The 2016 Budget - Superannuation Measures
Source: SMSF Association1. Lowering the concessional contribution cap to $25,000 for all individuals.
From 1 July 2017, the Government proposes to lower the concessional contribution cap to $25,000 for all taxpayers.
The existing contribution caps (30,000 for these aged under 50, and $35,000 for those aged above 50) will be retained for 2016-17.2. Allowing catch-up concessional contributions
From 1 July 2017, the Government proposes to allow people with superannuation balances under $500,000 to carry forward unused concessional cap space on a rolling 5-year basis. The Government is introducing this measure to improve flexibility of the concessional contribution regime, making saving for retirement easier for people with broken work patterns.3. Introducing a lifetime cap for non-concessional contributions
From 7.30pm (AEST) last night (3 May 2016) the Government is proposing to introduce a $500,000 lifetime cap on non-concessional contributions (NCCs). The lifetime cap will take into account NCCs made since 1 July 2007. The cap will be indexed in $50,000 amounts in line with wages.
Individuals that have made $500,000 of NCCs will be taken to have used their lifetime cap and will not be able to make further NCCs. NCCs in excess of the new lifetime limit will have to be withdrawn or face a penalty tax, similar to the current treatment of excess NCCs.
The lifetime NCC limit will remove the existing $180,000 annual cap and the bring-forward rule. This will increase the amount of annual NCCs people aged 65 and over can make if they have not used their lifetime cap.4. Lowering the threshold of Division 293 tax
The Government is proposing lowering the Division 293 tax threshold from $300,000 to $250,000 from 1 July 2017.5. Introducing a $1.6 million superannuation transfer balance cap
From 1 July 2017, the Government proposes to introduce a $1.6 million limit on individuals' superannuation balances that can be "transferred" from accumulation phase to retirement phase. Subsequent earnings on retirement balances will not be restricted. Individuals that have amounts in excess of $1.6 million will be able to maintain those amounts in accumulation phase where earnings will be taxed under the current 15% treatment.
Superannuation fund members already in the retirement phase that have balances in excess of $1.6 million will be required to reduce their retirement balances to $1.6 million by 1 July 2017. They will either be able to retain excess amounts in accumulation phase or withdraw them from superannuation.
Amounts transferred in excess of $1.6 million to retirement will be taxed in a similar way to excess non-concessional contributions. That means both the excess amount and earnings on that excess amount in retirement phase will be taxed.
The $1.6 million cap will be indexed in $100,000 increments in line with the consumer price index. Where a member has previously used up a proportion of their retirement balance limit, they will be able to us the remaining proportion of the indexed cap.6. Removing the tax-free treatment of assets supporting transition to retirement income streams
From 1 July 2017, the Government proposes to remove the tax exempt status of assets supporting transition to retirement income streams (TRIS). Instead these assets will be taxed at the 15% rate. This new tax treatment will apply to all TRIS, irrespective of when they were commenced. Additionally, taxpayers will no longer be able to elect to treat TRIS payments as lump sums for tax purposes, which makes them tax-free under the low rate cap.7. Tax deductions for personal superannuation contributions
From 1 July 2017, the Government will allow all Australians aged under 75 to claim an income tax deduction for personal contributions made to superannuation funds. This effectively removes the "10% rule", allowing all members to make personal deductible contributions to super.8. Removal of the work test for those aged 65 to 74
From 1 July 2017, the Government proposes to improve the ability of older Australians to contribute to superannuation by; Removing the requirement that a person aged from 65 to 74 meets a work test before making concessional or non-concessional contributions to superannuation, and; Allow people to make contributions to a spouse aged under 75 without the need for the spouse to meet the work test.9. Introducing a Low Income Superannuation Tax Offset (LISTO)
From 1 July 2017, the Government proposes to introduce the Low Income Superannuation Tax Offset (LISTO) which will replace the existing Low Income Superannuation Contribution (LISC). A non-refundable tax offset will be provided to superannuation funds based on the tax paid on concessional contributions by people with adjusted taxable income up to $37,000.10. Legislating the objective of super
The Government will be legislating the objective of superannuation as 'to provide income in retirement to substitute or supplement the Age Pension' which was the objective recommended by the Financial System Inquiry.11. Remove the anti-detriment provision
From 1 July 2017, the Government proposes to remove the anti-detriment provision on the basis that it is outdated and applies unevenly to superannuation funds.12. Enhancing choice in retirement products
From 1 July 2017, the Government proposes to extend the tax-exemption on earnings in the retirement phase to retirement products such as deferred lifetime annuities and group self-annuitisation products.13. Improve superannuation balances of low income spouses
From 1 July 2017, the Government proposes to extend the eligibility rules for the low income spouse superannuation tax offset by raising the threshold for a low income spouse to $37,000 up from $10,800.