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2016 Federal Budget update

Update to announcements affecting superannuation—25 November 2016

Amendments to the package of superannuation reforms announced on 16 September were passed by the Senate on 23 November. This means that the superannuation reforms initially put forward as part of the May 2016 budget have now passed both Houses, and will come into effect on July 1, 2017.  

The key changes put forward as part of the September amendment are to:

  • replace the lifetime non concessional contributions cap with lower annual caps for non concessional contributions, only available to people with account balances less than $1.6 million;
  • defer commencement of carry forward arrangements for concessional contributions; and
  • not proceed with measures to increase the flexibility for contributions for people aged 65 to 74.

You can learn more about this recent announcement here

Further information on the Government’s superannuation changes is also available.

We will shortly provide additional information about these changes and how these above changes may apply to CSS members.

While CSC has scheme specific information relating to your current contributions and benefits, to understand your full personal situation in relation to concessional, non-concessional and any pension it is recommended you contact the ATO directly. The ATO aggregates information from all superannuation providers and holds a more complete picture of concessional, non-concessional and total amounts currently held in pension (drawdown phase) accounts.

Please note the recent announcement did not make reference to any of the proposed budget changes or how they would specifically apply to Defined Benefit schemes. Clarity is still being sought on a number of items relating to these changes. However, the impact of these latest amendments will also need to be assessed to determine how they may impact Defined Benefit scheme members.

Keep your contact details up to date

As more detail becomes available we will keep you updated. It is recommended that you ensure your email address is up to date to ensure we can contact you regarding any impacts to your account/ benefit.

1. Be aware of your concessional and non-concessional contribution amounts

Concessional contributions include those contributions made by your employer, salary sacrificed amounts and/or personal tax deductible contributions (if you’re self-employed) you may have made to ALL superannuation funds.

If you’ve made any large after-tax (non-concessional) contributions since 1 July 2007, you should review your records to understand how you may be placed if a lifetime cap were to apply. The Australian Tax Office can calculate the total of these contributions on request. As noted above, you can request this contribution cap information directly from the ATO.

2. Review your long term financial plan

It’s worth reviewing your financial plan to ensure you’re prepared in case any of these changes apply to you.

3. Check your life insurance cover

Review your current levels of insurance cover as certain tax refunds to super accounts relating to death benefits (anti-detriment payments) may end from 1 July 2017.

4. Consolidate your super

Where feasible, having your super in one account will make it easier to take the steps above and ensure you’re minimising your costs. We can help contributing members with this – simply complete theTransfers form and send it back to us. We will take care of it for you from there.

 

Budget measure

  • Introducing a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts. See Introducing a $1.6 million transfer balance cap on the Budget 2016–17 website fact sheet page.
  • A number of similar changes will apply to defined benefit superannuation arrangements. See Changes to defined benefit schemes on the Budget 2016–17 website fact sheet page.
Updated understanding

The Government has announced it intends to proceed with this measure

A $1.6m cap has been proposed on the total amount of superannuation that can be transferred into an income stream (ie an account based income stream/ pension) from 1 July 2017. Subject to legislation being passed to give effect to this proposed measure, account based income streams (such as CSCri) will be included under the $1.6m super transfer cap.

It is believed the effect of the transfer balance cap is to restrict the amount of superannuation that can be transferred into an income stream, not specifically to restrict how much can be held in superannuation in general. CSC is seeking clarity on the impact (if any) on invalidity and reversionary account based income streams, and account based income streams split under family law arrangements. Additionally, whether amounts transferred to TTR accounts (such as CSCri TTR) that are subject to the 15% tax on earnings would also be included in the $1.6M cap (Refer below for information relating to the removal of the tax exemption on earnings of assets supporting Transition to Retirement Income Streams).

It is recommended that you understand your current total retirement income amounts situation across all superannuation/ income stream accounts. You can do this by contacting the ATO directly and requesting this information.

 

Budget measure

  • Requiring those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent (commonly referred to as the Division 293 threshold). This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. See Reforming the taxation of concessional contributions on the Budget 2016–17 website fact sheet page.
Updated understanding

The Government has announced it intends to proceed with this measure.

The current Division 293 threshold is $300,000 until the end of financial year 2016-17.

The proposed budget change is to lower this threshold to $250,000 from 1 July 2017.Currently, anyone earning an adjusted taxable income of greater than $300,000 pays an extra 15% tax upon their concessional contributions. For the purposes of Division 293 tax threshold, these contributions include:

  • any salary sacrifice contributions

  • any Superannuation Guarantee contributions

It is important to note that any concessional contributions below the concessional cap are included in a member’s adjusted taxable income when calculating liability for Division 293 tax.

