Super changes are coming

From 1 July 2017, a number of superannuation changes originally proposed in the 2016-2017 Federal Budget will take effect. Some of the major changes are as follows:

Lifetime cap on transfers to retirement income accounts

Reduction of the annual concessional contributions cap

Concessional super contributions tax threshold reduced

Allowing catch-up concessional contributions

Reduction of the annual non-concessional contributions cap

Tax deductions on non-concessional contributions

Low Income Superannuation Tax Offset

Extending the spouse tax offset

Changes to transition to retirement income streams (TTRs)

We’re here to help

Lifetime cap on transfers to retirement income accounts

A cap of $1.6 million will apply to how much super you can transfer into retirement income accounts over your lifetime. 

Currently From 1 July 2017

There are no limits to how much you can transfer from a super account (accumulation) into a tax-free retirement income account.

A $1.6 million cap on the total amount of super you can transfer from accumulation phase into a tax-free retirement income stream product will apply.

What does this mean?
If you accumulate in excess of $1.6m in your accumulation account, then you will be able to maintain this excess amount however earnings will be taxed at the concessional rate of 15%.

If you are already in the retirement phase and have more than $1.6m in a tax-free retirement income product, then you will be required to reduce that balance to $1.6m by either transferring the excess back into an accumulation super account or withdrawing the excess amount as a lump sum.

Case study1
Agnes, 62, retires on 1 November 2017. Her accumulated superannuation balance is $2 million. Agnes can transfer $1.6 million into a retirement income account. The remaining $400,000 can remain in an accumulation account where earnings will be taxed at 15 per cent.

Alternatively, Agnes may choose to remove this excess amount from superannuation. While Agnes will not have the ability to make additional contributions into her retirement account, her balance will be allowed to fluctuate due to earnings growth or drawdown of pension payments.

Reduction of the annual concessional contributions cap

Currently From 1 July 2017

The concessional contributions cap is $30,000 a year for those aged under 48 and $35,000 otherwise. 

The concessional contributions cap will reduce to $25,000 a year for all individuals. 

 

What does this mean?
Concessional contributions will continue to be taxed at 15 per cent; however, any concessional contributions that exceed the $25,000 cap will be subject to tax at your highest marginal tax rate.

 

Concessional super contributions tax threshold reduced

Currently

From 1 July 2017

If your taxable income is above $300,000, the Division 293 tax is imposed. 

If your taxable income is above $250,000, the Division 293 tax will be imposed.

 

What does this mean?
Individuals with combined income and concessional contributions over $250,000 will be required to pay 30 per cent tax on their concessional super contributions (as opposed to the current rate of 15 per cent), up to the concessional contributions cap.

Case study1

In 2017-18, Madeline earns $260,000 in salary and wages. In the same year she has concessional superannuation contributions of $30,000. Madeline’s fund will pay 15 per cent tax on these contributions. Madeline will pay an additional 15 per cent tax on the $25,000 of concessional contributions resulting in these amounts effectively being taxed at 30 per cent. The $5,000 of contributions in excess of the cap will be included in Madeline’s assessable income and taxed at her marginal rate. Madeline pays $1,600 income tax on her excess contribution.
 

Allowing catch-up concessional contributions

Currently From 1 July 

There is no ‘catch-up’ concessional contributions offering available. 

Those with total super balances of less than $500,000 will be able to carry forward the balance of their unused concessional cap, on a rolling basis for a period of five years. Amounts that have not been used after five years will expire.

What does this mean?

For those who take time out of work, work part-time, or have ‘lumpy’ incomes and have periods in which they make no or limited contributions to superannuation, the ability to make ‘catch-up’ concessional contributions will provide them with more flexibility to boost their retirement savings. 

Case study1
Cassandra is a 46-year-old earning $100,000 per year. She has a superannuation balance of $400,000. In 2018-19, Cassandra has total concessional superannuation contributions of $10,000. In 2019-20, Cassandra has the ability to contribute $40,000 into superannuation of which $25,000 is the amount allowed under the annual concessional cap and $15,000 is her unused amount from 2018-19 which has been carried forward. The full $40,000 will be taxed at 15 per cent in the superannuation fund. 

Prior to the changes, her amounts in excess of the annual cap would have been subject to tax at her marginal rate, resulting in an additional $3,600 tax liability.


