Changes made to Australia's superannuation system announced in the 2016 Federal Budget will take effect from 1 July 2017.
The reforms have significantly change the landscape for retirement savings, affecting both pre-retirees and retirees.
Below is an overview of the new rules coming into play from 1 July onwards.
$1.6 million transfer balance cap
The introduction of a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account based pensions. Those who currently hold more than $1.6 million in pension phase will need to reduce their balance prior to 1 July 2017.
Lowering of the concessional and non-concessional contribution caps
The cap on concessional (before-tax) contributions will be decreased from $30,000 (for those under the age of 50) or $35,000 (for those aged 50 years old and over) to the flat rate of $25,000 per year for all age groups. The new annual cap for non-concessional (after-tax) contributions will be reduced from $180,000 to $100,000. This will remain available to individuals between 65 and 74 years old if they meet the work test. Individuals under the age of 65 will be able to bring forward three years of contributions, ie $300,000.
Changes to transition to retirement income streams (TRIS)
Currently, where a member received a TRIS, the fund received tax-free earnings on the super assets that support it. The Government will remove the tax-exempt status of earnings from assets that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced. Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
Spouse Tax offset
The spouse's income threshold will be increase to $40,000 from 1 July 2017. The current 18% tax offset of up to $540 will remain as is and will be available for any individual, whether married or defacto, contributing to a recipient spouse whose income is up to $37,000. The offset is gradually reduced for income above this level and completely phases out at income above $40,000.
If you are nearing retirement age or already in pension phase - there are a number of strategies that can be undertaken prior to 1 July 2017 to minimise the effects of these reforms.