In most cases, new legislations usually take effect at the beginning of a financial year. Below are several changes that were brought into effect from 1 July 2017, and the effect that these will have on you will depend entirely on your personal financial circumstances.
Some proposed changes to legislation might be included in this content as well. However, they had not yet been approved or rejected at the time of going to print.
1. Superannuation Transfer Balance Cap
A limit has now been put in place with regards to how much you will be allowed to transfer from accumulation phase to retirement pension phase. This is referred to as the transfer balance cap. This cap limit has initially been set at $1.6 million, but it will be indexed by CPI and rounded down to the closest $100,000. Indexation will only apply to any unused part of your $1.6 million transfer balance cap.
Amendments might have to be made to your saving strategy if:
- You have intentions of commencing a retirement phase stream of income and the amount that is transferred could result in the amount in your transfer balance account to go over the $1.6 million mark
- You are receiving some form of retirement phase income stream and more than $1.6 million has already been credited into your transfer balance account
Keep in mind that any transition to retirement streams of income will not be assessed against the $1.6 million transfer balance cap.
2. Non-concessional Contribution Bring-forward Rule and Contributions Cap Limits
Regardless of your current age, the cap limit for concessional contributions has been lessened to $25,000 per year (for example, salary sacrifice, Superannuation Guarantee, personal tax deductible and employer contributions). Because of this, it could be deemed worthwhile to peruse your current salary sacrificing to superannuation arrangements and any other individual tax-deductible concessional contributions. This will help ensure that you remain within the latest concessional contributions cap limit.
The cap limit for non-concessional contributions has been brought down to $100,000 per year (this is when you make contributions to your super account after tax). In addition, the current bring-forward rulings are still applicable, but they reflect the reduced limit amount.
There is an additional restriction that will now apply to all non-concessional contribution amounts. For instance, if your total superannuation balance is equivalent to or more than $1.6 million by the end of June in the previous financial year, you will no longer be permitted to make additional non-concessional contributions.
3. Transition to Retirement (TTR) Pensions
Any earnings that are from assets, which support existing or new transition to retirement pension plans, will no longer be subject to an exemption from earnings tax. Earnings on assets will now be taxed at rates of up to 15% – the same as if these funds were in the accumulation stage.
4. Self-managed Superannuation
The Government recently proposed that a limited recourse borrowing arrangement would be included in your full superannuation balance as well as your transfer balance cap:
- Any outstanding balance of a limited recourse borrowing arrangement would be counted towards your yearly total superannuation balance. However, the Government is still considering its approach with regards to this particular proposal
- Repaying any principal and interest of a limited recourse borrowing scheme from your account would be a credit in your transfer balance account where the fund makes a repayment to the loan, and as a result, the value of the income stream has increased. This proposal was recently approved by Parliament.
It is important to note though, that this amendment will apply in relation to a limited recourse borrowing arrangement that arises under a contract that was entered into on or after July 1, 2017. In addition, refinancing a pre-July 1, 2017 limited recourse loan could also remain exempt from this change, provided that specific criteria are met.
5. Superannuation Anti-detriment Payments
These will no longer be available as part of a superannuation death benefit payout. However, it is still possible for superannuation funds to make anti-detriment payments up to June 30, 2019 for any members who were deceased before July 1, 2017.
6. Tax Deductions for Personal Superannuation Contributions
The Government has removed the 10% maximum earnings as employee test for claiming tax deductions for personal superannuation contributions. This means that as an employee, you will no longer be prevented from claiming a tax deduction for any personal contributions you have made t your superannuation account. You are allowed to make personal contributions until such 28 days after the month in which you turn 75. However, from the age of 65, you will need to have worked a minimum of 40 hours during 30 consecutive days of the current financial year to qualify.
7. Tax Offset for Spouse Contributions
If you weren’t able to qualify for the Spouse Contribution Tax Offset during the previous financial year, you may be able to qualify this financial year. The income amount to be deemed eligible for the entire $540 Spouse Contributions Tax Offset has now increased from $10,000 to $37,000. Additionally, the cut-off income level for any partial Spouse Contributions Tax Offset has been raised to $40,000 from $13,800.