Reduction of the annual non-concessional contributions cap

Currently

From 1 July 2017

For those aged under 65, Non-concessional contributions are capped at $180,000 per year, with the ability to ‘bring-forward’ three years’ worth of non-concessional contributions ($540,000) in that period. 

The non-concessional contributions cap will be reduced to $100,000 per year. Members under age 65 will still be able to utilise the ‘bring-forward’ rule and contribute up to $300,000 in any three year period. 

What does this mean?
For those aged under 65 years old, they are able to bring forward one or two years of non-concessional contributions (i.e. $200,000 cap over two years or $300,000 cap over three years) depending on their total superannuation balance on 30 June of the previous financial year. Members with balances exceeding $1.6 million will no longer be able to make non-concessional contributions into their account. The bring-forward is not available to those aged between 65 and 74. They can contribute non-concessional contributions up to $100,000 a year provided they meet the work test and their total super balances at the end of the previous financial year are $1.6 million or less.


Tax deductions on non-concessional contributions

Currently

From 1 July 2017

Self-employed members who earn less than 10% of their income from salary or wages can claim an income tax deduction on non-concessional contributions.

You will be able to claim a tax deduction on non-concessional contributions. If you are aged between 65 and 74, then you will need to satisfy the work test.

 

What does this mean?
To provide an alternative to salary sacrifice, anyone under 75 will be able to claim a tax deduction on non-concessional (after-tax) contributions they make to super. These amounts will count towards the concessional contributions cap of $25,000, which includes employer and salary sacrifice contributions, and be subject to 15 per cent contributions tax. If aged between 65 and 74, you’ll need to meet the work test.

Case study1
Chris is 31 and decides to start his own online cricket merchandise business. While he gets his business up and running he continues working part-time in an accounting firm where he earns $10,000. In his first year his business earns him $80,000. Of his $90,000 income he would like to contribute $15,000 to his superannuation account. 

Under current arrangements, Chris would not be eligible to claim a tax deduction for any personal contributions. While his employer allows him to salary sacrifice into superannuation, he is limited to the $10,000 he earns in salary and wages. 

Under the new arrangement, Chris will qualify for a tax deduction for any personal contributions that he makes (up to his concessional cap). Chris makes a $15,000 personal contribution and notifies his superannuation fund that he intends to claim a deduction. He includes the tax deduction as part of his tax return.


Low Income Superannuation Tax Offset

Currently

From 1 July 2017

The Low Income Superannuation Contribution (LISC) will provide a super savings boost of up to $500 a year for those earning up to $37,000 who have had a concessional contribution made on their behalf.

The Low Income Super Tax Offset (LISTO) will provide a super savings boost of up to $500 a year for those earning up to $37,000 who have had a concessional contribution made on their behalf.

 
What does this mean?
LISTO provides continued support for the accumulation of super for low income earners and to ensure they don’t pay more tax on their super contributions than on their take-home pay. You will need to submit a tax return and the offset will be applied to your super account following advice from the Australian Taxation Office.

Case study1
In the 2017-18 financial year Katherine worked part time as a nurse and earnt $35,000. Her employer made superannuation contributions of $3,325 on her behalf. Katherine is eligible for the Low Income Superannuation Tax Offset. She receives $498.75 of Low Income Superannuation Tax Offset in her account. Katherine would have received the same amount of Low Income Superannuation Contribution.


Extending the spouse tax offset

Currently

From 1 July 2017

If your taxable income is less than $13,800, your spouse may be able to claim a tax offset of 18 per cent of the contributions they make on your behalf. This offset is capped at $540 a year. 

If your taxable income is less than $40,000, your spouse may be able to claim a tax offset of 18 per cent of the contributions they make on your behalf. This offset is capped at $540 a year.

 

What does this mean?
An 18 per cent tax offset of up to $540 will still be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. The offset will gradually reduce for income above this level and completely phases out at income above $40,000.The spouse receiving the contribution must be under age 70, and meet a work test if aged 65 to 69.

Case study1
Anne earns $37,500 per year. Her husband Terry wishes to make a superannuation contribution on Anne’s behalf. Under the current arrangements, Terry would not be eligible for a tax offset as Anne’s income is too high. There is no incentive for Terry to make a contribution on behalf of Anne. Under the new arrangements, Terry would be eligible to receive a tax offset. 

