Getting your finances ready for the financial year

In the 2017 Budget speech, Treasurer Scott Morrison announced that incentives would be put in place to encourage older Australians to downsize their homes.

This means that people over 65 who sell their family home, as long as it is their primary place of residence, can contribute up to $300,000 to their super as a non-concessional (or post-tax) contribution.

The government will close off a tax loophole through changes to the Transition to Retirement (TTR) scheme.

Currently, TTR earnings are exempt from tax. But starting July first, they will be taxed similarly to superannuation- up to 15 percent, and individuals will no longer be able to treat super income as lump sums for tax purposes.

The concessional super contributions cap will be lowered, from $30,000 or $35,000 a year depending on age, to $25,000 across the board.

The government says this is to ensure TTR is ‘fit for purpose’ and used as a primary income rather than a tax minimization strategy.

From the first of July, there will also be a limit on how much super you can transfer to a tax-free pension account, initially set at $1.6 million but indexed to Consumer Price Index to adjust for inflation and rounded down to the nearest $100,000.

However TTR pensions won’t count towards the transfer balance cap, and there is no limit in place on the amount an individual can have in an accumulation super account.

Tax free pension accounts that were started before the first of July and any started after will be counted towards to balance cap, and if the balance cap is exceeded the excess funds will have to be removed from the account and taxed up to 15 percent.

That $1.6 million isn’t a limit on how much can be accumulated in the super, but a limit on the total amount you can transfer into a pension phase fund. Pensioners with more than $1.6 million in their super will need to notify the Australian Taxation Office before July first in order to avoid being penalized.

The super anti-detriment payment deductions to dependents of a deceased super fund member will also no longer be available. However anti-detriment payments for super members who died before 1 July 2017 will still be made until the 30^th of June 2019.

On a positive note, the government will be extending tax exceptions on certain earnings in retirement, in order to encourage a wider range of products from providers and deliver flexible choices for retirees.

These will include earnings such as deferred lifetime annuities and group self annuitisation products.

The government has also indicated it will be sticking with its plan to raise the pension age in increments, from 67 to 70, in keeping with an audit conducted in 2013 after the Coalition came to power.

The national commission audit found that as the number of Australians aged over 65 more than doubles, the cost to taxp-ayers will rise from $39.5 billion to $72.3 billion in 2024. The proposed changes will progressively increase the pension age over ten years, between 2025 and 2035.

However no one born before January 1, 1966, would be affected by the change, and the age at which people can access their superannuation will remain the same.