Australia has just been through one of its longest-ever Federal elections. The Coalition government has been returned, but with the slimmest of majorities. Meanwhile, the makeup of the Senate is still to be decided, although it appears the government may face an Upper House more fragmented (and hostile?) than before the election. If this proves to be the case, then we are all in for what may be an extended period of uncertain times.
At times of such potential political, social, economic and financial uncertainty it is highly advisable to maintain good lines of communication with your financial advisers. Things can move quickly. There can be unexpected changes to the law which have the potential to negatively – or positively – impact on your plans for your financial future.
Superannuation changes
There can be no better example of an unexpected change to the financial landscape than the drastic changes to superannuation announced by the government in the Federal budget on 3 May this year. While there is now some talk that the government may water down some of the changes, it is worth summarising the key changes announced on budget night.
Tax on concessional contributions to increase for some high income earners
From 1 July 2017, the threshold at which the additional 15 per cent concessional contributions tax for high income earners kicks in will be reduced from $300,000 to $250,000.
$1.6 million lifetime cap on transfers to retirement
From 1 July 2017, the government will introduce a $1.6 million superannuation transfer balance cap on the total amount of superannuation an individual can transfer into retirement phase accounts. The cap will apply to both current retirees and to individuals yet to enter their retirement phase. Retirees who already have more than $1.6 million in pension have until 1 July 1, 2017 to remove the excess amount from their super or return it to the accumulation phase, where a 15 per cent earnings tax applies.
Concessional contributions cap reduced
From 1 July 2017, the annual pre-tax concessional contributions limit will be reduced to $25,000 from its current rate of $30,000 for people under 50 years of age and $35,000 for people over 50 years of age.
$500,000 lifetime non-concessional contributions cap
The current annual non-concessional superannuation contribution cap of $180,000 will be replaced by a lifetime cap of $500,000. The change, which came into effect on the night of the budget, applies to all non-concessional contributions made on or after 1 July 2007. The lifetime cap is intended, in the words of the government, to “limit the extent to which superannuation can be used for tax minimisation and estate planning”.
Remove tax exemptions for earnings on assets supporting transition to retirement income streams
From 1 July 2017, the tax exemption on income streams of individuals over preservation age but not retired, will be removed. At the same time the government will also remove a rule treating certain superannuation income stream payments as lump sums for tax purposes.
Tax exemption on earnings in the retirement phase
From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products. According to the government, this change is intended to “enhance choice and flexibility for Australian retirees looking to make the most of their superannuation savings.” The Government has said it will consult on how these products will be treated under the Age Pension means test.
Keep in touch with your adviser
As we can see, superannuation appears to be in for some of the most significant changes in its history. Falconer Advisers are experts at superannuation (see our most recent super blog here). To find out how we can help you navigate these uncertain times, please call me on 03 6234 2233 or email me on glynn@falconeradvisers.com.au.