Everyone knows the tale of Robin Hood, the doer of good deeds who took from the Rich to give to the less fortunate. In the case of the 2016 Federal Budget, Robin Hood could easily be called Super Robin.
With the arrow drawn and aimed at an obvious revenue raising target, Treasurer Scott Morrison announced changes for superannuation that could be viewed as poking the voting retirees and soon to be retiring voters. The first announcement saw an effective cap on taxpayers tax free super balances. The maximum superannuation balance that can now be rolled into a tax free pension will be set to $1.6 million, where previously there was no cap.
This will mean that earnings on balances in excess of this cap will now be taxed, where previously when a superannuation fund member was in pension phase, these earnings would be tax free. And in further pain, Transition to retirement pension account holders will see a tightening of tax “loopholes”. This translates that from 1 July 2017 the government will remove the tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRIS), being income streams of individuals over preservation age but not yet retired. Earnings from assets supporting a TRIS will be taxed at 15%.
The next arrow was aimed squarely at high net worth individuals and high income earners. Taxpayers that earn more than $250,000 per year will now have their super contributions taxed at an increased rate of 30% (currently 15%). This action was further impacted by cutting the concessional (i.e. deductible super contributions) to $25,000, down from the current $30,000 or $35,000 if over 50 years of age.
The final arrow fired by Robin Morrison has immediate effect. The lifetime non-concessional contributions cap is now capped to $500,000, which was previously uncapped.
But it was not all bad news, as mentioned in our blog “Malcom in the middle” the budget introduced a Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017 for individuals. In further positive news, the Treasurer proposed that from 1 July 2017, ALL individuals under the age of 75 will be eligible to claim a tax deduction for any personal super contributions where previously this was only allowed for self-employed individuals and substantially self-employed individuals (i.e. those that satisfy the “10% test”).
It is estimated that these measures will raise $6 billion over four years and will impact the wealthiest 4% of taxpayers. Whilst the Trillion dollar super industry was an obvious choice to raise revenue, these measures are concerning particularly for older taxpayers heading towards retirement with little or no time for planning opportunities. There is also a view that these measures go against the voluntary savings of the superannuation system which was designed for retirees to be self-sufficient in their golden years.