Radical and substantial superannuation changes take effect from 1 July 2017: have you investigated how the super changes will affect your superannuation and retirement plans?
A summary of the superannuation changes is set out below. You can also read more detail on each super change by clicking through to supporting articles. If you are seeking background information on why and how these superannuation changes came about, see the section at the end of this article.
For information about the super rules applicable to the 2016/2017 financial year, see SuperGuide article Superannuation checklist: What rules apply for the 2016/2017 year?
Note: This article is regularly updated reflecting the latest information available on the legislated superannuation changes (originally announced in the 2016 Federal Budget). The super changes became law in November 2016 (passing both houses of parliament on 23 November 2016, and receiving royal assent on 29 November 2016), and mainly take effect from 1 July 2017. Latest update of this article was 25 May 2017.
You can scroll down the page, or click on the links in the bullet list below to find out about the superannuation changes, most taking effect from 1 July 2017. The super changes are:
- Introduction of a $1.6 million transfer balance cap
- Removal of tax exemption for transition-to-retirement pensions (TRIPs)
- Cut in annual concessional (before-tax) contributions cap to $25,000
- Introduction of catch-up concessional contributions over 5-year period (from July 2018)
- Cut in annual non-concessional (after-tax) contributions cap to $100,000
- Continuation of the Low Income Super Contribution (super tax refund)
- Increase in income threshold for spouse superannuation tax offset to $37,000 (and $40,000)
- Tax hike for more Australians: 30% tax on concessional (before-tax) super contributions
- Expansion of tax-deductible super contributions to all Australians
- Removal of work test for over-65s, for making super contributions (SCRAPPED)
- 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
- Proposed introduction of non-financial superannuation changes
Important: An indirect change to the super rules, but highly significant change to the retirement plans of Australians with super savings, is the introduction of a harsher Age Pension assets test since January 2017. Rather than losing $1.50 for every $1,000 over the full Age Pension threshold as the current test applies, instead, since January 2017 a retiree loses $3.00 for every $1,000 of assets over the full Age Pension threshold. The harsher Age Pension assets test means more than 300,000 Australians lost part, or all, of their Age Pension entitlements. For more information on the Age Pension changes , see SuperGuide articles Age Pension: 330,000 Australians lose entitlements since January 2017 and Latest retirement deal! Lose Age Pension, receive Seniors Health Card .
Continue reading this article for a summary of the super changes, or refer to the earlier paragraph to access convenient links which take you to an explanation of each selected super change.
Note: If you’re inclined to read legislation, the name of the Act is, Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Act No 81).
Introduction of a $1.6 million transfer balance cap
Effective from 1 July 2017, “a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.” The cap will be applied to “both current retirees and to individuals yet to enter their retirement phase.” This cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation). The financial consequence for current retirees is, if they have more than $1.6 million of super in pension phase, they will need to withdraw the excess balance OR revert the excess amount to accumulation phase (which is then subject to 15% earning tax), before 1 July 2017. Subsequent earnings on this pension balance, from July 2017, will not be required to be withdrawn. Note that special rules apply to defined benefit pensions. This measure is RETROSPECTIVE, because it applies to Australian super balances that have been accumulated in the past, under existing laws. The lack of grandfathering indicates this policy applies retrospectively. 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
- July 2017 super changes: ATO Guidance Notes and Law Companion Guidelines
- Super loophole benefits politicians and senior public servants
- Guest contributor: Super changes – why grandfathering the rules must be considered
Removal of tax exemption for 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. Taking effect from 1 July 2017, the parliament has removed the tax-exempt status of super fund earnings supporting a transition-to-retirement pension (TRIP). This measure will raise $650 million over 4 years.
