Changes to Superannuation: Part 4

Transfer Balance Cap For Pension Phase Accounts and Reduction in Division 293 Threshold

THE CHANGES

When an individual is given access to their super, usually when they retire, they can either receive a lump sum, an income stream, or some combination of the two. From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions (the income stream option).

Currently, any income you earn on the capital of the income stream is exempt from tax. By limiting the amount of money you can transfer into the income stream option, the government is limiting the amount of income that retirees can receive tax-free.

There will also be a reduction in the Division 293 income threshold (From $300,000 down to $250,000). This is an additional 15% tax on concessional contributions above the threshold.

HOW IT COULD IMPACT YOU

Like the changes that lower the cap on concessional and non-concessional contributions, this change is designed to limit the tax benefits for high-income earners. By placing a cap on the maximum transfer of funds into the retirement income stream, a cap is also placed on the maximum amount of money you can earn tax free from that income stream as it slowly diminishes. As with several of the other changes to the superannuation regulations, the transfer cap will be indexed in line with the consumer price index, with increases occurring in $100,000 increments.

The reduction in the Division 293 income threshold means anyone who currently earns between $250,000 and $300,000 per year will now be paying Division 293 Tax.

SUMMARY OF MAJOR CHANGES

Judging by the changes in all of these rulings, the government has defined the maximum required amount necessary for a comfortable retirement as $1.6 million dollars. For those who already have that amount or more in their superannuation, the changes limit or remove completely the opportunity to receive tax benefits while increasing their superannuation fund balance even further.

Essentially, the government is saying that $1.6 is enough to retire on, and if you have more than that, you won’t be receiving any incentives from the government to invest further in your retirement. Meanwhile, at the other end of the spectrum, low-income earners will now receive additional incentives to further increase their superannuation savings.

By Jennifer Lowe

 

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