In early September the Turnbull government released the first tranche of Exposure Draft legislation for superannuation reforms announced in the 2016-17 Budget. There has been a federal election in between, but the Turnbull government has finally released draft legislation of five superannuation reforms that were first mooted in the May budget.

What do the Superannuation Reforms mean for you? 

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These five reforms relate to measures to:

Enshrine the objective of superannuation
Reform tax deductions for personal superannuation contributions;
Improve superannuation balances of low income spouses;
Introduce a Low Income Superannuation Tax Offset (LISTO); and
Harmonise contribution rules for those aged 6574.

In more detail, the legislation aims to:

1. Enshrine the objective of superannuation in legislation

The “objective” of superannuation has been the subject of much debate since March 2016 and the objective has been decided as to provide income in retirement that substitutes or supplements the age pension. This objective has guided the development of the Government’s reforms.

2. Reform tax deductions for personal super contributions

The government aims to improve access to concessional contributions by allowing people (under age 75) to claim a tax deduction for personal superannuation contributions, irrespective of their employment arrangements. According to the government this will assist around 800,000 people.

3. More superannuation contribution flexibility

Provide more flexibility and choice for older Australians, including by removing the restrictions that currently prevent some people aged between 65 and 74 from making voluntary contributions to their superannuation. Around 40,000 older Australians should benefit from this measure. The government also aims to encourage more people to make contributions to the superannuation fund of a low income spouse.

4. Introduce the Low Income Superannuation Tax Offset (LISTO).

Around 3.1 million low income earners will have their superannuation savings boosted by the LISTO, including 1.9 million women. This change will ensure individuals do not pay more tax on their superannuation contributions than on their take-home pay.

5. Industry response to superannuation reform

The announced reforms were widely welcomed by a number of industry groups, including:

a) Industry Super Australia

Industry Super Australia particularly welcomed fairer tax breaks for women and lower income earners.

“This measure is critical to restoring the fairness and integrity of superannuation tax concessions. It starts the process of closing the superannuation gender gap, and making the super tax system more contemporary and in keeping with modern society,” said David Whiteley, Chief Executive of Industry Super Australia (ISA). “It is welcome that the Government has prioritised tax breaks for the Australians who need them and not just the top end of town.”

b) Financial Services Council (FSC)

The FSC also welcomed the release of the first five superannuation measures announced in the 2016-17 Budget, stating that the set of measures will result in more equitable outcomes for Australians contributing to superannuation, improve flexibility in administration of the system and assist in strengthening retirement outcomes.

“Industry is pleased that the Government has adopted an administratively efficient approach to implementing the Low Income Superannuation Tax Offset (LISTO),” said FSC CEO, Sally Loane.

“The FSC supports the allowance of tax deductions for superannuation contributions. This will mean that people who don’t work for an employer with a salary sacrificing arrangements will get the same treatment on personal contributions to superannuation from their income as those who do.”

The FSC did note, however that it felt the objective of superannuation could be improved by including a focus on adequacy of retirement income.

c) Australian Institute of Superannuation Trustees (AIST)

The Australian Institute of Superannuation Trustees (AIST) said the first tranche of draft legislation of the Government’s super policy package –which importantly maintained support measures for low income earners – was a welcome step towards a fairer and more flexible super system.

“Importantly, this first tranche of legislation includes the Low Income Super Tax Offset (LISTO) which will boost the super contributions of about 3 million Australians,” said AIST CEO Tom Garcia.

“Without this targeted equity measure, these individuals face paying more tax on their super than their take home pay when the current low income super contribution system expires on July 1 next year.” Mr Garcia said other measures in the draft legislation would improve access to superannuation and provide more incentives for people to make voluntary contributions.

d) ASFA

ASFA interim CEO Jim Minto commended the government for listening to feedback about arrangements for the Low Income Super Tax Offset (LISTO) and simplifying administrative arrangements.

“It is important to get the details of all the measures right and we welcome the opportunity to work with the Government to ensure the superannuation tax legislation is fit for purpose,” Mr Minto said.

“The legislated objective for the superannuation system is enormously important and we need to ensure it will lead to adequate retirement outcomes for all Australians.”

What do the Superannuation Reforms mean for you? 

For specific advice that suits your specific circumstances inquire or make an appointment with our friendly expert Accountants – simply click here.