On 1 July 2017, a number of changes will come into effect which may directly affect how you manage your personal super and pension tax arrangements. These include:
New annual limits on before-tax and after-tax contributions to super
The annual cap on concessional (before-tax) contributions will reduce from $30,000 or $35,000 per year (depending on your age), to $25,000 for everyone.
You will also be able to make catch-up contributions from 1 July 2018 if you haven’t paid up to the concessional cap. For example, if you use $20,000 of your $25,000 cap in the 2018-19 financial year, you would have $5,000 left over to carry over into the 2019-20 financial year. You could then make a total contribution of $30,000.
You will only be able to make use of catch-up contributions if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.
The non-concessional (after-tax) contributions cap will also reduce from $180,000 to $100,000 a year.
If you are under age 65 at any time during the financial year, and depending on your total superannuation balance, you may also be able to bring forward up to three additional future years of contributions so you can make a larger one-off non-concessional (after-tax) contribution. This means you can contribute up to $300,000 in a single year; however, you will not be able to make further contributions for at least the next two financial years.
If you have more than one super fund, all non-concessional contributions made to all of your funds are added together and counted towards the non-concessional contributions cap.
Increased maximum income threshold for the spouse tax offset
The spouse’s maximum income threshold for the spouse tax offset will increase from $13,800 to $40,000.
This means you can claim the maximum tax offset of up to $540 for contributions you make to your spouse’s eligible super fund if their assessable income is $40,000 or less.
Spouse contributions make up part of their non-concessional cap. Your spouse’s total super balance will also help determine whether you can claim the tax offset for spouse contributions.
Revised eligibility for co-contributions
To be able to qualify for the government co-contribution, additional requirements will be introduced, such as not exceeding your non-concessional contributions cap. You must also have a total superannuation balance of less than $1.6 million for the 2017–18 financial year.
Replacement of the low income super contribution (LISC)
The LISC will be replaced with the low income super tax offset (LISTO) to allow the refund of contributions tax on concessional contributions if your annual income is less than $37,000.
The LISTO contribution will be equal to 15% of your total concessional (before-tax) super contributions for an income year, capped at $500. This means you’ll pay no tax on your super contributions.
Removal of restrictions to claim a tax deduction for personal contributions
The current eligibility conditions will be removed and allow all members who are eligible to contribute super to choose to claim a tax deduction.
Previously, mainly the self-employed could claim a deduction for personal super contributions where they meet certain conditions. One of these was that less than 10% of their income was from salary and wages.
From 1 July 2017, the 10% maximum earnings condition will be removed.
Removal of anti-detriment provisions for death payments
Super funds will no longer be able to pay a refund of a member’s super contributions tax to eligible beneficiaries after the death of a member from 1 July 2017.
Death benefit payments from Club Plus Super will not include an ‘anti-detriment’ tax deduction for members who die on or after 1 July 2017.
New $1.6 million transfer balance cap
There will be a maximum amount on how much you can transfer from your super to tax-free retirement pensions.
This maximum is known as the ‘transfer balance cap’. The cap relates to the amount you transfer and hold in retirement pensions.
The transfer balance cap will be $1.6 million for the 2017-18 financial year. All retirement pensions commenced before and after 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017.
If you exceed your transfer balance cap, you may have to remove the excess from one or more retirement pensions, and pay extra tax.
Lower income thresholds for additional tax
From 1 July 2017, anyone with income and concessional super contributions, exceeding the $250,000 threshold, will have to pay an additional 15% tax.
Changes to tax payable for transition to retirement pensions
You will have to pay 15% tax on the investment earnings from your transition to retirement pension. Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
You may need advice
If you need more information or help understanding what these changes mean, call us on 1800 680 627. Should you need personal financial advice, we can refer you to Club Plus Financial Planning* for a free initial consultation.
Alternatively, for more detailed information about these changes, go to the ATO website at www.ato.gov.au/Individuals/Super/Super-changes
*Financial advice is available through Club Plus Financial Planning Pty Ltd (Club Plus Financial Planning), ABN 14 143 636 766, who is a Corporate Authorised Representative #367058 of Adviser Network Pty Ltd, ABN 25 056 310 699 (“Licensee”). The Licensee holds a current Australian Financial Services Licence #232729 and is responsible for the financial services provided to you. All Club Plus Financial Planning’s financial advisers are sub authorised representatives of the Licensee.
The information contained in this article is general information only and does not take into account your individual investment objectives, financial circumstances or needs. You should not rely on this information as a substitute for professional advice.