To understand the possible impacts, we have set out two examples below that compare the tax liability differences between the current threshold ($300,000) and the proposed threshold ($250,000)

Example for financial year 2016-17 (threshold = $300,000)

A member’s adjusted taxable income was $290,000 and they had $25,000 of concessional contributions made up of:

  • Employer SG contributions of $25,000

Division 293 tax is calculated as the lesser of the total concessional contributions OR the amount in excess of $300,000 when income and concessional contributions are added together.

$290,000 + $25,000 = $315,000  

($15,000 being less than $25,000 concessional contribution cap)

Therefore, in this example, the member would be assessed against the $15,000 and liable for:

$15,000 x 15% = $2,250.

Example for a future financial year where threshold is lowered to $250,000

If in a future financial year the Division 293 tax threshold was lowered to $250,000, using this same income and contributions in the previous example:

$290,000 + $25,000 = $315,000

Total amount over the Division 293 tax threshold of $250,000 = $65,000($65,000 being more than $25,000 concessional contribution cap so $25,000 is used). The member would therefore be assessed and liable for:

$25,000 x 15% = $3,750.

PLEASE NOTE: This is just an example and members should seek their own financial and tax advice in relation to their own personal circumstances.

 

Budget measure

Updated understanding

The concessional contributions cap will reduce to $25,000 per annum for everyone regardless of age from 1 July 2017.

In the 2016-17 Budget it was also announced that from 1 July 2017 individuals with superannuation balances of $500,000 or less will be allowed to access their unused concessional cap space to make additional concessional (before-tax) contributions.

Individuals will be able to access their unused concessional contributions cap space on a rolling basis for a period of 5 years. Amounts carried forward that have not been used after 5 years will expire.

The Government has also advised that this measure will now been proposed to start from 1 July 2018 instead of 1 July 2017.

The current concessional contribution caps for the financial year 2016-17 are confirmed as:

Under 50 - $30,000 (Members aged 49 years or older on 30 June 2016 have a concessional cap of ($35,000).

Over 50 - $35,000 The following contributions count toward the concessional contributions cap:

  • any salary sacrifice contributions

  • any superannuation guarantee contributions.

It is recommended that you understand your current concessional contribution situation across all superannuation accounts. You can do this by contacting the ATO directly and requesting this information.

 

Budget measure

Updated understanding

This proposal has now been removed. Instead, the new proposal is for an annual cap of $100,000 to replace the current $180,000 Cap from 1 July 2017.

Where an individual’s Superannuation balance is above $1.6 Million they will no longer be eligible to make non-concessional contributions.

Members are able to contribute under the existing $180,000 Cap and the bring-forward rule can still be utilised up until 30 June 2017 ($540,000) can be contributed (if bring forward rule not already triggered).

If the bring forward has been triggered in 2016/17 and not fully utilised then it can be used in 2017/18 and 2018/19 but with the lower amount of $380,000 ($180,000 + $100,000 + $100,000). 

If the bring forward was triggered in 2015/16 and not fully utilised then it can be used in 2016/17, 2017/18 and 2018/19 but with the amount of $460,000 ($180,000 + $180,000 + $100,000).

Clarity is being sought regarding the impact to this non-concessional contributions cap, if any, in relation to benefits split under family law arrangements. 

It is recommended that you understand your current non-concessional contribution situation across all superannuation accounts. You can do this by contacting the ATO directly and requesting this information.

 

Budget measure

  • Removing the tax exemption on earnings of assets supporting TTR Income Streams from 1 July 2017 (income streams of individuals over preservation age but not retired). See Improve integrity of transition to retirement income streams on the Budget 2016–17 website fact sheet page.
Updated understanding

The Government has announced it intends to proceed with this measure and this change applies irrespective of when the TTR income stream commenced (no grandfathering rules will apply).

Subject to legislation being passed to give effect to this proposed measure, it is likely members who currently hold a TTR income stream through income streams products such as CSCri, may be impacted by this change.

Confirmation is being sought on whether amounts transferred to TTR accounts are subject to the 15% tax on earnings and would also be included in the $1.6M cap.  

 

Budget measure

  • The criteria for deductibility of personal contributions will be extended to all individuals from 1 July 2017. See Improving access to concessional contributions on the Budget 2016–17 website fact sheet page.
Updated understanding

Subject to legislation being passed to give effect to this proposed measure, it is believed that PSSap and ADF Super scheme members would be eligible to claim a deduction.

 

Budget measure

Updated understanding

The Government will no longer proceed with this proposal.

This means that individuals over 65 years of age (but under the age of 74 years of age) must have worked for at least 40 hours within 30 consecutive days in a financial year to be able to make superannuation contributions to their super account. The work test can be satisfied when “employment” involves any endeavour where you receive remuneration for your efforts. You will need to confirm with the tax office whether your specific arrangements satisfy the work test rules.

 

Budget measure

  • A new Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution (LISC) from 1 July 2017. See Supporting Australians to save for their retirement by introducing the Low Income Superannuation Tax Offset on the Budget 2016–17 website fact sheet page.
Updated understanding

The Government has made no further announcement regarding this measure.