Here’s our wrap on the 2016 Federal Budget

The 2016 Federal Budget is in and we’ve taken a closer look at the changes, and how they could impact you. Just remember though that all these changes are proposals only at this stage and still need to be passed into law. We’ll keep you updated of course if and when this happens.

Flexibility to grow your super as you need to

Some new measures have been proposed to the super system from 1 July 2017 to offer more flexibility to individuals to contribute to their super as needed at different times in their lives. We take a look at the highlights for you below:

If you’ve got a balance of $500,000 or less in your super, you may be able to catch-up on your before-tax contributions. In short, if you haven’t reached your before-tax contribution cap in a particular year, the balance can be carried forward on a rolling basis for five years. So for example if you’ve cut back on work to care for your family and your super’s suffered, you may be able to take advantage of this measure to add more to your super later on.

If you’re an older Australian you may be able to save more super thanks to changes to the work test rule. That’s because if you’re aged 65-74 you’ll no longer need to be working a certain amount of hours a month to make personal contributions. Similarly your spouse under age 75 will no longer need to meet this work test rule if you want to make a contribution to their account.

And talking of spouse contributions, more people will have the opportunity to benefit from the tax offset of up to $540 available if you make a contribution to your spouse’s account, as the spouse income cap to be eligible for the offset will increase from $10,800 to $37,000. So that’s more incentive than ever before to help your partner boost their balance.

In more good news for those on a lower income who are struggling to build their super, the introduction of the Low Income Superannuation Tax Offset means if you earn less than $37,000 a year you may be rebated some of the tax you pay on your before tax contributions. This could boost your balance by up to $500 a year. (A similar benefit currently exists through the Low Income Superannuation Contribution, but that is due to be scrapped on 30 June 2017).

But some new restrictions will come into effect

There’s been a lot of talk lately about the need to improve the equity of the super system. The Government has proposed a few measures to address this, with all except the lifetime limit on after tax contributions to take effect from 1 July 2017. However it’s important to bear in mind that they believe only 4 per cent of Australians will be affected by the changes.

You won’t be able to transfer more than $1.6 million into an Income account. Any amount over this cap will need to stay in your Accumulation account where it’ll be taxed at 15 per cent. If you do go over the cap, penalties will apply.

Effective immediately, there’s a new $500,000 lifetime limit of how much you can put into your super after tax. The cap applies up to the age of 75 and factors in any after-tax contributions you’ve made since 1 July 2007. However it is important to remember that this is still just a proposal, and if it is passed into legislation it will become effective from 7.30pm on 3 May 2016. The Australian Government has advised that anyone who had exceeded the cap before this date will be deemed to have reached the cap, but won’t need to withdraw the excess. However anyone who makes contribution after this date that will cause them to go over the cap will be notified by the ATO that they should withdraw the excess amount from their super account.

The super industry as a whole is asking for more clarification from the Government on various details of this proposal, and we’ll keep you posted as we learn more.

How much you can put into your super as a before-tax contribution is changing (this includes contributions your employer makes on your behalf). So no matter how old you are the most you can contribute from 1 July 2017 before exceeding the limit is $25,000. Until then, the existing caps will still apply.

Currently anyone earning over $300,000 pays 30 per cent tax on some or all of their before-tax contributions, which is double the standard rate of 15 per cent. From 1 July 2017, this 30 per cent tax will be paid by anyone whose income is more than $250,000.

Want to know more?

Take a look at this graphic from the Federal Government’s website – it’s an easy way to see at a glance how the budget announcements affect the super system.