Superannuation changes 1 July 2017

Super is evolving, are you ready?

Changes were made to super on 1 July 2017 that affect super contributions and the way super and retirement income is taxed. Here we explain how the changes may affect you, whether you are contributing to super, about to retire or already retired.

Who will the 2017 super changes affect?

If you earn less than $40,000 or are self-employed you will benefit from more flexible super contribution rules. If you are a high income earner or have a large super balance there are new contribution limits and a balance cap that will change how much you can add to your super.

Low income earners (people earning less than $40,000)

If you are a low income earner, work part time or don't have constant income, it can be hard to save for retirement. Changes to super tax offsets and more flexible super contribution arrangements make it easier to add more to your super.

Spouse super contributions

If your spouse earns less than $37,000 pa and you make a contribution to their super, you can claim a tax offset equal to 18% of the contributions, up to $540. Even if they earn up to $40,000, you could still be entitled to a partial super tax offset. Other restrictions apply, however this change allows couples to get greater benefits from adding to each other's super.

Case study: Emi boosts her super

Happy Asian couple over fourty

Emi and Ken have two children who are still at school. Ken earns $120,000 working full-time and Emi works part-time and earns $30,000 a year. Emi had several years out of the workforce when their children were young so her super balance is quite low.

Emi makes a non-concessional (after tax) contribution of $20 to her super each week so that she can receive a government co-contribution of $500. Because her income is low she will also receive a low income super tax offset of $427 (15% of her employer contributions).

Ken would like to help Emi build her super. He decides to contribute a further $100 a week in non-concessional spouse contributions to her super fund. Ken will be able to claim a tax offset of up to $540 for the spouse contributions he makes. So while he is helping grow Emi's super he'll be reducing his tax bill by $540 a year.

Low income super tax offset (LISTO)

Eligible taxpayers that earn up to $37,000 a year get an additional super contribution from the Government, equal to 15% of before tax (employer and salary sacrifice) super contributions, up to $500. This is called the low income super tax offset (LISTO).

Carry your super cap forward

A new 'carry forward' rule for before tax (concessional) contributions has been introduced that can help you catch up on before tax contributions later.

If you've had time out of the workforce, work part-time or have irregular work patterns and have contributed less than your before tax (concessional) cap, you can rollover the unused portion of your concessional contribution cap for up to 5 years, allowing you to make additional contributions in future years.

High income earners (people earning more than $250,000)

Higher income earners may be affected by a reduction in both before and after tax contribution limits, see changes to personal super contributions below.

If your combined income and super contributions exceed $250,000 you may have to pay extra tax on the excess, this is known as Division 293 tax. This reduced in July from the previous $300,000 threshold, meaning more higher income earners will have to pay extra tax.

People who want to make extra super contributions

Many of the 2017 super changes affect personal super contributions, including tax deductions for contributions, contribution caps and eligibility for the Government's co-contribution.

Tax deductions for personal super contributions

Self-employed people and those that earn less than 10% of their income from salary or wages, can claim a tax deduction for any contributions they make to super. The contributions are then treated as 'before tax (concessional) contributions'.

On 1 July 2017, the 10% rule was removed, making it easier for more people to make use of their concessional contributions cap.

Before tax super contributions (concessional)

On 1 July 2017, the concessional contributions cap reduced to $25,000 for everyone. This means the amount of contributions you can make that are concessionally taxed has reduced.

However, you will be able to 'carry-forward' any unused concessional contributions cap on a rolling 5 year basis. This means carried forward amounts will expire after 5 years.

After tax super contributions (non-concessional)

The non-concessional contributions cap has reduced from $180,000 to $100,000 per year. You will still be able to bring forward up to three times the cap to make larger one-off contributions, if you are under age 65 and have not reached the new transfer balance cap. The full benefit you bring forward may not apply if your total super balance is close to the balance transfer cap.

Work out whether to make extra contributions before or after tax.

Super contributions optimiser

Government super co-contributions

Low income earners who make after tax contributions to super may be eligible for a Government co-contribution payment into their super. This is calculated at 50 cents for every dollar you contribute (up to $500).

In addition to the previous co-contribution eligibility requirements, you must now also have a total superannuation balance at the end of the previous financial year of less than the transfer balance cap and not have exceeded your after tax contributions cap.

For example, if you have made personal after tax contributions and have satisfied the current co-contribution eligibility requirements, but have already reached your transfer balance cap, then you will no longer be entitled to a Government co-contribution. See government super contributions for more information.

Retirees or those approaching retirement

The rules around retirement income streams have changed. Transition to retirement (TTR) pensions are now less tax effective and there is a cap on how much you can transfer into a tax-free super pension. There are also new restrictions on the way death benefit payouts are calculated.

Transition to retirement (TTR) pensions

From 1 July 2017, the earnings of a TTR pension will now be taxed at up to 15%, the same as they are in a super accumulation account.

For example, if you had a TTR pension of $200,000 and the investment earnings were $10,000 for the year, there was previously no tax on those earnings. From July the earnings will be taxed at up to 15%, or up to $1,500 in this example, depending on the type of underlying investments.

The earnings of ordinary retirement pensions are still tax free.

Super transfer balance cap

If you are aged 60 or older, income payments from an account-based super pension are tax free. On 1 July 2017, a limit was introduced on how much super you can transfer to a tax-free account-based pension. This is called the 'transfer balance cap' and has initially been set at $1.6 million but will be indexed by CPI, rounded down to the nearest $100,000.

Only the unused portion of your cap will be indexed so once you have reached the transfer balance cap you won't be entitled to further indexation. You can have multiple transfers to pension accounts as long as the total amount transferred into an account-based pension is under the cap. Investment earnings will not affect your transfer balance cap.

TTR pensions do not count towards your transfer balance cap and there is no limit on how much you can have in your accumulation super account.

Account-based pensions started before 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017. Pensions started after this date will count towards the cap when they commence.

If you exceed your transfer balance cap, you may have to remove the excess funds and pay tax on the earnings related to the excess.

Defined benefit pensions

Different tax rules apply to defined benefit pensions as you usually can't transfer or remove excess amounts from these income streams. Speak to your defined benefit pension fund to see how the changes will affect you.

Super anti-detriment payment

An anti-detriment payment was a payment to dependent beneficiaries of a deceased super fund member that represented a refund of super contributions tax. A dependent beneficiary of a deceased estate could request an anti-detriment payment be paid as part of a super death benefit payout.

From 1 July 2017, this payment is no longer available as part of a super death benefit payment. Super funds can still make anti-detriment payments until 30 June 2019 for members who died before 1 July 2017.

The July 2017 super changes are designed to make the system fairer and sustainable but it's now more important than ever to start planning your retirement income early. Visit the ATO's super changes webpage for more detailed information and examples of how you might be affected.

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Last updated: 04 Feb 2019