Now that the election has been decided, it was hoped there would be some clarity around superannuation and the biggest changes to superannuation in recent memory made in the recent May budget. However, the furore the proposed changes caused and the narrow election victory provide hope that the more draconian of the changes may be watered down. Bear in mind that nearly all the changes are proposed to come into effect from July 2017 and have not been passed in Parliament, so we will have to wait and see. Below is a summary of what the changes are and some commentary on how it may affect your SMSF

The one change already in place from May 2016 is the new lifetime cap on after-tax (non-concessional) superannuation contributions of $500,000 made from 2007. If you have made an after-tax contribution of more than $500,000 since 2007, you are no able longer to make any more after-tax contributions. The government has directed super fund trustees to contact the ATO for data about previous contributions.

The cap is per member rather than per SMSF and replaces the previous $180,000 per annum limit.

The following changes are all to apply from 1 July 2017, provided the government is able to pass the legislation.

  1. Contributions

The amount of tax deductible contributions you can put into super in a year from your employer or business (‘concessional contributions’) will be reduced to $25,000, from the current limit of $30,000 or $35,000 for those aged over 49.

This is a significant reduction and is a large part of the reason for the widespread backlash. It fails to take into account the pattern of superannuation contributions many people make, with larger contributions in their 50’s after children have left home and the ability to contribute has increased.

There has been no comment from the government about whether this limit will be indexed with inflation. If not, the effect of inflation will result in this limit being too small for many to build up enough of a balance to adequately fund retirement. There will be a resulting reliance on the government funded age pension, placing more pressure on the public purse. This is incongruent with the aims of Australia’s superannuation system.

The government has provided a means to help ensure contributions can be maximised under the lower thresholds. Unused concessional contributions cap amounts accrued from 1 July 2017 for superannuation accounts with balances of less than $500,000 can be used in a catch-up contribution for up to 5 years.

To also assist with the ability to make contributions, those aged 65-74 will no longer need to satisfy a work test stipulating minimum hours worked in order to make super contributions.

  1. Tax on Superannuation

The government has considered superannuation a soft target in order to raise taxes, with several tax increases.

  1. The tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRIS) will no longer be available. This means that member balances held in ‘pension’ phase will have tax of 15% on their earnings, thus  partially reducing the tax benefits of a TRIS. This strategy is still attractive from a tax perspective. Extra salary-sacrifice contributions are still tax-deductible and pensions paid after the age of 60 are tax free, so the effective rate of tax on earnings and funds received is less.
  2. An individual member balance in excess of $1.6 million will result in tax on earnings of 15% payable on the assets held over and above the $1.6M. The government is yet to detail the specifics of how this will operate in practice, as it will create administrative complexity and there are some practical considerations it needs to further consider.
  3. The Div 293 tax (30% tax rate) on superannuation contributions will apply to individuals earnings over $250,000 rather than the current $300,000 limit.
  4. Anyone up to the of age 75 can claim a deduction for personal superannuation contributions. Currently the ’10 percent rule’ means that if you are both self-employed and also have a job as an employee, you can not claim a tax deduction for superannuation contributions if your income as an employee is more than 10 per cent of your total income. The rule change is positive as the 10 percent rule made it difficult for many to make deductible contributions to superannuation and was widely seen as inequitable.

Overall, the government has seen superannuation as a soft target to raise tax and has tried to limit the opportunity to use superannuation as a tax-advantaged estate planning tool. The risk is that superannuation is considered less attractive and there is less inclination to attempt to save within superannuation, along with the lower contribution limits making it harder to save within superannuation, both of which will increase the reliance on the aged pension and thus place pressure on government finances.


The tax benefits of superannuation are still significant as tax rates for earnings and capital gains within superannuation are much less than for investments held outside superannuation.

Whilst you are contributing to superannuation, capital gains tax on investments held in superannuation for more than one year are 10% and earnings are taxed at 15%. Once you no longer contribute to superannuation and are in pension phase, earnings and capital gains are tax free. Compare these rates with standard individual tax rates and you will see why superannuation is such a lower tax environment.

Consider an investment property purchased within and outside superannuation. Outside superannuation, a capital gain of $500,000 may result in a taxable capital gain of $250,000 after the 50% capital gains discount has been applied (and bear in mind Labor proposed to reduce this discount to 25%). Tax on the $250,000 assuming no other income is $92,000. If this capital gain is made within superannuation and the fund is in pension phase, tax will be nil.

Similarly, dividends reinvested within superannuation will result in larger superannuation balances than if shares are held outside superannuation, given the lower rate of tax on earnings. For these reasons, superannuation is still an attractive option.