As Anne earns more than $37,000 per year, Terry will not receive the maximum tax offset of $540. Instead, the offset is calculated as 18 per cent of the lesser of: 

  • $3,000 reduced by every dollar over $37,000 that Anne earns, or 
  • the value of spouse contributions. 

For example, Terry makes $3,000 of contributions and Anne earns $500 over the $37,000 threshold. Terry receives a tax offset of $450: 18 per cent of $2,500, as this is less than the value of the spouse contributions ($3,000). If Anne were to earn more than $40,000 there would be no tax offset.


Changes to transition to retirement income streams (TTRs)

Currently

From 1 July 2017

Investment earnings in TTRs are not subject to any investment earnings tax.

The earnings tax exemption for transition to retirement income streams will be removed. As a result, the investment earnings on assets in TTR accounts will be taxed at 15 per cent until the member retires.

What does this mean?
Although investment earnings will no longer be tax free, a TTR strategy may still reduce the tax you pay. Everyone’s situation is different, and given the change, we recommend speaking with your Financial Planner to ensure a TTR is still the best strategy for you. 

Case study1
Sebastian is 57 years old, earns $80,000 and has $500,000 in his superannuation account. He pays income tax on his salary and his fund pays $4,500 tax on his $30,000 earnings. Sebastian decides to reduce his work hours to spend more time with his grandchildren. He reduces his working hours by 25 per cent and has a corresponding reduction in his earnings to $60,000. 

He commences a transition to retirement income stream worth $20,000 per year so that he can maintain his lifestyle while working reduced hours. Currently, Sebastian pays income tax but his fund pays nothing on the earnings from his pool of superannuation savings. 

Under the Government’s changes, while the earnings on Sebastian’s superannuation assets will no longer be tax free they will still be taxed concessionally (at 15 per cent). He will still have more disposable income than without a transition to retirement income stream. This ensures he has sufficient money to maintain his lifestyle, even with reduced work hours.


We’re here to help

We understand that some of these changes can seem confusing and you might be unsure about which ones affect you. But there are plenty of different ways we can help you make the most of your super.

Over the phone

If you want to speak to someone over the phone, call our Super Helpline on 1800 640 886. Our Helpline Advisers# can provide you with limited personal advice about contribution strategies.

Face to face

If you’d prefer to talk to someone face to face, our Business Development Managers (BDMs) can meet you at or outside of work and help you with general information about the changes and your account. To find your local BDM, visit mediasuper.com.au/BDM

Personalised financial advice

Everyone’s situation is different. If want more personalised financial advice, a Media Super Financial Planner* can help you can help you understand your current position, determine what your goals are and look specifically at your superannuation and retirement planning needs.

As a valued member of Media Super, you are entitled to an initial one hour, face-to-face or phone consultation with a Media Super Financial Planner, at no cost to you and without any obligation.

The purpose of this meeting is to provide you with information and to identify areas where you may benefit from receiving personalised advice, so that you can take control of your situation and make informed decisions.

If at the conclusion of the meeting you would like to receive personalised advice, then you will be provided with a fixed price quote. In some circumstances you may be able to pay the fee for personalised advice out of your Media Super account, please speak to your Financial Planner in regard to this.

Your planner will only suggest you seek advice if they are confident that it will improve your situation and is in your best interests to do so.

To arrange a time to meet with a planner call the Super Helpline on 1800 640 886 or speak to your local BDM.

# Helpline consultants and Helpline Advisers providing general or limited advice are representatives of Mercer Outsourcing Australia Pty Ltd (MOAPL) ABN 83 068 908 912,  AFS Licence  411980.

* Media Super has engaged Industry Fund Services (IFS) ABN 54 007 016 195 AFSL No 232514 to facilitate the provision of financial advice to members of Media Super. Advice is provided by one of our Financial Planners who are Representatives of IFS. Fees may apply. Further information about the cost of advice is set out in the relevant Financial Services Guide, a copy of which can be obtained by calling IFS on 1300 138 848. IFS is responsible for any personal advice given to you by its Representatives.

1 Case studies have been obtained from treasury.gov.au