In 2016 the Federal Government legislated a range of changes to the super system. Most of these changes will come into effect on 1 July 2017.
While changes to super may create feelings of uncertainty, you can still save effectively for retirement – or continue to draw down your savings if you’re already retired. In fact, some of these changes may offer new or different ways to make the most of your super.
This information is correct as at 24 February 2017 and is subject to change.
Concessional contribution cap reduced

From 1 July 2017

The concessional cap (for before-tax contributions) is being lowered to $25,000 for all Australians, regardless of age. If you contribute over this amount, you will have to pay extra tax.

From 1 July 2018 onwards you can also ‘carry over’ unused portions of your cap for up to five years, as long as you have less than $500,000 in super. For example, if you use $10,000 of your $25,000 cap in the 2018/19 financial year, you would have $15,000 left over to carry over into the 2019/20 financial year.

Now

Currently, under-50s can pay a maximum of $30,000 in concessional contributions towards their super each financial year. For those 50 and over, the cap is $35,000.

Your concessional contribution cap includes super guarantee (SG) payments made by your employer, plus any extra contributions you make out of your before-tax income, either as salary sacrifice or other deductible personal contributions. These contributions receive concessional tax treatment and are limited by the cap.

What could this mean for you?

Often, our super needs a helping hand – which is why you can make voluntary contributions to super.

As the concessional cap is reducing to $25,000 on 1 July, it’s more important than ever to plan ahead. Consistently taking advantage of the caps can help grow your income for the future.

If you are looking to maximise your contributions to super, 2016/17 is your last opportunity to contribute up to the larger cap limits of $30,000 and $35,000 (age-based).

Non-concessional contribution cap reduced

From 1 July 2017

The non-concessional contribution cap (for after-tax contributions) will be lowered from $180,000 to $100,000 for each financial year. (These types of contributions often come from savings, redundancy payouts, inheritances or sales of property or other assets.)

The ‘bring forward’ rule, where you can bring forward up to three years’ worth of contributions, will reflect this change. This means the maximum you can contribute after tax over a single financial year will be $300,000, using this three-year bring forward rule.

If you have already triggered the ‘bring forward ‘rule but haven’t used up the full amount before 1 July 2017, transitional arrangements will apply and the amount of ‘bring forward’ available will be reduced to reflect the new cap.

If you exceed the contribution cap you may have to pay extra tax.

If you are aged 65 to 74 you can only make voluntary contributions to super if you satisfy the work test.

Note that from 1 July you won’t be able to make any non-concessional (after-tax) contributions to super if your super balance was above $1.6 million as at 30 June of the previous year. If you do make non-concessional contributions these will be regarded as exceeding the contributions cap.

Now

You can contribute up to $180,000 to super from your after-tax income each financial year.

These contributions are not taxed going into super because you’ve already paid income tax. After-tax contributions can generally be made via direct debit, payroll deduction or BPAY.

If you are under age 65 you can currently ‘bring forward’ up to three years’ worth of after-tax contributions in a single financial year – meaning you can contribute up to $540,000.

If you exceed the contribution cap you may have to pay extra tax.

What could this mean for you?

If you have an existing contribution strategy in place, you may want to review your plans. This could be particularly important if you normally contribute up to the cap limit, or were planning to in the future. The 2016/17 financial year will be your last opportunity to utilise the $180,000 cap before it reduces.

Remember, some financial planning strategies are only available to couples. If that’s you, it could be a good idea to seek advice together. For some, this could be the last opportunity to make an after-tax contribution before things change on 1 July.

New tax on earnings in transition to retirement (TTR) income streams

From 1 July 2017

Transition to retirement (TTR) income streams are designed to help you make the transition from work to retirement by having access to a limited income stream from super.

From 1 July, earnings in TTR arrangements will be subject to a concessional rate of tax up to 15% – the same rate paid on earnings in your super accumulation account. This change will apply to both new and existing TTRs.

Now

Currently, earnings on super in TTRs are tax free – like earnings in full account-based pension accounts.

What could this mean for you?

If you already have a TTR, you may like to consult with a financial planner through CareSuper to see whether this is still the right option for you and check if you meet a condition of release to qualify for an account-based pension, where earnings are tax-free.

If you’re considering a TTR, it could still be a good option depending on your age, situation and marginal tax rate.

New $1.6M transfer balance cap for pensions

From 1 July 2017

The total amount of money you can transfer from super to a tax-free pension environment will be limited to $1.6 million. This cap will increase in $100,000 increments in line with the Consumer Price Index (CPI). The $1.6m transfer balance account does not apply to transition to retirement income streams.

If you have a public sector pension fund or other income stream arrangement outside of CareSuper, this will also count towards your total cap.

