Latest superannuation rules: 2018/2019 guide

The key long-term elements of the superannuation system that remain in place for the 2018/2019 financial year and future years, 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 continues
• Co-contribution scheme remains in place
• Tax treatment of death benefits (apart from the $1.6 million transfer balance pension cap)

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 for 2018/2019 year)

You can scroll down the page, or click on the links in the bullet list below to find out about the July 2017 superannuation changes, which continue to apply for the 2018/2019 year. The super rules are:

• Annual concessional (before-tax) contributions cap remains at $25,000
• Tax-deductible super contributions available all Australians
• Annual non-concessional (after-tax) contributions cap remains at $100,000
• Spouse superannuation contributions tax offset remains at $40,000
• Low Income Superannuation Tax Offset
• Transfer balance cap remains at $1.6 million
• Total Superannuation Balance limits super contributions
• Transition-to-retirement pensions (TRIPs)
• Super tax for high-income earners: 30% tax on concessional (before-tax) super contributions
• Age Pension age remains at 65.5 years
• SMSF trustee penalties
• First Home Super Saver Scheme now active
• No option to treat a pension payment as a lump sum payment, for tax purposes
• Anti-detriment provisions no longer apply
• Tax exemption available for other types of retirement products

Significant July 2018 changes to the super rules (applicable from 2018/2019 year)

You can scroll down the page, or click on the links in the bullet list below to find out about the superannuation changes, which took effect since 1 July 2018. The super changes are:

• Preservation age moves to 59 years
• Introduction of catch-up concessional contributions rules
• Downsizing contributions to super now available
• Transfer Balance Account Reporting now required
• Latest Age Pension changes take effect

Continue reading this article for a summary of the latest super rules affecting the 2018/2019 year, or refer to the earlier paragraphs of this article to access convenient links which take you to an explanation of each selected super rule.

Superannuation Guarantee (SG) rate at 9.5%

SG rules have not changed for the 2018/2019 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% of an employee’s ordinary time earnings to an employee’s super fund, for the 2018/2019 year. The current annual SG rate of 9.5% remains in place until 30 June 2021, and will increase to 10% 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 Your simple guide to Superannuation Guarantee (SG) contributions and Superannuation Guarantee rules for employers.

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 2018/2019 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, and remains in place for the 2018/2019 year. (for more information on the tax treatment of super, and the transfer balance cap, see SuperGuide articles Super for beginners: How superannuation is taxed 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 articles Tax-free super for over-60s, except for some and Super tax tables: When OVER 60 years of age. 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 and Super tax tables: When UNDER 60 years of age. 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. For more information on the work test, see SuperGuide article Work test: Making super contributions over 65, and for the contribution splitting rules for spouses, see SuperGuide article Contribution splitting: How to boost your spouse’s super.

Low Income Superannuation Tax Offset 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 on this policy, see SuperGuide article 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 $52,697 for the 2018/2019 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, and your Total Superannuation Balance is less than $1.6 million. The maximum co-contribution of $500, on a $1,000 after-tax contribution, is payable if your total income is less than $37,697 (for the 2018/2019 year). For more information, see SuperGuide article Gaining from the government: How you can score a co-contribution freebie.

Tax treatment of death benefits

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 Death and taxes: Guide to superannuation death benefits). 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 (introduced from 1 July 2017) 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 What is an anti-detriment payment?).

Annual concessional (before-tax) contributions cap remains at $25,000

The annual concessional contributions cap remains at $25,000 (for the 2018/2019 year), although from 1 July 2018, there is now an opportunity to make catch-up concessional contributions. For more information about the concessional contributions caps for the 2018/2019 year, see SuperGuide article 2018/2019 guide to concessional contributions (before-tax super contributions). For information about catch-up concessional contributions, see SuperGuide article Carry-forward contributions: How your unused contribution limits can help you catch up.

Tax-deductible super contributions available to all Australians

Since 1 July 2017, all individuals under the age of 75 are permitted to claim tax deductions for personal super contributions (voluntary concessional contributions). This measure is designed to assist an employee where their employer won’t allow salary sacrifice contributions, or where an employer reduces an employee’s SG entitlement when salary sacrificing, or to help individuals who are both self-employed and employed (but until 30 June 2017, failed to meet the 10% income test). For more information on how the rules operate, see SuperGuide article, Guide to tax-deductible superannuation contributions. For practical information on how the rules apply to tax-deductible super contributions, see SuperGuide article Guide to tax-deductible superannuation contributions

