The superannuation announcements of the 2016 Federal Budget outlined major changes to superannuation regulations in Australia, but these changes will only have the chance to be passed in law if the Coalition is re-elected in July 2016. If so, these changes will likely take effect from July, 2017.
Nevertheless, it’s a good time as the 2015/16 financial year draws to a close to review what might be in store for superannuation and to check your current super arrangements to ensure they are fully compliant – with the input of your superannuation and tax planner. To assist you with your super planning, here is a preview of the possible changes that may be ahead for superannuation regulations in the future, along with some compliance reminders for your super this year.
Proposed changes to plan for the 2017/18 year
The changes proposed by the federal government include a $1.6 million super transfer balance cap, changing the concessional contributions caps, and an increase in the applicable tax rate for concessional contributions. Other key proposals include:
$1.6 million superannuation transfer balance cap – This is a cap on the total amount of superannuation that any individual can transfer into retirement phase accounts. The government estimates that this change will affect less than 1% of super fund members.
Concessional contributions – The Coalition proposes to reduce the annual cap on concessional contributions up to $25,000 and allow catch-up contributions of unused caps for balances of $500,000 or less. A $500,000 lifetime cap will also be applied to after-tax concessions, and this provision will be backdated to 2007.
Tax on concessional contributions – Individuals with combined incomes and superannuation contributions greater than $250,000 will be required to pay 30% tax on concessional contributions, in contrast to the current 30% and $300,000 combined income threshold.
Personal deductions for under 75s – The proposed changes include allowing personal deductions for contributions up to $25,000 per year for those under 75, a measure that will benefit those who are self-employed and/or those who do not have access to salary-sacrifice arrangements.
Expanding tax offset to a low-income spouse’s super – If the changes are passed, the income threshold for receiving spouses will be raised from the current $10,800 to $37,000, and the contributing spouse can claim an 18% offset up to $540 for contributions to the spouse’s super.
The Labor Party’s proposed changes
The Labor Party’s proposed changes include changes to the tax exemption for earnings on superannuation balances in excess of $1.5 million, which would result in a lower tax-free concession for people with annual super earnings of more than $75,000. Similarly, future earnings on assets supporting income streams of up to $75,000 will not be taxed.
Superannuation compliance tips for 2016
The Superannuation Guarantee rates, Low Income Super Contribution, and tax-free benefits remain the same for this year. Make sure you are fully compliant by consulting your tax advisor and keep the following common compliance issues in mind.
Concessional contributions cap
Make sure you haven’t exceeded your concessional contributions cap and always check before making any extra contributions before the end of the financial year. Remember, concessional contributions include your employer’s compulsory contributions, any additional employer contributions, your salary sacrificed contributions, and any personal tax-deductible contributions.
Non-concessional contributions and the co-contributions giveaway
Check that you have maximised your non-concessional contributions up to the current annual cap of $180,000 (for those up to the age of 65) if you are able to. Making non-concessional contributions is a great way to boost your retirement fund and optimise your tax planning, but ensure you have not exceed the applicable cap as a 47% tax is levied on excess contributions.
Check that you have copies of all the relevant super documentation for your records. Obtain copies of the Intention to Claim a Deduction form if you have made personal or self-employed contributions and are going to claim a tax deduction. If you manage your super in a self-managed super fund (SMSF), work with your advisor to have your paperwork up to date.
Make the deadline
Note that any extra contributions you make usually needs to be made well before the last day of the financial year. This is because most super funds have a cut-off date that’s a few days before 30 June, so you may need to make the payment a few days earlier.
If your super is invested in a self-managed super fund, managing compliance and regulatory issues is even more important. Make sure you have your fund audited by an SMSF auditor well before you need to lodge your annual return, and that you’re up to date with your record keeping obligations. An accurate valuation of your fund’s assets and keeping the ATO informed of any changes are also important.