Budget Review 2017
THE BUDGET TROJAN HORSE CONTINUES TO ROLL IN
The government has released another ‘Exposure Draft’ Bill to test public reaction to the superannuation proposals they want to legislate. A short consultation period will ensue followed by a potentially arduous passage of the Bill through parliament before finally coming into law.
This edition details the 2nd tranche of superannuation proposals.
7 Items in this Round
- The introduction of a $1.6m pension transfer cap.
- A reduction in the concessional contributions cap to $25,000 across the board from 1 July 2017 with a reduction of indexation lots to $2,500.
- Reduce the cut-in income threshold for contributions surcharge to $250,000.
- Enable concessional contribution ‘catch-up’ in limited cases.
- Remove the tax exemption for TRIS balance earnings.
- Abolish the tax saving amount provision.
Remove the ability for a person to elect for a part of a TRIS payment to be treated as a lump-sum for tax purposes.
A reduction in the concessional contribution limit to $25k is tempered by a reduction in the indexation level to $2,500.
$1.6m question now answered
As announced in the May Budget, the Bill proposes a lifetime limit on the amount that can be transferred to the pension phase. If passed into law, the measure will commence from 1 July 2017 and the cap will be $1.6m. The cap will be subject to indexation in $100,000 increments in line with movements in the CPI however, once an individual reaches their cap, they will not be entitled to indexation top-ups.
For example, if an individual uses their lifetime cap of $1.6m to commence a pension on 1 July 2017, they will not have the opportunity to add to the pension balance over time as the cap is indexed. This is regardless of whether the pension balance reduces over time due to drawings.
If an individual commences a pension on 1 July 2017 with an amount less than $1.6m, they will be entitled to a pro-rata indexation top-up. This will be useful for people who haven’t already accumulated $1.6m in super but will not represent a potential strategy for the rest.
Death benefit income streams will not be exempt from the pension cap although reversionary pensions will be subject to a 6-month period in order to deal with the potential breach of the beneficiary’s personal cap. Again, no potential strategy options arise from this measure.