Federal Budget 2016-17

The retention of LISC – renamed Low Income Superannuation Tax Offset

The Government is proposing to continue to support Australians earning $37,000 or less per year by replacing the Low Income Superannuation contribution (LISC) when it expires on 30 June 2017 with the Low Income Superannuation Tax Offset (LISTO). This is a benefit of up to $500 per year.

This measure is an important step to help low-income earners achieve the lifestyle they want at the end of their working career.

Making it easier for couples to save for their retirement by extending the spouse tax offset

The Government is proposing to extend the spouse tax offset from 1 July 2017. This is a tax offset you receive when you contribute to your spouse's superannuation account and your spouse is a low income earner.

The Government is extending this threshold up to $37,000 per year. This means if your spouse earns up to $37,000 and you contribute to your spouse's super account you will receive 18% of that contribution back as a tax offset to a maximum of $540 per year. The offset completely phases out when your spouse earns $40,000 per year.

Cuts to concessional caps

The Government is proposing to lower the maximum amount of concessional contributions to superannuation in a financial year. Currently, the maximum amount is $30,000 per annum for those aged 49 and below or $35,000 per annum for those aged 50 and over. The Budget proposes that the maximum amount is lowered to $25,000 per financial year from 1 July 2017.

This proposal will impact you if you are currently contributing up to the concessional cap of either $30,000 or $35,000 per year depending on your age.

Greater flexibility in concessional contributions

If you have a super balance of $500,000 or less the Government is proposing to allow unused concessional caps to be rolled over for up to five years. This means that from 1 July 2017 if your concessional contributions for one financial year are less than $25,000, you could make up the difference over a five year period. This provides you with greater flexibility to contribute more into your super when you are able to do so. Amounts carried forward that have not been used after five years will expire.

Introducing a $500,000 lifetime cap on non-concessional contributions

The Government proposes to immediately introduce a $500,000 lifetime cap on after-tax contributions. Non-concessional contributions made from 1 July 2007 will be counted against the cap. This replaces annual non-concessional caps.

If an individual has exceeded the cap prior to commencement they will be taken to have used up the lifetime cap but will not be required to take the excess out of the superannuation system.

Improving access to concessional contributions

From 1 July 2017, the Government will allow all Australians under 75 to claim an income tax deduction for any personal contribution into an eligible superannuation fund. These amounts will count towards your concessional contributions cap, and be subject to 15% contributions tax.

For many members this may be beneficial if your employer does not currently provide salary sacrifice arrangements.

For many members on a low income, there may be greater benefit in making an after-tax voluntary contribution and receiving the Government co-contribution of up to $500 per year, if eligible, rather than claiming a tax deduction for these contributions.

Tax changes to Transition to Retirement arrangements

Under the existing arrangements you can start a Transition to Retirement (TTR) account based pension when you reach 56 years old. Currently, you can draw up to 10% of the total amount in your TTR pension as income each financial year. This can help supplement your income while you reduce your working hours in the lead up to your retirement. Alternatively, you can continue working full-time and salary sacrifice more money than you take out of your TTR to boost your super as you draw nearer to retirement without impacting your take home pay.

The Government is proposing that from 1 July 2017 TTR accounts no longer attract a tax exemption on investment earnings. This change will apply irrespective of when the retirement income stream commenced. This means they will be taxed the same as superannuation investment earnings, at a rate of up to 15% per year.

The Government is also proposing that income payments from TTR accounts are to be treated as pension income stream payments and are taxed at your marginal tax rate less 15% if you are aged between 55 and 60.

These proposed measures are designed to ensure that TTR accounts are used primarily to help those transitioning to retirement and not for tax minimisation.

Lowering the threshold for tax concessions on super contributions from $300,000 to $250,000

From 1 July 2017, the Government proposes that anyone with combined income and concessional superannuation contributions of more than $250,000 each financial year will now pay 30% (as opposed to 15%) tax on their superannuation contributions each financial year.

This will also apply to defined benefit funds.

Enhancing choice in retirement income products

From 1 July 2017, the Government proposes to extend the tax exemption on earnings to deferred lifetime annuities and other annuity products.

This issue was highlighted in both the Financial System Inquiry and Retirement Income Streams Review which recommended that barriers to new product development be removed.

Rest will consider these updates in an ongoing review of our product offerings.

$1.6 million maximum transfer into pension phase

From 1 July 2017, the Government proposes to introduce a $1.6 million cap on the total amount of superannuation savings that can be transferred into a pension.

If you are retired and have a pension with a balance greater than $1.6 million you will need to transfer the excess back into a superannuation account or withdraw the excess amount from your super by 30 June 2017.

Depending on your investment choices the tax on your superannuation account could be lower than 15%. Members should seek financial advice to explore their options.

Removal of the Work Requirement - and impacts on persons aged 65-74

Currently in order to make voluntary contributions to your super if you are aged over 65 it is necessary to meet a work test. This test means that you have to prove that you have worked for at least 40 hours over 30 consecutive days in the same financial year. The Government is proposing to remove this test.

In addition, the Government is proposing to allow you to make contributions to a spouse aged under 75 without the need for your spouse to meet a work test.

This is a benefit to members and removes a significant administrative burden for businesses and superannuation funds.

Proposal to remove 'anti detriment' payments for death benefits

Currently dependant beneficiaries, normally a spouse or a child, who receive a superannuation lump sum as a result of the passing of a loved one, may receive an additional refund of tax paid. From 1 July 2017, it is proposed to remove this additional refund.

Impacts for defined benefits members

Many of these changes may impact you if you’re in a defined benefit accounts. It will take some time for the full implications to be known. Rest will provide further information shortly.

Reduction in corporate tax rates from 1 July 2016

From 1 July 2016, the Government is proposing to reduce the company tax rate to 27.5% for businesses with an aggregated annual turnover of less than $10 million. The turnover level will be progressively increased to $100 million by 2019-20.
Turnover Threshold
Proposed Effective Date
$10 million
1 July, 2016
$25 million
1 July, 2017
$50 million
1 July, 2018
$100 million
1 July, 2019
The Government further proposes to reduce the company tax rate to 25% for all businesses over the next 10 years.

Rest members and financial advice

If you don't already have a financial adviser, Rest can put you in touch with Money Solutions^.

A specialist in industry super funds, Money Solutions^ is a team of licensed financial advisers who can tailor superannuation advice to your needs. They can also assist you with reviewing your financial options on how to save on tax, maximise your super and choose the right investment option.

As a valued member of Rest or Acumen, we will pay for your first super related question over the phone from Money Solutions^. Any additional expense will be charged back to you and can be deducted from your Rest account if the advice relates to super or retirement.

Money Solutions^ does not receive commission – so you can feel confident that the advice is given with your interests in mind.

^ Money Solutions Pty Ltd ABN  36 105 811 836 AFSL 258145. Money Solutions staff are not Rest Trustee representatives. Financial product advice given by Money Solutions is provided under their own AFSL. The Rest Trustee does not accept liability for any loss or damage incurred by anyone as a result of using Money Solutions products or services.