The following is a brief stocktake of the main changes introduced from 1 July 2017.
$1.6m total superannuation balance
Once a member’s total superannuation balance hits $1.6 million, there is no further opportunity to make any further non concessional contributions. However, subject to certain regulations, if the member’s balance subsequently falls below $1.6 million, the member may again be permitted to contribute more non concessional contributions.
$1.6m transfer balance cap
The $1.6 million transfer balance cap (TBC) was introduced to limit the total amount that a member can transfer into the tax-free pension phase; now referred to as the retirement phase.
Previously, the earnings on assets supporting pensions, including transition to retirement income streams (TRIS), were tax free without any maximum limit. The TBC measure caps the exempt current pension income (ECPI) exemption of each member to $1.6 million of capital that can be used to commence a pension.
Consequently, many members with pension balances above $1.6 million prior to 1 July 2017, should have reduced their pension account to $1.6 million by 30 June 2017.
Division 293 threshold
From 1 July 2017, the threshold at which high income earners pay an extra 15 per cent additional contributions tax was reduced from $300,000 to $250,000. This includes salaries and super contributions in total.
Annual concessional contributions cap reduced to $25,000
From 1 July 2017, the annual concessional contributions (CC) cap was reduced to $25,000 each financial year (indexed in line with AWOTE). Previously, the general limit for the prior financial year was $30,000 (or $35,000 for those aged 49 or above on 1 July 2016).
Tax deduction for personal superannuation contributions
From 1 July 2017, members have been eligible to claim an income tax deduction for personal superannuation contributions up to their concessional contributions cap without, broadly, having to satisfy the test that no more than 10 per cent of earnings is from employee-like activities.
Transition to retirement income streams (TRIS)
As noted above, from 1 July 2017, the tax exemption on earnings derived from assets supporting a TRIS was removed. Therefore, a member with a TRIS who had reached preservation age, but had not yet retired or attained 65, fund earnings on TRIS assets is now taxed at 15 per cent (i.e., the same rates as if these assets remained in the accumulation phase).
However, on 22 June 2017 the Coalition government introduced a new form of TRIS that can be in retirement phase and obtain a pension exemption. This is where the member has attained age of 65 and retired. This is referred to as a “TRIS in retirement phase”.
Broadly, a TRIS in retirement phase is treated in the same manner as an account-based pension that is subject to the ECPI exemption. Such a TRIS is also subject to the $1.6 million TBC limit.
Extracted from an article by Daniel Butler (DBA Lawyers)