2016 Budget Speculation
With the Federal Budget approaching on 3 May 2016, speculation surrounding the possible changes to superannuation is increasing. While it is impossible to predict what the Coalition Government will announce, there are four particular areas under focus.
REDUCING THE DIVISION 293 TAX THRESHOLD TO $180,000
Currently the Division 293 tax levies an additional 15% tax on concessional contributions for taxpayers earning above $300,000 p.a. Media over the past week suggests this threshold may be lowered to $180,000 of income. If the change is announced, it would be expected to apply from the 2016-17 financial year going forward.
Consideration - Higher income earners should look to maximise the current concessional contribution arrangements for the 2015-16 financial year.
REDUCING THE CONCESSIONAL CONTRIBUTION CAP TO $20,000
A decrease in the general concessional contribution may also be on the table; from $30,000 per annum to $20,000 p.a. General opinion is that this will not happen if the changes to the Division 293 Tax Threshold go ahead.
Consideration - Maximising the $30,000 concessional cap (or the $35,000 cap for those aged 50 and above) in the current financial year is key.
REDUCING THE NON-CONCESSIONAL CONTRIBUTION (NCC) CAP
Under existing rules NCCs (after tax) can be made of up to $180,000 p.a. The bring forward rule allows under 65s to make contributions for the next two tax years, meaning $540,000 could potentially be contributed at one point in time. Whilst a reduction in the concessional cap could lead to a reduced NCC cap (i.e. from $180,000 to $120,000), in an effort to prevent superannuation contributions being used as an estate planning vehicle the Government may independently reduce the non-concessional cap.
Consideration - SMSF members planning to make large contributions to superannuation in the coming years may want to bring those contributions forward to the current financial year to use the existing NCC cap and bring forward rule.
TIGHTENING TRANSITION TO RETIREMENT PENSION RULES
The use of transition to retirement (TTR) pensions for tax planning, rather than for the intended purpose of helping people approaching retirement to access some of their retirement savings, has been identified as a ‘loophole’ in superannuation rules. Access to TTR pensions could be restricted by tightening the work hours test or increasing the age of access; the preservation age. There is a possibility that TTR pensions could be removed altogether.
Grandfathering treatment generally applies to any changes to pension rules; in this case, allowing continuation of existing rules for those that have already entered TTR. To avoid a sudden rush into TTR pensions, the Government would likely make changes effective from Budget night.
Consideration – For anyone considering a TTR pension in the near future, starting before the Budget may be a prudent move.