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AU Tax 2024

May 2016 Budget: Superannuation changes explained

The changes to the superannuation (super) system, announced by the Australian Government in the May 2016 Budget have now received Royal Assent. These changes were designed to improve the sustainability, flexibility and integrity of Australia’s super system. Most of the changes will commence from 1 July 2017.

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Your super is your future – check to see if you are directly affected or what these changes may provide for you to maximise your savings for retirement.

An overview of the changes is below. More detailed information will become available over the next two weeks to help you understand the changes, how they may affect you and what you may need to know and do now or in the future.

Specific overviews for APRA-regulated funds and self-managed super funds will also soon be available.

Keep informed about updates

This page will be updated as the ATO progress the administration of the changes within the super system.

Some of the terms used in the super system are unique and you may not have come across them before.

Overview of super changes

Spouse tax offset

Currently an individual can claim a tax offset up to a maximum of $540 for contributions they make to their spouse's eligible super fund if, among other things, the total of the spouse's assessable income, total reportable fringe benefits and reportable employer super contributions is between $10,800 and $13,800.

From 1 July 2017, the spouse's income threshold will be increases to between $37,000 and $40,000. The current 18 per cent tax offset of up to $540 will remain as is and will be available for any individual, whether married or de facto, contributing to a recipient spouse, whose income is up to $37,000. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.

You will not be entitled to the tax offset when the spouse receiving the contribution has exceeded their non-concessional contributions cap for the relevant year or they exceed their super transfer balance cap in the financial year before the year you made the contributions

The intent of this change is to extend the current spouse tax offset to assist more couples to support each other in saving for retirement. This will better target super tax concessions to low-income earners and people with interrupted work patterns.

Personal super contributions deduction

Currently, an individual (primarily self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10 per cent of their income is from salary and wages.

From 1 July 2017, this condition will be removed. The remaining conditions remain the same.

The intent of this change is to improve the flexibility of the super system so that more Australians can utilise their concessional contributions cap.

Low-income super tax offset contribution (LISTO)

The Government will introduce a Low Income Superannuation Tax Offset (LISTO), which will replace the Low Income Superannuation Contribution policy that has been repealed from 1 July 2017.

LISTO will provide continued support for low-income earners and ensure that generally they do not pay more tax on their super contributions than on their take-home pay.

From 1 July 2017, eligible individuals with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund. The LISTO contribution will be equal to 15 per cent of their total concessional (pre-tax) super contributions for an income year, capped at $500.

Introducing a transfer balance cap of $1.6 million for pension phase accounts

From 1 July 2017, the Government will introduce a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions.

To provide a broadly equivalent outcome for people over 60, this will also mean a change to the taxation of:

  • Lifetime pensions and annuities
  • Current life expectancy pensions and annuities
  • Market-linked pensions and annuities.

These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including self-managed super funds (SMSFs).

The general transfer balance cap will be indexed in $100,000 increments in line with CPI. Indexation will be applied proportionally where an individual is a retirement phase income stream recipient, but has not at any time met or exceeded their cap.

Reduction of Division 293 income threshold to $250,000

Currently individuals with income and concessional super contributions in excess of $300,000 trigger a Division 293 assessment.

From 1 July 2017, the Government will lower the Division 293 income threshold to $250,000. An individual with income exceeding the $250,000 threshold will have an additional 15% tax imposed on the whole amount of their contributions up to their concessional contributions cap.

The intent of this change is to better target tax concessions to ensure the superannuation system is equitable and sustainable.

Lowering the non-concessional (post-tax) contributions cap to $100,000 per annum

From 1 July 2017, the Government will reduce the annual non-concessional (after tax) contribution cap from $180,000 to $100,000 per year. This will remain available to individuals aged between 65 and 74 if they meet the work test. The cap will be indexed in line with the concessional contributions caps.

There is capacity to bring forward one or two years of non-concessional contributions ($200,000 cap over two years or $300,000 cap over three years) if an individual is aged under 65. The bring-forward amount is determined by the total super balance on the day prior to the financial year contributions that triggers the bring-forward. The bring-forward is not available to individuals aged between 65 and 74.

Individuals with a total super balance above $1.6 million at 30 June of the previous year will no longer be eligible to make non-concessional contributions.

The intent of this change is to better target tax concessions to ensure that the super system is equitable and sustainable, ensuring those who have saved well in excess of what is required to be self-sufficient in retirement are not able to continue to access further concessional tax treatment. It also provides flexibility as it is recognised that non-concessional contributions are often made in large lump sums.

Reduction of concessional (pre-tax) contributions cap to $25,000 per annum

Currently, individuals can make concessional contributions (pre-tax) up to $30,000 ($35,000 for people aged 50 and over) within a financial year.

From 1 July 2017, the Government will lower the annual concessional contributions cap to $25,000 for all individuals. The cap will index in line with wages growth.

The intent of this change is to better target tax concessions to ensure the super system is equitable and sustainable.

Carry-forward concessional contributions of unused caps over 5 years

From 1 July 2018, individuals will be able to make 'carry-forward' concessional super contributions if they have a total super account balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which you can access unused concessional contributions is the 2019-20 financial year.

The intent of this change is to improve the flexibility of the super system.

Improving the integrity of retirement income streams

Transitions to retirement income streams (TRIS) are currently available to assist individuals to gradually move to retirement by accessing a limited amount of super. Currently, individuals receiving a TRIS receive tax-free earnings on the super assets that support it.

From 1 July 2017, the Government will remove the tax-exempt status of earnings that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15 per cent regardless of the date the TRIS commenced.

Individuals will also no longer be able to treat super income stream payments as lump sums for taxation purposes.

The intent of this change is to ensure that TRIS are not accessed primarily for tax purposes but for the purpose of supporting individuals remain in the workforce.

Removal of anti-detriment payment

Currently, the anti-detriment provision enables a fund to claim a deduction in their tax return for a top up payment made as part of a death benefit payment where the beneficiary is the dependant of the person. The top up amount represents a refund of an individual's lifetime super contribution tax payments into an estate. From 1 July 2017, the Government is removing this provision and super funds will no longer be able to claim this deduction. This change will ensure consistent treatment of lump sum death benefits across all super funds.

Super funds may claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti-detriment payments as part of a death benefit if the member dies on or after 1 July 2017.

Innovative retirement income stream products

Currently there are rules restricting the development of new retirement income products.

From 1 July 2017, the Government will remove these barriers by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.

The intent of the change is to provide greater choice and flexibility for retirees to manage the risk that they outlive their retirement savings.