Paving the way for a smooth EOFY

As the end of the financial year draws closer, thoughts turn to tax. No doubt you can think of more enjoyable ways to spend your time than preparing for your annual tax return. So how can you streamline the process while ensuring you take advantage of all the claims that are possible?

First, you need to collect all your records of both your income and your expenditure throughout the year.

This includes:

• All your income whether it’s from your employer, your super or your pension

• All your bank statements including interest earned and charges paid

• Dividends and distributions from your investments

• Records of investment sales and purchases for capital gains/loss purposes

• Income from rental properties and associated expenses

• Foreign income

• Your private health insurance policy details.

Nowadays, there may also be income to report from your participation in the shared economy such as money earned from Uber or AirBnB.

Ideally all this documentation should be to hand. If it’s not, then seriously consider using an app to record all these transactions on a regular basis so when June 2020 comes around, you won’t spend hours hunting out all the documentation. The Australian Taxation Office, for instance, has a myDeductions app for individuals and sole traders.

Another way to help monitor your expenses is to establish a separate credit card or bank account for your work-related expenses so that they are easily identifiable.

What can you claim?

Once you have your documents to hand then you need to consider what you can claim as work-related expenses. But do make sure you only claim what you are entitled to, because the ATO has work-related expenses in its sites this year.

Basically there are three key criteria:

1. You must have spent the money yourself without having it reimbursed

2. The money must be directly related to earning income

3. You must have a record to prove it.

If your expenses meet these criteria, then there are a host of expenses you may be able to claim. These include vehicle and travel expenses; clothing, laundry and dry cleaning; gifts and donations; home office expenses; self-education; bank interest and account fees; and tools and equipment.

As an investment property owner, you can claim items such as land tax, rates, body corporate charges, insurance, repairs and maintenance, agent’s commission, gardening, pest control, costs associated with drawing up leases and advertising for new tenants.

If you have income protection insurance outside super, then tax time is a perfect opportunity to review your cover and maybe prepay your next 12 months of premiums. That way you can claim those premiums as a deduction in the current year and reduce your tax liability. Other types of life insurance are generally not tax deductible outside of super.

Check your super

Superannuation is another area for attention. If you have not reached your concessional contributions cap of $25,000 (which includes your employer’s contributions and salary sacrifice amounts) then consider putting the shortfall into your super. Any personal concessional contributions you make can be claimed as a tax deduction. But don’t wait until the 11th hour as your contribution may not be processed by the fund until after June 30. You will need to notify your fund of your intent to claim a deduction and there are applicable timing requirements for this notice.

Taking advantage of the government’s co-contribution can also be worthwhile for those who are eligible. If you earn less than $37,697 in 2018-19 and contribute $1,000 to your super as a personal contribution for which you don’t claim a tax deduction, the government will match it with a $500 co-contribution. That’s an effective 50 per cent return on your investment.i The co-contribution reduces progressively to nil once your income reaches $52,697. You must meet the eligibility criteria to qualify.

Changes for inactive super accounts

It is also worth noting that come July 1 your super fund will cancel your life insurance policy if no contributions or rollovers have been made to your account in the last 16 months. If you want to maintain insurance cover with such a fund, you need to contact your fund or make a contribution or rollover into that fund to keep your account active. Alternatively, you could speak to us about purchasing cover outside super.ii

Election 2019: A vote for continuity in an uncertain world

The Liberal/National Party Coalition has been returned to government, as Australians chose continuity over change and cautious economic management over Labor’s ambitious reform agenda.

The Coalition is promising sweeping tax cuts for individuals and continuity for investors with no big changes to existing investment or superannuation policies.

One of the first items of business for Prime Minister Scott Morrison will be to reconvene Parliament to pass legislation on a low and middle-income tax offset.

Individuals to pay less tax

Providing the legislation is passed quickly, from 1 July Australians earning less than $37,000 will receive a tax offset of up to $255 (effectively a cash rebate) with their tax returns. If you earn between $48,000 and $90,000 you will get the maximum amount of $1080. The offset then scales down to zero for those earning $126,000 or more.i

Further planned tax cuts could depend on the Coalition winning the next federal election.

