Australia: Superannuation slammed and carved up in budget – the reform cycle continues

Sweeping superannuation changes that will significantly impact industry and all superannuants have been announced by the Federal Government in its 2016/2017 Budget under the mantra of a new purpose for superannuation – "to provide income in retirement to substitute or supplement the Age Pension".

Industry reaction has been swift and relatively consistent. The reforms are the most significant we have seen in terms of superannuation and tax since the so-called Simpler Super changes in 2007.

Despite the Government's pre-election commitment to not introduce any adverse changes to superannuation in this term of Parliament, there are many who will be disappointed with the Government's cuts to the concessional contributions cap and the introduction of a lifetime cap for non-concessional contributions.

Service providers and industry participants will be justifiably concerned with the complexity associated with measures seeking to limit retirement balances in super to $1.6 million. Coupled with other aspects of the proposed superannuation reforms, these measures will mean investors may need to look elsewhere to house their money.

It remains to be seen what impact the proposals will have on the Government's retirement income strategy and reliance on the Age Pension. What is certain is that the reform cycle for superannuation will continue in earnest and confidence in the system will continue to dive.

The table below (and attached by clicking download at the top of this article) provides a high level summary of the major superannuation and regulator reforms announced in the Budget. If you have any queries about how these changes impact you, please contact a member of our team.


Amendment Need to know
What's new:

Maximum $1.6 million balance for retirement accounts from 1 July 2017 (ie those in the payment phase cycle).
Read more: Budget Paper No 2 at pages 25-26 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 2

  • Any excess above must be retained in an accumulation account where it will continue to be taxed at a 15% rate.
  • The maximum cap applies to existing accounts as well. The excess over $1.6 million must be transferred back to an accumulation account or withdrawn.
  • Similar measures will apply for defined benefit schemes.

Lifetime cap of $500,000 on non-concessional contributions. The cap will commence from 7.30 pm on 3 May 2016.
Read more:
Budget Paper No 2 at page 27 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 4

  • The existing cap of $180,000 per year or $540,000 every 3 years is being removed.
  • The cap is retrospective and will include all non-concessional contributions made after 1 July 2007.
  • Exceeding the cap will trigger penalty tax, although anyone who has already exceeded the cap is exempt (unless new contributions are made in breach of the cap).

"Catch up" for account balances less than $500,000 from 1 July 2017.
Read more: Budget Paper No 2 at page 24 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 8

  • The unused portion of each year's concessional contribution limit can now be carried forward.
  • The cap is carried forward on a rolling basis for a consecutive period of 5 years.

Tax exemption extended for retirement income products.
Read more:
Treasurer's media release, 3 May 2016 Superannuation fact sheet 11

  • The tax exemption on earnings in retirement phase will be extended.
  • This should enable the development of deferred lifetime annuities and group self-annuitisation products.
What's being tinkered with:

Annual cap of $25,000 on concessional contributions from 1 July 2017.
Read more:
Budget Paper No 2 at pages 28-29 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 3

  • The existing cap of $30,000 or $35,000 (depending on age) will be removed.
  • A $25,000 cap applies to all individuals regardless of age.
  • Penalty tax for excess concessional contributions will continue.

Division 293 tax commences from $250,000 threshold.
Read more:
Budget Paper No 2 at pages 28-29 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 3

  • The existing $300,000 threshold is being lowered.
  • Division 293 tax effectively doubles the contributions tax rate on concessional contributions.
  • The special definition of income for the purpose of Division 293 tax can result in those with incomes lower than $250,000 being caught.

Changed tax treatment for transition to retirement pensions from 1 July 2017.
Read more:
Budget Paper No 2 at page 3 Superannuation fact sheet 12

  • Earnings on assets supporting a transition to retirement pension will be taxed at 15%, instead of 0%.
  • All existing transition to retirement pensions are affected.

Low income super tax offset to be introduced. Read more: Budget Paper No 2 at page 28 Superannuation fact sheet 6

  • The new offset replaces the existing Low Income Superannuation Contribution.
  • The offset is being paid to super funds and applies to members with an adjusted taxable income of $37,000.

Low income spouse super tax offset to be extended. Read more: Budget Paper No 2 at page 25 Superannuation fact sheet 10

  • A new method for calculating the offset enables limited contributions on behalf of a spouse where their salary exceeds $37,000.
  • Effectively the value of the offset reduces to zero after the spouse's income exceeds $40,000.

Work test for contributions to be removed for age 65 to 74. Read more: Budget Paper No 2 at pages 24-25 Treasurer's press release, 3 May 2016 Budget Superannuation Fact Sheet 9

  • Those under the age of 75 will no longer have to satisfy a work test.

Tax deductions for personal superannuation contributions extended from 1 July 2017.
Read more:
Budget Paper No 2 at page 28 Superannuation fact sheet 7

  • All individuals up to age 75 will be able to claim an income tax deduction for personal contributions.

Anti-detriment deduction to be removed for super benefits from 1 July 2017. Read more: Budget Paper No 2 at page 29 Treasurer's press release, 3 May 2016

  • The purpose of the reform is to align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside superannuation.
New regulator funding – who gets what?

Read more:
Budget Paper No 2 at pages 172

  • Additional $9.7 million over 3 years for data collection and dissemination systems and $11.2 million for maintaining those systems.
  • Supervisory levies to be increased from 2016/17 to pay for the above.

Read more:
Budget Paper No 2 at pages 148-149 and 172

  • $121.3 million over 4 years for surveillance and enforcement activities in financial services. A particular focus for the money is on financial advice, responsible lending, life insurance, breach reporting and data analytics. Commentators have acknowledged that this is effectively a reinstatement of cuts to ASIC's budgets in previous years.
  • $6.2 million in 2016/17 to support the commencement of the industry funding model for ASIC. The money is marked for developing a levy calculator and improving internal billing and time recording systems.
  • Provision of $144.5 million over 3 years from 2017/18 pending the development of industry charging arrangements for ASIC has been made.

Superannuation Complaints Tribunal (previously announced on 20 April 2016).
Read more:
Budget Paper No 2 at page 153

  • $5.2 million for hearing existing complaints and improving internal funding.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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