Changes to super will significantly reduce tax concessions available to high income earners.
Catch Up Concessional Contributions
From 1 July 2017, individuals with a superannuation balance less than $500,000 will be entitled to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
Under the proposed new rules, “unused cap amounts” which accrue from 1 July 2017 will be carried forward on a rolling basis for a period of five consecutive years.
The new measures are intended to benefit people with interrupted work patterns — for example women or carers — who are subject to annual concessional caps under existing rules and therefore cannot accumulate superannuation balances at the same rate as those with continuous employment. Such qualifying individuals may now access their “unused cap amounts” if they choose to do so.
The new measures will also apply to members of defined benefit schemes and the Government intends to undertake consultation to minimise additional compliance impacts for these schemes.
$1.6 million superannuation transfer balance cap
From 1 July 2017, the Government will introduce a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the retirement phase. The purpose of the proposed transfer balance cap is to restrict the availability of the tax-free benefits of retirement phrase accounts for high wealth individuals and therefore improve the overall sustainability and fairness in the superannuation system. Subsequent earnings on these balances will not be restricted.
Where an individual accumulates amounts in excess of the $1.6 million cap, the individual will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15 per cent). Members currently in the retirement phase whose balances exceed $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.
Where amounts are transferred in excess of $1.6 million, they will be subject to tax on both the excess amount the earnings on such amount. This measure is similar to the tax treatment that applies to excess non-concessional contributions.
The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment.
From 1 July 20120, changes will be made to the tax arrangements for pension amounts over $100,000 to ensure corresponding treatment for members of defined benefit schemes.
Lifetime cap for non-concessional superannuation contributions
A new $500,000 lifetime non-concessional contributions cap will commence at 7.30 pm (AEST) on 3 May 2016. The new cap will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).
In determining whether the cap is met, The all non-concessional contributions made on or after 1 July 2007 will be counted..
Although contributions made before commencement cannot result in an excess, excess contributions which are made after commencement will be subject to a penalty tax if not removed.
The Government expects that the new lifetime cap should not affect the majority of Australians, who make non-concessional contributions well below $500,000, and, since it will available to Australians up to the age of 74, will provide increased flexibility around the time of making contributions.
After-tax contributions made into defined benefit accounts and constitutionally protected funds will count towards an individual’s lifetime non-concessional cap. If a member of a defined benefit fund exceeds their lifetime cap, the member can continue to make ongoing contributions to the defined benefit account but the member will be required to remove, on an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold (capped at the amount non-concessional contributions made into those accounts since 1 July 2007). It is proposed that contributions to a defined benefit account will not be required to be removed. The Government has indicated that it will consult to ensure broadly corresponding treatment of individuals for whom no amount of post 1 July 2007 non-concessional contributions are available to be removed.
Reforming the taxation of concessional superannuation contributions
Currently, individuals who exceed the high income threshold of $300,000 are liable to pay additional contributions tax of 15% on their “low tax contributions”. From 1 July 2017, the Government will reduce the high income threshold to $250,000.
The new $250,000 threshold will also apply to members of defined benefit schemes and constitutionally protected funds currently covered by the tax. Additionally, there will be no change to existing exemptions e.g. State higher level office holders and Commonwealth judge)
The Government will also reduce the annual cap on concessional superannuation contributions to $25,000 from $30,000, for those under age 50, and $35,000, for ages 50 and over.
From 1 July 2017, the Government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds. The Government will ensure that members of these funds will have the same opportunities to salary sacrifice as those of accumulation funds. The existing grandfathering arrangements will continue to apply to For individuals who were members of a funded defined benefit scheme as at 12 May 2009.
For a full analysis of this year's Budget measures, please see Australian Federal