From July 2022, the Coalition plans to raise the top threshold of the 19 per cent income tax bracket to $45,000. Then from July 2024, it plans to reduce the 32.5 per cent tax bracket to 30 per cent and do away with the 37 per cent rate entirely.

If adopted, these proposals will result in a flat 30 per cent tax rate for anyone earning between $45,000 and $200,000.

Support for first home buyers

In a proposal that could also help stimulate the flagging residential property market, the Coalition has promised help for first home buyers trying to get a foot on the property ladder.

From January 2020, the proposed first Home Loan Deposit Scheme would allow eligible first home buyers with income of up to $125,000 (or $200,000 for a couple) to buy a home with a deposit as low as five per cent without incurring lenders mortgage insurance.ii

Help for small business

Small business has not been forgotten. As announced in the recent Budget, the popular instant asset write-off will be increased and extended to businesses with turnover of up to $50 million (previously $10 million).

Eligible businesses will be able to write off assets up to the value of $30,000 (previously $25,000) against their taxable income.

Investment tax concessions to stay

Investors can breathe easy now that controversial changes to dividend franking credits and negative gearing proposed by Labor will not go ahead.

Individuals, including those with a self-managed super fund, will continue to be entitled to a cash refund of franking credits attached to their share dividends if the franking credits exceed their tax liability.

Property investors have also earned a reprieve, with no changes to negative gearing rules.

Super changes at the margins

Australians hoping to boost their super in the run up to retirement will continue to enjoy existing tax concessions.

You will still be able to make catch-up concessional (pre-tax) contributions if you meet certain conditions. From the 2019-20 financial year, individuals who have not used their full $25,000 annual concessional contributions cap will be able to carry forward the shortfall for up to five years and claim a personal tax deduction. To be eligible, your total super balance must be below $500,000 on June 30 the previous financial year.iii

The non-concessional (after tax) contributions cap will remain at $100,000 a year for people with a total super balance below $1.6 million. Those under 65 can still bring forward up to three years’ contributions (or up to $300,000) with a proposal to increase the age limit to 67 from 1 July 2020.iv

The Coalition also plans to allow older Australians to make voluntary contributions until age 67 without meeting the work test. Subject to legislation, this measure would also begin on 1 July 2020.

Looking ahead

With the election out of the way, Australians can get back to the business of planning their finances with more certainty.

The initial response from financial markets was positive, with the Aussie dollar and local shares both up on the first day of trading after the election. However, the jury is still out on whether the Government’s tax cuts and spending promises will be enough to boost economic momentum.

i https://budget.gov.au/2019-20/content/tax.htm

ii https://www.liberal.org.au/latest-news/2019/05/12/helping-australians-buy-their-first-home

iii https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions---too-much-can-mean-extra-tax/?page=2#Concessional_contributions

iv https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions---too-much-can-mean-extra-tax/?page=3#Non_concessional_contributions

What will the budget mean to you?

Working Australians have been promised bigger than expected tax cuts along with billions in increased spending on health and welfare for young and old. This was all made possible as Treasurer Josh Frydenberg delivered the good news that the Budget will soon be back in surplus for the first time since the GFC.

The only hitch is that Australians will have to wait until after the federal election, expected in May, to find out if these promises will stand.

The Government is promising to maintain or increase spending in most areas without resorting to tax increases. What’s more, it’s bringing forward planned income tax cuts and reducing the tax burden on small businesses.

Tax relief for middle Australia

Overall, 10 million Australians will receive a tax cut, with those in the middle benefiting the most. Factoring in the tax cuts announced in last year’s budget, an individual earning up to $48,000 will receive a maximum return of $480, while one earning $48,001-$90,000 will be $1,080 ahead.

