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2017/18 Superannuation Thresholds
The ATO has recently issued the key superannuation thresholds which will apply in respect of the 2017/18 financial year.
The more significant thresholds are set out below:
Concessional contributions cap - $25,000 per annum (previously $30,000 or $35,000 if aged 49 or more)
This cap applies to employer contributions made for you and your personal contributions which are treated as a tax deduction in your tax return. The cap is a global cap. Consequently, if you are a member of two or more superannuation funds, all of your employer contributions and your deducted personal contributions are aggregated and the cap applies to the aggregated amount.
If the total of your employer and deducted personal contributions exceed the cap and you do not elect to withdraw the excess contributions, the excess is included in your taxable income and taxed at your marginal rate plus an excess concessional contributions charge. You are entitled to a 15% (non-refundable) tax offset (as the excess concessional contributions will have been subject to tax in the superannuation fund). Additionally, the excess concessional contributions are treated as non-concessional contributions.
However, you can elect to withdraw the excess concessional contributions from the super system to avoid the consequences which would otherwise apply. If you make this election, then 85% (or such lower percentage as you specify) of the excess contributions can be refunded to you. This withdrawn amount is not taxable. Additionally, the withdrawn amount (grossed up by 100/85) is not treated as a non-concessional contribution.
Non-concessional contributions cap - $100,000 per annum (previously, $180,000)
This cap applies to contributions other than concessional contributions, CGT contributions and personal injury contributions. The cap is a global cap. Consequently, if you are a member of two or more superannuation funds, all of your non-concessional contributions are aggregated and the cap applies to the aggregated amount.
If your total superannuation balance (immediately at the start of 1 July 2017 because 2017/18 is the first year of the new super arrangements) equals or exceeds $1.6m, your cap for 2017/18 will be zero and any non-concessional contributions made will be treated as excess non-concessional contributions.
If your total superannuation balance (immediately at the start of 1 July 2017) is less than $1.6m then your cap will be $100,000.
Generally, if your non-concessional contributions for 2017/18 exceed $100,000 (including any excess concessional contributions which are not withdrawn) the excess will be treated as excess non-concessional contributions and will be subject to tax at 47% (as the 2% budget repair levy ceases to apply). This tax will be assessed to you. You may apply for this assessed tax to be paid on your behalf from your superannuation benefits.
However, you may avoid the 47% on excess non-concessional contributions if you either exercise the “withdrawal option” or the “bring forward option” applies.
The withdrawal option applies if you elect to withdraw all or part of the excess non-concessional contributions. The withdrawn contributions are tax free in your hands. To counter the effect of the excess contributions deriving earnings prior to the contributions being withdrawn (thereby benefiting from the superannuation tax concessions), the withdrawn excess contributions will be treated as having derived notional earnings (called associated earnings) which are calculated at a specified rate. The associated earnings will be included in your taxable income and are subject to tax at your marginal rates (with a 15% tax offset). An amount equal to 85% of the associated earnings on the withdrawn contributions will also be released to you.
However, you can elect to withdraw the excess non-concessional contributions from the super system to avoid the consequences which would otherwise apply. If you make this election, then 85% (or such lower percentage as you specify) of the excess contributions can be refunded to you. This withdrawn amount is not taxable. Additionally, the withdrawn amount (grossed up by 100/85) is not treated as a non-concessional contribution.
The “bring forward” option applies if you are under age 65 at any time during the 2017/18 financial year, your total superannuation balance is less than $1,500,000 and you have not previously engaged the “bring forward” option in either 2015/16 or in 2016/17.
If your total superannuation balance is less than $1,400,000 then your non-concessional contributions for 2017/18 can be up to $300,000. If your total superannuation balance is $1,400,000 or more but less than $1,500,000 then your non-concessional contributions for 2017/18 can be up to $200,000. To the extent your non-concessional contributions for 2017/18 exceed $100,000 this will reduce the maximum non-concessional contributions which can be made in respect of 2018/19 and possibly 2019/2020. Additionally, to make non-concessional contributions in respect of those years, your total superannuation balance must be less than $1.6m before the start of the financial year and, if you have attained age 65, you must satisfy the work test in respect of the financial year.