Annual non-concessional (after-tax) contributions cap remains at $100,000

The Coalition government originally announced the introduction of a $500,000 lifetime non-concessional (after-tax) contributions cap taking immediate effect (from 7.30 pm on 3 May 2016). After community and industry uproar, the government saw the error of its ways and scrapped the $500,000 lifetime cap, and replaced it with an annual $100,000 non-concessional cap (NCC), which took effect since 1 July 2017. The new NCC rules also allow up to $300,000 in NCCs over a 3-year period. The non-concessional contributions cap for the 2018/2019 year remains at $100,000, and the bring-forward cap remains at $300,000. For more information about the non-concessional contributions caps for the 2018/2019 year, including the possibility of making up to $300,000 in NCCs, see SuperGuide articles 2018/2019 guide to non-concessional contributions (after-tax super contributions) and A super guide to understanding the bring-forward rule.

Important: Under the NCC rules, you can only make non-concessional contributions if you have a Total Superannuation Balance of less than $1.6 million (which is a different concept to the $1.6 million transfer balance cap on pension transfers – refer earlier in article). For more information on your Total Superannuation Balance, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters. For more information on the $100,000 NCC cap, see SuperGuide article 2018/2019 guide to non-concessional contributions (after-tax super contributions).

Reminder: If you triggered the bring-forward rule during the 2016/2017 year, then you need to be aware of transitional rules that effect your bring-forward cap for the 2017/2018 financial year, and for the 2018/2019 financial year (for more information, see SuperGuide article A super guide to understanding the bring-forward rule.

Income threshold for spouse superannuation tax offset remains at $40,000

The spouse superannuation contributions tax offset allows a contributing spouse to claim an 18% offset worth up to $540 for contributions made to an eligible spouse’s superannuation account. Introduced nearly 20 years ago, the income threshold of an eligible spouse was $10,800 (phasing out at $13,800), and that threshold had not changed over that long period. Since 1 July 2017, the income threshold for the spouse superannuation tax offset has increase from $10,800 to $37,000, and then phases out at $40,000 (previously phased out at $13,800). The thresholds of $37,000 and $40,000 remain in place for the 2018/2019 year. For an explanation of how the spouse superannuation tax offset works see SuperGuide article Contribution splitting: How to boost your spouse’s super.

Low Income Superannuation Tax Offset

For lower-income earners, the ATO continues to pay the Low Income Superannuation Tax Offset, 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.. For more information, For more information on this policy, see SuperGuide article Superannuation tax refund: 10 things to know about LISTO.

Transfer balance cap of $1.6 million remains in place

Effective since 1 July 2017, a $1.6 million superannuation transfer balance cap has been imposed on the lifetime amount of superannuation that an individual can transfer into retirement phase. Subsequent earnings during retirement phase will not be required to be withdrawn, or reclassified. The transfer balanced cap remains at $1.6 million for the 2018/2019 year. The cap applies to existing and future retirees, and the $1.6 million cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation). Note that special rules apply to defined benefit pensions. For more information on this policy see SuperGuide articles:

• Burden on retirees: Monitoring the $1.6 million transfer balance cap
• Superannuation death benefits and the $1.6 million transfer balance cap
• Defined benefit pensions and the $1.6 million transfer balance cap
• CGT relief and the $1.6 million transfer balance cap, and TRIPs
• Latest super changes: ATO Guidance Notes and Law Companion Rulings
• Super loophole still benefits politicians and senior public servants
• Guest contributor: Super changes – why grandfathering the rules must be considered

Total Superannuation Balance limits super contributions

Since 1 July 2017, as a means of restricting (in particular) the application of the super contributions rules, the federal government introduced a new superannuation concept, called Total Superannuation Balance. A person’s Total Superannuation Balance is used to track and limit the amount of superannuation that Australians can contribute to super. If you run a SMSF, a person’s Total Superannuation Balance also has a bearing on some SMSFs in retirement phase. For more information on the concept Total Superannuation Balance, see SuperGuide articles Total Superannuation Balance: 7 reasons why your TSB matters and A super guide to understanding the bring-forward rule.

