Concessional contributions cap changes
For many clients, super remains a highly tax-effective structure through which to hold investments. However, current contributions caps and the changes taking place in a few weeks mean that planning ahead over the longer term is the best way to maximise the benefits of super.
The Government will reduce the current concessional contribution caps of $30,000 for people under age 50 and $35,000 for people over 50 to a single cap of $25,000 for everyone from 1 July 2017. It is worth remembering that concessional contributions include your employer's compulsory Superannuation Guarantee contributions (SGC), salary sacrifice contributions and any personal contributions for which you claim a tax deduction.
One silver lining is that contributors who do not use all of their $25,000 cap in a year will be able to carry-forward the unused amount for up to five years - to effectively increase their cap in later years. This change will be effective from July 2018 and any unused cap amounts not utilised after 5 years will expire and no longer carry forward.
If you have not already, you should check if your current levels of concessional contributions exceed $25,000 and contact us on 08 9474 2255 to discuss your options.
Personal deductible super contributions
Currently, clients who derive no or less than 10% of their income from sources where they are regarded as an employee, as defined under the extended SG employee definition, may be eligible to claim a tax deduction for their personal super contributions. To qualify, the individual’s assessable income plus reportable fringe benefits (RFB) plus reportable employer super contributions (RESC) from employment must be less than 10% of their total assessable income, RFB, and RESC for that year. From 1 July 2017, the requirement that an individual has to earn less than 10% of their income from employment-related activities to qualify to claim a tax deduction for a personal super contribution is removed. This means that any individual who is eligible to contribute will be able to claim a tax deduction for their personal super contributions.
Non-concessional contributions cap changes
From 1 July 2017, the non-concessional contributions cap will be reduced from the existing cap of $180,000 per year down to $100,000 per year. Non-concessional contributions are those made from after-tax money and are not subject to contributions tax.
In addition, for each financial year, clients will be restricted from making non-concessional contributions if their total superannuation monies (including both accumulation and pension accounts) exceeded $1.6 million at the end of the previous financial year.
You may be eligible to contribute up to three times the cap in a single year (bring it forward rule, therefore potentially a total of $300,000), though you will not be able to make further non-concessional contributions for the next two years.
Note that for any contributions made after their 65th birthday, clients will first need to satisfy the work test to be eligible to contribute to super.
Transition to retirement arrangements
Among the many super reform changes announced by the Federal Government in their 2016 May Federal Budget, the removal of the tax exemption on transition to retirement income streams from 1 July 2017 has attracted a lot of attention.
From the 1 July 2017, the tax exemption on earnings of investments supporting a transition to retirement income stream will no longer be available. This means that earnings on fund assets supporting a transition to retirement after this date will be subject to the same maximum 15% tax rate applicable to an accumulation fund.
In addition, lump sum commutations will no longer count towards the minimum income stream payments (applies to all income streams including transition to retirement income streams).
This change will apply irrespective of when the transition to retirement income stream commenced. Some providers, Like Amp North, will be automatically use the asset value on the 1 July 2017 as the new cost base of assets for account holders who have a transition to retirement strategy. This will effectively reset the capital gains impost for clients minimising any future impact of the changes.
IF you would like to discuss the above please contact us on 08 9474 2255.
Transfer balance cap
The Government has introduced a $1.6 million cap on the total amount of superannuation savings that can be transferred to the tax-free 'pension phase', which is when you cease contributing and begin to draw down an income stream from your superannuation. This applies to all of your pension accounts (excluding transition to retirement accounts) across all superannuation funds. Savings accumulated in excess of the cap can remain in an accumulation account, where earnings will be taxed at a maximum rate of 15 per cent. Action and minutes for impacted clients need to be address before the 30th of June 2017, therefore we have already made contact with all clients affected by this legislative change.
Contributions tax changes
The current income threshold of $300,000 (including both assessable income and concessional superannuation contributions) for which one become liable to pay higher contributions tax of 30 per cent will be reduced to $250,000 from 1 July 2017. This reduction of Division 293 tax threshold means clients earning more than $250,000 will not pay an additional 15% on contributions into superannuation.
The Government will continue the Low Income Superannuation Contribution (LISC) from 1 July 2017 by moving to a Low Income Superannuation Tax Offset (LISTO). The LISTO is available as a refund of contributions tax withheld on the concessional cap of certain low income earners. LISTO is calculated as 15% of the individual’s CCs amount for the year, capped at $500 but with a minimum LISTO of $10 where the client is otherwise eligible. This offset effectively refunds contributions tax for those individuals with an adjusted taxable income up to $37,000, subject to a maximum offset of $500.
From 1 July 2017, persons under the age of 75 will be able to claim an income tax deduction for personal superannuation contributions, subject to the $25,000 concessional contributions cap. Eligibility to claim a deduction had previously been restricted only to self-employed people.
Extension of spouse tax offset
Please note that from 1 July 2017, the maximum tax offset of up to $540 would be available when the receiving spouse’s income is less than $37,000. Above this limit, the maximum tax offset would gradually reduce, before cutting out completely when income exceeds $40,000.
Under current rules a tax offset of up to $540 is available for spouse contributions of $3,000 where the receiving spouse’s assessable income plus RFB and RESC does not exceed $10,800.
The Government will effectively increase the income threshold from $10,800 to $37,000, effective 1 July 2017.