Non-concessional superannuation contributions
- Non-concessional contributions are contributions made to your superfund that you do not claim a tax deduction for.
- The government will introduce a $500,000 lifetime non-concessional contributions cap.
- The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
- If an individual has exceeded the cap prior to commencement date (being 7.30 pm (AEST) on 3 May 2016 (i.e., Budget night), they will be taken to have used up their lifetime cap but will not be required to take the excess out of their superannuation fund.
– If after commencement an individual makes non-concessional contributions that cause them to exceed the cap, they must withdraw the excess from their fund. Individuals who choose not to withdraw contributions will be subject to penalty tax.
– This will replace the existing non-concessional contributions cap, which allow non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).
Concessional superannuation contributions
- Concessional contributions are employer contributions (including salary sacrifice) and personal deductible contributions.
- From 1 July 2017, the government will allow individuals with a superannuation balance of less than $500,000 to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
- Only unused amounts accrued from 1 July 2017 can be carried forward, and can only be carried forward on a rolling basis for a period of five consecutive years.
- Allowing people to carry forward their unused concessional cap provides them with the opportunity to ‘catch-up’ if they have the capacity and choose to do so.
Taxing earnings on assets supporting a Transition to Retirement Income Stream (TRIS)
– Previously income on earnings from assets supporting TRIS (income streams of individuals over preservation age but not retired) was tax exempt. From 1 July 2017 this will be removed and the income will be taxed at 15
– This change is proposed to apply irrespective of when the TRIS commenced.
$1.6 million ‘superannuation transfer balance cap’
- From 1 July 2017, the government will introduce a $1.6 million ‘superannuation transfer balance cap’ on the total amount of accumulated superannuation an individual can transfer into pension phase. This would normally mean a husband and wife Fund would have to have in excess of $3.2 million in super between them. Generally when a Fund is in Pension Phase earnings on assets supporting the pension are tax free.
- Under the proposed changes, if an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).
- Fund members already in pension phase with balances above $1.6 million will be required to reduce this balance to $1.6 million by 1 July 2017 which may be done by the withdrawal of funds from the superannuation environment or return a portion of the balance held in pension to accumulation phase
Reducing the concessional contributions cap
- From 1 July 2017, the government will lower the annual cap on concessional superannuation contributions to $25,000.
- The existing concessional contributions caps were $30,000 for those aged under age 50 years, and $35,000 for those aged 50 years and over.
Changes to the contribution rules for those aged 65 to 74
- From 1 July 2017, the government will remove the current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement which is the requirements of the “work test”
Tax deductions for personal superannuation contributions
- From 1 July 2017, the government will change the law to allow all individuals under age 75 to claim an income tax deduction for personal superannuation contributions. Individuals who are, for example, partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from the proposed changes.
Changes to the ‘high income contribution rules’ (Division 293)
- Currently, Division 293 imposes an additional tax of 15% on certain concessionally taxed contributions where an individual’s total ‘income’ for Division 293 purposes plus certain ‘concessionally taxed contributions’ for an income year exceed $300,000. Concessional contributions subject to tax under Division 293 are effectively taxed at 30%.
- From 1 July 2017, the government will lower the Division 293 threshold from $300,000 to $250,000.
- Consistent with current law, the additional 15% tax will be imposed on the whole amount of the contributions, up to the concessional cap, if ‘income’ for Division 293 purposes is above the threshold. Otherwise, the additional tax is only imposed on the portion of the contribution that takes the individual over the threshold.
Removing election to treat pension payments as lump-sum payments
- The government will remove the rule that allows individuals to treat certain superannuation pension payments as lump-sums for tax purposes (which currently makes them tax-free up to the low rate cap of $195,000).
Other Budget announcements
Personal income tax relief
- From 1 July 2016, the government will increase the 32.5% personal income tax threshold from $80,000 This measure will reduce the marginal rate of tax on incomes between $80,000 and $87,000 from 37% to 32.5%, preventing around 500,000 taxpayers facing the 37% marginal tax rate.
Increasing the Small Business Income Tax Offset (‘SBITO’)
- From 1 July 2016, the government will increase the current 5% tax discount (referred to as the SBITO) to 8%.
- The discount is currently available to an individual in receipt of income from an unincorporated small business entity (‘SBE’) and applies to the income tax payable of the individual on the business income received from such an entity.
Reducing the company tax rate over 10 years
- The government will reduce the company tax rate to 25% over 10 years (i.e., by 1 July 2026).
- This measure will commence from 1 July 2016, whereby the government will cut the small business company tax rate to 27.5%, and make this tax rate available to small companies with an annual aggregated turnover of less than $10 million and the rate will also apply to franking credits.
Increasing the small business entity (‘SBE’) turnover threshold
- From 1 July 2016, the government will increase the SBE turnover threshold from $2 million to $10 million.
- The current $2 million turnover threshold will be retained for access to the small business capital gains tax (‘CGT’) concessions, and access to the SBITO (i.e., the increased 8% tax discount) will be limited to entities with turnover less than $5 million.
The increased $10 million turnover threshold will allow an additional 90,000 to 100,000 business entities to gain access to certain small business concessions, such as the following:
- The lower (27.5%) small business corporate tax rate (noted above).
- The simplified depreciation rules including the ability to claim an immediate deduction for an asset purchased costing less than $20,000 until 30 June
- Simplified trading stock rules, giving businesses the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000.
- The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.