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SUPERANNUATION

From 1 July 2016

EMPLOYERS - SUPERANNUATION GUARANTEE

Employers usually contribute 9.50% of ordinary time earnings to your superannuation fund and then claim a tax deduction.

Employees must be over 18 years old ((70 year old age limit from 1 July 2013, from 1 July 2016 < 75 years old)) and you pay $450 or more in salary or wages in a month.

Employees under 18 years old must also work at least 30 hours per week. Employers must make these payments on 28th day after each quarter or pay a superannuation guarantee charge which includes the 9.50% superannuation plus interest plus an ATO administration fee.

Ordinary time earnings:

Includes - ordinary hours of work, over-award payments, certain bonuses, commissions, shift-loading and certain

allowances.

Excludes - Unused sick leave, unused annual leave, unused long service leave, overtime payments or lump sum

payments relating to overtime and specific loadings.

These are called concessional contributions.

The governments has announced that a low income superannuation support will be provided via a payment of up to $500 a year, meaning no effective tax is paid on compulsory super contributions for employees earning up to $37,000 per year.

Superannuation Guarantee age limit of 70 years old will be removed.


SELF EMPLOYED SOLE TRADERS AND PARTNERSHIPS

Self employed sole traders
and partnerships can claim a tax deduction if employee's assessable income including reportable fringe benefits and superannuation contributions is < 10% of total assessable income.

These are called concessional contributions.

 

From 1 July 2017

SALARY AND WAGES EMPLOYEES POST TAXED CONCESSIONAL CONTRIBUTIONS

Removal of the < 10% of total assessable income test.

This means that salary and wage employees may contribute up to $25,000 limit in post taxed dollars and receive a tax deduction.

Previously you were only able to salary package extra superannuation concessional contributions or make a non-concessional contribution with post taxed income.


CONCESSIONAL CONTRIBUTIONS ANNUAL CAP

30 June 2016

If you were aged under 50 then concessional contribution cap is $30,000.

If you were aged 50 years or over on 30 June 2015 then concessional contribution cap is $35,000.

Your superannuation fund pays a 15% contributions tax to the ATO for all concessional contributions. If your income is > $300,000 you will pay 30% contributions tax.

 

From 1 July 2017

CONCESSIONAL CONTRIBUTIONS ANNUAL CAP $25,000

Concessional contribution cap is $25,000 for all individuals.

Some individuals with a superannuation balance of < $500,000 may make additional pre-tax contributions where they have not reached their cap in the previous 5 years (from 1 July 2017).

Your superannuation fund pays a 15% contributions tax to the ATO for all concessional contributions. If your income is > $250,000 you will pay 30% contributions tax.

The governments has announced that a low income superannuation support will be provided via a payment of up to $500 a year, meaning no effective tax is paid on compulsory super contributions for workers earning up to $37,000 per year.

 

EXCESS CONCESSIONAL CONTRIBUTIONS

If you exceed the concessional contributions cap, any excess concessional contributions will be included in your assessable income and taxed at your marginal tax rate, rather than the excess concessional contribution tax rate of 31.5%.

To reduce your tax liability, the ATO will apply a 15% tax offset to account for the contributions tax that has already been paid by your super fund provider.

You may elect to withdraw up to 85% of your excess concessional contributions from your superannuation fund to help you pay your income tax assessment.

 

EXCESS CONCESSIONAL CONTRIBUTION CHARGE

This charge is payable on the increase in your tax liability for the year you have excess concessional contributions.

The relevant charge period is calculated from the start of the income year in which the excess concessional contributions were made. It ends the day before the tax is due to be paid under your first income tax assessment for the year that includes the excess concessional contributions.

The ECC charge rates are updated quarterly

October - December 2016  4.76%

July - September 2016       5.01%

April - June 2016                5.28%

January - March 2016        5.22%

October - December 2015  5.14%

July - September 2015       5.15%

April - June 2015                5.36%.

January - March 2015        5.75%.

October - December 2014  5.63%.

July - September 2014       5.69%.



NON CONCESSIONAL CONTRIBUTIONS

30 June 2016

These are non tax deductible contributions. There is no contributions tax paid to the ATO.

LIMITS
UNDER 65

$180,000 per year or $540,000 over 3 years.

OVER 65
$180,000 per year and must satisfy work test.

OVER 74

Cannot contribute.

 

 

From 1 July 2017

Transition to Retirement:

The tax exemption on earnings of assets supporting transition to retirement income streams will be removed.