If you have an existing pension balance of over $1.6 million (in one or more funds) you will need to consider your options to reduce the balance to $1.6 million or less. You may be able to roll money back into an accumulation or transition-to-retirement account, or withdraw funds to reduce the balance.

You need to do this before 1 July 2017. If you don’t, penalties may apply.

If the value of your pension is between $1.6 and $1.7 million at 1 July, you will have six months to remove the excess without penalty under a transition arrangement.

Now

There is no maximum limit on the amount you can transfer from a super accumulation account to a tax-free pension account.

What could this mean for you?

If you’re a pension member with a balance of $1.6 million or more, you will need to take action before 1 July 2017. CareSuper is here to help you manage this change.

There will be a transition period for some affected members, but if you have a financial planner through CareSuper (or would like to make an appointment) it’s a good idea to get in touch early.

Lower threshold for high income earners tax

From 1 July 2017

If the total of your income and before-tax contributions exceeds $250,000, you will be required to pay an extra 15% tax on super contributions (up to 30%). The ATO will contact you if you are affected by this change. Generally, you can pay the extra tax from your super fund.

Now

The current threshold is $300,000.

What could this mean for you?

If you’re nearing the $250,000 threshold, it might be a good idea to seek advice on your contribution strategies and retirement planning to make sure your current arrangement continues to work for you.

More access to the tax rebate on spouse contributions

From 1 July 2017

The tax offset on spouse contributions will be available to more Australians.

You can apply to claim the rebate of up to $540 if you make super contributions for a spouse whose total earnings are less than $40,000 (an increase from $13,800).

Other conditions apply – and remember, contributions made to your spouse’s super count towards their non-concessional contribution cap.

(‘Spouse’ includes de facto and married couples.)

Now

You can claim a tax offset of up to $540 if you contribute to your spouse’s super account and their total earnings are less than $13,800.

What could this mean for you?

For many couples, particularly those with irregular working patterns, this change provides additional opportunities for evening out super account balances and building retirement savings together.

Greater deductibility for personal contributions to super

From 1 July 2017

More Australians will be able to claim a tax deduction on personal contributions to super.

Until 1 July, these types of deductions are generally only available to the self-employed, who have to meet certain conditions including percentage of income from salary/wages.

This condition will be removed, meaning other workers, including split-income earners, contract workers and full-time employees, will be able to claim this tax deduction.

This change also provides an alternative for those who can’t access salary sacrifice arrangements through their employer (more below).

Now

You can apply to claim a tax deduction for personal contributions to super if less than 10% of your income comes from salary and wages.

If you are self-employed and pay your own super, you are more likely to qualify for this tax deduction, compared to an employee whose income from salary/wages would generally exceed 10%.

What could this mean for you?

Some employers don’t offer salary sacrifice arrangements, or may recalculate your super guarantee entitlement based on your reduced salary (e.g. you earn $50,000 and sacrifice $10,000 into super, and your employer recalculates your SG based on a salary of $40,000).

This change allows everyone to make concessional contributions and gives you the flexibility to ‘close the gap’ if your concessional contributions (including SG) are below the cap near the end of the financial year.

These contributions are treated as concessional contributions, so the $25,000 cap will apply, and you also have the opportunity to carry over unused portions of your cap.

Keep in mind that the higher income earners tax still applies to these contributions.

  • Want to better understand the possible tax benefits? A financial planner could help.
  • Download a Notice of intent to claim a deduction form from the ATO or CareSuper.
LISTO to replace LISC

From 1 July 2017

Currently, the Federal Government makes a payment of up to $500 to your super account if you earn $37,000 or less in a financial year. This is known as the Low Income Super Contribution (LISC).

On 1 July, the LISC will be replaced by the Low Income Superannuation Tax Offset (LISTO).

The LISTO will continue to ensure that lower income workers generally don’t pay more tax on their super than on their take-home pay.

Now

Currently, the LISC aims to help low income earners save for their future and compensates them for the tax paid on compulsory super guarantee contributions.

What could this mean for you?

You don’t need to apply for the LISTO. If you are eligible and CareSuper has your tax file number, the Government will make the payment automatically.

  • If you are a low or middle-income earner, you may also qualify for the super co-contribution. Find out more.
Where can you go for help?

Through CareSuper, you have access to IFS financial planning services.* Your membership covers basic over the phone advice on super-related topics, including contribution strategies.

For more comprehensive advice you can meet with a financial planner in person or over the phone or web. They can help you with your retirement plan, taking into account your personal situation both inside and outside of super.

Your first appointment is cost- and obligation-free. If you decide to continue with advice, your planner can provide a quote for services going forward – with no hidden costs. The time taken to provide you with quality advice is based entirely on your needs – not your account balance.

Don’t want advice?

You can also call our customer service team for more information about the changes.

In 2016 the Federal Government legislated a range of changes to the super system.
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