The 2016/17 Federal Budget has made significant changes to superannuation, arguably the largest changes since the 2006/07 Budget.
Some of the proposed changes may have a big impact on Family Law and the structure and form of property distribution in separating families.
So what are the changes?
A Lifetime Non-Concessional Contributions Cap
Currently you can make non-concessional contributions to super (those made after tax) of up to $180,000 a year. Under the new proposals non-concessional contributions to super (those made after tax) are to be limited to $500,000 across a lifetime. Not only that, the amendments will be retrospective and take account of all non-concessional contributions made on or after 1 July 2007. The benefit in making non-concessional contributions to super is that the income from those funds are taxed at only 15% compared to marginal tax rates of up to 47% if you had put the money into property or shares etc. The rationale behind the change is therefore to limit tax minimisation for high income earners funnelling money into super to take advantage of lower tax rates.
A Reduction in Concessional Contributions Cap
Under the current rules you can make concessional contributions (employer and salary sacrifice contributions) of up to $30,000 per annum or $35,000 for Australians who are over 50. Under the new rules that contribution is limited to $25,000 per annum. On the upside, while the current scheme does not allow you to rollover the $30,000 concession the new scheme is cumulative for 5 years for those with superannuation balances of $500,000 or less.
The Effect
In essence a party’s ability to rebuild super lost as part of a family law settlement will be diminished.
It is often the case in family law matters that one party seeks to retain the family home and is willing to forego their superannuation entitlements to do so. In many cases it is often the only way to ensure that the home does not have to be sold.
For example, where a party has made non-concessional contributions to super of $500,000 and then splits all of their super to the other party to offset retaining the family home they will not be able to make any further non-concessional contributions to their super in the future as they have already reached the limit. The changes would also limit their ability to build super though concessional contributions to $25,000 per annum.
As a result of the proposed changes some people may be less likely to split superannuation where their ability to rebuild it is limited by the new regime. Perhaps the government needs to go one step further and enable the ‘splitting’ of lifetime interest allowances as part of any property settlement. Family lawyers would then have to ensure that, where a client is splitting super to another party, the non-concessional component is identified and ‘split’ accordingly.
If you have any questions about superannuation or property settlement make an appointment with one of our solicitors.