Those earning $90,001 - $126,000 receive a relatively small tax cut of a few hundred dollars at best, and there’s no tax relief at all for those earning more than $126,000.

The Government has reiterated its intention to further flatten tax rates, which would benefit those on higher incomes. However, this isn’t scheduled to happen until 2024-25.

A helping hand for small business

There’s also good news for the nation’s small business owners. The company tax rate is shifting from 27.5 per cent in 2019-20 to 26 per cent in 2020-21 and 25 per cent in 2021-22.

The popular instant asset write-off is increasing from $25,000 to $30,000. Plus, it can now be used for multiple assets instead of just one every financial year. What’s more, small to medium businesses with turnover up to $50 million are now eligible, up from $10 million previously as of April 2nd 2019.

A selection of super tweaks

With the peak baby-boomer retirement years looming, the Government has introduced some modest changes to make it easier for older Australians to put a bit extra into their – or their partner’s – super.

From July 2020, those aged 65 and 66 will be able to make concessional and non-concessional top-ups to their super without meeting the work test. This test had required individuals to have worked at least 40 hours over a 30-day period to be eligible to make top-ups.

The ‘bring forward’ arrangements, which currently allow those under the age of 65 to make three years’ worth of non-concessional contributions (capped at $100,000 a year), will be extended to those aged 65 and 66. Also, the age limit for making contributions to a spouse’s super has been raised from 69 to 74.

Health, welfare and job training

A combination of higher tax receipts, rising commodity prices and restrained spending has given the Government money to spend on health and welfare for young and old.

Money is being directed to increasing the number of home care packages for the elderly by 10,000 and listing more medicines on the Pharmaceutical Benefit Scheme.

Four-year-olds will receive universal preschool access, while funding will be provided to teach their older sibling to “sensibly and safely use the web”.

Younger Australians will be able to apply for one of the 80,000 apprenticeships that will be created over the next five years. And almost half a billion is being spent to improve young Australians’ mental health.

The Treasurer announced the 2019 Budget was designed to encourage Australians to “have a go” and allow them to “get a fair go”. The coming weeks will reveal whether he has done enough to secure the support of voters for another term in Government.

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

Super and inheritance: making your wishes known

People often think their superannuation will be treated as part of their estate when they die and distributed according to their Will, but that’s not the case. Unless you have nominated your beneficiaries, the decision as to who receives your super is in the hands of the trustees of your fund. 

When that happens, the trustees normally direct all funds to your dependants – your spouse, your children, financial dependents and people with whom you had an ‘interdependency relationship’ such as living together. 

But wouldn’t it be better to nominate exactly who you want to inherit your super death benefits? (Death benefits is the term for all of the money in your super account plus any life insurance.) You can generally nominate beneficiaries with either a binding or a non-binding nomination, although some super funds only provide a member with the ability to make non-binding nominations. 

Make your wishes binding

For binding nominations, the trustees have to carry out your wishes, provided you have nominated eligible recipients. If a nomination is non-binding, it tells the trustee how you would like your benefits distributed, but leaves the ultimate discretion with the trustee, taking into consideration your circumstance and relationships at the date of death. 

Under super law, death benefits can only be left to a dependent or your personal legal representative (the executor of your Will), in which case it will pass into your estate for distribution according to the terms of your Will. 

It’s important to note that a binding nomination generally only has a limited life. Every three years you need to advise your super fund in writing of your nominated beneficiaries or it becomes invalid. 

If you have not nominated a beneficiary and have not yet organised a Will, then your super will be distributed according to a state-based formula which may not reflect your intentions. 

Consider taxation

It’s also important to take tax into account when nominating beneficiaries. If your spouse is alive then it is likely your death benefits will go to your partner as a lump sum and/or an income stream referred to as a reversionary pension. There is no tax liability if it’s paid as a lump sum unless both you and your spouse are aged under 60 when you die. Also, the maximum your spouse can have in their pension account is $1.6 million. So there are considerations if the death benefit pension causes your spouse to exceed this income. 

