Substantial changes to the superannuation rules took effect from 1 July 2017: have you investigated how the super changes will affect your superannuation and retirement plans for the 2017/2018 year, and for future financial years?
At the same time, many of the super rules in place have not changed from previous years, for example, the rate of compulsory employer super contributions that must be paid remains at 9.5%, and tax-free super for over-60s is still available (up to a limit, and excluding many retired public servants).
A summary of the latest superannuation changes, which took effect from the start of the 2017/2018 year, is set out below. You can read more detail on each super change by clicking through to supporting articles.
Tip: For a super checklist covering all of the main super rules applicable for the 2017/2018 year (including rules that have not changed since the 2016/2017 year) see SuperGuide article Superannuation checklist: What rules apply for the 2017/2018 year? For a list of the latest super rates and thresholds, see SuperGuide article Superannuation rates and thresholds for 2017/2018 and 2018/2019 years. If you are seeking background information on why and how these superannuation changes came about, see the section at the end of this article.
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 2017. The super changes 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
- 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.
Age Pension changes affect retirement plans: 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. For more information on these Age Pension changes and the interaction of these changes with the super rules, see the following SuperGuide articles: Retirementgate: Government’s Age Pension debacle hits middle Australia and Done deal! Lost Age Pension, got new Seniors Health Card.
Continue reading this article for a summary of the latest super changes affecting the 2017/2018 year, or refer to the earlier paragraph of this section to access convenient links which take you to an explanation of each selected super change.
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).
Effective since July 2017, the general concessional contributions cap has been lowered to $25,000 (2017/2018 year) from the higher cap of $30,000 (for the 2016/2017 year), and the special over-50s cap of $35,000 (for the 2016/2017 year). 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 about the concessional contributions caps for the 2017/2018 year, see SuperGuide articles Super concessional (before-tax) contributions: 2017/2018 survival guide and Concessional contributions caps slashed since 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 A TOTAL SUPERANNUATION 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 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 Super opportunity: Catch-up concessional contributions from July 2018.
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). This measure will cost $1 billion over 4 years. For more information on how the new rules will operate, see SuperGuide article, Employees can now make tax-deductible super contributions (since July 2017). For practical information on how the rules apply to tax-deductible super contributions (including what was in place for the 2016/2017 year), see SuperGuide article Who can make tax-deductible super contributions?
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. For more information about the non-concessional contributions caps for the 2017/2018 year, including the possibility of making up to $300,000 in NCCs, see SuperGuide articles Your 2017/2018 guide to non-concessional (after-tax) contributions and Bring-forward rule: A definitive super guide.
Important: Under the new 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 articles New $100,000 cap: Cut to non-concessional contributions cap and Non-concessional contributions: 10 facts about new $100,000 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 Understanding the transitional bring-forward rule (for 2017/2018 and 2018/2019 years) and Bring-forward rule: A definitive super guide.
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). This significant change means that since 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 articles Contributing to your spouse’s super account (4 Q&As) and Boost your spouse’s retirement kitty: 10 things you need to know.
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. 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.
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 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 Guidelines
- Super loophole still benefits politicians and senior public servants
- Guest contributor: Super changes – why grandfathering the rules must be considered
Since 1 July 2017, as a means of restricting (in particular) the application of the super contributions rules, the federal government has 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 Super contributions: Bring-forward rule and your Total Superannuation Balance.
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). Until 30 June 2017, the investment earnings on super assets financing a TRIP were exempt from tax. The removal of the tax exemption affects pre-existing recipients of TRIPs and future recipients of TRIPs. 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 important facts about transition-to-retirement pensions
- Latest 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?
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 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.
The key trigger when accessing superannuation benefits is reaching preservation age, AND retiring. Anyone who turns 55 on or after 1 July 2015 (those born on or after 1 July 1960), has a preservation age of at least 56 years. If you were born on or after 1 July 1960 and before July 1961, your preservation age is 56 years. Anyone who turns 55 on or after 1 July 2016 (those born on or after 1 July 1961), has a preservation age of at least 57 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 articles Accessing super: Preservation age moves to 58 years and Accessing super: What is my preservation age?
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, until it reaches the age of 67 years from 1 July 2023. For more information, see SuperGuide articles Age Pension age now 65.5 years (since July 2017)and Age Pension age increasing to 67 years and Retirement Age Reckoner: Discover your preservation age and Age Pension age.
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 SMSF trustees now face bigger penalties (from 2017/2018 year) and Oops! Top 10 SMSF boo-boos.
Taking effect from 1 July 2017, the government has 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. 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.
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 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 $200,000 (indexed) 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.
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. This measure will raise $350 million over 4 years. For more information, see SuperGuide article Anti-detriment payments banned since July 2017.
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?.
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 applies for taxable income up to $87,000, and will mean a lower income tax bill from the 2016/2017 year (and accordingly from the 2017/2018 year onwards), 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 2017/2018 year (and for 2016/2017 year)and Australian income tax rates for 2017/2018 and 2016/2017 years.
- Removal of Temporary Budget Repair Levy. 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 articles Temporary Budget Repair Levy: More income tax for high-income earners until June 2017and Income tax cut for 2017/2018 year (and for 2016/2017 year).
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 articles New $100,000 cap: Cut to non-concessional contributions cap and 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.
For more information on all of the super rules applicable for the 2017/2018 year, including rules that did not change from 1 July 2017, see SuperGuide article Superannuation checklist: What rules apply for the 2017/2018 year?.