Federal Budget 2016/2017

In this edition:

Welcome

Superannuation - Accumulation Phase Measures

Superannuation - Pension Phase Measures

Individuals & Other Measures

Small Business & Company Measures

$1.6 million transfer balance cap for retirement accounts

One of the largest impacts on pension phase accounts is the introduction of a $1.6 million balance cap on the total amount of superannuation that can be transferred into the tax-free retirement phase, effective from 1 July 2017. This measure will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.

Where an individual accumulates amounts over $1.6 million, they must maintain this excess amount in an accumulation phase account, where earnings will be taxed at 15%. Fund members already in pension phase with balances above $1.6 million will be required to reduce this balance to $1.6 million by 1 July 2017 either by withdrawal of funds from the superannuation environment or returning a portion of the balance held in pension to accumulation phase.

Under current law, if a fund member moves from accumulation phase into 'pension phase', earnings on assets supporting the pension are tax-free in the fund and there is no limit on the amount of accumulated superannuation that an individual can transfer into pension phase.

Transition to Retirement Income Streams (TRIS) Measures

These measures are expected to remove the attractiveness of TRIS pensions as a tax planning device and will impact members over preservation age but not retired.

Removal of the tax exemption

The Government will remove the tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRIS) from 1 July 2017.

Currently, earnings on superannuation balances that support a TRIS pension are exempt from income tax of 15%.

Removing election to treat pension payments as lump-sum payments

The Government will also remove a rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes.

Currently, an individual drawing down a pension from their superannuation fund can generally make an election for a benefit withdrawal not to be treated as a pension benefit. As a result the taxable component of such a withdrawal can be tax-free up to the low-rate cap, currently $195,000.

Superannuation death benefits: removing the anti-detriment provision

From 1 July 2017, the anti-detriment provision will be removed. The current anti-detriment provision allows the spouse (or former spouse) and/or children of a deceased fund member to effectively obtain a refund of all contributions tax paid by the deceased member during their lifetime. Lump sum death benefits to dependants will remain tax free.

If you have any questions about how these measures may impact you, please contact the team at Goodwin Chivas & Co.