For more information on TRIPs and the changes, see the following SuperGuide articles:
- Less tax, more super? A transition-to-retirement pension is no longer the answer
- TRIPs: 10 interesting facts about transition-to-retirement pensions
- July 2017 super changes: ATO Guidance Notes and Law Companion Guidelines
- CGT relief and the $1.6 million transfer balance cap, and TRIPs
- Super pensions: Reviewing the merits of keeping a TRIP
- Transition-to-retirement pension (case studies): How does a TRIP work?
Cut in annual concessional (before-tax) contributions cap to $25,000
From 1 July 2017, the general concessional contributions cap will be lowered to $25,000 (2017/2018 year) from $30,000 (2016/2017 year), and the over-50s cap of $35,000 (2016/2017 year) will be dead from 1 July 2017. This measure, along with applying higher contributions tax to the contributions from high-income earners (see later in the list), will raise $2.43 billion over 4 years. For more information, see SuperGuide article Concessional contributions cap to be slashed from July 2017.
Introduction of catch-up concessional contributions over 5-year period (from July 2018)
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 has now been 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 AN ACCOUNT BALANCE OF LESS THAN $500,000. This $500,000 cap requirement is going to cause administrative chaos for super funds. I hope the account-balance requirement is reconsidered before July 2018. This measure will cost $350 million over 4 years. For more information, see SuperGuide article Super opportunity: Catch-up concessional contributions from July 2018.
Cut in annual non-concessional (after-tax) contributions cap to $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). Such a measure was a big shock considering that under the current rules, an individual under the age of 65 can make up to $540,000 in non-concessional contributions over a 3-year period. 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), taking effect from 1 July 2017. The new NCC rules also allow up to $300,000 in NCCs over a 3-year period. Note that under the new rule, 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 the $100,000 NCC cap, see SuperGuide articles New $100,000 cap: Cut to non-concessional contributions cap and Non-concessional contributions: 10 facts about new $100,000 cap.
Continuation of the Low Income Super Contribution (super tax refund)
The Low Income Super Contribution concept will continue, but it will be renamed the Low Income Superannuation Tax Offset, taking effect from 1 July 2017. Individuals with an adjusted taxable income of $37,000 (or less) will continue to be entitled to a refund of contributions tax paid on concessional contributions, up to a limit of $500. The existing measure, which the Liberals opposed, expires on 30 June 2017. The LISC will be renamed the Low Income Superannuation Tax Offset (LISTO), and will continue indefinitely from 1 July 2017. The extension of this measure will cost $1.6 billion over 4 years. For more information, see SuperGuide article Super tax refund for lower-income earners extends beyond June 2017.
Increase in income threshold for spouse superannuation tax offset to $37,000 (and $40,000)
The spouse superannuation 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 current income threshold of an eligible spouse is $10,800 (phasing out at $13,800), and that threshold has not changed over that long period. At last, the income threshold for the spouse superannuation tax offset will increase from $10,800 to $37,000, and then phase out at $40,000 (previously phased out at $13,800). This significant change means that from 1 July 2017, the income threshold for the eligible spouse will lift to $37,000 and phase out at $40,000. This measure will only cost $10 million over 4 years. For an explanation of how the spouse superannuation tax offset works see SuperGuide article Contributing to your spouse’s super account.
Tax hike for more Australians: 30% tax on super contributions
From 1 July 2017, more Australians will pay double contributions tax (15% +15%) due to the lowering of the income threshold from $300,000 to $250,000. Australians with adjusted taxable income of $250,000 or more will be hit with extra contributions tax, which means all concessional contributions will be hit with 30% tax rather than 15% tax. Previously exempt fund members (that is, those in certain public sector funds), will also be subject to this extra tax. This expanded measure will raise $2.5 billion over 4 years. For more information, see SuperGuide article Double contributions tax for more high-income earners.
