Super Changes

The Federal Government’s new superannuation rules, arising from its 2016 Budget, come into effect from 1 July 2017.

With 1 July almost here, this information is designed to help you get an understanding of the new rules and actions you might like to consider in response to the changes.


Contributions

Please note that the superannuation contributions made by the Qantas Group as part of the June 2017 pay cycle may be paid to Qantas Super accounts after 1 July 2017. If this happens, this means they will be counted as part of the relevant cap for 2017/2018. Contact Qantas People Services for more information.


Concessional (before-tax) contributions cap cut to $25,000

The annual cap on concessional contributions will be $25,000 for everyone. This cap will be indexed each year in line with Average Weekly Ordinary Time Earnings (AWOTE) in increments of $2,500 (rounded down).

This is lower than the current cap of:
  • $30,000 – if you are under 50 years of age.
  • $35,000 – if you are over 50 years of age.

Contributions that count towards your concessional contributions cap generally include your salary sacrifice contributions, certain contributions made by your employer (including any fees or costs that your employer pays for you) and, if you are a member of a defined benefit division, an amount called a ‘notional taxed contribution’, which is calculated according to a government prescribed formula.

For more information about how fees or costs that your employer pays and/or ‘notional taxed contributions’ impact  your total concessional contributions for a financial year, read the Concessional Contributions fact sheet for your division.

This may impact you if…
  • You’re making salary sacrifice contributions in addition to your employer’s superannuation guarantee (SG) contributions (and any other concessional contributions) up to the current cap (which is based on your age).
Actions to consider
  • The new cap doesn’t come into effect until 1 July 2017 so there’s still time to take advantage of the existing, more generous caps. You can view an up-to-date balance of your concessional contributions at any time by logging into your account online or by calling us on 1300 362 967.
  • Review your contributions starting from 1 July 2017 to ensure you don’t go over the lower cap. If you go over the cap, you will pay additional tax or penalties on the amounts above the cap. Refer to the Tax on Super fact sheet for more information.
  • Speak to a financial adviser before changing your contribution strategy. Call the Qantas Super Helpline on 1300 362 967 to make an appointment.

Non-concessional (after-tax) contributions cap cut to $100,000

The annual cap on non-concessional contributions to your super will be reduced to $100,000, down from the current cap of $180,000.

In addition, your cap will be $0 for any given financial year if, on 30 June of the previous financial year, you have a total super balance across all your super funds that is more than the ‘transfer balance cap’ ($1.6 million for 2017/2018). In this case any non-concessional contributions you make into super will be treated as “excess” non-concessional contributions.

Please note that for defined benefit members, any compulsory member contributions you make on a non-concessional basis count towards your cap.

If you’re under age 65, you will still be able to make contributions above your cap in a financial year by bringing forward your cap for up to two future years, but the amount you can bring forward will now depend on your superannuation balance at 30 June each year.

More information about the changes to non-concessional contribution cap (including how the amount you can ‘bring forward’ will be determined) is available on the ATO website, www.ato.gov.au.

This may impact you if…
  • You’re planning to make a large non-concessional contribution to super.
  • You have a super balance approaching $1.6 million or more.
Actions to consider
  • If you’re planning to make a large non-concessional contribution to super (e.g. proceeds from the sale of an investment property or other asset), you may want to consider making this before 1 July 2017 to take advantage of the current, more generous caps or bring forward rules.
  • If you have a super account balance of more than $1.6 million and are planning to make a non-concessional contribution to super, you may need to make this before 1 July 2017 otherwise it will be treated as an excess non-concessional contribution.
  • If you go over the cap, you will pay additional tax or penalties on the amounts above the cap. Refer to the Tax on Super fact sheet for more information.
  • Speak to a financial adviser before changing your contribution strategy. Call the Qantas Super Helpline on 1300 362 967 to make an appointment.

If you’re a defined benefit member making compulsory member contributions, we can help you navigate this change. We will be in touch with you over the coming weeks so look out for further emails from us on this topic.


Catch-up concessional contributions

From 1 July 2018, if you have an account balance of less than $500,000, you will be able to rollover up to five years of unused concessional caps.

The first income year in which you can access unused concessional contributions is 2019/2020.

This may impact you if…

This measure is designed to help those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are in a position to increase their contributions to superannuation.

Actions to consider

If you’re not in a position to make concessional contributions of up to $25,000 a year, you may be able to take advantage of the carryover rules when your income is higher.

Speak to a financial adviser before changing your contribution strategy. Call the Qantas Super Helpline on 1300 362 967 to make an appointment.


Widening access to concessional contributions

The Government will allow people under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal non-concessional contributions to eligible superannuation funds up to the concessional contributions cap.

Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages.

This may impact you if…

You would like to claim a tax deduction for personal non-concessional contributions you make to super

Actions to consider

This option is available to super funds generally so this may apply to accounts you may have outside Qantas Super. We are currently considering how this may be applied for our members. Any updates will be made available on our website.

Think about whether you’d like to claim a tax deduction for your non-concessional contributions, effectively making them a concessional contribution. Contribution caps apply. Speak to a financial adviser to understand how you may be able to take advantage of this new ruling.


Changes affecting account based pensions


Transfers into the retirement phase capped at $1.6 million

There will be a $1.6 million ‘transfer balance cap’ on the total amount of superannuation you can transfer into a tax-free retirement account. This amount will be indexed each year.

The $1.6 million cap applies to the total amounts held in retirement accounts where the earnings are tax free. Future earnings on balances in retirement accounts won’t be capped or restricted.
This may impact you if…

You are close to retirement and you have a balance of close to $1.6 million or more in your super account.

Actions to consider

Savings beyond $1.6 million can remain in an accumulation super account, where earnings are taxed at 15%. There is no limit on the balance you can have in an accumulation super account.


