Nick Bruining: Everything you need to know about pension, tax and superannuation changes that started July 1

The start of the new financial year last Wednesday heralds a raft of significant changes to figures important to everyday Australians.

From reduced taxes to increased limits on superannuation contributions and Centrelink means-test thresholds, there’s plenty to get your head around.

Tax changes

July 1 was when the next round of personal income tax cuts kicked in. Don’t get too excited. A drop in the minimum marginal tax rate from 16 per cent to 15 per cent means a few dollars per week extra in pay packets. That’ll drop to 14 per cent next July 1.

What is significant is the change in the amount Australians can now earn before they pay tax or Medicare levy. The interplay of tax offsets such as the low income tax offset and the senior and pensioners tax offset means an Aussie resident under 67 earning up to $22,866 pays no tax.

This is a significant number for people reducing their income through strategies like salary-sacrificing to super. Bring your taxable income below $22,866 and you could be wasting money on the 15 per cent super contributions tax.

For those over 67, the senior and pensioners tax offset applies. From last Wednesday, the tax-free income for a single over 67 lifted to $38,941, and for each member of a couple, $34,727 per annum.

The new division 296 superannuation tax kicked in for those with a total super balance above $3 million. This extra 15 per cent tax on earnings within a super fund was heavily watered down from the original proposal.

This figure, along with a higher $10m threshold where an extra 25 per cent applies, is indexed and is applied at a member account level. In other words, if your self-managed super fund had $3m in assets as of July 1, the tax would only be applicable if any individual member had an account balance of $3m or more, not the SMSF as a whole.

Superannuation

Payday super kicked in last Wednesday and will require employers to remit superannuation payments on the same day they pay staff wages. That may create significant cash flow issues for some employers in spite of being swamped by “get ready” messages from the Australian Taxation Office. Nonetheless, the ATO has said it will go softly-softly on compliance in the early stages.

The 12 per cent compulsory super payment now applies to paid parental leave, and this payment has been extended also. It is now payable for 26 weeks.

The concessional contribution limit rose to $32,500 from July 1 and this, in turn, flows through to the non-concessional contribution cap which increased to $130,000 per annum. Under the three-year bring forward rules, a one-off payment of up to $390,000 is now possible.

An increase in the transfer balance cap from $2m to $2.1m also means that those about to retire can move an extra $100,000 into a tax-free retirement income stream like an account- based pension.

Those already retired who have moved money across previously will have fixed their TBC at the level that applied when they transferred and probably can’t access the full $100,000 increase. You’ll be able to check what your individual TBC limit is after July 13 at no cost, via the ATO service on my.gov.au.

Centrelink

Centrelink’s means-test thresholds went up on Wednesday. Those on a means-tested payment from Centrelink could see an increase in their fortnightly payment rate of up to $34.50 for singles, and a combined $52.50 a fortnight for couples.

That’s because the asset test threshold for homeowners has risen by $11,500 to $333,000 for singles and to a combined $499,000 for couples. Non-homeowners are allowed an additional $267,000 in assets.

Remember for pensioners, each $1000 over these limits reduces your fortnightly pension by $3. For those on allowances like JobSeeker, there is no tapering arrangement. Once you reach the lower asset test limit, the payment is cancelled.

The income-free area on a pension has lifted to $226 a fortnight for singles, and a combined $396 for couples. Remember Centrelink-assessable income is not the same as the way the tax office calculates income.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association