The federal budget introduced a number of superannuation reform changes. Below we have outlined when these changes become valid and how they affect you.
New lifetime cap for non-concessional superannuation contributions
The government announced in the Federal Budget that it will introduce a $500,000 lifetime non-concessional contributions cap.
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will be indexed in $50,000 increments in line with average weekly ordinary times earnings.
What does this mean for you?
Let’s say you have exceeded the cap prior to commencement date on 3 May 2016 (Budget night), your lifetime cap will be considered used up but you will not be required to withdraw the excess in your superannuation.
However, if you make non-concessional contributions, after the commencement, that cause you to exceed the cap, the ATO will notify you and you will be required to withdraw the excess from your fund. Individuals who choose not to withdraw contributions will be subject to penalty tax.
It’s important to note that the lifetime non-concessional contributions cap will replace the existing non-concessional contributions cap, which allows non-concessional contributions of up to $180,000 per year.
Note that, similar changes are proposed to apply to contributions into defined benefit accounts and constitutionally protected funds.
Tax Deductions for personal superannuation contributions
The government will also introduce changes to tax deductions for personal superannuation contributions. From 1 July 2017, the government will change the law to allow all individuals under age 75 to claim an income tax deduction for personal superannuation contributions. Individuals who are, for example, partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from the proposed changes.
Under current law, a tax deduction for personal superannuation contributions is broadly limited to self-employed individuals, and substantially self-employed individuals (i.e. those who satisfy the ‘10% test’).
If you have any questions on how these changes may affect your superannuation, give our super experts a call on 02 9299 7044 or email us at admin@lockwood.com.au.