The government’s announced changes to its proposed superannuation reform legislation – specifically scrapping the proposed $500,000 lifetime non-concessional cap and replacing it with a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year up to a superannuation balance of $1.6 million – has won praise from the Self Managed Super Fund Association (SMSF Association).
SMSF Association Managing Director/CEO Andrea Slattery said an annual cap of $100,000, with a three-year bring-forward of up to $300,000, will give people a better opportunity to save an adequate superannuation balance for retirement than that afforded by the lifetime cap.
“The move to cap NCCs to people who have super balances under $1.6 million is an appropriate compromise in light of the original proposal outlined in the 2016 Budget, with the policy goal of making the system more sustainable and better targeted still intact.
“In addition, the new proposal’s prospective application date is a welcomed move, removing the lifetime cap’s issue of counting contributions back to 1 July 2007.”
Changes to proposed superannuation reforms include the following:
- The $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year.
- Individuals aged under 65 will continue to be able to ‘bring forward’ three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums.
- Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017.
- The Government will now not proceed with the harmonisation of contribution rules for those aged 65 to 74, although Individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation.
- the commencement date of the proposed catch-up concessional superannuation contributions will be deferred by 12 months to 1 July 2018.
Other superannuation reforms, unchanged, include the following:
- From 1 July 2017, the Government will introduce the Low Income Superannuation Tax Offset. Those with an adjusted taxable income up to $37,000 will receive a refund into their superannuation account of the tax paid on their concessional superannuation contributions, up to a cap of $500. In effect, this means that most low income earners will pay no tax on their superannuation contributions.
- From 1 July 2017, the Government will extend the eligibility rules for claiming the tax offset for superannuation contributions partners make to their low income spouses. The current 18 per cent tax offset of up to $540 will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. This is an increase from the current $10,800. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.
- From 1 July 2017, the Government will extend the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products. In addition, the Government will consult on how these new products are treated under the Age Pension means test.
- The Government will remove the tax exempt status of income from assets supporting transition to retirement income streams. Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for tax minimisation purposes.
The Financial Services Council (FSC) also welcomed the Government’s revised proposal on superannuation taxes following constructive and open industry consultation.
Sally Loane, FSC CEO said: “The changes are sensible and will hopefully provide some final clarity to the shakeup of the super rules.
“More than anything, Australians want the Government to settle on a model and not touch it for at least a decade. We need certainty about super rules if we are to maintain and strengthen public trust and confidence in our system.”