Treasurer Scott Morrison’s first budget contains a string of changes to superannuation tax concessions and contributions aimed at making Australia’s super system “more fiscally sustainable” and reducing the reliance on the age pension.
In his maiden budget address on 3 May, Morrison announced that from 1 July 2017, the annual cap on concessional contributions (CC) for individuals would be reduced to $25,000.
The CC limit was previously $30,000 a year or $35,000 a year for people aged 50 and over.
The government also announced it would introduce a lifetime cap of $500,000 on non-concessional contributions (NCC), indexed to average weekly earnings.
The new rule takes into account all contributions made since 1 July 2007 and would be applicable from the night of the budget.
The NCC limit was previously $180,000 a year, with a three-year bring forward rule of $540,000 for those under 65.
Furthermore, the government will reduce the income threshold above which individuals will be required to pay an additional 15 per cent tax on their concessional contributions from the current threshold of $300,000 to $250,000.
“We need to ensure that our superannuation system is focused on sustainably supporting those most at risk of being dependent on an age pension in their retirement, which is the purpose of these concessions,” Morrison said.
Morrison unveiled a low-income superannuation tax offset to replace the low-income super contribution when it ended on 30 June 2017, in a bid to “effectively reduce” the tax rate on super contributions to zero for low-income earners.
Furthermore, a cap of $1.6 million on pension-phase balances would be introduced, while those who have periods of absence from the workforce would be allowed to roll over unused CC limits from previous years if their super balance was under $500,000.
In relation to transition-to-retirement (TTR) pensions, existing loopholes will be closed by taxing earnings of TTR income streams, in an aim to block any incentives for the structure to be used as vehicles to minimise tax.
“The government will further improve the integrity of the superannuation system by ensuring that the TTR income stream scheme is fit-for-purpose, is not accessed primarily for its tax benefits, and still meets the objective of supporting people who want to remain in the workforce,” the budget papers said.
It would also abolish outdated anti-detriment provisions, first introduced by the Keating government in 1988, which provided a refund of contributions tax paid over a lifetime in the event of a fund member’s death.
In accordance with the government’s review of retirement income stream regulation, it confirmed it would remove tax barriers to the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.
Morrison underlined the government’s focus on fairness in its changes to the super system, stipulating that just 4 per cent of superannuants would be worse off under the changes, which raised $6 billion in savings measures.
The SMSF Association labelled the government’s proposed changes to the super caps as inhibitive and complex.
“We think these are the most significant changes to the super system since the 2007 budget when [then treasurer] Peter Costello brought in his Simpler Super package,” SMSF Association head of policy Jordan George told selfmanagedsuper.
“We see them as changes by a government who is seeking to make the system more sustainable and fairer, but we are concerned that some of the changes are quite complex and also inhibit people from saving for an adequate retirement income.
“Our main concern is the CC caps being cut to $25,000 for everyone.
“Even though we are happy that the government has introduced more flexible contribution caps by allowing the carry forward, that’s limited to people with balances of under $500,000, so it may stop people making extra catch-up contributions.”
The association added the NCC $500,000 lifetime limit was retrospective and unfair to people who were making contributions under the law at the time.
While it said the $1.6 million cap on retirement balances was reasonably appropriate, it had concerns again around the level of complexity, and believed targeting concessions in the retirement phase could be done more efficiently.