Transition-to-retirement pensions (TRIPs)

The announcement of the removal of the tax exemption for fund earnings derived from assets supporting a transition-to-retirement pensions (TRIP) shocked many sections of the financial services industry and certainly caught out many older workers currently using TRIPs. Effective since 1 July 2017, the parliament removed the tax-exempt status of super fund earnings supporting a transition-to-retirement pension (TRIP). For more information on TRIPs and the changes, see the following SuperGuide articles:

• Did tax kill the transition to retirement magic pudding?
• Guide to transition to retirement pensions (TTRs or TRISs)
• Latest super changes: ATO Guidance Notes and Law Companion Rulings
• CGT relief and the $1.6 million transfer balance cap, and TRIPs

Super tax for high-income earners: 30% tax on super contributions

Since 1 July 2017, more Australians pay double contributions tax (15% +15%) due to the lowering of the ‘Division 293 tax’ income threshold from $300,000 to $250,000. Australians with adjusted taxable income of $250,000 or more are hit with extra contributions tax, which means for affected Australians, all concessional contributions are hit with 30% tax rather than 15% tax. Super fund members previously exempt from contributions tax (that is, those in certain public sector funds), are also subject to this extra tax. For more information, see SuperGuide article How the Division 293 tax works: Super surcharge for high earners.

Note: The Temporary Budget Repair Levy, which added 2% extra tax on high-income earners for 3 years, no longer applies since 1 July 2017. For more information on this levy, see SuperGuide article Australian personal income tax cuts from 2018/2019 year.

Age Pension age remains at 65.5 years

The first shift upwards in Age Pension age occurred from July 2017 when the Age Pension eligibility age increased to 65.5 years, and will then increase in six-month increments every 2 years (moving to 66 years from July 2019), until it reaches the age of 67 years from 1 July 2023. For more information, see SuperGuide articles What is the current Age Pension age? and Retirement Age Reckoner: Discover your preservation age and Age Pension age.

SMSF trustee penalties

A SMSF trustee must run his or her super fund according to the superannuation rules. If a SMSF trustee breaks those super rules, financial penalties and other consequences may apply. Since 1 July 2017, when a SMSF trustee breaches certain super rules, the SMSF trustee can expect to be automatically hit with an administrative penalty ranging from $1,050 (previously $900), and up to a maximum penalty of $12,600 (previously $10,800), depending on the breach. For more information, see SuperGuide article What are the penalties for SMSF non-compliance? and SMSF compliance: A guide to trustee responsibilities.

First Home Super Saver Scheme now active

Taking effect from 1 July 2017, the government introduced a measure that allows eligible Australians to make voluntary superannuation contributions of up to $15,000 a year, and a maximum of $30,000 over several years, to their superannuation account for the purposes of purchasing a first home. Since 1 July 2018, fund members have been able to draw on those contributions to put towards the purchase of a first home. For more information about this policy, see SuperGuide articles First Home Super Saver Scheme a fizzer, again! and 10-point guide to First Home Super Saver Scheme.

No option to treat a pension payment as a lump sum payment, for tax purposes

Since 1 July 2017, individuals are no longer able to treat certain superannuation pension payments as lump sums for tax purposes. This measure relates to circumstances where an individual under the age of 60 treats the lump sum payment as a minimum pension payment. The pension payment requirements were met, and the individual was able to take advantage of the low-rate cap which enables tax-free payments of the taxable component of a lump sum, up to a lifetime threshold of $200,000 (indexed) (threshold applicable for the 2017/2018 year, and $205,000 for the 2018/2019 year). Note that this change appears in related regulations, and amends regulation 995-1.03 of the Income Tax Assessment Regulations 1997.

Anti-detriment provisions no longer apply

Since 1 July 2017, super funds are not able to pay a refund of a member’s lifetime superannuation contributions tax payments into an estate, and the super fund likewise is not able to claim a tax deduction for this payment. For more information, see SuperGuide article What is an anti-detriment payment?.

Extension of tax exemption for other types of retirement products

Since 1 July 2017, the tax exemption on earnings in the retirement phase has been extended to products such as deferred retirement products (for example, deferred lifetime annuities) and group self-annuities. For more information about how deferred annuities work, see SuperGuide articles Deferred lifetime annuities: Why does the Government want you to use them? and Deferred annuity: When is the right time during retirement to purchase a DA?

Preservation age moves to 59 years

The key trigger when accessing superannuation benefits is reaching preservation age, AND retiring. Anyone who turns 55 on or after 1 July 2018 (those born on or after 1 July 1963), has a preservation age of at least 59 years. Your preservation age is 57 years if you were born on or after 1 July 1961 and before July 1962. Your preservation age is at least 58 years and up to 60 years, if you were born after June 1962. For more information about your preservation age, see SuperGuide article What age can I access my super (Preservation Age)?

