Superannuation Changes From 1 July 2017

Are we throwing the baby out with the bathwater?

Legislation was recently enacted¹ that will make drastic changes to the way our Superannuation System will operate from 1 July 2017.

Although these changes are aimed to discourage the use of superannuation as a tax minimisation or estate planning vehicle, the changes also severely limit an individual’s ability to build up a substantial superannuation balance (e.g. by lowering the contribution caps and in some instances reducing the capacity to make non-concessional superannuation contributions). Therefore, due to these new rules, individuals may not be able to accumulate enough capital in superannuation to fund their own retirement without having to rely on the aged pension.

Some of the main changes as well as potential opportunities that will be discussed in this alert include the following:

1. A $1.6 million superannuation transfer balance cap (i.e. can only have a maximum starting balance of $1.6 million of superannuation savings in the tax-free retirement phase on 1 July 2017); and

2. Lowering the non-concessional contributions cap to $100,000 per year (currently $180,000 per year);

3. Lowering the concessional contributions cap to $25,000 per year (for everyone under 75);

4. An extra 15% contribution tax on concessional contributions made by individuals earning more than $250,000 a year (currently more than $300,000 a year); and

5. All but abolishing the effectiveness of TRIS (transition to retirement income streams).

Because we have about 7 months before the changes take effect on 1 July 2017, we look forward to working with you in this time to ensure you are in a position to make an informed decision on how to manage your superannuation assets and implement any strategies that may be applicable to your individual circumstances.

How can Nexia help you?

These significant changes that will apply from 1 July 2017 will cause everyone to reconsider their retirement plan – action should be taken well in advance of 30 June 2017.

The guide provides a brief overview of the impending superannuation changes as well as some of the challenges and potential opportunities available to maximise your retirement nest egg.

We would also be delighted to discuss other potential investment opportunities that may be available outside of superannuation (e.g. the innovation incentive where you can access a tax offset for investment in innovative “start-up” companies, please see related news. 

We will be conducting client presentations about the impact of the new Superannuation measures early in the new year. In the meantime, if you have any questions about any issues raised in this alert or about Superannuation in general, please contact your Nexia adviser.

Lastly, our plan is to keep you abreast of strategies that will be developed as a consequence of the new superannuation changes.

1 - The Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 received Royal Assent on 29 November 2016. This Act is the result of the Government Superannuation Reform Package originally announced in the May 2016 Budget (and updated by subsequent amendments e.g. removing the proposed $500,000 cap on non-concessional contributions).