The big changes in the federal budget

The government has made serious adjustments to Australians’ retirement savings, writes Byron Smith.

Superannuation is the big focus of the government’s 2016-17 budget. It proposes to introduce a raft of changes it claims will refocus super on supporting those at risk of relying on the age pension.

In delivering the budget, Treasurer Scott Morrison identified tax concessions for the wealthy were his target, but said “96 per cent of Australians with super will be unaffected by or be better off as a result of the superannuation changes we have announced tonight”.

The Association of Superannuation Funds of Australia says 560,000 Australians will be affected by the changes. It supports initiatives that benefit low-income earners, but is against some other measures.

Key changes

Super contributions receiving tax concessions will be limited to $25,000 a year from July 1, 2017. If you want to contribute any more than that then penalties will apply. (For those aged under 50 this is currently $30,000, and $35,000 for those aged 50 and over.)

“We do not support the reduction of annual concessional caps to $25,000. While today less than 2 per cent of people (around 255,000) with superannuation make contributions above $25,000, a significant number of such individuals that have low balances are attempting to catch up,” says the association’s chief executive officer Pauline Vamos.

Over a lifetime, the government will limit non-concessional contributions to $500,000, a big adjustment from the current limit of $180,000 a year (or $540,000 for those able to use the bring-forward rule). (Non-concessional means after-tax contributions to super that are not taxed in the super fund.)

And this limit began at the time of budget delivery, on May 3 this year, taking into account non-concessional contributions made since July 1, 2007.

Restrictions on who can make personal deductible contributions to super have been eased. Anyone up to 75 years of age can now claim income-tax deductions for their personal super contributions, though the concessional limit of $25,000 still applies. This is particularly helpful for those who can’t use salary-sacrifice arrangements.

Higher income earners

High-income earners have been hit with super tax concession limits and a general curbing on contributions into superannuation.

Treasurer Scott Morrison summed up his superannuation changes, when delivering the budget in Parliament on May 3, in saying he was focusing Australia’s superannuation system to help those at risk of having to rely on the age pension and “reducing access to generous superannuation tax concessions for the most wealthy”.

The threshold at which high-income earners pay 30 per cent tax on super contributions will be lowered from $300,000 to $250,000 beginning July 1, 2017. This change will limit the effective tax concessions provided to high-income earners.

Only $1.6 million of the superannuation that income earners accumulate can be moved into tax-free retirement-phase accounts. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high-wealth individuals.

And earnings from assets that support ‘transition-to-retirement income streams’ will no longer be tax exempt from July 1, 2017.

Budget 2016: Super winners and losers

Low-income earners

Those with a super balance less than $500,000 will be able to make additional contributions at a concessional tax rate, if they haven’t reached the $25,000 limit in previous years – a roll-on effect which can continue for up to five consecutive years.

This will particularly help those that make lower contributions or have interrupted work patterns or cannot make uniform contributions every year.

Low-income earners will benefit from a superannuation tax offset beginning July 1, 2017. Those earning $37,000 or less who make a concessional contributions to their super will receive a tax benefit capped at $500 to offset the tax paid on those contributions. This will replace the low-income superannuation contribution scheme which ceases on June 30, 2017.

Similarly, more taxpayers who contribute to a low-income earning spouse’s account will be eligible for the spouse contribution tax offset because of the increase in the income threshold for the low-income spouse from $10,800 to $37,000. The low-income spouse tax offset provides up to $540 each year for the contributing spouse.

Older Australians

Those aged 65 to 74 will not be restricted from making super contributions for their retirement, beginning July 1, 2017. They’ll no longer have to satisfy a work test and will be able to receive contributions from their spouse.

And any person under age 75 can claim income tax deductions on super contributions. 

May 2016