Existing retirees will have to bring their pension balances under $1.6 million before 1 July 2017

There will be a $1.6 million cap on the balance of an existing tax-free retirement account (this cap is called the transfer balance cap, and is assessed on an individual basis and includes all income streams held by the individual).

The transfer balance cap applies to the total amount of superannuation that has been transferred into the retirement phase. It does not matter how many accounts you hold these balances in.

If you exceed the transfer balance cap, you may have to move the excess funds from your retirement account (if you have more than one, you need to take into account the total balance of all accounts) and pay 15% tax on any notional earnings from that excess. If you’ve gone over the cap previously, you’ll pay 30% tax on those earnings. Transitional arrangements have been put in place so that if you have a balance of between $1.6 and $1.7 million, you have six months to remove the excess without being charged any additional tax.

If you have a defined benefit retirement account, you may also need to consider the defined benefit income cap (which is $100,000 for the 2017/2018 financial year). If you’re over 60 and you exceed the cap, tax may be withheld from your pension payments and you’ll need to lodge a tax return.

The transfer balance cap will be indexed in line with the Consumer Price Index (CPI), so the cap is forecast to be about $1.7 million in 2020/21.

Future earnings on balances in retirement accounts won’t be capped or restricted.

However, if your retirement account goes down over time, you won’t be able to ‘top it up’ if you’ve already used up your cap.

This may impact you if…

You are a retirement member with an Income Account in Gateway and have a balance approaching $1.6 million or more.

Actions to consider

Amounts above $1.6 million (based on the balance of your income stream accounts on 30 June 2017) will need to be transferred to an accumulation super account or withdrawn from super.

More information about the transfer balance cap is available on the ATO website, www.ato.gov.au

If you’re a defined benefit member, the ATO website also contains information about the transfer balance cap that applies for you.

This particular change is complex and will have varying consequences depending on your personal financial situation. It’s vital that you seek assistance from a financial adviser or your tax adviser who can help you understand what these changes mean for you.

If you’re over the $1.6m cap, we’ll contact you directly via email or phone. You can also call the Qantas Super Helpline on 1300 362 967 to make an appointment with a financial adviser.


Transition to retirement changes

Investment earnings on balances in a transition to retirement pension (TRAP) will no longer be tax exempt from 1 July 2017. Earnings will be taxed up to 15%, like they are in superannuation accounts.

However, transfers to a transition to retirement pension will not count towards the $1.6 million transfer balance cap, as they don’t benefit from tax-free earnings.

You will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.

This may impact you if…

You already have a transition to retirement pension, or if you are considering investing in a transition to retirement pension.

Actions to consider

If you have a transition to retirement pension, speak to your financial adviser to review your current strategy and whether you need to make any changes.

These changes will apply irrespective of when your transition to retirement pension commenced.

If you’re currently in a Qantas Super transition to retirement pension, look out for further emails from us.


Other tax implications


More super tax on high incomes

People with combined earnings and concessional contributions over $250,000 (previously $300,000) will pay an additional 15% tax (on top of the usual 15%) on their concessional contributions (this is known as Division 293 tax).

Even at the higher rate, super still offers a discount of about 17% compared to the highest marginal tax rate.

This may impact you if…

You have an adjusted taxable income of $250,000 or more at 1 July 2017.

Actions to consider

There is a short window of opportunity for those earning $250,000-$300,000 a year to top up their super balance up to their current cap at the lower contributions tax rate of 15%.

If you’re liable to pay Division 293 tax, the ATO will send you a notice of assessment. You will have the choice of paying the tax out of your own pocket, or you can request a release of funds from your superannuation fund (the ATO will send you the form for this). In some circumstances when Division 293 tax is related to the defined benefit component of your super, payment of your tax liability will be deferred by the ATO. More information about the Division 293 tax can be found on the ATO’s website at www.ato.gov.au.

Speak to a financial adviser before changing your contribution strategy.

Call the Qantas Super Helpline on 1300 362 967 to make an appointment to talk about making the most of this window.


Extending the spouse tax offset

The current spouse tax offset will be available to more couples so they can support each other in saving for retirement.

The tax offset of up to $540 per annum has been extended for individuals who make superannuation contributions to their spouses with incomes up to $40,000 (increased from $13,800).

The spouse receiving the contribution must be under age 70 and meet a work test if they are aged between 65 and 69.

However, no tax offset can be claimed if a spouse had a total super balance of more than $1.6 million at the end of the preceding income year, or has made non-concessional contributions in excess of the $100,000 non-concessional contributions cap in the corresponding income year.

This may impact you if…

Your spouse earns less than $40,000 and they’re under 70 years of age.

Actions to consider

If your spouse earns up to $40,000, you may consider making spouse contributions after 1 July 2017 to take advantage of this extended tax offset.

Speak to a financial adviser before changing your contribution strategy.


Introducing the Low Income Superannuation Tax Offset (LISTO)

The Government will replace the Low Income Superannuation Contribution (LISC) with the Low Income Superannuation Tax Offset (LISTO).

The LISTO effectively refunds the tax paid on concessional contributions by individuals with adjusted taxable income of up to $37,000 – up to a cap of $500.

This may impact you if…

You earn $37,000 or less for the year.

Actions to consider

If you qualify for this offset, it will be automatically paid into your account once your annual tax return has been processed.


Other changes


Abolishing anti-detriment payments

The Government will remove the anti-detriment provision which allows superannuation funds to claim a tax deduction if they pay an additional amount on top of a death benefit paid to eligible dependants.

This means super funds will no longer pay an additional anti-detriment amount as part of a death benefit where either a death occurs on or after 1 July 2017 or the payment of a death benefit occurs on or after 1 July 2019.