Superannuation checklist: What rules apply for the 2016/2017 year?

With only weeks left of the 2016/2017 financial year, it is timely to consider whether you plan to take advantage of pre-July 2017 rules, especially in relation to making super contributions.

Although the Coalition government has made significant amendments to Australia’s superannuation rules, many of the big-ticket super policies are not changing from July 2017 (see list later in article), except in relation to super contributions and super pensions. Importantly, none of the proposed changes will apply for the 2016/2017 year, although in terms of super contributions and super pensions, you may need to take action this financial year.

For the super policies that remain the same, see later in the article.

New super policies that may affect your 2016/2017 year plans

Even though none of the super changes announced in the 2016 Federal Budget apply for the 2016/2017 year, there are two major super policies (if applicable) which will require you to take action in preparation for the 2017/2018 year. Further, there are two additional major policies that may prompt you to take action. These policies are:

• The $1.6 million transfer balance cap. Although the $1.6 million transfer cap on super pension assets will not take effect until 1 July 2017, Australians receiving super pensions or planning to start a super pension will need to be mindful of the new rules. If you have more than $1.6 million in pension phase right now, then you will need to take action before July 2017. For the latest information on the $1.6 million transfer cap, see SuperGuide articles Burden for retirees: Monitoring $1.6 million transfer balance cap, and CGT relief and the $1.6 million transfer balance cap, and TRIPs, and Defined benefit pensions and the $1.6 million transfer balance cap, and Superannuation death benefits and the $1.6 million transfer balance cap.
• Substantial non-concessional contributions and the bring-forward rule. If you’re planning to make significant non-concessional (after-tax) contributions, which triggers the bring-forward rules during the 2016/2017 year (or if you triggered the bring-forward rules during the 2015/2016 year), then you need to be aware of transitional rules that come into effect for the 2017/2018 financial year, and potentially for the 2018/2019 financial year (for more information, see SuperGuide article Bring-forward rule: 10 super facts you should know).
• Cut in concessional (before-tax) contributions cap from July 2017. If you want to take advantage of the higher concessional caps ($35,000 and $30,000) currently in place, then be mindful that the cap will be lowered to $25,000 from 1 July 2017 (see SuperGuide article Super concessional (before-tax) contributions: 2016/2017 survival guide).
• Cut in non-concessional (after-tax) contributions cap from July 2017. Likewise, if you want to take advantage of the current $180,000 cap (and $540,000 bring-forward rule), then note that the annual NCC cap will be cut to $100,000 (and $300,000 bring-forward rule). For more information, see SuperGuide articles  Super concessional (before-tax) contributions: 2016/2017 survival guide and New $100,000 cap: Cut to non-concessional contributions cap.

For a summary of the new super rules in place from 1 July 2017, see SuperGuide article Super changes (July 2017): Planning ahead for the 2017/2018 year). For the rules applicable for the 2016/2017 year, continue reading.

Super continues as normal, for 2016/2017 year

The key elements of the superannuation system remain the same for the 2016/2017 financial year, including:

• Superannuation guarantee rate at 9.5%
• No increase in tax on super fund investment earnings
• Concessional contributions caps (although reduced cap from July 2017)
• Non-concessional contributions caps (although reduced cap from July 2017, see note below)
• Super benefits for over-60s remain tax-free
• Tax exemption on investment earnings for super pensions (but note anyone with more than $1.6 million in pension phase as at 30 June 2017 needs to take action)
• Tax exemption on investment earnings for transition-to-retirement pensions (TRIPs) remains until 30 June 2017 (removed from 1 July 2017)
• Low Income Super Contribution continues, and also beyond June 2017
• Co-contribution scheme remains in place
• Tax treatment of death benefits remains the same (apart from removal of anti-detriment payment from July 2017)

Continue reading to find out more about the super rules that remain in place for the 2016/2017 year, and links to SuperGuide articles explaining each policy in more detail. (For a summary of the new super rules in place from 1 July 2017, see SuperGuide article Super changes (July 2017): Planning ahead for the 2017/2018 year).

Note: On 15 September 2016, the federal government announced the scrapping of the retrospective $500,000 non-concessional contributions cap, and replaced it with an annual $100,000 cap, with a starting date of 1 July 2017 (I explain the new cap briefly in this article, but for a detailed explanation, see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap). What this means is that the current non-concessional contributions caps continue to apply for the 2016/2017 year, although a bring forward may be subject to transitional rules, if the bring forward crosses over into the 2017/2018 year.

