By Associate Professor Robert Bianchi, Griffith Business School
New initiatives and modifications to the Australian superannuation system are aimed at reducing some of the tax benefits to high income earners and those who have accumulated high asset balances within the superannuation system. At the same time, the 2016 Budget tries to deliver modest concessions to assist the average Australian.
- Catch-up concessional super contributions
The government is introducing a new initiative where taxpayers with unused concessional super contributions can carry them forward for up to five years if your super balance is $500,000 or less. Previously, investors have been subject to a super concessional contribution cap of $25,000 per year which cannot be carried forward. This new initiative allows workers with volatile earnings and interrupted work patterns to use these concessions in subsequent years. This new initiative is most effective for women on high incomes who take a career break to raise a family as they will be able to make ‘catch-up’ concessional super contributions when they return to work in subsequent years.
- $1.6 million super transfer balance cap
This new initiative ensures that investors can transfer a maximum of $1.6 million into their retirement phase account tax-free. Amounts higher than $1.6 million will be subject to tax. This new initiative is expected to affect less than one percent of superannuation members. This limit applies to current retirees and individuals who are yet to retire. This initiative is designed to mitigate the tax benefits to individuals who have accumulated excessively high asset balances inside the superannuation system.
- $500,000 lifetime cap on non-concessional super contributions
The government has introduced a new lifetime cap of $500,000 on non-concessional super contributions. This new initiative places a limit on the extra contributions that can be accumulated inside the superannuation system. Again, this initiative is designed to mitigate individuals who use superannuation as an aggressive tax minimisation or estate planning scheme. This initiative will affect approximately less than one percent of superannuation members.
- Winding back tax concessions to high income earners
Individuals with a combined annual income and super contributions of $250,000 or more will pay a 30% tax rate on their super rather than the standard tax concession rate of 15%. This winding back of tax concessions was previously set at $300,000 per year so the move in lowering the level down to $250,000 per year is designed to assist the fiscal position of the federal government budget deficit.
- Spouse tax offset
The spouse tax offset allows workers to make super contributions into your spouse’s super account but it is applicable to spouses earning $37,000 p.a. or less. Previously, there was a spouse tax offset from 2012-2014. The spouse tax offset was abolished from 1 July 2014 and is now being re-introduced in the 2016 Budget.
- Continued super tax concessions for low income earners
The current ‘Low Income Superannuation Contribution’ which ceases on 30 June 2017 will be replaced with the ‘Low Income Superannuation Tax Offset’. Whilst the name of this concession has changed, the benefits remain identical. Individuals earning $37,000 per annum or less are eligible for a refund of the 15% superannuation levy they have paid on their super contributions, with a maximum amount set at $500. Please note that this benefit has remained constant since 2012-13, therefore, there are no material changes. The federal government argues that the Low Income Superannuation Tax Offset will assist women in building their super savings; however, this initiative has been in place since 2012-2013. Effectively, there are no new initiatives with the Low Income Superannuation Contribution.
Overall, the 2016 Federal government Budget delivers modifications to the Australian superannuation system designed to make it more fiscally sustainable and equitable over the long-term.