If your spouse predeceases you then the benefit will be divided between other dependants. Be aware though that there’s a difference in the definition of dependants under super and tax law. 

Under super law, a child of any age may receive your death benefit, but under tax law if they are aged over 18 and not financially dependent on you, they will be subject to 17 per cent taxation on the taxable component of the sum they receive. For this reason, your adult children may be better off receiving the money through your estate as they will only pay 15 per cent tax, saving the 2 per cent Medicare levy. 

Non-dependent adult children cannot receive a reversionary pension; instead they must take a lump sum. 

If you are legally divorced, then your ex-spouse is no longer deemed a dependant under super law. However, if you still want to leave your super to your ex-spouse it must go to your estate and be paid from there. Interestingly, your ex-spouse will receive the money tax free. 

Self-managed funds

For those with a self-managed super fund, you can use a clause in the fund’s trust deed to either nominate a valid dependent who will receive the benefit or else have the money paid to your legal representative who will pay the money into the estate. 

Making sure your hard-earned money is distributed according to your wishes is not an onerous task, but it is an important one. Not nominating a beneficiary, or nominating someone who is not eligible to receive your super, can lead to lengthy delays and emotional upset at what is already a difficult time for your family. 

Seeking professional and legal advice can help to ensure that your death super benefits are considered as part of your overall estate planning and that your wishes are carried out.

Federal Budget 2018-19 Analysis

Surge in spending ahead of election battle

The Federal Government has turned the spending tap back on, signalling the end of the revenue drought since the GFC and the end of the mining investment boom. 

As widely anticipated, Treasurer Scott Morrison’s third Budget has cut income taxes, boosted support for senior Australians, delivered $24.5 billion of new infrastructure spending and promised a return to surplus by 2020. That’s a year earlier than previously thought possible and would be the first surplus since 2007-08. 

In a call to arms, in what is likely to be the last Budget before the next federal election, the Treasurer urged Australians to ‘stick with this plan for a stronger economy and more jobs because it’s working’. 

The Big Picture

The Government expects this year’s budget deficit to shrink to $18.2 billion, down from a forecast before Christmas of $23.6 billion. The deficit is forecast to fall further to $14.5 billion next year before returning to a small surplus of $2.2 billion in 2020. 

Net debt is expected to peak at 18.6 per cent of gross domestic product (GDP) this year and fall to 3.8 per cent of GDP in a decade. Importantly, the budget surplus is not expected to top 1 per cent of GDP until 2026. 

The Budget’s major spending promises reflect a stronger economic outlook, with growth of 4.25 per cent now expected this financial year compared with 3.5 per cent in the last Budget update. GDP is set to rise $73 billion this year, fuelled by higher tax revenues, record job creation and fewer people on welfare. The government is assuming wages growth of 3.5 per cent a year from 2020, despite it currently tracking at just 2.1 per cent. 

The Treasurer has pledged to limit taxes to no more than 23.9 per cent of GDP, but with spending running at around 25 per cent of GDP, that still leaves a gap between money flowing in and flowing out. 

Major tax overhaul

In an attempt to win over middle Australia, the Treasurer announced major tax reform which will cost $140 billion over a decade. 

Ten million low and middle-income earners earning up to $90,000 a year will receive up to $530 in tax relief per year beginning on July 1. Wealthier Australians will have to wait a bit longer under a sweeping 7-year plan to create a single income tax rate of 32.5 per cent for workers earning between $41,000 and $200,000 a year. 

As a result, 94 per cent of taxpayers will pay no more than 32.5c in the dollar income tax compared with 63 per cent today. This would effectively eradicate bracket creep for millions of workers, so an increase in salary or overtime would not push people into a higher tax bracket. 

At the same time, the Treasurer confirmed that the government no longer needs to increase the Medicare Levy from 2 per cent to 2.5 per cent to fund the National Disability Insurance Scheme. This will avoid further pressure on family budgets but remove a significant boost to government coffers. 

