The Turnbull Government’s revision of the Superannuation reforms have now been legislated. Retirement savers will need to ensure they are swimming between the new flags from 1 July 2017.
New $1.6 million limit on tax-free super
One of the major reforms is the introduction of an indexed $1.6 million limit on the total amount of accumulated super an individual can transfer into the tax-free retirement phase. Earnings on that balance will not be capped, but any savings above $1.6 million must remain in an accumulation account (where earnings are taxed at 15 per cent), or be moved out of the super system to avoid penalty taxes.
Cut to concessional contribution limits
An important change for many people will be the reduced annual caps on the amount of concessional (before-tax) contributions they can make into their super account. From 1 July 2017, the annual cap on concessional contributions will be a flat $25,000 (indexed).
Lower annual non-concessional (after-tax) contributions cap
The controversial $500,000 lifetime non-concessional contributions cap has been altered, replaced with an annual cap of $100,000 (down from the current $180,000). Individuals aged under 65 will still be eligible to bring forward three years of non-concessional contributions, while those aged between 65 and 74 can now make non-concessional contributions if they meet a work test.
To help pay for replacing the $500,000 lifetime limit with a lower $100,000 annual cap, individuals with a super balance of over $1.6 million will be ineligible to make non-concessional contributions. Proposals to remove the work test to contribute to superannuation for people aged 65 to 74 will also be scrapped.
Tax deductions for personal contributions
Many super savers will benefit from new rules allowing additional people to claim a tax deduction for their personal contributions into super. From 1 July 2017, individuals aged under 65 and those aged 65 to 74 who meet a work test will be able to claim a tax deduction. This deduction is currently only available to people broadly earning less than 10 percent of their income from salary or wages, such as the self-employed.
The rules governing Australia’s super system are complex and with the many changes being passed through legislation it’s challenging to stay up to date and ensure that your retirement planning takes into account these changes.
If you would like more information or just to chat about how super can be used to build your retirement nest egg, please contact our office today.