Superannuation Guarantee rate at 9.5%

Superannuation Guarantee (SG) rules have not changed for the 2016/2017 year. Under the SG laws, your employer must make compulsory superannuation contributions, and these contributions will increase over time. The SG laws require an employer to contribute the equivalent of 9.5 per cent of an employee’s ordinary time earnings to an employee’s super fund, for the 2016/2017 year. The current annual SG rate of 9.5 per cent remains in place until 30 June 2021, and will increase to 10 per cent for the 2021/2022 year, and gradually increase to 12 per cent from July 2025. For more information on the SG rules, see SuperGuide articles  Employer super contributions: SG rate 9.5% for 2017/2018 year and Superannuation and employees: 10 facts about your super entitlements.

No increase in tax on super fund investment earnings

The Coalition government is not changing the concessional tax rate on your super fund account’s investment earnings. Super fund investment earnings are taxed at 15 per cent in accumulation phase, which continues to be a compelling savings alternative for Australians paying higher rates of tax on personal earnings. Further, the Coalition government will not impose tax on super pension investment earnings for the 2016/2017 year, although from 1 July 2017 the government has imposed a cap on the value of assets that you may take into pension phase, and that transfer balance cap is $1.6 million. Note if you expect to have more than $1.6 million of super in pension phase as at 1 July 2017, you must take action before July 2017 (for more information on this change see SuperGuide article Burden for retirees: Monitoring $1.6 million transfer balance cap).

Concessional contributions caps change from July 2017

For the 2016/2017 year, the concessional contributions caps have not changed. If you’re aged 48 years or under on 30 June 2016, then your concessional cap is $30,000 for the 2016/2017 year. If you’re aged 49 years or over on 30 June 2016, your cap is $35,000 for the financial year. From 1 July 2017, the Coalition government has cut the concessional cap to $25,000 for all age groups. Even from July 2017, voluntary concessional contributions will still be possible, subject of course to the lower cap. For more information about the concessional contributions caps for the 2016/2017 year, see SuperGuide article Super concessional (before-tax) contributions: 2016/2017 survival guide and for information about the cut in the concessional cap see SuperGuide article Concessional contributions caps to be slashed from July 2017.

Non-concessional (after-tax) contributions caps change from July 2017

For the 2016/2017 year, the non-concessional contributions caps have not changed. The annual NCC cap is $180,000, and if you’re under the age of 65, you can bring forward 2 years’ worth of contributions, which means you can make up to $540,000 in NCCs in one financial year. From 1 July 2017, the annual NCC cap will drop to $100,000 and the maximum bring forward has dropped to $300,000. For more information about the non-concessional contributions caps for the 2016/2017 year, including the possibility of making up to $540,000 in NCCs, see SuperGuide article Your 2016/2017 guide to non-concessional (after-tax) contributions and for information about the July 2017 cut in the non-concessional cap see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.

Reminder: If you’re planning to make significant non-concessional (after-tax) contributions which trigger the bring-forward rules, then you need to be aware of transitional rules that come into effect for the 2017/2018 financial year, and potentially for the 2018/2019 financial year (for more information, see SuperGuide articles Bring-forward rule: 10 super facts you should know and Non-concessional contributions: 10 facts about new $100,000 cap.

Note: On 15 September 2016, the federal government announced the scrapping of the proposed retrospective $500,000 non-concessional contributions cap, and replaced it with an annual $100,000 cap, with a starting date of 1 July 2017 (I explain the new cap briefly in this article, but for a detailed explanation, see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap). What this means is that the current non-concessional contributions caps continue to apply for the 2016/2017 year, although a bring forward may be subject to transitional rules, if the bring forward crosses over into the 2017/2018 year.

Tax-free super benefits for over-60s

The tax exemption on investment earnings derived from super pension assets is a different policy from the tax-free treatment of super benefits paid from a super or pension account. If you’re aged 60 years or over, you can still receive your super benefit payments tax-free.

Australians aged 60 years or over who are withdrawing super benefits as a super pension, or a lump sum, can continue to expect these benefit payments to be tax-free. The only exception to this tax-free treatment is when an individual belongs to certain older public sector funds and the individual receives a benefit from an untaxed source: the taxable component of benefit payments from an untaxed source are subject to some tax. For more information on tax-free super for over-60s, see SuperGuide article Tax-free super for over-60s, except for some (from 1 July 2017).

