Contribution Caps for the 2018 Financial Year
Concessional Contributions Cap
• 2016-17 financial year is $30,000 for those under 50, or $35,000 for those 50 and over
• 2017-18 financial year is $25,000
Non-Concessional Contributions Cap
• 2016-17 financial year is $180,000
• 2017-18 financial year is $100,000
3-Year Non-Concessional Cap
• 2016-17 financial year is $540,000
• 2017-18 financial year is $300,000
From 1 July 2017, you will be precluded from making further non-concessional contributions if your total superannuation balance exceeds $1.6 million (as indexed) on 30 June the previous financial year.
The Bring-Forward Rule is not available to individuals between the age of 65 and 74 years old. These individuals can contribute Non-Concessional Contributions up to $100,000 per annum provided they satisfy “the work test” and their total superannuation balances at 30 June of the previous financial year are $1.6 million or less.
$1.6 Million Transfer Balance Cap
This measure limits the total amount of superannuation assets a member can transfer into the tax-free pension phase up to $1.6 million from 1 July 2017. The $1.6 million limit is otherwise known as the Transfer Balance Cap. What this means to you is that if your existing Pension Account Balance is in excess of $1.6 million, you must reduce your total Pension Balance to $1.6 million on 1 July 2017 via a partial or full commutation of one or more Pension Accounts.
Amounts in excess of Transfer Balance Cap must be transferred back to an Accumulation Account on or after 1 July 2017. Earnings inside this account are generally taxed at 15 per cent and capital gains taxed at 10 per cent (if held more than 12 months). You should also be aware that any excess Transfer Balance Cap will attract a penalty tax of an additional 15 per cent for the first breach and 30 per cent for second and subsequent breaches.
The Transfer Balance Cap does not apply to any subsequent growth or losses. This means if you start a Pension Account with $1.6 million and the value of that account grows to $1.7 million by 30 June 2018; you will not breach your Transfer Balance Cap and not be charged the extra penalty tax.
On the other hand, if your total Pension Account balance is less than $1.6 million on 1 July 2017, you are not immediately affected by this new measure. However, ongoing monitoring of your Transfer Balance Account is required to ensure compliance with this measure.
Transition to Retirement Income Streams (TRIS) will not count towards your Transfer Balance Cap from 1 July 2017.
Transition to Retirement Income Streams (TRIS)
From 1 July 2017, a TRIS is specifically excluded from the definition of a “retirement phase” income stream. This effectively removes the tax exemption on earnings derived from assets supporting a TRIS and your superannuation fund will be assessed on 100 per cent of its net earnings.
Furthermore, you will no longer be able to elect to receive your regular pension payments as a lump sum for the purpose of accessing the low rate cap which had been available for those individual/members between their preservation age and age 59.
Removal of the 10% Rule for Personal Concessional Contributions
From 1 July 2017, all Employees and Self-Employed under the age of 65 will be able to make personal superannuation contributions up to their Concessional Contributions Cap ($25,000) and claim an income tax deduction in their personal tax return.
For those over the age of 65, you must first satisfy the gainful employment test (“the work test”) before making any contribution. Further, a deduction is limited to the person’s taxable income and cannot give rise to a tax loss.
Rolling 5 year Concessional Cap - 1 July 2018
From 1 July 2018, if you have a total superannuation balance of less than $500,000, you will be able to carry forward the unused portion of your Concessional Contributions Cap for up to 5 consecutive years, starting from 1 July 2018. This effectively allows you to make additional contributions in excess of your Concessional Contributions Cap for that financial year up to the carried forward amount.
Reduction of Division 293 Income Threshold from $300,000 to $250,000
From 1 July 2017, the government will reduce the income threshold, above which individuals will be required to pay an additional 15 per cent tax (commonly referred to as “Division 293 tax”) on their Concessional Contributions, from $300,000 to $250,000 per annum.
The additional tax is imposed on the whole amount of the contributions, up to the Concessional Contributions Cap, if your salary and wages are above the threshold. Otherwise, the additional tax is only imposed on the portion of the contribution that takes you over the threshold.
Introduction of the Low Income Superannuation Tax Offset
The Government will introduce a Low Income Superannuation Tax Offset (LISTO), which will replace the Low Income Superannuation Contribution (LISC) policy that has been repealed from 1 July 2017.
The tax offset is available to superannuation funds based on the tax paid on Concessional Contributions made on behalf of low income earners. The offset will mean that individuals with an adjusted taxable income up to $37,000 will receive a refund into their superannuation account of the tax paid on their Concessional Superannuation Contributions, to a cap of $500 per annum. The ATO will determine a person’s eligibility for the Low Income Superannuation Tax Offset and advise their Superannuation Fund annually.