The latest superannuation legislation changes explained
The Government has abandoned its policy to introduce a $500,000 lifetime cap for non-concessional superannuation contributions. However, on 27 September it released draft legislation implementing a number of other changes to superannuation announced in the 2016 Federal Budget.
Included in the latest legislation were amendments relating to:
- Implementing the Government’s $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase
- Lowering the concessional contributions cap to $25,000 per year for all taxpayers
- Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000
- Providing greater flexibility for those with broken work patterns by allowing individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years
- Removing the tax-free treatment of assets that support a transition to retirement income stream
Instead of going forward with its proposed $500,000 lifetime cap on after-tax contributions, the Government has decided to go back to the current rules for after-tax contributions but with a lower annual limit of $100,000.
This will now allow people to:
- Make non-concessional contributions of up to $100,000 per year
- Have the ability to bring forward 3 years worth of contributions to a single year (allowing you to contribute up to $300,000 in a single year).
The ability to make non-concessional contributions will also be limited to people who have an individual superannuation balance of under $1.6 million. In addition, if you are aged 65 or over you need to pass the “work test” to contribute to your super and cannot bring forward contributions to the current year.
Like many of these changes, the change to the annual non-concessional contributions cap will not take effect until 1 July 2017. This means that for the current 2016-17 financial year you can still make non-concessional contributions of up to $180,000. However, it might be sensible to start thinking of how your superannuation will be impacted by these changes now and whether you might need to adjust your investment, contribution, pension and/ or estate planning strategies going forward.
If you have a superannuation balance of over or close to $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now, it is likely that revising your strategies will yield better results in the long term.
How can we help?
If you are concerned that the Government’s changes to superannuation are going to affect you, or you need assistance with any aspect of making after tax contributions to superannuation, please feel free to call (03) 5564 0555 to arrange an appointment so we can discuss your particular requirements in more detail.
Please note: this is factual information. I have not taken any of your objectives, financial situation or needs into consideration, therefore you should not consider this as advice, or act on it in any way.