Announcements for superannuation members
Changes to default life insurance in superannuation
The Government proposes to abolish default life insurance cover within superannuation for certain members. Insurance within superannuation will move from a default framework to an opt-in basis for members:
- who have a low account balance – i.e. less than $6,000,
- who are under age 25 years, and
- whose accounts have not received a contribution in 13 months and are inactive.
The proposal aims to protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or may not be aware of. The changes would also reduce the incidence of duplicated cover causing individuals to pay multiple insurance policies.
Importantly, these changes would not prevent anyone who wants insurance from being able to obtain it — affected members will still be able to opt-in to insurance cover within super, having a period of 14 months to decide whether they will opt-in to their existing cover or allow it to switch off. The changes would take effect on 1 July 2019.
In addition, the Government plans to consult publicly on ways in which the current policy settings could be improved to better balance the priorities of retirement savings and insurance cover within super.
Reuniting members with lost or inactive superannuation
The Government has proposed that all “inactive” super accounts – i.e. those with a balance below $6,000 and have not received a contribution in 13 months – be transferred to the ATO. As part of the proposal, the ATO would expand its data matching processes to proactively reunite (i.e. automatically consolidate), where possible, these inactive superannuation accounts with members’ active accounts.
The measure aims to prevent members with low balances and multiple accounts, in particular, young members, low income earners and seasonal workers, from having their super savings excessively eroded by fees. The Government expects the new system would reunite $6 billion of superannuation with 3 million members’ active accounts in 2019-20. These changes would take effect from 1 July 2019.
Removal of exit fees and new fee caps
The Government proposes to abolish super fund exit fees and cap certain fees on balances less than $6,000 at 3 per cent. The measure aims to encourage members to consolidate multiple super accounts and again prevent members from having savings excessively eroded by fees.
Assistance to high income earners with multiple employers to avoid unintentional concessional contribution cap breaches
Under current rules, individuals who breach the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions are liable to pay excess contributions tax, as well as a shortfall interest charge.
Individuals who earn more than $263,157 per year from multiple employers would be assisted to avoid inadvertently breaching the annual concessional contributions cap by being allowed to make wages from certain companies exempt from the Super Guarantee. Employees who use this measure could instead negotiate to receive additional income, taxed at marginal tax rates. The measure would take effect from 1 July 2018.
Better integrity over deductions for personal contributions
The Government proposes to improve the integrity of the “notice of intent” (NOI) processes for claiming tax deductions on personal superannuation contributions.
Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so. This results in their superannuation fund not applying the appropriate 15 per cent tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.
Measures would ensure that any deductible contributions are appropriately taxed by superannuation funds and enable the ATO to deny deductions to individuals who do not comply with the NOI requirements. The measure would commence from 1 July 2018.
Announcements for retirees
Superannuation work test exemption
The Government proposes that retirees aged between 65 and 74 years with superannuation balances below $300,000 would be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.
Currently, the work test means that people aged 65-74 years can only make voluntary superannuation contributions if they work a minimum of 40 hours in any 30-day period in a financial year. The Government says the work test exemption would give recent retirees additional flexibility to get their financial affairs in order as they transition to retirement. The measure would take effect from 1 July 2019.
Comprehensive retirement income products
The Government proposes to amend the Superannuation Industry (Supervision) Act 1993 to introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for their members.
The Government also proposes to amend the Corporations Act 2001 to introduce a requirement for providers of retirement income products to report simplified, standardised information in product disclosure to assist customer decision making.
Expansion of Pensions Loans Scheme
The Pension Loans Scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home to boost their retirement income. The Scheme – administered by Centrelink – is currently only open to retirees who are eligible for a part Age Pension and is not widely used.
The Government proposes to extend the Pensions Loans Scheme to all retirees, including full rate Age Pensioners and self-funded retirees.
Under the proposal, full pensioners would be able to increase their income by up to 150 per cent of the Age Pension rate. This would enable single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,787 without impacting their eligibility for the Age Pension or other benefits. The measure would take effect from 1 July 2019.
Expansion of Pension Work Bonus
Currently, pensioners can earn up to $250 each fortnight without reducing their Age Pension. The Government proposes to expand the Pension Work Bonus to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments. The Pension Work Bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year without reducing their Age Pension payments. The measure would take effect from 1 July 2019.
Other relevant announcements
Additional funding to modernise payroll and superannuation fund reporting
The Government proposes to provide an additional $15.0 million over three years from 2018-19 to the ATO to support the modernisation of payroll and superannuation fund reporting. The funding will be used to support small businesses with fewer than 20 employees during the transition to Single Touch Payroll Reporting from 1 July 2019.
Further extending the immediate deductibility threshold
The Government proposes to extend the $20,000 instant asset write-off by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million. Small businesses would be able to continue to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Only a few assets are not eligible (such as horticultural plants and in-house software). The immediate deductibility threshold and the balance at which the pool can be immediately deducted are normally $1,000.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The current “lock out” laws for the simplified depreciation rules (that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) would continue to be suspended until 30 June 2019.
The Government says the measure would improve cash flow for small businesses, providing a boost to small business activity and investment for another year.
Personal Income Tax Plan
The Government proposes to introduce a seven-year, three-step Personal Income Tax Plan. The first step would provide permanent tax relief to low and middle-income earners to help with cost of living pressures. The second step would provide relief from bracket creep by increasing the threshold of the 32.5 per cent personal income tax bracket and the third step would simplify and flatten the system by removing the 37 per cent tax personal income tax bracket.
Step 1: Targeted tax relief to low and middle-income earners
The Government would introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available from the 2018-19 to 2021-22 income years and will be received as a lump sum on assessment after an individual lodges their tax return.
Step 2: Protecting middle-income Australians from bracket creep and improving rewards from work
From 1 July 2018, the Government would increase the top threshold of the 32.5 per cent personal income tax bracket from $87,000 to $90,000. The proposed tax rates for 2018-19 compared with 2017-18 are shown in the following table:
|Taxable income||Taxable income
||Tax on this income|
|Thresholds for 2017-18
||Proposed thresholds for 2018-19|
|$0 – $18,200
||$0 – $18,200||Nil|
|$18,201 – $37,000||$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $87,000||$37,001 – $90,000||$3,572 plus 32.5c for each $1 over $37,000|
|$87,001 – $180,000||$90,001 – $180,000||$19,822 plus 37c for each $1 over $87,000|
|$180,001 and over||
$180,001 and over
|$54,232 plus 45c for each $1 over $180,000|
The above rates do not include the Medicare levy of 2%.
From 1 July 2022, the Government would increase the Low Income Tax Offset from $445 to $645 and extend the 19 per cent personal income tax bracket from $37,000 to $41,000 to lock in the benefits of Step 1. The increased Low Income Tax Offset would be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667. The Government would also further increase the top threshold of the 32.5 per cent personal income tax bracket from $90,000 to $120,000.
Step 3: Ensuring Australians pay less tax by making the system simpler
From 1 July 2024, the Government would extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognise inflation and wage growth impacts. Taxpayers would pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.
Further support for Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The Government proposes to provide $10.6 million over two years from 2017-18 to the Australian Securities and Investments Commission (ASIC) and $2.7 million in 2018-19 to the Australian Prudential Regulation Authority (APRA) to assist in their involvement in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.