Superannuation Budget Highlights:
- A tax free retirement balance cap of $1.6m
- Removal of tax exemption on earnings supporting a Transition to Retirement Pension
- Lifetime Cap on Non-Concessional Contributions of $500,000
- Many Concessional Contribution changes
Tax Free Retirement Balance Cap
From 1/7/17 a tax free retirement balance cap will be introduced of $1.6m. This impacts on past and future pensions. Existing pension balances will need to be reduced to below $1.6m by 1/7/17. Any amount exceeding the cap that is put into pension phase will attract a penalty tax similar to excess contributions tax. Any amount exceeding $1.6m can be kept in the superannuation environment but the earnings will be taxed at 15%. If the earnings on a pension balance push the balance past $1.6m, the earnings will remain exempt from tax.
Removal of Tax Exemption on Earnings Supporting a Transition to Retirement Pension
From 1/7/17 earnings on transition to retirement pensions will be taxed as if they are not in pension phase (at 15%). A transition to retirement pension is a pension commenced by a person under 65 who is still working. These types of pensions are often used to save tax by salary sacrificing wages into super and then taking a pension from the Super Fund to replace those wages in the employee's hands. This leaves the person with the same amount of money in their hands plus a tax saving by paying tax on the salary sacrificed amount of 15% rather than their individual tax rates,
Lifetime Cap on Non-Concessional Contributions
This is another change with retrospective impacts but the only change that has immediate effect. From 3/5/16 a lifetime non-concessional (after tax) contribution cap of $500,000 will apply, replacing the existing non-concessional caps (which was $180,000 per year). The cap will take into account all contributions since 1/7/2007. If you have made more than $500,000 in non-concessional contributions since 1/7/2007, you will not be able to make any further non-concessional contributions in your lifetime. If you have made less than $500,000 in non-concessional contributions since 1/7/2007 you will only be able to contribute the difference between what you have contributed and $500,000 for the rest of your life. Any amounts exceeding the cap will be subject to penalty tax although amounts that exceeded the cap prior to 3/5/2016 will not be penalised.
Concessional Contribution Changes
Various changes were made increasing flexibility in making concessional contributions but also reducing the amount that can be contributed. For further details see this link: Budget 2016/17 - How does it affect me?
It should be noted that all changes above are dependent on legislation being passed by parliament to approve the changes.
Advice should be sought before taking action on any of the above. If you have any questions about the above please contact us.