The Federal Budget was handed down last night (Tuesday 3rd May 2016) and it seems like Superannuation received all of the love …however I don’t think you will love the changes as I sure don’t!

There were many changes, a few of them quite technical and only concerning complex superannuation strategies so I’ll cover what I believe are the important things you need to know (however I suggest talking to your financial advisor to see if any of the more complex changes will affect you and your family).

A Reduction In The Concessional Contributions Cap

Currently the cap is $35,000 for over 50’s and $30,000 for under 50’s. From 1 July 2017 this will be slashed to $25,000 for everyone (keep in mind not that long ago it was $50,000). Concessional contributions are those your employer makes for you, plus any extra amounts you salary sacrifice or if you are a small business owner, the deductible amounts you contribute yourself.

This sucks, especially for hard working taxpayers that are wanting to maximise their superannuation nest. However there is a small provision the Government is looking at including to help:

Rolling Forward Unused Portions

Even though the concessional cap will be reduced to $25,000 the Government is proposing that if your super balance is under $500,000 and you don’t make the full $25,000 contribution each year you can roll forward the balance for up to 5 years.

e.g. if you only contribute say $15,000 in one year (and the cap is $25,000) you can roll forward the balance of $10,000 for up to 5 years including any additional balances within that 5 year period and make a larger contribution at the end.

Lifetime Cap On Non-Concessional Contributions

This will take effect immediately and is really hard hitting on taxpayers wanting to make large non-concessional contributions to their super fund (non-concessional meaning after tax). Previously you could contribute up to $150,000 pa (or roll forward three years and contribute $450,000 in a lump sum). Now the cap is a lifetime limit of $500,000.

If you are nearing retirement age and had planned on selling personal assets and contributing large sums to super then you may have to rethink your strategy.

More Flexibility For Personal Super Contributions

More-so for self employed individuals that have a mix of small business income but also earn a wage. Previously if employment income was more than 10% of your total income you were limited on making a super contribution and claiming a tax deduction.

New changes will allow individuals, regardless of employment income, to make concessional contributions up to the new $25,000 cap where they have a mix of business income and employment income.

$1.6M Cap To Pension Balances

Changes will be made from 1 July 2017 to restrict pension balances to $1.6M per member and will not be grand-fathered, meaning if you currently have a pension balance of say $2M then come 1 July 2017 you will to reduce than balance to under $1.6M. For larger super funds, this will mean you can only have $1.6M in pension phase (i.e. no income tax and no capital gains tax) however any excess

will need to stay in accumulation phase (i.e. 15% income tax and 10%-33% capital gains tax).

Transition to Retirement – No More?

Well not quite, you will still be able commence a transition to retirement income stream (TRIP) however not receive the tax exempts benefit you currently receive which begs the question, will it actually be a worthwhile strategy to commence a TRIP come 1 July 2017?

e.g. currently if you are aged 60-64 and still working you can commence a Transition to Retirement income stream whereby you drawdown a tax free pension of between 4% to 10% of your super balance. From 1 July 2017, the taxable portion of this income stream will not be tax exempt.

So Have Our Retirement Plans Been Seriously Disrupted By The Federal Budget?

My answer is YES! Many of the strategies we use to help clients maximise their super and investments pre-retirement so they are in a low tax environment and are protected from litigation have now been seriously disrupted. Some conversations I have had recently with clients which added a stack of value to their retirement planning can now basically be thrown out the window.

I expect many superannuation advisors to be busy from today going forth with concerned taxpayers wanting clarification around what the above means to them and what strategic changes can better tackle the changes made in the Federal Budget.

Brad Turville

Author Brad Turville

Director @ BJT Financial | Helping businesses with revenue in the $1M to $15M space to fast track their wealth and business growth by working smarter, not harder.

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