In the 2016 Federal Budget, the government proposed a number of changes to the superannuation rules, some of which were to apply from Budget night (i.e. 3 May 2016).
Since then, some of the proposals have been dropped but the majority have been legislated with amendments.
So, where does that leave you for your superannuation planning for this financial year?
Here’s a summary of where it all stands:
Contributions which qualify for a tax deduction
This is known as a concessional contribution and is limited to $30,000 for those aged less than 49, and $35,000 for those aged 49+ in the year of contribution.
Generally you can only qualify for a tax deduction if you are fully or ‘substantially’ self-employed.
However, employees can get similar benefits by contributing to super via pretax salary sacrifice which reduces their assessable income.
The limit includes any Super Guarantee your employer pays on your behalf.
Please note if you are aged 65 to 75, you must pass a work test to be eligible to contribute to super.
People aged more than 75 are not eligible to make personal contributions.
Note that for 2017/18 this cap will reduce for everyone who is eligible to $25,000 p.a.
Contributions which do not qualify for a tax deduction
You could also invest up to $180,000 p.a. in super as a personal non-concessional contribution (i.e. you do not receive a tax deduction on this contribution).
If you are under age 65, you can bring forward up to two years of nonconcessional contributions.
This means you could contribute $540,000 in one financial year – as long as you have not triggered the ‘bring forward’ provision in the previous two financial years.
If you do use the ‘bring forward’ provision entirely, you cannot make a non-concessional contribution for the next two years.
Proposed Lifetime Non-Concessional Cap
It was proposed in the 2016 Federal Budget that, effective 3 May 2016, a lifetime cap of $500,000 would be introduced for non-concessional contributions, which would include all non-concessional contributions made since 1 July 2007.
This proposal has since been dropped and replaced with a new measure to reduce the non-concessional limit to $100,000 per year ($300,000 using two years of ‘bring forward’).
This new reduced non-concessional cap will apply from 1 July 2017.
New super pension cap of $1.6m
The maximum amount of superannuation that can be used to fund a tax-free pension in retirement will now be restricted to a ‘balance cap’ of $1.6 million per member.
This has the effect that when transferring a member’s superannuation accumulation to pension phase to start an account based pension to fund retirement, any balance above the $1.6 million balance cap will need to remain in accumulation phase where it will continue to be taxed at the (albeit concessional rates) applicable to superannuation, rather than being tax free.
The Low Income Superannuation Contribution
The Government currently provides a contribution of up to $500, equal to 15% of concessional contributions made, up to $3,333, for workers with an adjusted taxable income of up to $37,000 p.a.
The Low Income Superannuation Contribution (LISC), is set to be abolished from 1 July 2017 but is to be replaced with a Low Income Superannuation Tax Offset (LISTO) that will achieve the same outcome.
The Government co-contribution
Currently, if you are working, and make a non-concessional contribution to super, and earn up to $51,021 this year, you are eligible for a super co-contribution from the Government of up to $500.
If your partner’s income is less than $13,800, you could qualify for a tax offset of up to $540 on the first $3,000 you contribute to superannuation for them from your after-tax income.
This tax offset decreases as your partner’s income increases above $10,800.
Interestingly, the income threshold for the Spouse Superannuation Tax Offset will increase from $10,800 to $37,000 from 1 July 2017.