Following last night’s Federal Budget announcement we have had quite a few questions today about what it all means. You, like your clients want to know the bottom line – if/when do I need to worry about the proposed changes and do they actually affect me?
We have worked on simplifying this for you and, in a nutshell, this is what you need to know:
All changes below are due to take effect from 1 July 2017 unless otherwise stated and those few changes with an earlier start date have been highlighted.
- Transferring superannuation to pension/retirement phase will be subject to a $1.6 million cap. If you are lucky enough to have more than this to transfer, the balance above this cap amount will stay in your superannuation/accumulation phase (effectively, you will have a super account and a pension account if this applies to you). The cap amount will be indexed in $100,000 increments in line with CPI.
- Concessional contributions will be capped at $25,000 per annum (these have been lowered from $35,000 for people over age 50 and $30,000 for people under age 50). This change may affect you if you salary sacrifice to super or you have established a Transition to Retirement strategy. It will also impact people who use constitutionally protected funds (for example GESB West State).
- If you have a super balance under $500,000, you will be able to rollover your unused concession contribution caps from previous years.
- Non-concessional contributions are now subject to a lifetime cap of $500,000 as at 7:30pm on May 3, 2016. This may affect you if you have made lump sum personal contributions in the past, such as proceeds from the sale of an investment or an inheritance for example.
- Earnings on assets held in pension phase have not been taxed like they are in superannuation phase, however from 1 July 2017 earnings from assets held in a ‘transition to retirement’ (TTR) pension will be subject to the 15% tax rate, which is the current tax rate on superannuation assets. Those of you already in a TTR pension or who will be commencing a TTR pension from 1 July 2017 will be affect by this change. Upon retiring, all earnings in pension phase will be tax free.
- If you earn over $250,000, you will be subject to an additional 15% tax on contributions to super, effectively making the tax on super contributions 30% for people on these incomes.
- People with incomes less than $37,000 will be entitled to a Low Income Superannuation Tax Offset, capped at $500 and will reduce the tax on concessional super contributions.
- Anyone under the age of 75 can now make personal contributions to superannuation and claim those contributions as a tax deduction, previously this was only enjoyed by the unemployed, self-employed or ‘substantially self-employed’ people. This gives employees more flexibility and allows them to make personal deductible contributions in addition to super guarantee and salary sacrifice contributions.
- From a personal tax perspective, anyone earning between $80,000 and $87,000 will be subject to a lower marginal tax rate from 1 July 2016.
- Finally, all companies will eventually face a reduced company tax rate, with the rate decreasing to 25% over ten years starting from 2016-2017 income year, which will see it at 27.5%.