Well, I can’t say that this year’s budget was my favourite, which I’m sure is a shared sentiment among a lot of our clients. Whilst I still believe that Superannuation is a great space and retains a high degree of tax advantages, there are some changes on the table that will affect quite a few people.
For simplicity’s sake, let’s break it down into the good and the bad:
- The work test has effectively been done away with. Up until now if you were over 65 and wanted to contribute you had to meet this test. From 1 July 2017, this will be no more. One less thing to provide at audit time as well.
- Low-income spouse rebate. This has been introduced as a measure to equalise spouse super accounts – namely women. It’s a $540 offset that phases out once the recipient’s income is $40,000.
- Another initiative for the low-income earner is the rebate on contributions tax if you are earning less than $37,000. Again this comes into play from 1 July 2017. The tax offset will be up to $500.
- Concessional contributions have been reduced down to $25,000 from 1 July 2017. There is still this financial year and next to get these contributions in at the higher caps.
- Non-concessional contributions and the new $500,000 lifetime cap. The kicker here is that this is retrospective back to 01/07/2007. Therefore, if you have contributed up to or over the $500,000 limit as at 7:30pm last night, then no more can be put in.
- Capping Pension accounts at $1.6 million. Essentially anything over this amount will need to be sectioned off into an accumulation account that attracts 15% tax. This is going to place a lot more importance on valuation of assets.
- Division 293 which is a 30% tax rate that previously was levied at people with an assessable income of over $300,000. This has been lowered to $250,000.
- Transition to retirement pensions. From 1 July 2017, these pensions will lose their tax-exempt components.
Take away thoughts
I would have loved to have seen more thought given to Women’s super and the huge gap we are seeing at retirement. I’m quite disappointed this wasn’t more of a focus. What we need to keep in mind also is that these changes haven’t been legislated yet and as we know in the world of politics things can change or modify dependent on polls and popularity. Trustees need to ensure they are getting the right advice as well. Engaging with a professional that can guide you through these changes will be a crucial aspect in making sure there are no breaches to your fund and that you are still maximising every opportunity available.
If you have any questions regarding the budget or your fund, in general, please give us a call.