Superannuation Changes pass the senate to become live on July 2017

Good Morning,

Happy New Year! We hope 2017 is a great year for all our clients.

I’ve Attached the January economic update which outlines how markets have rallied quite strongly off the back the Trump presidency and expectations for additional stimulus spending in the US. The question still to be answered is whether the talk translates into real action.

The legislative environment for superannuation and taxation has many changes that will come into force from 1 July 2017. An outline of the changes that have been passed in the senate is listed below:

Superannuation Reduction in CC cap

Status: Passed Effective: 1 July 2017

The concessional contribution (CC) cap will reduce to $25,000 pa for all individuals regardless of age.

The cap will be indexed in line with AWOTE in $2,500 increments.

Changes to NCC cap

Status: Passed Effective: 1 July 2017 The non-concessional contribution (NCC) cap will reduce from $180,000 to $100,000 pa.

Individuals cannot make NCCs if they have a total super balance of $1.6 million or more at 30 June of the previous financial year.

Eligible individuals will be able to access a three year bring forward of up to $300,000. Transitional measures will apply to the bring-forward rule

Personal deductible contribution changes

Status: Passed Effective: 1 July 2017 All individuals under the age of 75 will be eligible to make personal contributions for which they can claim a tax deduction up to the CC cap.

Currently, individuals need to meet the 10% test (maximum earnings as an employee condition) to be eligible.

This will enable people in a range of situations to make personal deduction contributions and potentially target the CC cap where that is currently not possible.

Catch-up Concessional Contributions  

Status: Passed Effective: 1 July 2018 Individuals with super balances less than $500,000 will be able to access a higher annual cap and contribute their remaining unused CC cap on a rolling basis for a period of five years.

Only unused amounts accrued from 1 July 2018 can be carried forward.

Changes to TTR income streams

Status: Passed Effective: 1 July 2017 Earnings and gains from investments held in a Transition to Retirement (TTR) pension will no longer be exempt and will be taxed at 15%.

This change will apply to existing and new TTR income streams irrespective of the commencement date.

Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes.

Introducing transfer balance cap

Status: Passed Effective: 1 July 2017 The total amount of super monies that can be transferred to pension phase will be capped at $1.6 million.

The cap will be indexed in $100,000 increments in line with CPI.

An apportionment approach will be used to determine how much cap space is available.

Clients in excess of the transfer balance cap on 1 July will need to either: § transfer the excess amount to the accumulation phase, or § withdraw the excess amount from their super fund.

Abolishing anti-detriment payments

Status: Passed Effective: 1 July 2017 Anti-detriment payments will be abolished when people pass away after 1 July 2017.

Where people pass away before this date, an anti-detriment payment may still be made where the super death benefit is paid as a lump sum before 1 July 2019.

Changes to spouse contribution tax offset

Status: Passed Effective: 1 July 2017 Currently, clients may be able to claim a tax offset of up to $540 on super contributions of up to $3,000 they make on behalf of their spouse whose income is less than $10,800.

This threshold will increase to $37,000. The offset is gradually reduced for income above this level and completely phases out at an income above $40,000

Division 293 threshold reduced

Status: Passed Effective: 1 July 2017 The division 293 income threshold will be lowered from $300,000 to $250,000.

Clients with an ATI above this threshold will pay an additional 15% tax on CCs that aren’t in excess of their annual CC cap.

Tax changes for working holiday makers

Status: Passed Effective: 1 January 2017 Working holiday makers will be taxed at 15% on earnings up to $37,000.

Ordinary marginal tax rates will apply after that.

They will no longer be entitled to claim the tax-free threshold.

Employers of working holiday makers will need to complete a one-off registration with the ATO failing which they will be required to withhold tax at 32.5%.

Reduction in rates and threshold for pensioners

Status: Passed Effective: 1 July 2017 The changes to the assets test that apply from 1 January 2017 will cause a significant number of clients to either receive a reduced age pension (or other pension entitlement), or lose their entitlement altogether.

Some clients who currently receive close to the maximum rate of age pension will see an increase in the entitlement.

The two assets test changes are: § the taper rate (ie the rate at which entitlement reduces under the assets test for pensioners) will increase from $1.50 pf to $3.00 pf, per $1,000 of assets above the lower threshold, and

• the assets test thresholds below which the full pension is potentially payable will be increased.

A Health Care Card, for people below pension age, or a Commonwealth Seniors Health Card (CSHC) for people of pension age will be automatically issued to those pensioners who will lose the pension entitlement as a result of these changes.

Change in social security assessment for aged care recipients

Status: Passed Effective: 1 January 2017 For social security purposes, the assessment of the home will change for residents entering care on or after 1 January 2017.

Currently, the former home is exempt and the rental income received is exempt for social security purposes if:

• the former home is retained and rented, and § a person is paying part or all of their accommodation payments via a Daily Accommodation Payment (DAP) or Daily Accommodation Contribution (DAC).

Residents who enter care from 1 January 2017 will not be eligible for the above concession.

Instead, from a social security perspective, they will receive the general two year exemption on the former home, after which time the home will become a fully assessable asset.

Rental income received would be immediately assessable. Clients who enter care before 1 January 2017 will be able to take advantage of the current exemption going forward, even if the home is rented after 1 January 2017.

Introducing child care subsidy

Status: Bill introduced Effective: 2 July 2018 A Bill was introduced in the Parliament in September 2016 that proposes to replace the existing Child Care Benefit and Child Care Rebate with a single means tested Child Care Subsidy (CCS) and Additional Child Care Subsidy. The maximum CCS amount that can be claimed is $10,000 per child per income year.

Removal of Energy supplement for new CSHC recipients

Status: Passed Effective: 1 July 2017 New recipients of CSHC from 20 March 2017 will not receive the Energy supplement.

Grandfathering provisions will apply for those who held the card prior to 20 September 2016.

However, where the CSHC was first received from 20 September 2016, the Energy supplement will only continue to be paid up until 19 March 2017.

Cheers

Robert