Recent changes to superannuation that have become law
It’s important to remember that the Budget proposals announced on 2 April 2019 are proposals only and won’t become law until they pass Parliament. The super and retirement landscape is complex and constantly changing. Here we review some of the changes proposed in previous Federal Budgets that have now been passed as law, that you may be able to take advantage of today.
1. More money in your pocket
Last year’s Federal Budget proposed a series of cuts to personal income tax over the following seven years. One year on and all these cuts have now been passed as law. The sweeping changes will mean millions of Australians will have more money in their pocket by preventing many Australians from moving into a higher tax bracket.
More information about the changes can be found here in our summary of last year’s Budget highlights, where you can explore how these changes affect you.
2. Make the most of your contributions
From 1 July 2017, the Government made significant changes to superannuation contributions and taxation.
or miss out on the opportunity to save tax-effectively.
Concessional contributions
- Everyone has an annual concessional contributions cap of $25,000.
- You can carry forward any unused amounts from 1 July 2018 or later on a rolling basis for a period of five consecutive years, if your total superannuation balance is less than $500,000 as at the preceding 30 June.
- Personal Superannuation Contributions are eligible for an income tax deduction for anyone aged under 75. Previously this only applied to those who are self-employed or unemployed.
- The non-concessional contributions cap is $100,000 a year, provided your total superannuation balance is less than $1.6 million as at the preceding 30 June.
- You can bring forward two years of non-concessional contributions to $300,000 in a three-year period, subject to the following total super balance restriction (the limits in the table below are relevant for the 2018/19 and 2019/20 financial years).
|
Total Super Balance |
Maximum Contribution* |
|---|---|
|
Less than $1.4 million |
$300,000 |
|
Between $1.4 million – and less than $1.5 million |
$200,000 |
|
Between $1.5 million – and less than $1.6 million |
$100,000 |
|
$1.6 million or over |
Nil |
*Over a three-year period, provided you are under age 65 at the start of the relevant financial year and your total super balance as at the preceding 30 June is less than the required amount in the first year and remains under $1.6 million at subsequent 30 June dates.
Special contribution for downsizers- Individuals or couples aged 65 or over can make an after-tax contribution of up to $300,000 (per person) from the sale proceeds of a home that was their principal place of residence (if owned for more than 10 years).
- This is in addition to existing rules and caps, and contributions are exempt from the existing age test, work test and the $1.6 million balance test.
- The $1.6 million pension phase transfer balance limit still applies.
3. Maximise super as you move into retirement
Transition to retirement pensionsRecent changes have reduced the attractiveness of transition to retirement pensions as a wealth building strategy in the lead up to retirement.
- All investment earnings are taxed as if they are in the accumulation phase.
- Income stream payments cannot be treated as lump sums for tax purposes.
From 1 July 2019, if you’re aged 65 to 74 with a total superannuation balance below $300,000 as at the preceding 30 June, you will be able to make voluntary contributions in the financial year after you last met the work test (40 hours in any 30-day period).
Annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply. You will also be able to access unused concessional contributions to contribute more than $25,000 during the 12-month period.
Capping tax-free pension benefitsYou can transfer a maximum $1.6 million of accumulated superannuation into the retirement phase. Any amount over $1.6 million can remain in an accumulation account where earnings continue to be taxed at the concessional rate of up to 15%.
4. Relief for low income earners
- The low-income spouse threshold has increased to $37,000, which means the low-income spouse tax offset provides up to $540pa for the contributing spouse. This can be used together with the Government’s co-contribution and superannuation splitting policies to boost retirement savings.
- A Low-Income Superannuation Tax Offset reduces the tax on superannuation contributions for low income earners. It provides a non-refundable tax offset up to $500, for the tax paid on any concessional contributions made on behalf of low-income earners.
5. Greater support for pensioners
Pension Work Bonus- From 1 July 2019, the first $300 (an increase from $250) of income from work each fortnight will not count towards the pension income test – known as the Pension Work Bonus.
- This is in addition to the income free area – currently $172 a fortnight for a single pensioner and $304 a fortnight for a pensioner couple.
- You can accrue unused amounts of the Pension Work Bonus, up to a maximum of $7,800 (an increase from $6,500), which can exempt future earnings from the pension income test.
- Even if you’re self-employed you will now be eligible for the Pension Work Bonus, although it excludes income from financial or real estate investments.