CGT non-concessional contributions cap - $1,445,000 (previously $1,415,000)
This cap applies to contributions made by you which are sourced from capital gains events in relation to you to which either the 15 year or the retirement exemption of the small business capital gains exemptions apply. The cap is indexed each financial year.
If the 15 year exemption applies, then an amount equal to the capital proceeds arising from the relevant event can be contributed to super. If the retirement exemption applies, then an amount equal to the capital gain arising from the relevant event (up to $500,000) can be contributed to super.
In order for a contribution to qualify as a CGT non-concessional contribution certain conditions must be satisfied including making a valid election that the contribution be treated as a CGT non-concessional contribution and making the contributions within a specified period of receiving the capital proceeds or capital gains.
This cap is a lifetime contributions cap. Consequently, any previously made CGT non-concessional contributions are taken into account when determining the amount of the lifetime cap which is unused or if the lifetime cap has been exhausted.
Any contributions made in excess of the CGT non-concessional contributions cap are treated as ordinary non-concessional contributions and are counted against the $100,000 annual limit.
You can make CGT non-concessional contributions even if your total superannuation balance (immediately at the start of 1 July 2017) equals or exceeds $1.6m. However, as CGT non-concessional contributions are included in your total superannuation balance, making CGT non-concessional contributions will affect the amount, if any, of non-concessional contributions you can make in the future.
High Income Threshold $250,000 (previously $300,000)
This threshold applies to impose 15% tax on your concessional contributions (to the extent that they do not exceed the concessional contributions cap). This tax is imposed on you and is often referred to as “Division 293 tax” (because it has no other name). You will be liable for this tax if your “adjusted taxable income” for 2017/18 exceeds $250,000.
In general terms, your “adjusted taxable income” is the sum of your taxable income plus your concessional contributions (whether made by you, on your behalf or allocated to you from fund reserves) your reportable fringe benefits and your total net investment loss. However, employer SG contributions and your excess concessional contributions are excluded.
In determining the 15% contributions tax, it is calculated as if your concessional contributions are the top slice of your “adjusted taxable income” and the 15% tax rate is applied to the amount of your concessional contributions which exceed $250,000. The maximum amount of Division 293 tax is $3,750.
This 15% tax is in addition to any tax paid on your concessional contributions in the hands of the trustee of your fund. You may, if you so wish, arrange for your fund to pay the tax on your behalf (or to be reimbursed if you have already paid the tax). Your account balance in the fund will then be debited with the payment or reimbursement.
Low rate cap amount $200,000 (previously $195,000)
This threshold is a lifetime threshold which applies to superannuation lump sums you receive before age 60 where the lump sum is paid either because you have retired or are permanently incapacitated. To the extent the taxable component of the lump sum would (but for the threshold) have been taxed at 15% (because it is a taxed element) the tax rate is reduced to zero. To the extent the taxable component of the lump sum would (but for the threshold) have been taxed at 30% (because it is an untaxed element) the tax rate is reduced to 15%.
The threshold does not apply to a lump sum benefit paid to you due to a terminal medical condition (as this benefit is tax free) and also does not apply to death benefits.
The ability to have a pension payment taxed as a lump sum will be removed with effect on and from 1 July 2017.
Super Guarantee percentage 9.5% (no change)
This is the rate at which employers must contribute superannuation on behalf of their employees (in order to avoid being liable for the Super Guarantee Charge – which is a tax imposed on employers). This rate has not changed. As presently set, this rate will only increase to 10% from 1 July 2021.
Maximum Super Guarantee contributions base $52,760 (income per quarter, previously $51,620)
Super Guarantee contributions must be made in respect of financial quarters and is based upon the employees “ordinary time earnings” for the quarter. The “ordinary times earnings” is capped at the maximum super contributions base for the quarter.
If the employee’s ordinary time earnings for a quarter exceeds $52,760 then the employer is not required by the relevant legislation to pay super contributions on the excess earnings above the maximum base. However, as part of the contract of employment, the employer may be bound to pay superannuation contributions on earnings in excess of the maximum base.