SUPER LAW CHANGES 1 July 2017
These are some of the key changes that were announced and passed by the senate on the 29th of November 2016, which come into effect on the 1st of July 2017.
- Reduction of annual concessional contribution (taxed at 15%) caps
To: $25,000 for all age groups (18-75) effective from 1 July 2017
IMPORTANT POINT: super members will have the ability to carry forward unused portions of their concessional caps for members with super savings of less than $500,000 and for a period of 5 consecutive years from 1 July 2018
- A catch-up payment will be the difference between the $25,000 cap per year per person payment you receive from your employer and how much you salary sacrifice each year.
I.E: John is 45 and receives an annual employer SG contribution of $10,000 and he has $285,000 in super at present. His cap for the 2017-18 financial year is $25,000. Therefore, he has $15,000 left over from his 2017-18 financial concessional cap to carry forward to next year for up to 5 years.
My SMSF Comments: This gives people the option to still take advantage of the current $30,000 and $35,000 contribution caps until 1 July 2017
- The non-concessional contribution cap has been revised down to of $100,000 per person, per financial year, to replace the annual caps of $180,000 per person effective from 1 July 2017
- The ability to make non-concessional contributions will also be limited to people who have an individual superannuation balance of under $1.6 million. In addition, if you are aged 65 or over you need to pass the “work test” to contribute to your super and cannot bring forward contributions to the current year.
- Bring forward rules: From the 1st of July 2017 the annual non-concessional ( after-tax paid money contributed to super) cap, will reduce to $100,000 per person per financial year, allowing a
- 3 x $100,000 = $300,000 single contribution per member with a super balance less than $1.6 million.
My SMSF Comments: This gives people the option to still take advantage of the current $180,000 non-concessional contribution caps till 30th of June 2017 which will allow $540,000 per person to be contributed to super.
Note: seek advice on contributions to super given this new legislation.
SUPER CONTRIBUTIONS TABLE
|Year||Age||Concessional Contribution||Non Concessional Contributions||Bring Forward|
|2017-18||All Ages||$25,000 per person||$100,000 per person||$300,000 per person|
|2016-17||Over 49||$35,000 per person||$180,000 per person||$540,000 per person|
|2016-17||Under 49||$30,000 per person||$180,000 per person||$540,000 per person|
|SUPER BALANCE 30th June 2017||NCC Cap 1st Year||Bring Forward Period|
|Less than $1.4 Million||$300,000||3 Years|
|$1.4 million to less than $1.5 million||$200,000||2 Years|
|$1.5 million to less than $1.6 million||$100,000||N/A|
A limit on pension phase balances of $1.6million per person (for new and existing income streams)
- This will limit income from a pension to around $80,000 of tax-free income per person assuming a 5% return on investment.
My SMSF Comments: This still allows couples to combine up to $3,200,000 in tax-free pension contributions and existing assets to form a new pension, with future capital gains and income not assessable against the $1.6 million (per person) pension threshold.
Important Point: It is the net value ( Value – minus Debt = Net Value of Asset) of physical assets such as property that will be counted for the new transfer balance cap $1.6 million, with some CGT relief measures proposed.
Example: Robert has a property worth – $1, 800,000 Value
– $1,000,000 Debt
Net Value – $800,000 – this is counted towards a pension post 1 July 2017
- As at 1 July, 2017 pension funds with more than $1.6 million individually will need to revert funds to accumulation (super) phase or invest outside super. There are Transitional GCT relief measures for which advice must be sort.
- Removal of earnings tax exemptions for Transition to Retirement (TTR) income streams from age 55-60. This will reduce the benefits of setting up TTR’S and their effectiveness. All current arrangements will need to be reviewed before the 1st of July 2017
|Date of Birth||Preservation Age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
My SMSF Comments: TTR pensions commenced using non-concessional contributions (tax paid money) will be viable from age 55
- High-income earners with collective income over $250,000 will lose the 15% super contribution tax concession, where they make or receive concessional contributions.
- A welcome change is an ability for everyone (18-75) to make salary sacrifice contributions and claim a tax deduction up to the $25,000 cap level, from the 1st of July 2017. This only applies to (salary sacrifice contributions) not employer contribution amounts, both of which form the proposed $25,000 concessional (before tax – 15%) contribution cap. The work test will remain for people over the age of 65 who must provide proof of 40 hours of work in a 30 day period in order to make concessional or non-concessional contributions aside from employer paid contributions.
Future capital growth and income may not be counted in the $1.6 million pension after it is commenced. However, where the property is jointly held; which is typically the case; a combined cap of $3.2 million is available for couples in super who own property. Further, the government and the ATO has proposed transitional CGT relief for SMSF’s that adjust their asset allocations before the 1st of July 2017.
TAXABLE INCOME V SUPER TAX AND SAVINGS
|Taxable Income Brackets||Tax Rate||Tax in Super||Tax Saving|
|$0 to $18,200||0%||0%||NIL|
|$18,200 to $37,000||19%||0%||19%|
|$37,001 to $87,000||32.50%||15%||17.50%|
|$87,000 to $180,000||37%||15%||22%|
|$180,000 to $250,000||45%||15%||30%|
This is general information only. Always seek advice before acting on any information provided.