 

 Non Concessional Contributions Cap (NCC)

• a reduced annual non-concessional contributions cap (NCC).

• eligibility changes referring to a client’s total super balance and general transfer balance cap

• government co-contribution linked to the annual NCC cap and/or total super balance.


Reduced annual NCC cap

The annual NCC cap reduces to $100,000 (from $180,000) and the maximum bring forward cap is lowered to $300,000 (from $540,000).

 
Eligibility changes Individuals must have a total super balance less than the general transfer balance cap on 30 June of

the previous financial year to be eligible to make NCCs in the relevant financial year.

This criterion is to be met in addition to the existing age and work test requirements.

 
General Transfer Balance Cap

From 1 July 2017

For the 2017-18 financial year, the general transfer balance cap is $1.6 million.


NCC contribution eligibility:

Clients under 65 are eligible to make NCCs at any time.

Clients who are 65 years of age or over at the time of contribution are eligible to make NCCs if they are not yet 75 and have met the work test.


1 Indexed in $100,000 increments in line with the Consumer Price Index (CPI).

2 Contribution can be made by member and must be received by trustee no later than 28 days after the end of the month that the member turns 75.

3 Gainfully employed for at least 40 hours over 30 consecutive days during the financial year.


 


 

SUPERANNUATION CO-CONTRIBUTION
 

30 June 2017

Superannuation co-contribution

If your superannuation co-contribution is between $1 to $1,000 and your income is < $36,021 then the ATO will pay a matching rate to your superannuation fund of 50% of your contribution of $.50 to $500. This amount reduces by 3.333 cents per $1 until your income reaches $51,021.

ELIGIBILITY

You must be under the threshold income test $51,021. This is assessable income plus reportable fringe benefits plus reportable employer contributions.

10% or more of your total income must come from employment-related activities or carrying on a business.

You must be < 71 years old on 30 June.

You must lodge an individual tax return and complete Adjustments A3 section.

You must make a co-contribution to your super fund before 30 June.

 

YOUR SUPERANNUATION FUND

Your superannuation balance must be < $1.6m on 30 June 2016.

You must not exceed your non-concessional contributions cap in the 30 June 2017 financial year.

Your superannuation co-contribution must appear in your superannuation fund's members statement as personal contributions Label B.

When your superannuation fund actually receives the superannuation co-contribution from the ATO it is recorded in the co-contribution part Label M of your members statement in your superannuation fund's tax return.

 

The ATO currently makes these superannuation co-contribution payments on the 2nd Friday of each month.

 

SUPERANNUATION INCOME STREAM AND PENSION TAX RATES

30 JUNE 2017

Member benefit – Tax Free component
Personal contributions not claimed as a tax deductions.
Crystallized segment e.g. undeducted contributions, exempt capital gains, etc.

Member benefit – Taxable component – Taxable element
Under preservation age                                  Taxed at marginal rates with no tax offset
Over preservation age but under 60               Taxed at marginal rates with 15% tax offset
Over 60                                                           Tax free

Member benefit – Taxable component – Untaxed element
Under preservation age                                   Taxed at marginal rates with no tax offset
Over preservation age but under 60                Taxed at marginal rates with no tax offset
Over 60                                                            Taxed at marginal rates with a 10% tax offset


SUPERANNUATION INCOME STREAM AND PENSION TAX OFFSET


Member benefit – Taxable component – Taxable element
Under preservation age                                     Nil
Over preservation age but under 60                 15%
Over 60                                                              Tax free

Disability superannuation income stream tax offset
Under preservation age                                     15%
Over preservation age but under 60                  15%
Over 60                                                              Tax free

PRESERVATION AGE
Date of birth Age
< 1 July 1960                                                      55
1 July 1960 – 30 June 1961                               56
1 July 1961 – 30 June 1962                               57
1 July 1962 – 30 June 1963                               58
1 July 1963 – 30 June 1964                               59
> 1 July 1964                                                      60

SUPERANNUATION INCOME STREAM AND ALLOCATED PENSIONS

TAX FREE ALLOCATED PENSIONS

Superannuation funds do not pay tax on the portion of its fund that is part of an income stream or allocated pension.

