Non-concessional contributions cap
You can make non-concessional contributions of up to $100,000 if you qualify and have a total superannuation balance of less than $1.6 million at the prior 30 June.
If you are under 65, it is possible to access the bring-forward rule and make non-concessional contributions of up to $300,000 over a fixed three-year period, provided your total superannuation balance is no more than $1.4 million at the prior 30 June. If your total superannuation balance is between $1.4 and $1.5 million, you can make non-concessional contributions of up to $200,000 over a two-year fixed period, and if your total super balance is between $1.5 and $1.6 million, your non-concessional contribution is limited to the standard annual limit of $100,000.
The standard annual non-concessional contribution cap of $100,000 will be reduced to $75,000. The bring-forward rule will then change to allow a one-off (after-tax) contribution of $225,000 for an individual, or up to $450,000 for a couple to a maximum of $225,000 each.
The cut in the cap reduces the ability to make a one-off contribution to super, which can come from the proceeds of selling investments, an inheritance, a redundancy payment or some other means.
Non-concessional contributions and access to the bring-forward rule will continue to be determined by your total superannuation balance, which is measured as at 30 June in the previous financial year.
Concessional contribution cap
The concessional cap for the 2018-19 financial year is $25,000 for an individual. There is no higher cap for older Australians. The cap is indexed and increased in amounts of $2,500. The cap will not increase for the 2019-20 financial year and will remain at $25,000.
Labor has not announced any changes to the concessional cap; however, it has announced changes to the catch-up concessional cap rules, refer below.
Tax deductions for personal superannuation contributions
You can claim a tax deduction for personal superannuation contributions providing you have notified the fund of your intention and the fund has acknowledged your notice in writing. The maximum amount for personal superannuation contributions, including any employer or salary sacrifice contributions, is $25,000 without incurring a tax penalty.
As an example, if your salary for the financial year is $100,000, your employer would be required to make a 9.5 per cent super guarantee contribution of $9,500 that would allow you to make a personal tax-deductible contribution of up to $15,500 ($25,000 – $9,500).
Tax deductions for personal superannuation contributions will be more restricted and is likely to revert to the previous rules. However, more detail of the announcement is required to work out who may be impacted by any change. The previous rules allowed a deduction for personal contributions if less than 10 per cent of your total adjusted taxable income came from employment sources.
Catch-up concessional contributions
You may be eligible to claim personal catch-up concessional contributions if you meet certain conditions. Whilst the measure started in the current 2018-19 financial year, the first year that a person can apply any catch-up amount is the 2019-20 financial year.
The catch-up contribution is the difference between concessional contributions you make plus those that are made for you and your annual concessional contributions cap of $25,000. You can carry forward the shortfall for up to five years and can claim a personal tax deduction up to the catch-up amount if your total superannuation balance as at 30 June in the previous financial year is below $500,000.
As an example, if you earned $100,000 for the 2018-19 financial year and your employer contributed the compulsory super guarantee contribution of $9,500 (9.5 per cent of $100,000) you would have an unused catch-up concessional contribution of $15,500 ($25,000 - $9,500) which you can carry forward for the next five years.
Assuming your total super balance at 30 June 2019 was less than $500,000, your concessional contributions cap for 2019-20 would be $40,500 (i.e. the standard $25,000 concessional contributions cap for the income year plus the carried forward amount of $15,500 from the previous income year).
Catch-up contributions will be abolished as they are considered to provide an unfair advantage to upper-income earners.
Division 293 high-income super contribution threshold
If your adjusted taxable income exceeds $250,000, you are required to pay an addition 15 per cent tax on concessional contributions up to the standard cap amount of $25,000.
This means that if you have an adjusted income of at least $250,000, it will trigger an additional 15 per cent tax (which means a total tax rate of 30 per cent once you factor in the 15 per cent contributions tax deducted by your super fund) on any concessional contributions within the $25,000 cap that are in excess of the threshold.
As an example, if you had an adjusted taxable income of $275,000 and your employer contributes $25,000 to your super fund, you would end up with an additional tax bill of $3,750 ($25,000 x 15 per cent). However, if your adjusted taxable income was $260,000 and concessional contributions of $25,000 were made to your fund, then only $10,000 would be taxed at the additional 15 per cent ($1,500).
