Superannuation checklist: What rules apply for the 2017/2018 year?

Although the Coalition government has made significant amendments to Australia’s superannuation rules, many of the super policies did not change from July 2017 (see list later in article).

For your convenience, we have split the 2017/2018 year superannuation checklist into 2 categories of super rules. The first category is the super policies that remain unchanged from the previous financial year (that is, the super rules also applied for the 2016/2017 year and continue to apply in the future). The second category is the substantial changes that took effect from 1 July 2017 (if you are only interested in the latest super changes, then go directly to SuperGuide article Latest superannuation changes: 2017/2018 guide).

Note: For the latest super rates and thresholds, see SuperGuide article Superannuation rates and thresholds for 2017/2018 and 2018/2019 years.

What major super rules have not changed, and continue to apply for the 2017/2018 year?

The key elements of the superannuation system that remain the same for the 2017/2018 financial year, include:

• Superannuation Guarantee (SG) rate at 9.5%
• Super fund investment earnings taxed at 15%
• Super benefits for over-60s remain tax-free
• Super benefits for under-60s still receive concessional tax treatment
• Work test for over-65s remains in place
• Low Income Superannuation Tax Offset (formerly LISC) continues
• Co-contribution scheme remains in place
• Tax treatment of death benefits is similar, in most cases (apart from the $1.6 million transfer balance pension cap and the removal of the anti-detriment payment option)

Click on the links above or scroll down the page for an explanation of these policies, which include further links to helpful SuperGuide articles on each policy.

Significant July 2017 changes to the super rules (applicable from 2017/2018 year)

The significant super changes that took effect from 1 July 2017 are:

• Annual concessional (before-tax) contributions cap reduced to $25,000
• Expansion of tax-deductible super contributions to all Australians
• Annual non-concessional (after-tax) contributions cap reduced to $100,000
• A $1.6 million total superannuation balance cap restricting non-concessional contributions, co-contributions and spouse contributions
• Increase in income threshold for spouse superannuation contributions tax offset to $37,000 (and $40,000)
• Low Income Superannuation Tax Offset replaces LISC
• Introduction of a $1.6 million transfer balance cap
• Introduction of the concept, Total Superannuation Balance
• Removal of tax exemption for transition-to-retirement pensions (TRIPs)
• Tax hike for more Australians: 30% tax on concessional (before-tax) super contributions
• Preservation age now at least 57 years
• Age Pension increases to at least 65.5 years
• SMSF trustees now face bigger penalties (from 2017/2018 year)
• Introduction of First Home Super Saver Scheme
• Removal of option to treat a pension payment as a lump sum payment, for tax purposes
• Removal of anti-detriment provisions
• Extension of tax exemption for other types of retirement products
• Non-super change: Delivery of personal income tax cuts

Downsizing and contributing to super policy: Taking effect from 1 July 2018 (and now law), the government has introduced an incentive for over-65s to downsize their homes, and make super contributions up to $300,000, outside the usual non-concessional (after-tax) contributions cap (for more information, see SuperGuide articles Over 65? Sell your home and contribute more to super and Contributing super by downsizing your home: 10-point guide.

Note: For a quick summary and an easy-to-understand explanation of the July 2017 super changes listed immediately above, including helpful links to related articles, see SuperGuide article Latest superannuation changes: 2017/2018 guide.

The key elements of the superannuation system that remain unchanged for the 2017/2018 financial year are set out below.

Superannuation Guarantee (SG) rate at 9.5%

SG rules have not changed for the 2017/2018 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 2017/2018 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.

Super fund investment earnings taxed at 15%

The Coalition government has not changed 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 2017/2018 year or future years, although since 1 July 2017 the government has imposed a cap on the value of assets that you may take into retirement phase, and that transfer balance cap is $1.6 million. (for more information on the tax treatment of super, and the transfer balance cap, see SuperGuide articles Super for beginners, part 15: Super tax – as easy as 1-2-3 and Retirement phase: A super guide to the $1.6 million transfer balance cap).

Super benefits for over-60s remain tax-free

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. 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. The introduction of a $1.6 million cap on benefits transferred to retirement phase has complicated matters for retirees, even more so for public servants (for more information see SuperGuide article Retirement phase: A super guide to the $1.6 million transfer balance cap).

Super benefits for under-60s still receive concessional treatment

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 a15 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. Note the introduction of a $1.6 million cap on benefits transferred to retirement phase (refer earlier).

Work test for over-65s remains in place

The Coalition intended to remove the over-65s work test from July 2017, but has retained it, and the work test operates as follows: if a person aged 65 years or over wishes to make a super contribution, then he or she must work 40 hours in a 30-day period in the financial year in which he or she plans to make the super contribution. The government also intended to allow individuals aged 65 years or over to be able to receive contributions from their spouse under the contributions splitting rules (and presumably under the low-income spouse tax offset rules), which currently they cannot. The government did not go ahead with these changes either.ing ahead with either proposed change. For more information on the work test, see SuperGuide article Over-65s work test: How does it operate?, and for the contribution splitting rules for spouses, see SuperGuide article Super for beginners, part 7: Can I split my super benefits with my spouse?

Low Income Superannuation Tax Offset (formerly Low Income Super Contribution) continues

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 extension of this measure beyond July 2017 will cost $1.6 billion over 4 years. For more information, For more information on this policy, see SuperGuide articles LISTO: Super tax refund for lower-income earners and Superannuation tax refund: 10 things to know about LISTO.

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 $51,813 for the 2017/2018 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 $36,813 (for the 2017/2018 year). For more information, see SuperGuide articles Cashing in on the co-contribution rules (2017/2018 year), and Super contributions: How much co-contribution will I get?

Tax treatment of death benefits is similar, in most cases

The tax treatment of death benefits is unchanged from previous financial years, 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% 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). Although the general 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, and anti-detriment payments are no longer available (for more details see later in the article, or see SuperGuide articles Superannuation death benefits and the $1.6 million transfer balance cap, and Anti-detriment payments banned since July 2017).

For information on the July 2017 super changes refer earlier, or see SuperGuide article Latest superannuation changes: 2017/2018 guide

SuperGuide postscript

I wish to make a brief comment about the super changes which took effect since 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 and for information on the budgetary debacle playing out due to the Age Pension changes see SuperGuide article Retirementgate: Government’s Age Pension debacle hits middle Australia.

For information on the July 2017 super changes refer earlier, or you can read the SuperGuide article Latest superannuation changes: 2017/2018 guide.