The second phase of company tax cuts for big business remain in the Budget but face a rocky passage through the Senate. Meanwhile, small business will applaud the extension of the popular $20,000 instant asset write-off on new equipment purchases for a further 12 months. 

Tax cuts will be partially underpinned by a $5.3 billion crackdown on the black economy. Also, the ATO will receive a $260 million funding boost from July to pursue taxpayers who over claim on work-related expenses. 

Healthcare and support for seniors

Aged care is set to get big injection of funds as baby boomers move into retirement. The Treasurer announced an increase in aged care funding over four years, including $1.6 billion for 14,000 additional home care packages to help older people stay in their own home for longer. 

An extra $1.4 billion for listings on the Pharmaceutical Benefits Scheme will also be added to assist Australians with serious illnesses to afford necessary drugs. 

There’s also $1.3 billion over 10 years to a National Health and Medical Industry growth plan, which included $500 million for genome research. 

The Pensioner Work Bonus will be extended so retirees can earn more money without affecting their pension. Retirees and now self-employed seniors will be able to earn up to $7,800 a year before reducing their pension payments. 

The Pension Loans Scheme, a type of government-backed reverse mortgage, will also be expanded to include full age pensioners and self-funded retirees to the value of $17,787 per couple. Currently, the Government offers a reverse mortgage through the Pension Loans Scheme (PLS) to part age pensioners to allow them to 'top up' their Age Pension to the maximum rate. 

Money for roads and rail

The Government’s $24.5 billion infrastructure spend, designed to alleviate transport bottlenecks will provides a revenue boost for companies involved in the planning and construction as well as job creation for locals. 

In Victoria, major projects include $5 billion for a Melbourne Airport rail link and 1.75 billion to build Melbourne’s North East Link and new tunnels and lanes for the Eastern Freeway. 

In Queensland, there’s $1 billion for the M1 between Brisbane and the Gold Coast and $390 million to upgrade the Sunshine Coast rail network. In NSW, $971 million is earmarked for the Coffs Harbour bypass and $400 million for the Port Botany rail duplication. And in West Australia, $500 million to upgrade the Ellenbrook rail line. 

Education and family support

There are no new announcements on funding for schools and universities, although the government will break its freeze on university funding by granting around 2000 new places across three regional universities. 

The controversial school chaplains program will also be funded permanently at a cost of $61.7 million a year. 

The national agreement on childcare for 4-year-olds has been extended to 2019 and an extra $54 million has been allocated to tackle sexual assault, domestic violence, cyber safety and elder abuse. 

While there is no increase in the Newstart allowance for the unemployed, regional students will have easier access to Youth Allowance with a lighter parental income test. 

Science, innovation and the environment

As previously announced, $500 million will be allocated over 7 years to protect the Great Barrier Reef from climate change and pollution. 

Savings will be made by tightening the Research and Development (R&D) tax incentive amid mounting concerns the scheme is being rorted. Savings of $2 billion are pencilled in over the first 4 years. 

Ongoing focus on national security

The government will invest $294 million to strengthen aviation, air cargo and mail security. This includes enhancing security at regional airports, increasing the number of officers, dogs and full-body scanners at major airports and boosting high tech screening of inbound cargo and mail. 

Defence spending is on track to reach about 2 per cent of GDP by 2021, with $36.4 billion earmarked for Defence next financial year. 

The foreign aid budget will be frozen. A large portion of this will be spent in the Pacific region as security concerns grow in the area. 

Looking ahead

Australia is in a much stronger economic position than it was a year ago, but question marks remain over the sustainability of new spending promises and whether business tax cuts will make it through the Senate. 

If the Turnbull Government chooses to call an election this year, voters will want to be satisfied that business conditions that underpin spending promises reaching a decade into the future are more than a temporary phenomenon, and that a recent lift in tax revenues is not a passing trend.

“A stronger economy. More jobs. Guaranteeing essential services. The Government living within its means.”
 

