Understanding the recent superannuation reforms - what the changes mean for you

A number of significant superannuation reforms come into effect on 1 July 2017. Our team of experienced SMSF advisers have provided the following recap:

Reviewing the contribution changes

A reduction in annual Non-Concessional Cap (NCC) and Concessional Cap (CC) greatly reduces the amount of money you are able to contribute to superannuation. If you wish to take advantage of the larger existing caps before 1 July 2017, we ask you please contact your trusted adviser today.

Concessional contributions - changes from 1 July 2017:

Concessional (before tax) contributions form part of your super fund’s assessable income. The contributions include employer contributions and personal contributions, and are taxed at a rate of 15%.

●      Annual cap now $25,000 which is no longer based on age

●      Indexation of concessional contributions cap in increments of $2,500 (rounded down). This means more frequent increases to NCC, CC and NCC bring forward cap

●      Threshold for Division 293 tax reduced from $300,000 to $250,000 per annum. Division 293 tax is an additional 15% charged on an individual’s taxable concessional contributions above the threshold of $250,000.

Non Concessional contributions - changes from 1 July 2017:

Non concessional contributions (after tax) do not form part of your superannuation fund’s assessable income. The most common are personal member contributions for which no income tax deduction is claimed:

●      Annual NCC will be reduced to $100,000 (4 x concessional cap) down from $180,000. If a member’s total superannuation balance is more than $1.6 million at 30 June the previous year, the NCC will be NIL

●      Bring forward cap will reduce to $300,000. There are transitional arrangements for clients who trigger the cap prior to 1 July 2017. Example below:

Financial Year End Annual NCC Cap Limit
30 June 2017 $180,000.00
30 June 2018 $100,000.00
30 June 2019 $100,000.00
Total allowable NCCs during bring forward period: $380,000.00

●      Work test will still apply for members between 65 and 74 years old

●      Low Income Superannuation Tax Offset (LISTO) to replace Low Income Superannuation Contribution. LISTO is a refund of contribution tax from the federal government up to $500 to an individual’s superannuation account where the individual’s adjusted taxable income is less than $37,000.

Pension changes

●      $1.6 million Transfer Balance Cap (TBC) on amounts which can be transferred to retirement phase pensions. Transition to Retirement Pensions (TRIS) not included in this cap

●      TRIS’s will lose their tax exempt status. The election to pay these pensions by lump sum will be removed

●      Defined Benefit Pensions (DBP) now valued at 16 x annual payments when calculating TBC.

Additional changes

●      Transitional Capital Gains Tax (CGT) rules. This will allow cost base resetting of assets to market value where individuals need to comply with TBC or TRIS legislative changes outlined above

●      Removal of anti-detriment provision in respect of death benefits in Superannuation.

With change comes opportunity

A regular review of your personal affairs and planning for your future is paramount in navigating these changes. We encourage you to contact your adviser with any additional questions regarding the superannuation reforms.