As announced in our May 2016 newsletter, there are major changes upcoming for the superannuation area. As stated previously the Government seems to have its short sighted blinkers on in relation how people will be able to fund for their retirements with some ridiculous changes in relation to lifetime limits on non concessional contributions and reducing the concessional contribution caps each year which goes totally against the Government’s Retirement income policy and their 3 pillar approach to this. What the Government is doing is to force less money into super and have just reinforced taxpayers unease and lack of confidence in the superannuation system.
From an accountants and financial planners point of view, it is extremely hard to advise clients on public announcements like those in the Federal Budget but not have any certainty that the announcements will follow exactly what they were announced as. Also we may not know until very late in the financial year what the changes will finish as, as we have to wait for consultation to finish, legislation to be drafted and get through the 2 houses of Parliament. We estimate that this will all happen somewhere between March 2017 to June 2017 at best.
Note some of the announcements were positive however a couple were terrible. A couple worth mentioning were:
- From Budget night the Government has introduced a lifetime non-concessional superannuation contributions cap of $500,000 which will be indexed with AWOTE. This limit is immediate and will take into account all non-concessional contributions from 1 July 2007. For those taxpayers who have already contributed more than $500,000 in their lifetime, they do not need to withdraw money out of super and will not be taxed on the excess. They will just be precluded from making further non-concessional contributions for their lifetime. The Government since this budget announcement has stated that there may be a couple of exemptions to this rule for those undertaking limited recourse borrowing arrangements and personal injury claims.
- From 1 July 2017 the Government will impose a cap on the amount that a person can have in their pension account. The cap will be $1.6million per person which will have a 0% tax rate attached to its investment earnings. The balance of a person’s superannuation monies will need to be in the accumulation phase with the investments earnings on these taxed at 15%. If your current pension account currently sits above this $1.6m limit, you will need to roll part of it back to the accumulation phase by 1 July 2017. The cap will indexed in $100,000 increments in line with CPI.
- From 1 July 2017 the Government will remove the tax exemption on investment earnings from transition to retirement pensions and not allow lump sum commutation to be classified as pension withdrawals.
Even though we have not seen the final legislation it is better to plan for these announcements prior to the proposed start date of 1 July 2017. There are things that trustees can do over this financial year that could save significant amounts of tax in relation to these budget announcements. Please do not hesitate to contact Simon Flowers, Cathy Walley or Matt Grapsas on 5221 6111 to discuss your specific situation.