1 July 2017 Changes

The Federal Government's superannuation reforms passed through both houses of Parliament on Wednesday 23 November 2016.

These reforms are targeted at making the superannuation system more sustainable for all Australians. Below is a summary of key changes and how they could impact you and your super.

Decrease to the after-tax contribution cap

From 1 July 2017, the after-tax contribution cap will be limited to $100,000 a year for those under 65 years of age, reduced from the current $180,000 limit. Or $300,000 over a period of three years, currently $540,000.

Known as the bring-forward rule, if you’re under the age of 65 as at 1 July 2017, and have not utilised the rule in the previous two financial years, you can still do so before 30 June 2017.

What does this mean for you?

It’s a considerable reduction to the cap, but there’s still time to take advantage of the current legislated cap and contribute up to $540,000 for the 2016/17 financial year.

Decrease to the before-tax contribution cap

Additionally, the before-tax contribution cap will be limited to $25,000 a year for anyone of any age, reduced from the current $30,000 limit or $35,000 limit if you are 49 and over.

What does this mean for you?

It’s another reduction to the contribution cap that will impact your super balance. However, there’s still time to take advantage of the current legislated cap and contribute up to $35,000 if you are over 49, or $30,000 if under. 

Low income superannuation tax offset

The package replaces the Low Income Super Contribution (LISC), which was due to expire in 2017, with the Low Income Super Tax Offset (LISTO).

If you earn up to $37,000 per year you will be entitled to the LISTO, which provides a non-refundable tax offset, based on the tax paid on concessional contributions made, up to a cap of $500. This will apply to members with adjusted taxable income of up to $37,000 that have had a before-tax (concessional) contribution made on their behalf.

Catch-up contributions

From 1 July 2017, the Government will allow individuals with account balances of $500,000 or less to accrue concessional superannuation contributions. These can be accessed from 1 July 2019.

If you have a super balance of $500,000 or less, you will be able to accrue your unused (before-tax) concessional cap amounts for a period of five years. Amounts carried forward that have not been used after five years will expire.

Extending spouse ontributions tax

The Government will extend the current spouse tax offset to assist more couples to support each other in saving for retirement. This will better target super tax concessions to low income earners and people with interrupted work patterns.

The 18% tax offset of up to $540 will be available for any individual contributing to a recipient spouse’s super whose income is up to $40,000. This is an increase from the current $10,800. As is currently the case, the offset is gradually reduced for income above this level and will completely phase out if the spouse earns less than $40,000.

Pension accounts capped at $1.6 million

From 1 July 2017, a $1.6 million cap on the total amount of superannuation that can be used to commence a pension will be introduced.

If you are entering retirement after 1 July 2017, any superannuation in excess of the $1.6 million cap can remain in the accumulation phase, where earnings are taxed at 15%. If you have an existing pension on 1 July 2017, amounts in excess of the cap on this date will need to be rolled back into an accumulation account or withdrawn.

Personal super contributions

Personal super contributions will be tax deductible for income tax purposes for everyone under age 75 – providing you meet the eligibility criteria. These amounts will count towards the concessional cap and will be subject to contributions tax.

If you are under age 75, you will be able to claim an income tax deduction for personal superannuation contributions to an eligible fund, up to the new $25,000 concessional contribution cap. These amounts will count towards your concessional contributions cap, and are subject to contributions tax, providing you are eligible to contribute (65-74 years and have met the work test).

More tax on contributions for high income earners

The Government has reduced the income threshold, above which individuals will be required to pay an additional 15% tax on concessional contributions.

From 1 July 2017, the income threshold will reduce from $300,000 to $250,000 per year, meaning individuals who  earn over this amount will have to pay an additional 15% tax on concessional contributions.