The Budget 2016/2017 takes a serious swipe at the accumulation of large balances in super. There are two massive changes: a $1.6 billion cap on the amount that can be held in super tax-free, and a $500,000 lifetime cap on non-concessional contributions.
The $1.6 million 'transfer balance cap' is totally unexpected, and the detailed fact sheet is here.
This rule will create massive headaches when compliance is determined by fund balances at a particular date. For example, market movements on 30 June 2017 (a Friday) will determine whether people will be hit with a penalty ("Individuals who breach the cap will be subject to a tax on both the amount in excess of the cap and the earnings on the excess amount."). For anyone near the cap, how do they know how much to leave in the pension fund, facing a penalty if the market rallies on 30 June 2017?
Or for anyone with super assets that are not valued daily in the market, such as real estate, how do they know how much it is worth on 30 June 2017 prior to the date?
Here is an extract from the Budget website.
"The objective of superannuation, which for the first time will be enshrined in legislation, is ‘to provide income in retirement to substitute or supplement the Age Pension’.
Having this clear objective will enhance stability in the superannuation system by creating a clear framework for superannuation policy – and a way to assess whether the system is meeting its objective. The objective for superannuation has been an important anchor for the development of the superannuation changes.
To ensure the superannuation tax arrangements support the objective of superannuation and are fiscally sustainable, the Government will better target tax concessions to those who need incentives to save by:
- introducing a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation. A balance of $1.6 million could support an income stream in retirement of around four times the level of the single Age Pension. The transfer balance cap will affect less than one per cent of superannuation fund members and will be applied to both current retirees and to individuals yet to enter their retirement phase.
- requiring those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. These individuals will still have significant incentives to save for their retirement. This change will only affect around one per cent of superannuation fund members.
- lowering the superannuation concessional contributions cap to $25,000 per annum. This level still enables individuals to make enough contributions over their working life to be self sufficient in retirement. Lower caps on concessional contributions also make it feasible to allow more flexibility across the system to accommodate modern working arrangements. Reducing the caps on concessional contributions will only affect around three per cent of superannuation fund members.
- introducing a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning. Currently, less than one per cent of superannuation fund members have made contributions above this cap since 2007.
Broadly commensurate treatment will apply to defined benefit arrangements.
In addition to better targeted tax concessions, the Government will introduce the Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017. This will continue to support the accumulation of superannuation for low income earners.
This will allow individuals with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500.
The Low Income Superannuation Tax Offset will, in particular, assist women to build their superannuation savings.
Taken together, these changes will better target the concessional taxation of superannuation and help to ensure that the superannuation system remains sustainable for the benefit and retirement security of all Australians."