The high-income superannuation contribution threshold will be reduced to $200,000 from the current $250,000 threshold. Consequently, this will affect a greater number of individuals.
$450 superannuation guarantee threshold to be phased out
Super guarantee is not payable by an employer for employees who earn up to $450 in a calendar month.
The $450 monthly threshold is to be progressively reduced in increments of up to $100 each financial year between 2020 and 2024. The effect of this change is intended to benefit low-income earners, casual employees and those in part-time employment.
Superannuation guarantee to be paid on the government’s paid parental leave
Superannuation guarantee contributions are not required to be paid by your employer if you are receiving paid parental leave.
Superannuation guarantee contributions will be paid on amounts you receive under the federal government’s paid parental leave scheme. At present, $719.35 is paid weekly for 18 weeks if you are female and meet a work test and earn less than $150,000 per year. The amount paid for the super guarantee will be 9.5 per cent of $719.35 ($68.34 weekly to a maximum of $1,230.08 over 18 weeks)
LIMITED RECOURSE BORROWING
Direct borrowing by superannuation funds and limited recourse borrowing
Your SMSF can borrow to invest as long as the loan arrangement and the asset being acquired satisfy strict rules.
Limited recourse borrowings will cease; however, those in place prior to the law changes will be grandfathered.
FUNDS CLAIMING ECPI
Restriction on amount of fund income that can be claimed as exempt current pension income (ECPI)
From 1 July 2017, a transfer balance cap (TBC) of $1.6 million was introduced in relation to the amount of a member’s benefits that can be transferred to a retirement phase income stream. This cap effectively restricts the amount of ECPI that a fund can claim, where it has members with retirement phase income streams, but with more than $1.6 million in total superannuation benefits.
Prior to the introduction of the TBC, Labor announced a policy to limit the amount of ECPI that a fund could claim to $75,000 per member. It is unclear whether Labor still intends to introduce this policy now that the TBC has been introduced.
Increase in the superannuation guarantee rate to 12 per cent
The super guarantee rate is set to increase from the 2021-22 financial year at 0.5 per cent per year until it reaches 12 per cent by the 2025-26 financial year.
The planned incremental increase in the superannuation guarantee rate to 12 per cent will take place despite the Productivity Commission’s recent recommendation opposing any increase. However, Labor has expressed a desire to increase the super guarantee rate as soon as practicable.
Increase in the pension age
Increases in the pension age will occur at six-monthly intervals to 67 by 1 July 2023.
Proposed change abandoned
The plan to increase the age pension age to 70 was abandoned by the current government and will not be introduced if Labor takes government.
OTHER DIFFERENCES THAT AFFECT SUPER
Individuals and superannuation funds are entitled to a refund of franking credits, if the franking credits plus any PAYG tax paid by the individual or fund exceeds their tax liability.
Refunds of excess franking credits that exceed tax liabilities will cease for some taxpayers. Generally, the policy will apply to most individuals, SMSFs and some larger superannuation funds. As part of Labor’s pensioner guarantee, SMSFs that had at least one member who was a welfare recipient on 28 March 2018 are exempt from this policy.
A discount of 50 per cent applies to capital gains made on CGT assets held by an individual for at least 12 months. A one-third discount applies to capital gains made on CGT assets held by a superannuation fund for at least 12 months.
It is proposed that the 50 per cent discount that applies to capital gains made by individuals on CGT assets held for at least 12 months is halved to 25 per cent for CGT assets acquired from 1 January 2020. There will be no change to the one-third discount that applies to superannuation funds.
Taxing discretionary trust income
Distributions from discretionary (family) trusts are taxed depending on the personal tax rate of the beneficiary.
Labor intends to introduce a minimum tax rate of 30 per cent to discretionary trust distributions aimed at reducing tax minimisation and artificial income splitting. This should not affect SMSFs, as trust distributions received are generally from unit (fixed) trusts, not discretionary trusts. Current law treats distributions from a discretionary trust to an SMSF as non-arm’s length income, taxing the distribution at the relevant top marginal tax rate.
Mark Ellem, SuperConcepts