Last year’s budget changes to superannuation were significant and wide ranging in an attempt to restore equity to Australia’s retirement system.
If you consider the reduction in the contribution limits and the $1.6m limit on income streams, it is clear that these measures were introduced to ensure the tax advantages provided within super are no longer available for wealthy individuals who can afford to ‘stash’ large amounts of capital into the super system. These measures (and others) will come into effect on 1 July 2017 and the fact that the $1.6m cap on income streams is retrospective shows that the tax free environment above this cap for income streams is no longer available.
The changes announced in this year’s budget are clearly more low key and less controversial. Housing affordability, greater regulation and a new complaints handling authority for superannuation and financial services are just some of the areas to undergo change if the government proposals are legislated.
The following key proposals for superannuation in this year’s budget are:
• First home super saver scheme (from 1 July 2017) – first home buyers will be allowed to save up to $15,000 each per year up to a lifetime limit of $30,000 for a home deposit within their super fund. These savings will be in the form of concessional (before-tax) contributions. Bear in mind that an overall $25,000 annual cap on concessional contributions (including contributions made by the employer) will apply, which may reduce the annual amount to less than $15,000 per year. It is also worth noting that employer contributions, including the Super Guarantee (SG) of 9.5%, will not be available for the first home super saver scheme.
• People over age 65 will be able to make a non concessional (after tax) contribution of up to $300,000 from the sale of their principal residence, so long as they have lived in their home for at least 10 years. Both members of a couple will be able to take advantage of this measure for the same home. These contributions will be in addition to those currently permitted under the existing rules and caps and they will be exempt from the existing age test, work test and the $1.6m transfer cap. This proposed measure (1 July 2018) is aimed at freeing up the housing market by encouraging down sizing of residential properties. Couples will be able to contribute $300,000 each into super irrespective of other rules such as the ‘work test’. The budget material confirms that the sale proceeds contributed to super under this measure will remain subject to the age pension assets test.
• The establishment of a single authority to deal with disputes in the financial services sector will see the establishment of the Australian Financial Complaints Authority (AFCA) replacing among others, the Superannuation Complaints Tribunal, and will deal with banks, insurance companies and superannuation.
• Capital gains tax relief for super funds which merge has been extended to 30 June 2020. This measure will ensure that super funds are not penalised with capital gains tax when transferring assets. It is clear that amalgamation of super funds is an objective of the government and the capital gains tax relief will facilitate industry consolidation.
• Enhanced powers for the Australian Prudential Regulation Authority (APRA) means APRA will be given stronger powers to remove and disqualify directors and senior executives who work for an APRA regulated entity.
• The Australian Securities and Investments Commission (ASIC) will receive increased funding for the financial literacy program to help promote ASIC’s efforts to increase investor and consumer confidence, trust and participation in the financial system.
So unlike the major reforms in superannuation which happened in last year’s budget, the proposed measures will be less far reaching with added goals of improving housing affordability and increased regulation of the financial sector.