Franking credits facing the chop

Here we go again. Superannuation could be about to undergo more change with the federal opposition announcing it will end cash refunds of franking credits on share dividends if it wins the next election. The change would have a significant impact on people paying little or no tax, especially self-funded retirees in pension phase. Seniors groups are up in arms, but many Australians have been left wondering ‘franking what?’. 

Dividends paid by Australian companies are not just a source of income for investors; they also offer potential tax benefits in the form of franking credits, also known as imputation credits. 

What is dividend imputation?

Dividend imputation was introduced by the Hawke/Keating Government in July 1987 to end the double taxation of company profits. Before then, companies paid tax on their earnings and shareholders were taxed on the dividends paid out of profits at their marginal rate. 

Under the current system, if the company has already paid tax on the income the Australian Taxation Office (ATO) gives shareholders a tax credit. 

Dividends on shares with imputation credits are called franked dividends and may be fully or partly franked, depending on the amount of tax the company has paid and in what country. There are no credits for tax paid on overseas earnings. 

The system was made more generous in July 2000 when the Howard/Costello Government allowed excess franking credits to be paid as a cash refund. The Labor Party proposal effectively restores the original tax treatment of dividends. 

How does it work?

If the proposal is adopted, it will have no impact on investors on a marginal tax rate above the 30 per cent company tax rate. But investors who pay less than 30 per cent tax stand to lose some of their share income. 

Say an Australian company ‘OzInvest’ makes pre-tax earnings of $1 a share. It pays tax at the company rate of 30 per cent, or 30c a share, and returns the remaining 70c to shareholders as a fully franked dividend. The level of benefit you receive depends on your marginal tax rate. 

High marginal tax rate

Sarah pays tax at the top marginal rate of 47 per cent including the Medicare levy. She has 100 shares in OzInvest and receives $70 in dividends plus a $30 imputation credit.

Sarah’s taxable income on the dividend is $100 (after adding the $30 imputation credit to her $70 dividend), so she’s liable for tax of $47. However, this is offset by the $30 imputation credit leaving her with only $17 tax to pay. 

Low marginal tax rate

Alice also receives taxable income of $100 from OzInvest, but she pays tax at the lowest marginal rate of 21 per cent (including Medicare levy). As the imputation credit of $30 is more than her tax payable of $21, she currently receives a tax refund of $9 cash. Under the new proposal, she would lose $9 a share. 

Paying no tax

Many retirees or people who earn below the annual tax-free threshold of $18,200 pay no tax at all on their fully franked shares. Because franking credits are fully refundable, they can claim a full refund from the ATO. 

David has a self-managed super fund in pension phase which pays no tax and he has no other income. He receives a $70 dividend from OzInvest and claims a cash rebate of the full $30 franking credit. Under the new proposal, he would lose this $30 a share. 

Still at proposal stage

Of course, the proposal is just that. With a federal election not due until next year, the earliest it could come into effect would be July 2019 and only if passed by both houses of parliament. Already there are hints of compromise, with Labor leader Bill Shorten saying full and part-pensioners and people on government allowances will be exempt from the change. 

It’s too early to be alarmed or to change investment strategy based on what may or may not happen in future. But it is important to understand how the proposed changes could potentially affect you and what alternative investment strategies may be beneficial. 
 

Investing essentials - franking credits

Super gets a makeover, again

Just when those saving for retirement thought the rules couldn’t get any more complex, the Turnbull Government has revised some of the key elements of the controversial superannuation reforms it announced in the May 2016 Federal Budget.

After some noisy criticism, amendments were announced in mid-September to water down the more contentious elements. Despite this, the reforms still represent significant alterations to the current superannuation system. Assuming the changes are legislated, retirement savers will need to ensure they are swimming between the new flags from 1 July 2017.

New $1.6 million limit on tax-free super

One of the major reforms is the introduction of an indexed $1.6 million limit on the total amount of accumulated super an individual can transfer into the tax-free retirement phase. Earnings on that balance will not be capped, but any savings above $1.6 million must remain in an accumulation account (where earnings are taxed at 15 per cent), or be moved out of the super system to avoid penalty taxes.

