Retirement planning is vitally important. After all, when you have been working hard to get money into the super environment, and have complied with all the rules and contribution caps, you want to ensure you are maximising your opportunities when you start to draw on your super savings.
What are the changes?
- A maximum limit of $1.6 million is permitted to be transferred into retirement income stream products.
- Excessive balances can remain in super in accumulation phase
- Earnings on assets supporting transition to retirement income streams will be taxed within super
Limits on amounts that can be transferred into retirement income streams
There has been considerable talk in recent times about whether a limit should be placed on the amount that can be accumulated within super and afforded tax concessions. Rather than simply place an arbitrary ceiling on how much can be held inside super, the Government has instead targeted potentially excessive superannuation balances by limiting the amount that will be eligible for the nil tax on earnings concession.
From 1 July 2017, the maximum amount that can be placed into retirement income streams will be $1.6 million. For anyone who has started income streams and account balances exceeding that limit, there will be a requirement to roll-back (or withdraw) amounts to bring them in line with these new maximums.
The current tax free status of earnings on assets supporting superannuation income streams will only be available to the extent that the income streams are within this new limit.
Excessive balances can remain in super
It’s important to note that if you are in the fortunate position to have more than $1.6 million in super, you aren’t forced to stop contributing or withdraw the additional benefits. Amounts above the $1.6 million threshold can remain in super, but must remain in the accumulation phase. Earnings will be taxed at the standard superannuation tax rate of 15%.
Earnings on assets supporting transition to retirement income streams will be taxed within super
Despite considerable speculation, the Government has not removed the ability to commence and run transition to retirement (TTR) income streams. TTR income streams are available to you once you reach your preservation age. They allow you to access your super in the form of an income stream without the need to retire or alter your employment arrangements.
However, the Government has opted to reduce the concessions available for these income streams. From 1 July 2017, instead of earnings on assets supporting these income streams being exempt from tax within the super environment (as would apply to all other income streams within the new $1.6 million threshold), earnings will instead remain subject to the standard 15% tax rate that applies to funds in accumulation phase.
What hasn’t changed is the tax treatment of superannuation benefits received by individuals from their retirement savings. Payments received after
reaching age 60 will continue to be received tax free.
The Budget proposals in relation to retirement income streams are just that, proposals. To ensure you get the right advice for your situation, please call our office on (02) 9894 1844.
This information was prepared by Magnitude Group Pty Ltd, ABN 54 086 266 202 and AFSL 221557 and is current as at 04 May 2016. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, neither Westpac Group nor its group of companies accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement. The taxation position described in this Federal Budget update 2016 is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.