You will need to keep in mind that some other restrictions will also apply. For instance, your spouse is not allowed to:
• Have a full superannuation balance that is equivalent to or more than $1.6 million immediately before the beginning of the financial year in which the contribution has been made
• Exceed their specific non-concessional contributions cap in the corresponding financial year
8. Superannuation Tax Offset for Low Income
Although the Low Income Superannuation Tax Offset (LISTO) has replaced the Low Income Super Contribution (LISC), regulations with regards to governing the new tax offset are still consistent with the old measure.
These rules state that if you have an adjusted taxable income of up to $37,000, you could expect a refund into your superannuation account from the Government. This refund will be calculated at 15% of your complete concessional superannuation contributions for a financial year and it is capped at $500.
9. Co-contributions from the Government
Additional criteria will need to be met in order to qualify for the Government Co-contribution. For instance, you will not be allowed to:
- Have a superannuation balance that is equivalent to or more than $1.6 million on June 30 of the year before the appropriate financial year
- Exceed your non-concessional contributions cap in the relevant financial year
10. High Income Earners (Division 293)
With regards to the additional contributions tax for high-income earners, the income threshold has been reduced from $300,000 down to $250,000. This means that if you earn more than the $250,000 threshold (this includes some forms of concessional contributions), you could be liable to pay an additional 15% tax on these concessional contributions.
11. Eligibility Age to Receive Age Pension
Depending on the date you were born, the eligibility age to receive Age pension has now been increased from 65 years to 65.5 years. The information below will provide a brief summary of how you could be affected by this amendment:
|Age Pension Eligibility Age|
|Date of Commencement||Eligibility Age||Those Affected|
|–||65 years||Born prior to July 1952|
|From 1 July 2017||65.5 years||1 July 1952 – 31 December 1953|
|From 1 July 2019||66 years||1 January 1954 – 30 June 1955|
|From 1 July 2021||66.5 years||1 July 1955 – 31 December 1956|
|From 1 July 2023||67 years||On or after 1 January 1957|
12. Prospective First Home Buyer
First Home Super Saver Scheme
The Government’s newly proposed First Home Super Saver Scheme would enable prospective first homebuyers to withdraw voluntary superannuation contributions to buy their first home.
As of July 1, 2018, it was proposed that the amount available to be withdrawn would be up to $15,000 of your voluntary contributions per financial year since July 1, 2017 (a total of $30,000) in addition to deemed earnings, minus tax on concessional (pre-tax) contributions and deemed earnings. Any contributions under this scheme will have to be made within the existing superannuation contribution caps. However, first home savers might want to delay making extra contributions solely for the purpose of building a deposit for a home because the measure may not have been legislated yet.
The VIC and NSW Government have made announcements with regards to stamp duty, and these came into effect on July 1, 2017. For instance:
- In VIC, first homebuyers will be exempt from stamp duty on any new and existing homes that have a ‘dutiable value.’ In other words, the price you pay for the home minus any deductions) of $600,000 or less. Any new and existing homes that have a dutiable value of between $600,001 and $750,000 will also attract discounts on stamp duties
- In NSW, first homebuyers will also be exempt from stamp duty on new and existing homes that are valued at up to $650,000. Any existing or new homes that are valued fro $650,000 and $800,000 will also be eligible for discounts on stamp duties. Stamp duty that used to be charged on lenders’ mortgage insurance is now also being waived
13. Financial Assistance Payments to Qualifying Families
New applicants will no longer be able to take advantage of the Government’s Single Income Family Supplement. However, if you qualified on June 30, 2017 (and continue to be eligible), you will still continue receiving the Single Income Family Supplement. In addition, the existing Tax Benefit payment rates will remain at their current levels until July 1, 2019.
Residential Property Investors and Tax Deductions
If you have invested in residential properties, these measures were proposed in 2017, but were not legislated at the time:
- You would no longer be able to claim any tax deductions for travel costs that had been incurred while you personally inspected, maintained or collected any rent for any of your residential properties. However, any property management fees that had been paid to third parties such as estate agents would still be deductible for tax purposes
- The Government has also placed limits on depreciation deductions for equipment and plant to outlays that were incurred by the existing owner of a residential real estate property. However, in some cases, there may be grandfathering arrangement that could still apply to existing residential real estate properties as from May 9, 2017
It is strongly recommended that you spend some time going through these existing and proposed amendments so that you can see how they could be applicable to you now as well as at some point in the future.
We suggest that you take the time to review these changes and consider how they may relate to you both now and in future.