The Government’s super reform program, originally announced in the 2016 Federal Budget, became law on 29 November 2016.
The following will come into effect on 1 July 2017:
1. The $1.6 million pension cap
- The amount you will be able to transfer into the tax exempt pension phase of superannuation will be capped at $1.6 million. Any existing superannuation pensions will be assessed against the cap based on the 30 June 2017 balances of those accounts. Amounts assessed as being in excess of the cap will need to be transferred out of the tax exempt pension phase, either back to the accumulation phase (taxable at 15 per cent) or out of the superannuation system entirely.
- Although transfers to the tax exempt pension phase will be limited to $1.6 million, there’s no restriction on how much you can continue to hold in the accumulation phase, which is taxed at the concessional rate of 15 per cent.
2. Pre-tax super contributions
The pre-tax superannuation annual contributions (also known as concessional contributions) cap will be reduced to $25,000. If you are 49 years of age or older on 30 June 2016, you may contribute up to $35,000 of pre-tax contributions by 30 June 2017, otherwise (if younger) your limit is $30,000.
3. After-tax super contributions
- The after-tax super contribution annual cap will be reduced from $180,000 to $100,000. If your client is under 65 years of age at any time during the income year, they can ‘bring forward’ two future years of contribution capacity. Importantly, the existing threshold of $180,000 per annum (and $540,000 on a ‘bring forward’ basis) remains in place until 30 June 2017.
- If your total superannuation balances across all super funds exceed $1.6 million on 30 June 2017, you will not be able to make any after-tax contributions in 2017-18. If your total superannuation balance is less than $1.6 million but exceeds $1.4 million, you will be subject to a scaled back after-tax contribution capacity.
4. Transition to retirement (TTR) pensions
The investment earnings of TTR pensions will no longer be exempt from tax.
5. Capital gains tax (CGT) relief
A CGT relief election has been introduced to alleviate the possible CGT consequences of the $1.6 million cap and taxation of TTR pensions. The CGT relief will help preserve the tax free status of capital gains accrued while supporting a pension.
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