Changes to Superannuation: Part 1

An Overview Of The Changes

In May 2016, the Australian Government announced a series of changes to the superannuation system, the majority of which will take effect from July 1 2017. While some of the changes will only affect a small section of Australian income earners, it is worth understanding what the government’s goal appears to be and how the changes could affect you in the future, even if they won’t have a direct impact on you now. With this in mind, in part one of this series we’ll provide a brief overview of the major changes, before providing a little more detail on some of the specific changes in subsequent parts in the series.

When considered as a group, the changes that will – mostly – come into effect on July 1, 2017 will discourage people who already have extremely high (more than $1.6 million) superannuation fund balances from building their nest egg even further, while also encouraging people who have lower than ideal superannuation balances to make additional contributions to their fund.

Caps will come down. Both the before (concessional) and after (non-concessional) tax contribution caps have been reduced. In the case of the non-concessional cap, the reduction is close to 50%! And for individuals who have in excess of the magic $1.6 million in their fund, non-concessional contributions will no longer be allowed at all. This means that it will be more difficult to add large amounts of money into your super fund over a small number of years. So for those people who are delaying making additional contributions with the intention to top up their balance in the last decade or so of their career, a change of strategy is in order.

There will also be a cap introduced for transfers from your superannuation fund into an income streams such as account based pensions (you guessed it, $1.6 million again!), which will limit the amount of capital you can have, thereby limiting the amount of tax-free income you can earn from that capital.

As you can see, these changes will primarily impact individuals who already have an extremely healthy superannuation fund balance, or who are earning a very generous income (the Division 293 Tax threshold, which specifically impacts those earning $300,000 per annum or more will also be lowered) and are in position to make substantial additional contributions to their super.

Other changes that will benefit those who are likely to have a lower than hoped for super balance include:

  • Increases to the Spouse Offset Tax threshold: meaning your spouse can earn almost three times as much as previously and still be eligible for you to make contributions into their super and receive a tax offset.
  • Greater flexibility for the Personal Superannuation Contributions Deduction: allowing self-employed individuals to earn more in wages and salary but still be eligible for this deduction.
  • The introduction of a Low Income Superannuation Tax Offset: which will provide a tax offset on additional contributions for low-income earners.

By Jennifer Lowe

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