Federal Budget '16

In light of the Federal Budget and given the media's tendency to focus on the unfavourable superannuation changes, this month's Wealth Pipeline focuses on the positive takeaways from the proposals. If the legislation is passed, the below changes will come into effect 1st July 2017.

1. Catch- Up Concessional Contributions

To improve the flexibility of the concessional contribution regime, the Government proposes to allow people with superannuation balances under $500,000 to carry forward unused concessional cap space on a rolling 5 year basis.

2. Changes to Contribution Rules for 65 to 74 year olds

The current superannuation contribution restrictions on people aged 65 to 74 will be lifted. They will no longer have to satisfy the minimum employment conditions in order to make voluntary contributions or receive contributions from their spouse.

Furthermore, the same contribution rules will apply to all individuals aged up to 75 years young. This aims to increase the retirement savings of people aged 65 to 74, and promote fairness.

3. Personal Contribution Deductions

All individuals aged up to 75 will be able to make personal superannuation contributions up to the concessional contributions cap (see above), and qualify for an income tax deduction on those contributions; unless the individual is part of a prescribed fund i.e. State or Commonwealth defined benefits schemes.

This effectively removes the '10% rule', where individuals could only able to claim a tax deduction for contributions when their employment income is less than 10% of their total income.

4. Introduction of Low Income Superannuation Tax Offset

A ‘Low Income Superannuation Tax Offset’ will be introduced on the 1st of July 2017. This ensures that low-income earners do not have to pay more tax on funds placed in superannuation savings, by providing a non-refundable tax offset of up to $500 (calculated on the amount of superannuation tax paid by the lower-income earner) to the superannuation funds themselves.

The threshold to qualify for this new plan is $37,000 per annum and is designed to encourage lower-income earners (i.e. people whose work patterns are interrupted, care-takers etc.) to make superannuation contributions and boost their retirement savings.

5. Low Income Spouse Tax Offset Threshold

The threshold for the Low-Income Spouse Tax Offset will increase from $10,800 to $37,000. This means that a lower-income earning spouse can now earn up to $37,000 per annum, and the contributing spouse can still qualify for the $540 income tax deduction. This aims to increase the retirement savings of spouses whose work patterns are interrupted, or are care-takers etc.

Our Comments

From a Superannuation perspective, this year’s budget has focused on the enhancement of retirement savings for those groups whom may have been at a previous disadvantage i.e. elderly/retired people, mothers/women with interrupted work patterns.

The proposed changes should promote behaviour that will ensure these groups will be more financially secure upon retirement. However, these ‘behaviours’ (such as ensuring maximum personal contributions are made yearly) must be acted upon in order to utilise these changes.