The 2016-17 Federal Budget (Budget) handed down on 3 May 2016 included the comments that:
A prosperous Australia needs a well-targeted superannuation system that supports and encourages all Australians to save and not be dependent on the Age Pension in retirement. We have a world-class superannuation system and we want to keep it that way. Better targeting superannuation tax concessions will improve the sustainability and integrity of the superannuation system.
With these aims in mind, the Budget introduced a suite of reforms to the tax and superannuation laws with the stated objective of ensuring that superannuation is able to provide income in retirement to substitute or supplement the Age Pension. The proposed reforms centre around the key principles of sustainability, flexibility and integrity.
However, since the July federal election, the federal government has refined its budget measures and released three tranches of legislation relating to the proposed superannuation changes.
The proposed changes and the draft legislation
On 7 September 2016, an exposure draft of the first tranche of the legislation giving effect to some of the Budget measures was released. You can read more about what was included in that exposure draft in an earlier ClearLaw article titled "Budget superannuation measures — first tranche of draft legislation released". As noted in that article, several key measures proposed in the Budget were not included in the first exposure draft.
On 15 September 2016, in response to ongoing consultations, the government announced some changes to the previously made proposals. Those changes are explained further below.
On 27 September 2016, a second tranche of draft legislation was released, implementing some (but not all) of the remaining Budget proposals. You can read more about that draft legislation package on the Treasury Website.
On 10 October 2016, a third tranche of the draft legislation was released for public consultation. This draft legislation included the changes in relation to lowering the annual non-concessional contributions cap to $100,000 and restricting eligibility to make non-concessional contributions to individuals with balances below $1.6 million.
The 15 September changes
On 15 September 2016, the Treasurer and the Minister for Revenue and Financial Services announced proposed changes to the superannuation-related measures that were announced as part of the Budget. You can read the Government's press release here. The proposed changes announced on 15 September 2016 included:
- replacing the proposed $500,000 lifetime non-concessional cap with a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year;
- continuing the ability for individuals aged under 65 to 'bring forward' 3 years of non-concessional contributions; and
- changing the eligibility of individuals with a superannuation balance of more than $1.6 million so that they can no longer make non-concessional (after tax) contributions from 1 July 2017.
Treasury summarised those changes indicating that, in effect, Australians will be able to contribute $125,000 each year (that is, concessional contributions of $25,000 and non-concessional contributions of $100,000) and, if taking advantage of the non-concessional 'bring forward', up to $325,000 in any one year until such time as they reach $1.6 million.
Some other changes to the Budget proposals were also announced on 15 September 2016, including abandoning the proposal to remove the work test that currently applies to contributors aged between 65 and 74.
Where to next?
In the September article, it was noted that several of the Budget measures were not covered in the first tranche of draft legislation. Between the second and third tranches of draft legislation, all those measures have now been addressed (taking into account the changes announced on 15 September 2016).
The draft legislation and associated explanatory material can be viewed via the Treasury website. The third tranche of draft legislation was open for public consultation until 23 October 2016.
Most measures included in the reform package are expected to take effect from 1 July 2017.
More information from The Treasury
You can read more detailed information, including factsheets on each of the proposed changes, provided by The Treasury on the Treasury Website.
More information from Maddocks
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
More Cleardocs information on related topics
You can read earlier ClearLaw articles on a range of topics relating to superannuation, contributions, reserves and SMSFs generally.