Introduction of catch-up concessional contributions

The one upside to the cut in the annual concessional (before-tax) contributions cap, is that the government has introduced catch-up concessional contributions. The catch-up contributions opportunity was initially planned from 1 July 2017, but the measure was delayed. Instead the start date for the catch-up provisions is 1 July 2018. What this new measure means is that unused portions of the concessional cap each year can be carried forward on a rolling basis for up to 5 years, for the annual caps applicable from July 2018, BUT ONLY IF YOU HAVE A TOTAL SUPERANNUATION BALANCE OF LESS THAN $500,000. This $500,000 cap requirement is going to cause administrative chaos for super funds. For more information about what your Total Superannuation Balance means see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters, and for more information about the catch-up provisions, see SuperGuide article Carry-forward contributions: How your unused contribution limits can help you catch up.

Downsizing contributions to super now available

Since 1 July 2018, 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.

Transfer Balance Account reporting now required

Since 1 July 2018, any SMSF with a fund member who has a Total Superannuation Balance of $1 million or more will be required to report events affecting the fund member’s transfer balance, for example, starting a SMSF pension, within 28 days after the end of the quarter in which the event occurs. Thosee SMSFs with fund members who have Total Superannuation Balances of less than $1 million, can choose to report events which affect their members’ transfer balance caps once a year, at the same time as the SMSF lodges the fund’s annual return. For more information about TBARs, see SuperGuide articles Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting and SMSFs: Transfer Balance Account Report requirements.

Latest Age Pension changes take effect

The Age Pension rules change three times a year – 1 July, 20 September and 20 March. You can find the latest rates and thresholds in the following SuperGuide article Australian Age Pension rates (20 March 2019 to 19 September 2019).

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.

Background information on the July 2017 superannuation changes

On 3 May 2016, the federal treasurer Scott Morrison released the first federal budget of his career (2016 Federal Budget).

Highlighting his inexperience, he announced retrospective super policies without consulting his backbench, and most importantly, without consulting the Australian public. His decision, along with his January 2017 Age Pension changes, nearly cost the Coalition the election, based on the feedback from SuperGuide readers about the impact of the super changes on their voting intentions. (Look what happened to former treasurer Joe Hockey when he got carried away by his role and failed to consult with his colleagues, or the voters, before announcing radical changes to the retirement plans of Australians – trying to lift the Age Pension age to 70 comes to mind. Note that raising Age Pension age to 70 years is still part of Liberal policy.)

Add the harsh Age Pension rules which took effect from January 2017, and you can expect the votes of older Australians had a huge impact on the close result at the 2016 Federal Election held on 2 July 2016, including the number of independents in the Senate, and will strongly influence the next election to be held in 2018 or 2019 (see SuperGuide articles Treasurer Morrison’s ‘Retirementgate’ encourages Aussies to spend and take Age Pension and Retirement income and savings trap: 13 findings from Save Our Super’s paper).

Treasurer Morrison intended to make some radical changes to the super rules: the biggest super stinker being the immediate and retrospective lifetime $500,000 cap on non-concessional (after-tax) contributions. On 15 September 2016, the government announced that the $500,000 lifetime NCC cap was a dead duck (although he used different language to announce its demise, of course). The revamped non-concessional contributions cap, which has applied since 1 July 2017 is explained earlier in this article, but if you want greater detail on the revised annual NCC cap see SuperGuide article 2018/2019 guide to non-concessional contributions (after-tax super contributions).

Treasurer Morrison backtracking on the NCC cap was in response to the Treasurer consulting with Liberal MPs, and interest groups (and presumably also in response to the tens of thousands of emails from taxpayers, including SuperGuide readers). The federal government subsequently released three sets of exposure drafts during September and October 2016, which provided more detail on what we can expect with the new super policies.

The federal government also backtracked on another superannuation policy. In addition to delaying and expanding the harsher NCC cap, the government has also delayed the 5-year catch-up option for the annual concessional (before-tax) contributions cap. I explain all of the superannuation policies earlier in the article.

The Coalition government had planned to remove the work test for over-65s when making super contributions, but this was sacrificed when the government changed the retrospective $500,000 lifetime non-concessional contributions cap to a prospective $100,000 annual NCC cap.

The federal government, in its Tax System budget paper stated that: “A prosperous Australia needs a well-targeted superannuation system that supports and encourages all Australians to save and not be dependent on the Age Pension in retirement…”.

Looking at the policies announced in the 2016 Federal Budget (and now legislated), even with the 15 September 2016 compromises, I am not sure if those Australians keen to take responsibility for their retirement planning, via the superannuation system, will feel that supported or inspired.

The federal government also states: “Targeted tax concessions, combined with the changes the Government made to rebalance the Age Pension assets test in the last budget, promote a more sustainable retirement income system”.