A number of amendments have been made to the superannuation reforms that were proposed in the 2016/2017 Budget. These changes are announced on 15 September 2016.
On 7 September 2016 and 27 September 2016, the Government released the exposure draft legislations and regulations tranche one and tranche two. Once legislated, most measures will take effect from 1 July 2017.
Draft super legislation – tranche one 7 September 2016
The first tranche of draft legislation to implement the following superannuation reform measures proposed in the 2016/2017 Budget was released for consultation:
- Legislating the objective of superannuation. The primary objective of the superannuation system is “to provide income in retirement to substitute or supplement the Age Pension”.
- Removing the “10 per cent test” used to determine eligibility to claim a tax deduction for personal superannuation contributions
- Removing the work test for those aged 65-74 (however the Government made a later announcement not to proceed with this measure)
- Increasing the income thresholds used to determine eligibility for the spouse contribution tax offset. Currently, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouses with income up to $10,800. The eligibility is extended to recipient spouses earning up to $40,000. There are no changes to the current aged based contributions rules. The spouse receiving the contribution must be under age 70 and meet a work test if they are aged between 65 to 69.
- Introducing the Low Income Superannuation Tax Offset (LISTO) to replace Low Income Superannuation Contribution. The LISTO effectively refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 – up to a cap of $500.
Three changes announced on 15 September 2016
- Replace the proposed $500,000 lifetime non-concessional contributions cap with lower annual caps for non-concessional contributions, only available to people with balances less than $1.6 million. The non-concessional contributions (NCC) cap is reduced to $100,000 from 1 July 2017. Transitional rules will apply for those who have, or will, trigger the bring-forward provisions in 2015/2016 or 2016/2017. For example, where the non-concessional contribution bring forward was triggered in 2015-2016, the transitional cap will be $460,000 (the annual cap of $180,000 from 2015-2016 and 2016-2017 and the $100,000 cap in 2017-2018).
- Defer commencement of the proposed carry-forward of unused concessional contributions until 1 July 2018. From 1 July 2018, individuals with account balances of $500,000 or less can rollover their unused concessional caps (for up to 5 years) to use if they have the capacity and choose to do so.
- Not proceed with measures to increase the flexibility for contributions for people aged 65-74
Draft super legislation – tranche two 27 September 2016
The second tranche of draft legislation to implement the following superannuation reforms proposed in the 2016/17 Budget has been released for consultation:
- Introducing a $1.6 million cap (transfer balance cap) on the amount that can be transferred to a pension account
- Reducing the concessional contributions cap to $25,000 and allowing those with less than $500,000 in super to carry forward any unused concessional contributions cap for 5 years
- Reducing the income threshold for Division 293 tax from $300,000 to $250,000
- Removing the earnings tax exemption for transition to retirement income streams. These earnings will be taxed at 15%. Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.
- Repealing the anti-detriment on death benefits for those who pass away on or after 1 July 2017 and for those who passed away prior to 1 July 2017 where the death benefit wasn’t paid until on or after 1 July 2019