Which 2016/17 Budget measures didn’t receive Royal Assent?

Which 2016/17 Budget measures didn’t receive Royal Assent?

The 2016/17 Federal Budget contained a range of measures designed to ensure a fairer, more sustainable superannuation and retirement income system but not all measures have been legislated.

Some proposals were scrapped, reminding us all that proposed measures must be legislated and passed through Parliament before they apply.

What’s in?
1.  Reduced concessional contributions cap
From 1 July 2017, a blanket concessional contributions cap of $25,000 will apply (down from the current $30,000 cap for those under age 50 or $35,000 for those aged 50 or over). Examples of concessional contributions include SG contributions, tax deductible contributions and those made with pre-tax income such as salary sacrifice contributions.

2.  Division 293 tax threshold reduced
High income earners on $300,000 or more per annum currently pay a total tax of 30 per cent on concessional contributions but from 1 July 2017 that threshold, known as Division 293 tax, will reduce to $250,000.
Consequently, more high income earners will be required to pay the 30 per cent rate.

On the upside, Australians with a super balance under $500,000 have the ability to carry forward any unused concessional contribution cap over a rolling five-year period. This means that any unused concessional cap accrued from 1 July 2018 can be utilised in future years which may benefit those who have been out of the workforce for a period of time, such as people caring for young children or elderly parents.

3.  $1.6 million balance transfer cap
From 1 July 2017, a cap of $1.6 million will apply to the amount that can be transferred from super to pension phase. Any excess in super must remain in an accumulation account where earnings will be taxed at a maximum of 15 per cent.

Retirees with a pension account with a balance greater than $1.6 million as at 1 July must transfer the excess back into a super account or withdraw it out of the super environment.

4.  Removal of tax exemption for Transition-to-Retirement earnings
Currently, income earned from the assets underpinning a Transition-to-Retirement pension are tax exempt but from 1 July 2017 that exemption will be removed. Instead, earnings will be taxed at 15 per cent.

The tax treatment of income payments received from a TTR pension will continue to be tax free for those aged 60 and over.

Additionally, the ability to treat certain pension payments as a lump sum withdrawal for tax purposes will also be removed.

5.  Restrictions lifted on who can claim super tax deduction
Everyone up to age 65 will be able to claim an income tax deduction for personal super contributions from 1 July 2017.

This effectively allows all individuals, regardless of their employment situation, to make concessional contributions up to the concessional cap.

Currently, only self-employed persons or those who earn less than 10 per cent of their total income from employment as an employee can claim a tax deduction.

6.  Income threshold and increases for spouse contributions
A tax offset of $540 per annum, designed to encourage people to contribute to their spouse’s superannuation, only applies where the spouse earns less than $10,800. From 1 July, that threshold will increase to $37,000 enabling more people to qualify for this tax concession. 

7.  Super tax offset available for low income earners
A Low Income Superannuation Tax Offset of up to $500 will be available to people with a taxable income below $37,000 from 1 July 2017 when the existing Low Income Superannuation Contribution is abolished.
This offset will be used to reduce the contributions tax on concessional contributions.

8.  Additional death benefit payment abolished
The additional payment that is sometimes available when a death benefit lump sum is received (often referred to as anti-detriment payment) will be abolished where deaths occur after 1 July 2017.

What didn’t get in?
1.  $500,000 lifetime non-concessional contribution cap
This controversial proposal did not make it to Parliament.

In last year’s Budget it was proposed that a $500,000 lifetime non-concessional contribution cap would replace the existing NCC cap of $180,000 or $540,000 under the bring-forward rule.

This cap would include all NCC made since 1 July 2007. Any excess contributions would need to be refunded to avoid harsh tax penalties.  

2.  Work test abolished for those aged 65 to 74
It was proposed that existing superannuation contribution restrictions on individuals aged 65 to 74 be abolished, removing the need for those under age 75 to satisfy the existing work test requirements.

Currently, those aged between 65 and 74 need to be employed for at least 40 hours in a 30 day period in order to make a personal contribution to super. 

Jeff Scott is Head of Product at ClearView.