How to prepare for July 1 super changes

Now is the time to consider what action to take.

With the introduction of superannuation reforms, some of the rules around super contributions and the tax breaks available will change from 1 July 2017.

See what the changes could mean for you and what opportunities you could take advantage of before the end of financial year.

Here’s what’s changing:

Concessional contributions – before tax contributions or contributions for which a tax deduction was claimed.

  • The concessional contributions cap reducing to $25,000 for all individuals (currently $30,000 or $35,000 depending on individual’s age)
  • An additional 15% tax will apply to concessional contributions where individual’s income plus concessional contributions exceed $250,000 pa (currently $300,000 pa)
  • It will be possible to make personal tax deductible super contributions up to the cap regardless of employment status (currently subject to 10% test)
  • If the concessional contributions cap is not fully used, from 1 July 2018 it may be possible to accrue unused amounts for up to 5 years and make a larger contribution (certain eligibility criteria apply)

Non concessional contributions – after-tax contributions

  • The non-concessional contributions cap reducing from $180,000 per annum to $100,000 per annum or from $540,000 to $300,000 if bringing forward a total of 3 years’ contributions (certain eligibility criteria apply). Transitional rules apply in certain circumstances
  • Individuals with total superannuation balance (accumulation and pension) of $1.6 million will not be able to make non-concessional contributions

Super pension lifetime limit

  • A lifetime limit of $1.6 million (indexed) will apply to the amount of super that can be transferred to pension phase (no limit now)
  • People with existing pensions over $1.6 million will need to reduce their total pension balance to $1.6 million or less before 1 July to avoid penalties.
  • Capital gains tax relief may be available when commuting excess amounts back to accumulation account to meet the above requirement.

Transition to retirement pension – Tax paid on earnings from investments held in transition to retirement pensions will be increased from 0% to a maximum of 15% (capital gains tax relief may be available).

Spouse contributions –The annual cut-out income threshold for the tax offset for spouse contributions will be increased from $13,800 to $40,000. Certain eligibility criteria apply.

ATO data regarding Super Guarantee non-compliance

Editor: The ATO has provided some information about Superannuation Guarantee (SG) non-compliance in its recent submission to a Senate inquiry into the impact of the non-payment of the Superannuation Guarantee.

In addition to marketing and education activities to re-enforce the need for employers to meet their SG obligations, the ATO conducts audits and reviews to ascertain SG non-compliance, with 70% of cases stemming from employee notifications (the remaining 30% of cases are actioned from ATO-initiated strategies).
On average, the ATO receives reports from employees which relate to approximately 15,000 employers each year, although the ATO finds that nearly 30% of these employers have in fact paid the required SG to their employee.
However, an SG shortfall is identified in the remaining 10,000 cases (this represents approximately 1% of the estimated 880,000 employers who make SG payments).
The top four industries from which reports are received by the ATO are from:

  • Accommodation and Food Services;
  • Construction;
  • Manufacturing; and
  • Retail Trade.
These four industries represent approximately 50% of the audits and reviews undertaken.
The ATO also noted that the proposed Single Touch Payroll (‘STP’) will help overcome certain limitations in the data currently provided to the ATO (as well as simplify taxation and superannuation interactions for employers, by aligning the reporting and payment of PAYG withholding and SG with a business’s natural process of paying their employees).
Use of STP is mandated for businesses with 20 or more employees from 1 July 2018, and a pilot program will be undertaken in 2017 to identify the nature of STP benefits for small businesses.

Superannuation changes may affect more people than forecasted

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Accounting firm CPA Australia warns that the Government has dramatically underestimated the number of Australians who will be impacted by changes to superannuation.

The results of a survey conducted this week of members in public practice has revealed the overwhelming majority of respondents – 70 percent – believe the Government’s superannuation changes will affect more than 6 percent of their clients.

Further, almost 40 percent report they will affect over 20 percent of their clients and more than a quarter say 30 percent of their clients will be impacted.

The findings are in stark contrast to the Government’s insistence that the changes will only affect a very small percentage of Australians.

On Budget night, Treasurer Scott Morrison outlined the most significant structural changes to the Australian superannuation system since compulsory superannuation was first introduced.

CPA Australia’s CEO Alex Malley said the results confirm there is widespread uncertainty and confusion created by the proposed retrospective changes.

“When the changes were announced on budget night we said they had been made without consultation and the Government was completely underestimating the impact they would have.”

“Our members are at the coal face every day advising Australians, young and old, from all socio-economic groups, about their retirement savings options. They have been inundated with questions from their clients about what these changes will mean to retirement savings,” he said.

The Government has continued to insist that less than 4 percent of Australians, said Malley, would be affected by these changes.”

“Instinctively we knew that wasn’t right and so we decided to poll our members to get a sense of the magnitude of the issue. Our results clearly show that the Government has underestimated the impact of its changes.”

“The changes were announced less than a week before the Government called the election and went into caretaker mode meaning there will be no more details forthcoming about how this will work.”

“The Government seems to be scrambling to explain the changes and Treasury can’t give us any extra detail.”

From 1 July 2017, the Government will lift current restrictions and allow individuals under the age of 75 to claim tax deductions for personal superannuation contributions to eligible superannuation funds.

The government will also be lifting restrictions in order to allow individuals up to the age of 75 to claim tax deductions on personal contributions to eligible super funds, up from 65.

Also to be introduced from July 2017 is a Low Income Superannuation Tax Offset to ensure that those earning less than $37,000 are not paying more tax on their super than they are on their actual income.

Morrison said that, among others, this offset will assist around 2 million low income women in particular to build their superannuation savings.

Australian seniors advocacy group COTA Australia welcomed the changes, with chief executive Ian Yates saying, “COTA is pleased to see the government move in a direction that ensures superannuation is used for the purpose it was originally intended – as a way for people to save for their retirement rather than a wealth accumulation scheme for Australia’s highest earners.”

He said the lifting of age restrictions on personal contributions to those aged up to 75 acknowledges that more and more people are choosing to work well into their 70s, and “sends a positive signal about mature age employment.”

Yates added, “It’s also good to see the efforts made to recognise that many women retire with low superannuation because their careers are often broken by caring for children and ageing parents.

“The opportunity to make ‘catch-up’ contributions and for spouse tax offsets are a step in the right direction. More will still need to be done to ensure women have equitable retirement incomes, but it can’t all be done by the super system itself.”