SUPERANNUATION INCOME STREAM AND ALLOCATED PENSION

MINIMUM % TAX FREE PENSION PAYMENTS

The minimum superannuation pension payments for the year ended 30 June 2016:

AGE
55 - 64                4%
65 - 74                5%
75 – 79               6%
80 – 84               7%
85 – 90               9%
90 – 94             11%
> 95                 14%

 

 

SUPERANNUATION LUMP SUM TAX RATES

30 JUNE 2017

MEMBER BENEFITS – Taxable component – Taxable element

Under preservation age                                        22%
Over preservation age but under 60                     Nil for first $195,000 then 17%
Over 60                                                                 Tax free

MEMBER BENEFITS – Taxable component – Untaxed element

Under preservation age                                         32% for first $195,000 then 47%
Over preservation age but under 60                      17% for first $195,000 then 32%
                                                                               Greater than $1,415,000 then 47%
Over 60                                                                  17% for first $1,415,000 then 47%

Death benefit superannuation lump sum paid to non dependants

Taxable component – Taxed element                    17 %
Taxable component – Untaxed element                 32 %

Death benefit superannuation lump sum paid to dependants

Taxable component – Taxed element                   Tax free
Taxable component – Untaxed element                Tax free

Rollover superannuation lump sum benefits

Taxable component – Taxed element                   Tax free
Taxable component – Untaxed element                Nil for first $1,415,000 then 47%

Superannuation lump sum benefit < $200               Tax free

Lump sum benefit terminally ill                                 Tax free

 

CONDITIONS OF RELEASE

 

SUPERANNUATION FUND'S TRUST DEED

Conditions of release are governed by the rules set out in the super fund’s trust deed.

RETIREMENT
< 65 Occurs when an arrangement under which they were gainfully employed ceased and the member does not intend to be employed either full or part time in the future. Working < 10 hours per week would be acceptable.

ATTAINING THE AGE OF 65
May cash benefits at any time.

BENEFITS < $200
May cash at any time.

PERMANENT INCAPACITY
May cash at any time

TEMPORARY INCAPACITY
May only cash insurance or voluntary employer benefits.

SEVERE FINANCIAL HARDSHIP
Can not meet reasonable and immediate family living expenses.
Has been receiving government support for 26 weeks.
Restricted to $10,000 in 12 month period.

COMPASSIONATE GROUNDS

 

TEMPORARY RESIDENT VISA

i) You may access your superannuation if your temporary resident visa has expired or has been cancelled and you have left Australia

ii) You are not able to claim a DASP if you are a permanent resident of Australia or a citizen of Australia or New Zealand

TAX RATES

i) Taxable Component  - 38%

ii) Tax-free Component  - 0%

iii) Untaxed Element - 47%

iv) Working Holiday Makers - 65%

 

Google ATO Conditions of release

Draft superannuation legislation released

On 27 September 2016 the Government released the second round of draft superannuation legislation for consultation. The consultation period ends on 10 October 2016.

The recently announced changes to the Budget proposals impacting the non-concessional contributions cap were not included in this release. The Government has indicated that this measure would be addressed in draft legislation within the coming weeks. The further measures introduced in this second tranche seek to:

  • introduce a $1.6 million transfer cap on amounts that can be transferred to pension phase
  • reduce the concessional contributions cap to $25,000 for all individuals, from 1 July 2017
  • reduce the income threshold above which an additional 15% tax is payable on concessional contributions, from $300,000 to $250,000
  • implement a 'catch-up concessional contributions regime', and
  • abolish anti-detriment payments.


$1.6m transfer cap

From 1 July 2017, a $1.6 million 'transfer balance cap' will be introduced to limit the amount of capital that an individual can transfer to the pension phase of superannuation. Pensions in existence on 1 July 2017 will also be subject to the new rules. Pensions that have transition to retirement status will not be counted until a full condition of release is met.

This measure does not limit the total amount a person can hold in an accumulation account. Amounts in excess of the transfer balance cap can remain in accumulation phase and will continue to have earnings taxed at the concessional rate of up to 15%.

Indexation is proposed to work as announced in the Budget. Broadly, the cap will be indexed in line with CPI, in increments of $100,000. Further, a person who has already transferred an amount to retirement phase, but who has not fully utilised their transfer balance cap, will be entitled to a proportion of any indexation to the cap. Entitlement to indexation will be calculated proportionately based on the percentage of the person's previous transfer balance cap that was 'unused'.

Broadly, a person's total transfers to retirement phase will be assessed against their cap, modified to reflect certain activities on retirement phase accounts, such as lump sum commutations. The measures will operate to ensure that there will be no double-counting of transfers in the instance where a person changes pension providers, or refreshes a pension, which requires a person to commute back to accumulation, after which a new pension is commenced.

