From July 1st 2017, a variety of changes to superannuation legislation will come into effect. These will alter the way in which both retirement income and super income are taxed.
Although the changes will not apply until the 2017/2018 year, it is important to acknowledge and prepare for them.
In short, the following people will benefit from increased flexibility in regards to super contribution rules;
- Self-employed individuals
- Individuals earning less than $40,000
On the other hand, high income earners, or those who have a significant balance in super, face a new balance cap and a reduced limit on how much they can contribute to super.
One of the main changes to legislation is the new $1.6 million transfer balance cap.
t 2017, a variety of changes to superannuation legislation will come into effect. These will alter the way in which both retirement income and super income are taxed.
Although the changes will not apply until the 2017/2018 year, it is important to acknowledge and prepare for them.
In short, the following people will benefit from increased flexibility in regards to super contribution rules;
- Self-employed individuals
- Individuals earning less than $40,000
On the other hand, high income earners, or those who have a significant balance in super, face a new balance cap and a reduced limit on how much they can contribute to super.
One of the main changes to legislation is the new $1.6 million transfer balance cap.
$1.6 million Transfer Balance Cap
What is it?
This is a cap of $1.6 million on the overall amount of superannuation savings that an individual can transfer into their tax-free “pension phase” (retirement phase) accounts.
This is because the government want to limit the number of earnings that one can make from retirement phase superannuation accounts, as it is tax free. The goal is to render the financial system more ‘fiscally sustainable’.
As the future cost of living increases, this $1.6 million amount will be annually increased in line with inflation (CPI) at an increment of around $100,000.
Who does it affect?
- Those in pension phase (retirement) with a balance of more than $1.6 million
- Those yet to enter pension phase (retire) as at 1 July 2017 expecting to have a balance of greater than $1.6 million in their pension phase account.
What are the consequences?
This cap means that as at July 1 2017, retirees with a balance over $1.6 million in their pension phase account will be forced to remove their excess super benefits. This can be done in two ways,
- Transferring the excess amount to accumulation phase accounts, where it will be taxed at 15%
- Withdrawing the excess amount from the superannuation system
Subsequent earnings in the retirement phase balances won’t be capped.
Note that this applies to individuals, meaning a couple could each have $1.6 million in separate pension accounts.