July 2017, the amount of before-tax contributions you can add into super will reduce to $25,000 each year.
What does this mean for you?
If you want to make a before-tax super contribution up to the current maximum, you will need to get in quick before the cap reduces to $25,000 on 1 July 2017.
This change actually comes into effect from 1 July 2018 – but it’s worth keeping it in mind.
From 1 July 2018, if you have a total superannuation balance of less than $500,000, the government will let you make ‘catch up’ contributions by carrying forward any unused concessional (before-tax) contributions cap. You’ll be able to access your unused cap on a rolling basis for a five year period.
The ‘catch up’ contributions will provide more flexibility for people who have taken some time out of the workforce in the past and have now returned to work to boost their super to make up for that time when they can afford to.
A good way to understand this is to imagine rolling over any unused data on your mobile phone plan so that you have more time to use it.
At the moment, if your spouse earns under $10,800 each year and you make an after-tax contribution into their super, you’ll receive an 18% tax offset for contributions up to $3,000 per year.
From 1 July 2017, if your spouse earns less than $37,000 (up from $10,800 pa) each year and you make a voluntary contribution into their super, you may be eligible to receive up to a maximum 18% tax offset on that contribution. The maximum offset of $540 is based on a $3,000 contribution per year. The offset will phase out for spouses earning over $40,000 per year.
This change offers a fantastic opportunity to boost your spouse’s super and help them build a brighter future for your family.
From 1 July 2017, LISTO will replace LISC and provide a super boost of up to $500 per year if you earn less than $37,000 per year.
The LISTO super boost is a refund of the contribution tax paid on before-tax contributions made into your super. This move is an important budget measure to help low income earners boost their super.
From 1 July 2017, investment earnings in TTR accounts will no longer be tax-exempt, regardless of when the account was opened. This means that the investment earnings on your TTR account will be taxed the same as investment earnings in super, at a rate of up to 15%.
From 1 July 2017, both TTR and retirement account members will no longer be able to have pension payments treated as a lump sums, or count lump sums towards their annual minimum. This may affect you if you are under 60 years old and have reached your preservation age.
Why has this change been introduced?
This change is designed to ensure that TTR income streams are used primarily to help those who are still working but are transitioning into retirement and not for tax minimisation purposes.
From 1 July 2017, there will be a lifetime transfer balance cap on money that can enter the retirement phase (such as account based pensions and annuities). The transfer balance cap applies to the total amount transferred from the accumulation (super) into the retirement phase and has initially been set at $1.6 million. It will be periodically indexed with Consumer Price Index (CPI) in $100,000 increments (this only applies to the unused portion of the cap). If you’re already in retirement phase, you will need to make sure you don’t breach this cap.
If you breach the cap, you may have to pay additional tax. Modified rules will also apply to death, reversionary, invalidity and non-member spouse pensions, and special rules apply for defined benefit pensions.
The transfer balance cap does not apply to TTR accounts as long as you haven’t met a nil cashing restriction^.
What does this mean for you?
If you are an existing retiree with a pension balance over $1.6 million, you’ll need to transfer the excess back into an accumulation phase account such as REST Super or withdraw the excess amount from your pension.
If you have combined income and concessional superannuation contributions of more than $250,000 each financial year, you may now have to pay an additional 15% tax on amounts over this threshold. The additional 15% tax will be applied to the lesser of the excess combined income over the threshold or concessional contributions. Different rules apply to defined benefit fund members. For more information visit the ATO website.
Currently, if a REST member dies and their eligible beneficiary receives a lump sum death payment from REST, the beneficiary will receive a refund of contributions tax paid by the member on their super contributions during their lifetime. This is known as an anti-detriment payment. This provision will be removed for anyone who passes away from 1 July 2017.
However if a member passed away before 1 July 2017 and their beneficiary was eligible for an anti-detriment payment, the death benefit must be paid to the beneficiary before 1 July 2019 to receive the payment.
The rate of tax on DASPs, which allow working holiday makers to withdraw their super balances when they permanently leave Australia, will increase to a flat rate of 65% on the taxed element (up from 38%).