Modifications to the general application of the rules will apply to:

  • child account based pensions
  • income streams commenced with the proceeds of structured settlements
  • cases where commutations are made due to family law splits, and
  • bankruptcy.

Death benefit income streams will not be exempt from the new measures, and will count towards the recipients transfer balance cap. Child pensions will be treated separately. Reversionary pensioners will be afforded 6 months to consider how their receipt of a death benefit pension will impact their transfer balance cap and may take steps to partially or wholly commute amounts in excess of their transfer cap.

Breaching the transfer balance cap

A person who breaches their transfer balance cap will receive a determination from the ATO, and the superannuation provider will be instructed to commute their retirement phase interest by an amount equal to the excess transfer, plus an amount that represents 'notional earnings' on the excess amount transferred. Similar to the way in which excess NCCs are dealt with, actual earnings on excess amounts transferred will be ignored, and earnings will be calculated based on a formula. Notional earning will be subject to tax at 15% in respect of a person's first breach of the cap. Excess transfers made in subsequent financial years will have notional earnings on excess amounts taxed at a higher rate of 30%.

Concessional contributions

The concessional cap

From 1 July 2017, the annual concessional contributions (CC) cap will be reduced to $25,000 for all individuals regardless of age. Indexation of the CC cap will continue to be indexed in line with AWOTE, and will be increased in increments of $2,500.

This measure will be broadened to capture certain members of unfunded defined benefit schemes and constitutionally protected funds.

Additional 15% tax for high income earners

From 1 July 2017, the income threshold above which an additional 15% tax is payable on CCs, will be reduced from $300,000 to $250,000. This is known as 'Division 293 tax'. There is no suggested change to the definition of 'income' for the purpose of determining liability for the additional tax, or the way in which liability it is calculated.

Catch-up concessional contributions

If certain conditions are met, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in any of the previous five financial years. Unused amounts may be carried forward from 1 July 2018. This means that the first year in which a person may be eligible to utilise a carried forward 'unused CC cap amount' will be the 2019/20 financial year.

Eligibility to utilise carried forward amounts will also require that a person's superannuation balance on 30 June of the prior financial year not exceed $500,000. 'Superannuation balance' for this purpose will include:

  • the value of all accumulation and TRIS pension interests
  • the value of any other pension interests and
  • 'in-transit' rollover benefits.
Contributions made in excess of the annual concession cap, where a person has unused cap amounts from a prior financial year, will first be deducted from unused amounts from the earliest financial year to the latest.

Anti-detriment

Eligible beneficiaries who receive superannuation lump sum death benefits will no longer be entitled to receive an anti-detriment payment in respect of a person who passes away on or after 1 July 2017.

Other income stream measures

Transition to retirement pensions

From 1 July 2017 the current exemption which applies to tax on earnings in pension phase, will be removed where the income stream is a transition to retirement income stream (TRIS). Earnings in TRIS will be taxed in a similar method to accumulation accounts, at a rate of up to 15%. There will be no change to the way in which an individual is taxed personally on payments received from a TRIS.

Income stream- lump sum elections

From 1 July 2017, there will no longer be an ability to make an election to assess an income payment made from an account based pension as a lump sum commutation.


30 June 2017

Maximum $540

A tax offset may apply if contributions are made on behalf of your spouse to a:

Complying super fund

Retirement savings account

You may be able to claim a 18% tax offset on super contributions of up to $3,000 you make on behalf of your non-working spouse or low-income-earning spouse.

 

ELIGIBILITY

You may be entitled to a maximum tax offset of up to $540 each year if:

You did not claim a tax deduction for the contributions.

Both of you were Australian residents when the contributions were made.

The contributions were made to a complying superannuation fund.

Spouse's Assessable Income is the sum of the following amounts:
Taxable income
Adjusted fringe benefits
Net investment losses
Reportable super contributions

Must be < $13,800 this will increase to $40,000 for 30 June 2018.

Maximum rebate is the lesser of:

0 to $10,800 x 18%

$10,801 to $13,799 = ($3,000 - (Spouse's Income - $10,800)) x 18%

 

Disclaimer
The information provided in the above documents is not intended to be, nor should it be construed as tax advice. Any specific recommendation for a client can only be done after their individual circumstances have been determined by David Douglas Accountants.

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