Following on from the major changes to superannuation announced recently, this Budget contained the addtional changesas detailed below:
Contributing proceeds from sale of home
Effective 1 July 2018
People aged 65 and over will be able to contribute up to $300,000 into super from the proceeds of the sale of their principal place of residence. This measure will apply to a principal place of residence held for a minimum of 10 years and may be used by both members of a couple.
These contributions will be treated as non-concessional contributions and will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
The existing contribution restrictions for people over age 65 and the restrictions on making non-concessional contributions where a person’s total superannuation balance is over $1.6M will not apply. However, these contributions will not be exempt from the transfer balance cap and will only be able to be used to commence a retirement phase pension where the member has remaining transfer balance cap space. The amount contributed will also be fully assessable under the age pension assets test.
First Home Saver Scheme
Effective 1 July 2017
Individuals will be able to make voluntary superannuation contributions in excess of super guarantee of up to $15,000 per year up to a total of $30,000 to purchase their first home. These voluntary contributions, which will be taxed at 15%, along with deemed earnings, can be withdrawn for a deposit on a person’s first home. Withdrawals will be taxed at marginal tax rates less a 30% tax offset and will be allowed from 1 July 2018.
First home savers will be able to salary sacrifice an amount from their pre-tax income directly into super. Individuals who are self-employed or whose employers do not offer salary sacrifice will be able to claim a tax deduction on personal contributions. These pre-tax contributions must be within the concessional cap of $25,000.
First home savers will also be able to make non-concessional contributions under this scheme. However, these contributions will not be taxed when they are withdrawn.
The amount of deemed earnings that can be released under these rules will be calculated based on the 90 day Bank Bill rate plus 3% - currently equivalent to a deemed rate of return of 4.77%.
The Government has confirmed that the ATO will have the primary responsibility for administering the scheme, including:
eligibility of the person seeking a release
calculation of the release amount
compliance mechanisms to ensure the released monies are used for the intended purpose.
The Government has also confirmed that while the concessional part of a release amount will be included in a person's taxable income, it will not flow through to other income tests used for other purposes, such as for calculation of HECS/HELP repayments, family tax benefit or child care benefit.
To assist people to understand the advantages of the scheme the Government has provided an online estimator at www.budget.gov.au/estimator.
Super Borrowings – LRBA Integrity Measure for Pension Cap
Effective 1 July 2017
The balance of a Limited recourse borrowing arrangement (LRBAs) will be included in a member’s total superannuation balance from 1 July 2017. This may impact on the ability of members to make non-concessional contributions. Also, any repayments of interest and capital from a member’s accumulation account will be added to the pension transfer balance account.
The implementation date for these changes has been brought forward from that originally announced and will affect all LRBAs in place from 1 July 2017.
Non-Arm’s Length Arrangements
Effective 1 July 2018
The Government has announced it will further tighten the non-arm’s length income rules to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
A number of the May 2016 Budget announcements have now been legislated and the majority of the changes apply from 1 July 2017.
The changes that apply from 1 July 2017 are:
A reduction in the concessional (before tax) contribution cap to $25,000
A reduction in the non-concessional (after tax) contributions cap to $100,000 and restrictions where an individual has more than $1.6 million in superannuation
Additional 15% contributions tax for individuals earning more than $250,000
The introduction of a $1.6 million superannuation transfer balance cap which restricts the amount an individual may have in the retirement phase and receive an earnings tax exemption
Removal of the earnings tax exemption for transition to retirement income streams
Extension of tax deductions for personal superannuation contributions
Introduction of the Low Income Super Tax Offset
Extension of the Low Income Spouse Super Tax Offset
If you have any questions about these and how they will affect you please contact us.
Follow the links to read about the sections that are relevant to you and if you have any queries about the impact of these announcements then please don’t hesitate to contact us.