Expansion of tax-deductible super contributions to all Australians
From 1 July 2017, all individuals under the age of 75 will be permitted to claim tax deductions for personal super contributions (voluntary concessional contributions). Such a measure will assist Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing. This measure will cost $1 billion over 4 years. 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 fail to meet the current 10% income test. For more information on how the new rules will operate, see SuperGuide article, Employees can make tax-deductible super contributions from July 2017. For information on how the current rules apply to tax-deductible super contributions, see SuperGuide article Who can make tax-deductible super contributions?
Removal of work test for over-65s, for making super contributions (TEST REMAINS IN PLACE)
THIS PROPOSED CHANGE HAS NOW BEEN SCRAPPED. The Coalition intended to remove the over-65s work test, but now will retain it. The plan was, that from 1 July 2017, Australians aged 65 year or over (and up to the age of 74) would be able to make super contributions without satisfying a work test. The work test will now remain in place and works 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 is not going ahead with either proposed change. For more information on the work test, see SuperGuide article Over-65s work test: How does it operate again?, 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?
Removal of option to treat a pension payment as a lump sum payment, for tax purposes
Taking effect from 1 July 2017, individuals will no longer be 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 are met, and the individual is 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 $195,000 (indexed) (and $200,000 for the 2017/2018 year). Note that this change appears in related regulations, and amends regulation 995-1.03 of the Income Tax Assessment Regulations 1997.
Removal of anti-detriment provisions
From 1 July 2017, 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. This measure will raise $350 million over 4 years. For more information, see SuperGuide article Anti-detriment payments banned from July 2017.
Extension of tax exemption for other types of retirement products
From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred retirement products (for example, deferred lifetime annuities) and group self-annuities.
Non-super change: delivery of personal income tax cuts
Along with several other tax measures, on 2016 Federal Budget night, the Coalition (Liberal/NP) government announced the following personal tax measures:
- Increase in income tax threshold before 37% tax rate is applicable. The Coalition government has increased the income threshold before the personal marginal tax rate of 37% applies, from $80,000 to $87,000 from the 2016/2017 year. This measure means the 32.5% tax rate will apply for taxable income up to $87,000, and will mean a lower income tax bill from the 2016/2017 year, for those currently earning more than $80,000. For information on this change, and the current income tax rates, see SuperGuide articles Income tax cut for 2016/2017 year, and for 2017/2018 yearand Australian income tax rates for 2017/2018 and 2016/2017 years.
- Removal of Temporary Budget Repair Levy by June 2017, as planned. The Temporary Budget Repair Levy, which added 2% extra tax on high-income earners for 3 years, will no longer apply from 1 July 2017. For more information on this levy, see SuperGuide articles Temporary Budget Repair Levy: More income tax for high-income earners until June 2017and Income tax cut for 2016/2017 year, and for 2017/2018 year.
Proposed introduction of non-financial superannuation changes
The Coalition (Liberal/NP) government also proposes to make, or is already in the process of making, the following non-financial changes to superannuation:
- Introduction of product dashboards. This measure allows fund members to more easily compare fees, investment returns, and insurance premiums.
- Introduction of portfolio holdings disclosure. This measure allows fund members to know where their super savings are invested.
- Introduction of retirement income projections. Tools to help Australians plan ahead and predict expected retirement incomes.
- Use of pre-filled TFN and choice forms. This measure is designed to help a fund member keep track of existing super account when starting a new job.
- Extension of choice of fund. The Coalition government hopes to extend fund choice to the 30% of the Australian population that currently cannot choose their own super fund.
Background information on the 2016 Federal Budget superannuation changes
On 3 May 2016, the federal treasurer Scott Morrison released the first federal budget of his career. 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.)
Add the harsh Age Pension rules taking 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.
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 is to apply from 1 July 2017 is explained earlier in this article, but if you want greater detail on the revised annual NCC cap see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.
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 [for Age Pension change, see link at end of bullet list directly below], promote a more sustainable retirement income system”.
The federal government has also released the objective of superannuation, namely “to provide income in retirement to substitute or supplement the Age Pension”. At the time of writing, the objective of superannuation had not yet become law.