2016-17 Federal Budget: Focus on Superannuation

For super fund members there were a plethora of changes in May’s Budget announcement. Most changes apply from 1 July 2017 apart from the lifetime cap on non-concessional contributions of $500,000, which applies from Budget night (3 May 2016) and counts non-concessional contributions from 1 July 2007.

There is to be a $1.6m cap on the total amount of superannuation that can be transferred into tax free retirement phase accounts; those with balances already in tax-free retirement phase above $1.6 million must reduce it to that amount by 1 July 2017; the excess can go back into accumulation phase taxed at 15%. The earnings on transition to retirement income streams will also have the tax exemption on earnings removed.

The reasoning behind these changes is that superannuation is meant to replace or reduce reliance on the aged pension provided by Government, not as a wealth creation and estate planning vehicle. Nevertheless the integration of superannuation planning with estate planning is essential for maximising family wealth. Superannuation will still be taxed concessionally.

For the higher income earners, there is the expected lowering of the income level from $300,000 to $250,000 at which the 30% contributions tax will apply.

On the positive side many of the announced changes provide commendable flexibility including the ability to catch up contributions, contribute without the work test restrictions from age 65 to 74 and obtain personal super contribution deductions even if not substantially self-employed.

This article originally appeared in the winter 2016 edition of InSuccession. Other articles in this newsletter included:

• Hazards of homemade Wills
• Kids behaving Badly – Business Succession Planning