There were many shocks in the 2016 federal Budget but two of the measures show that the Treasurer, Scott Morrison, is modelling himself on a Star Wars character. Breaking from a long tradition of previous changes to superannuation – where current benefits were preserved – Morrison has gone to the dark side of retrospective legislation proving that he identifies himself more with Darth Vader than Luke Skywalker.
The first of the retrospective measures will be a $1.6 million limit on superannuation pension balances that will apply to future and current superannuation pensioners from July 1, 2017. Where a person’s superannuation pension account balance exceeds the $1.6 million limit, the excess must be transferred back into an accumulation account or withdrawn.
The second retrospective measure relates to Transition To Retirement pensions. The fair and equitable way to crack down on TTR pensions would have been to remove them as an option from Budget night. Instead Morrison is removing the tax exemption for earnings on assets supporting a TTR pension for all current and new TTR pensions from July 1, 2017.
Although not a retrospective change, an almost more shocking measure is a lifetime limit of $500,000 that will apply to non-concessional contributions. Rather than this measure applying to all future non-concessional contributions, it will apply to all contributions made after July 1, 2007.
The one bright spot
The commencement date for this lifetime limit will be 7:30pm on May 3, 2016. Contributions made before the commencement date cannot result in an excess and by definition should be able to remain in superannuation. Contributions made after the commencement date will need to be removed from superannuation or subjected to a penalty tax. The only reasonable part of this measure is that the $500,000 limit will increase in line with the annual increase in average weekly ordinary times earnings.
The other changes made to superannuation include:
• the lowering of the threshold at which high income earners pay 30 per cent on superannuation contributions down from $300,000 to $250,000,
• the current maximum concessional contribution limits of $30,000 and $35,000 will be reduced to $25,000 from July 1, 2017,
• people with superannuation balances of less than $500,000 can carry forward any unused amounts of the maximum concessional contribution limit of $25,000 for five consecutive years,
• the current restrictions on people aged 65 and up to 75 on making a tax-deductible personal superannuation contributions will be removed,
• access to the low income spouse superannuation tax offset will be increased by the raising of the income threshold for the low income spouse from $10,800-$37,000,
• a new low income superannuation tax offset will be introduced for people with an adjusted taxable income of up to $37,000 a year in the form of a non-refundable tax offset to the superannuation fund receiving the concessional contribution, and
• anti-detriment payments relating to the death of a member will cease from July 1, 2017.
Planners – what’s the Budget got to do with it?
As is usually the case with all changes, some tax and retirement planning strategy doors will close as a result of this Budget, while others will open. One of the new strategies will help reduce the tax burden of people in retirement who make large capital gains; they will be able to make tax-deductible self-employed super contributions without needing to pass a work test.
Planning professionals will also need to review the superannuation balances of their clients to assess which of those have superannuation balances in pension phase that will exceed the $1.6 million limit. Strategies will need to be developed so that where there are large differences in superannuation balances between couples they will be evened up.