If you’re aged under 60 years but you have reached your preservation age, the taxable component of your super benefit payments from a taxed source will continue to receive concessional tax treatment, in the form of 15 per cent pension tax offset for the taxable component of super pension payments, and a tax-free threshold for lump sum payments. For more information on the tax treatment of super benefits for under-60s, see SuperGuide article Retiring before the age of 60: the tax deal from 1 July 2017.

Tax exemption for TRIPs remains until 30 June 2017

Taking effect from 1 July 2017, the government has removed the tax-exempt status of earnings supporting a transition-to-retirement pension (TRIP). Until 30 June 2017, the investment earnings on super assets financing a TRIP are exempt from tax. From 1 July 2017, removal of the tax exemption will affect existing recipients of TRIPs and future recipients of TRIPs. For more information see SuperGuide article Less tax, more super? A transition-to-retirement pension is no longer the answer.

Low Income Super Contribution/Low Income Super Tax Offset

For lower-income earners, the ATO continues to pay the Low Income Super Contribution, which is a refund of contributions tax into an individual’s super account. If you earn less than $37,000 and concessional contributions are paid into your super account, either by your employer or yourself, you can expect a refund of up to $500 a year for the contributions tax deducted from the super contributions. The threshold of $37,000 applies to your ‘adjusted taxable income’, which includes non-SG concessional contributions, net investment losses and several other items. The Coalition were intending to end this super tax refund from 1 July 2017, but reconsidered and now the policy will continue indefinitely. The Coalition renamed this policy as the Low Income Superannuation Tax Offset. For more information on this policy, see SuperGuide article Super tax refund for lower-income earners extends beyond June 2017.

Co-contribution scheme remains in place

Making a small non-concessional contribution continues to be compelling for those Australians eligible for the co-contribution scheme. If your total income is less than $51,021 for the 2016/2017 year, and you make a non-concessional contribution to your super fund, the federal government will make a tax-free co-contribution to your super account.

The federal government will pay you 50 cents for each dollar you contribute to your super fund in after-tax dollars, subject to you also satisfying a work test and assuming you’re under the age of 71. The maximum co-contribution of $500, on a $1,000 after-tax contribution, is payable if your total income is less than $36,021 (for the 2016/2017 year). For more information, see SuperGuide articles Cashing in on the co-contribution rules (2016/2017 year), and Super contributions: How much co-contribution will I get?

Tax treatment of death benefits

The tax treatment of death benefits is unchanged with dependants under the tax laws (such as spouses and children under the age of 18), continuing to receive death benefits free of tax, and non-dependants (such as financially independent adult children) liable for a 15 per cent tax on the taxable component of the death benefit (for more information on the tax treatment of death benefits, see SuperGuide article Superannuation after-life: Dear Dad, Tax for everything).

Alert! Although the tax treatment of death benefits has not changed, the impact of the new $1.6 million transfer balance cap on death benefit pensions can be severe (see SuperGuide article Superannuation death benefits and the $1.6 million transfer balance cap).

Note: From 1 July 2017, the opportunity to make anti-detriment payments ends. The Coalition government has changed the laws so that super funds will not be able to pay a refund of a member’s lifetime superannuation contributions tax payments into an estate, and the super fund likewise will not be able to claim a tax deduction for this payment. For more information, see SuperGuide article Anti-detriment payments banned from July 2017.

SuperGuide postscript

I wish to make a brief comment about the super changes taking effect from 1 July 2017. The uncertainty that the federal treasurer Scott Morrison caused when announcing last-minute changes to the super rules, nearly cost the Coalition the 2016 Federal Election. Treasurer Morrison should heed this clear electoral warning from voters: retrospective changes are not fair, and unhappy voters can change the outcome of an election. The other important, but little-publicised warning the government received during the election, was from retirees reeling from the Age Pension changes Scott Morrison introduced when he was Minister for Social Services, and which took effect from January 2017. For more information about why retrospective policies are detrimental to sound retirement policy, see SuperGuide article Guest contributor: Super changes – why grandfathering the rules must be considered.

For background on the policies that the Coalition took to the election and are now law, see SuperGuide article Super changes (July 2017): Planning ahead for the 2017/2018 year, and for information on the Age Pension changes see SuperGuide article Age Pension: 330,000 Australians lose entitlements since January 2017).

May 25, 2017 by Trish Power 8 Comments