Cut to concessional contribution limits

An important change for many people will be the reduced annual caps on the amount of concessional (before-tax) contributions they can make into their super account. From 1 July 2017, the annual cap on concessional contributions will be a flat $25,000 (indexed). This is down from the current limits of $30,000 for those aged under 50 and $35,000 for those aged 50 and over.

High income earners will also need to watch the new lower $250,000 income threshold, as their concessional contributions become taxable at 30 per cent, compared to 15 per cent normally.

Lower annual non-concessional (after-tax) contributions cap

The controversial $500,000 lifetime non-concessional contributions cap has been altered, replaced with an annual cap of $100,000 (down from the current $180,000). Individuals aged under 65 will still be eligible to bring forward three years of non-concessional contributions, while those aged between 65 and 74 can now make non-concessional contributions if they meet a work test.

To help pay for replacing the $500,000 lifetime limit with a lower $100,000 annual cap, individuals with a super balance of over $1.6 million will be ineligible to make non-concessional contributions. Proposals to remove the work test to contribute to superannuation for people aged 65 to 74 will also be scrapped.

Tax deductions for personal contributions

Many super savers will benefit from new rules allowing additional people to claim a tax deduction for their personal contributions into super. From 1 July 2017, individuals aged under 65 and those aged 65 to 74 who meet a work test will be able to claim a tax deduction. This deduction is currently only available to people broadly earning less than 10 per cent of their income from salary or wages, such as the self-employed.

Catch-up contributions delayed

Individuals planning to make ‘catch-up’ contributions into their super will have to wait a little longer, as the proposed starting date for this reform has been deferred to 1 July 2018 to help pay for scrapping the $500,000 non concessional lifetime limit. Under the new rule, people with account balances below $500,000 will be able to rollover any unused concessional caps for up to five years. This means if you do not make a concessional contribution in a given year, you can use your $25,000 limit in a later year.

New benefit for low income earners

From 1 July 2017, the Low Income Superannuation Contribution (LISC) will be replaced with a new Low Income Superannuation Tax Offset (LISTO). The LISTO will be a refund (up to $500) of the concessional contributions tax paid by individuals with income under $37,000. This will stop low income earners paying more tax on their super contributions than on their take home pay.

Spouse tax offset expanded

More couples will be able to use the $540 tax offset for spouse contributions under the new rules, with the spouse income limit rising to $40,000.

Transition-to-retirement (TTR) pensions wound back

In contrast, TTR arrangements will be less attractive, as the tax-free status of income generated by the assets supporting these pensions is being removed. From 1 July 2017, this income will be taxed at 15 per cent and certain income stream payments will no longer be counted as lump sums for tax purposes.

Axing of anti-detriment payments

Super funds will no longer be able to claim a tax deduction for a portion of the death benefits paid to eligible dependents.

Although the amendments to the reform package have broadly been supported, the delay in permitting catch-up contributions will be disappointing for low income earners and people wanting to boost their super balance in the run up to their retirement.

The rules governing Australia’s super system are complex and with the many changes being passed through legislation it's challenging to stay up to date and ensure that your retirement planning takes into account these changes.

If you would like more information or just to chat about how super can be used to build your retirement nest egg, please contact our office today.
 

Key changes at a glance (changes effective 1 July 2017)

• Introduction of indexed $1.6 million (indexed) super transfer balance cap


• Reduction in annual cap for concessional (before-tax) contributions to $25,000 (indexed)


• Reduction in income threshold before additional tax on superannuation contributions is payable


• Introduction of $100,000 annual non-concessional contributions cap


• Introduction of Low Income Superannuation Tax Offset (LISTO)


• Expansion of tax deductions for personal contributions


• Introduction of catch-up contributions for people with low super balances


• Extension of income threshold for spouse tax offset


• Removal of tax-free status for earnings supporting transition-to-retirement pensions


• Abolition of anti-detriment rule