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13 Sep, 2016

Federal Budget super reforms: 1st tranche of legislation released

On 7 September the Government released the first instalment of the draft legislation for the superannuation reforms which were announced in the 2016-17 Federal Budget. This draft legislation is not yet law and is expected to be finalised and introduced into parliament after the end of the public consultation phase on 16 September 2016. The release of draft legislation on the remaining measures will follow in coming weeks.  

The draft consists of some of the proposals which were announced in the Federal Budget, including:

  • Enshrining in legislation the objective of superannuation which is to provide income in retirement that substitutes or supplements the age pension.

The drafts also include changes in respect of contributions, effective 1 July 2017, that will:

  • Allow a person to claim a tax deduction for superannuation contributions without having to meet an income test;
  • Abolish the contributions work test for those aged 65 to 75;
  • Increase the income threshold for the purpose of the low income spouse tax offset; and
  • Introduce the low income superannuation tax offset to ensure individuals pay no more tax on superannuation contributions than their take home pay.

Each of the main reform initiatives are detailed below.

Reform

Enshrine the primary objective of superannuation as that of substituting or supplementing the age pension. 

Key changes

Future changes to superannuation legislation will require a statement of compatibility with the primary objective of super. 

Five subsidiary objectives will provide a framework for assessing the compatibility with the primary objective. 

Comment

The five subsidiary objectives relate to:

  • consumption smoothing over a person’s lifetime;
  • management of retirement risks;
  • investing in the best interests of members;
  • reduction of fiscal pressures on government; and
  • simplicity, efficiency and provision of safeguards.

Reform

Tax deductions for personal superannuation contributions. 

Key changes

To allow a tax deduction for personal superannuation contributions to age 75 without being required to meet an employment income test. 

Comment

A tax deduction will be available to individuals  between age 18 and 75 irrespective of their work status.

Personal contributions made to certain defined benefit interest and untaxed funds will not be deductible.  
  
Anyone under 18 will be required to receive income from a business or employment to qualify for a tax deduction.

The tax deduction election process remains unchanged. Individuals must provide funds with a valid notice of intention to deduct and also receive an acknowledgment of this notice from the fund.


Reform

Abolish the work test between 65 and 75.

Key changes

Currently, anyone between 65 and 75 is required to meet a work test of at least 40 hours in 30 consecutive days if they wish to make a contribution to super.

Comment

The abolition of the work test will enable anyone to make a concessional or non-concessional contribution to superannuation prior to age 75.


Reform

Increase in the Low Income Spouse Superannuation income threshold. 

Key changes

Currently, a person is eligible to receive a tax offset of up to $540 for non-concessional contributions where their spouse earns less than $10,800.  The income threshold will be increased to $37,000.

Comment

The tax offset will not be available where the spouse has excess non-concessional contributions for the tax year.


Reform

Introduction of the Low Income Superannuation Tax Offset (LISTO). 

Key changes

Superannuants who have an adjusted income of less than $37,000 will be eligible to have a payment of up to $500 made to their fund where they earn at least 10% of their income from self-employment or as an employee. 

Comment

The LISTO effectively replaces the Low Income Superannuation Contribution which ceases on 30 June 2017.
 

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