• Federal Budget 2016 - Individuals

Superannuation – Concessional Contribution Caps reduced

The Government has announced that it will cut the annual cap on concessional contributions (deductible superannuation contributions) to $25,000, applicable to all individuals regardless of age from 1 July 2017.

Deductible contributions include employer Superannuation Guarantee, salary sacrifice amounts, and contributions claimed as deductions in personal tax returns.

Division 293 tax

Also applying from 1 July 2017, the threshold at which Division 293 tax applies has been reduced to $250,000. This means that any contributions caught by Division 293 are effectively taxed at 30%, rather than 15%, up to a maximum additional tax of $3,750.

By way of example, an individual with income of $240,000 and $25,000 in concessional contributions would have a combined income of $265,000. Accordingly, they would pay $2,250 in additional Division 293 tax (15% of $15,000).

Contribution eligibility criteria

From 1 July 2017, the Government will increase the eligibility of individuals up to 75 to make personal deductions for super contributions. Firstly, it will remove the confusing restrictions on taxpayers claiming deductions in their personal tax returns for contributions made to super. No longer will such taxpayers have to show that less than 10% of their income came from employment.

Secondly, it is abolishing the ‘work test’ for taxpayers aged 65 to 74, allowing them to make concessional contributions to super regardless of their age.

BDO Comment

The announced changes while reducing the amount that they are able to contribute will make it easier for taxpayers to contribute to superannuation.

The Government is attempting to entice more people to contribute to their super, but are limiting the amounts that each individual is able to contribute. Effectively, they are offering an opportunity that has limited appeal, especially to young Australians. The reduced annual contributions cap will also disadvantage those who have a broken work history, such as primary carers and those employed transiently.