Federal Budget 2016 – Superannuation Implications

The 2016 Federal Budget, delivered on May 3rd by Treasurer Scott Morrison, included a number of significant changes to the superannuation and pensions arrangements.  As such, detailed below a brief summary of these significant changes that may impact on you.

CONTRIBUTIONS

• From 1 July 2017 concessional contributions will be limited to $25,000 per annum for everyone irrespective of age. For the years ending 30 June 2016 and 30 June 2017 you are still able to contribute $35,000 if you are aged 49 at the commencement of the income year and $30,000 for all others.

• From 1 July 2017 there will no longer be a requirement to satisfy the work test for people aged 65 or over. Accordingly you can continue to contribute to super without restriction up until the age of 75. Please note that the work test restrictions are still in force for the 2016 and 2017 financial years.

• From 1 July 2017 you will be able to make concessional contributions to superannuation in addition to those made by your employer and claim those in your tax return. This was previously not possible as there was a restriction that limited your ability to claim a tax deduction where you received more than 10% of your income from salary and wages. This restriction is to be abolished from 1 July 2017

• From 1 July 2017 you will be able to accrue your concessional contributions to super. This will mean that if you did not contribute the full amount of the cap ($25,000) in one year you will be able to carry forward the shortfall to subsequent years. This will only apply however to members with balances less than $500,000. Furthermore it will only apply to contributions made from 1 July 2017. Shortfalls in previous years will be excluded from the new law

• From 1 July 2017 the threshold for the extra 15% tax on contributions will be lowered from $300,000 to $250,000

• Effective immediately there will be a cap on non-concessional contributions to superannuation. The cap is a life-time cap of $500,000. This will apply to all non-concessional contributions made by a member from 1 July 2007. If the member has already made non concessional contributions from 1 July 2007 to 3 May 2016 that exceed the $500,000 cap there will be no penalty. However the member will be unable to contribute any further non concessional amounts. This also mean that the ability to implement a re-contributions strategy will be significantly impeded

PENSIONS

• From 1 July 2017 If you have in a transition to retirement pension the earnings in relation to the assets backing this pension will no longer be tax free in the fund. The earning will be taxed at 15% (CGT at 10%)

• From 1 July 2017 the maximum amount that a member can have in pension phase will be $1.6m. Any other balance will be returned to accumulation phase and accordingly earnings thereon will be taxed at 15% (CGT at 10%). Balances will need to be reduced by 1 July 2017. It is our understanding that any fluctuations in the balance after 1 July 2017 will be ignored

As you can see there have been significant changes to super announced and it may take a little while to absorb how these may impact on you.

Please feel free to contact us with any queries you may have on these or any other budgetary measures.