The Australian Government’s radical changes to the domestic pension rules may jeopardise the gradual transfer of UK relevant transfer funds to that jurisdiction.
No sooner had Australian QROPS come back on the market with an ‘over 55’ style, than the Australian Government made some radical changes to the domestic pension rules, which might jeopardise the gradual transfer of UK-relevant transfer funds to that jurisdiction.
The ‘devil is in the detail’ and it is even more important for people to take specialist advice on this subject. Simply transferring AU$180,000 per year or AU$540,000 every three years, which has been the traditional route, may now not be the answer.
Below is an extract from the new legislation.
To ensure the superannuation tax arrangements support the objective of superannuation and are fiscally sustainable, the Government will better target tax concessions to those who need incentives to save by:
- Introducing a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.
This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation. A balance of $1.6 million could support an income stream in retirement of around four times the level of the single Age Pension.
The transfer balance cap will affect less than one per cent of superannuation fund members and will be applied to both current retirees and to individuals yet to enter their retirement phase.
- Requiring those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. These individuals will still have significant incentives to save for their retirement. This change will only affect around one per cent of superannuation fund members.
- lowering the superannuation concessional contributions cap to $25,000 per annum. This level still enables individuals to make enough contributions over their working life to be self-sufficient in retirement. Lower caps on concessional contributions also make it feasible to allow more flexibility across the system to accommodate modern working arrangements. Reducing the caps on concessional contributions will only affect around three per cent of superannuation fund members.
- introducing a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning. Currently, less than one per cent of superannuation fund members have made contributions above this cap since 2007.
Broadly commensurate treatment will apply to defined benefit arrangements.
In addition to better targeted tax concessions, the Government will introduce the Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017. This will continue to support the accumulation of superannuation for low income earners.
This will allow individuals with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500. The Low Income Superannuation Tax Offset will, in particular, assist women to build their superannuation savings.
Taken together, these changes will better target the concessional taxation of superannuation and help to ensure that the superannuation system remains sustainable for the benefit and retirement security of all Australians.
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