Superannuation Reforms on 1 July 2017 That might affect you

There are some significant changes to the superannuation rules coming into effect on 1 July 2017.

  • Depending on your circumstances, there are several strategies that you might want to consider before 30 June.
  • Here is a summary.
  1. If you want to maximise your super through Concessional Contributions (CC) – i.e. salary sacrifice or tax deductible contributions.
    • Currently, the Concessional Contributions Cap is $30,000 or $35,000 if you are aged 49 or over on 30 June.
    • From 1 July, it will be $25,000 regardless of age.
    • Therefore, there is a one-off opportunity to make a tax-deductible contribution or salary sacrifice up to the higher cap prior to 30 June 2017.
  2. If you want to maximise your super through a large Non-Concessional Contribution (NCC).
    • From 1 July, the NCC will be $100,000.
    • Currently it is $180,000.
    • This means that the maximum you can contribute using the bring forward rule is reducing from $540,000 to $300,000.
    • In addition to the cap, you will not be allowed to make a NCC after 1 July 2017 that will take your total superannuation over $1,600,000.
    • Therefore, you have a one-off opportunity to maximise your superannuation with a NCC prior to 1 July 2017.
  3. If you have a Transition to Retirement Pension (TTR)
    • Up until now, the Earnings and Capital Gains from the assets supporting a TTR have been tax free. However, they will be subject to tax at the normal superannuation rates from 1 July 2017.
    • Your TTR does not need to be rolled back to accumulation but the earnings will be taxed at the same rate.
    • The benefits of a TTR have been reduced but they can still be an advantage to some.
    • Therefore, you need to decide if you want to continue your TTR or roll it back to accumulation.
    • The benefit of this will depend on why you have the TTR and what your marginal tax rate is.
    • You might also be able to convert your TTR to an Allocated Pension if you have met a condition of release – e.g. when a member reaches age 65.
    • This will make the earnings tax free.
    • However, a TTR does not change to an Allocated Pension automatically.
    • You will need Paperwork prepared to do this.
    • If you have a TTR in your SMSF, you may be also eligible for the optional Capital Gains Tax Relief set out below.
  4. If you have more than $1.6m in a pension
    • People in retirement income phase with balances above $1.6 million will be required to reduce their retirement income stream balance to $1.6 million by 1 July 2017.
    • The excess over $1.6 million can be held in super in accumulation phase or removed from the super system
    • This does not limit how much you can have in super – just the amount you can convert to an income stream where investment earnings are tax free.
    • Therefore, you will need to decide if you are better to take money out of your pension, or convert some back to accumulation.
  5. If you have more than $1.6m in accumulation phase in super.
    • From 1 July 2017, the total amount of super benefits that an individual can transfer into the retirement income phase (where investment earnings continue to be tax exempt) is limited to the $1.6 million transfer balance cap
    • In addition, you will not be allowed to make a NCC after 1 July 2017 that will take your total superannuation over $1,600,000
    • You will need to carefully consider if you should restructure your affairs before 1 July.
    • Some options include:
  • Starting a pension.
  • Making a withdrawal.
  • Withdraw and re contribute.
    1. If you are a couple with combined super of more than $1.6m.
      • There could be significant tax implications later when one partner dies.
      • You should review your binding nominations and reversionary pensions and check the rules of your super fund in relation to these. For example, if you were to have a reversionary pension, is it optional for the surviving dependant?
    2. If you have a TTR OR more than $1.6m in pension and it is held in your SMSF.
      • You will be able to apply the transitional Capital Gains Tax (CGT) relief to the assets in your SMSF.
      • This is optional capital gains tax (CGT) relief and is available for super funds where assets of retirement income streams in place as at 9 November 2016 are transferred back to accumulation, to comply with the new rules.
      • This is a once off opportunity to reset the Cost Base of your Capital Gains Assets and you must transfer the assets back to accumulation prior to 30 June 2017 to take advantage of it.
      • You will need to decide if you want to apply the relief, and that decision may be different for each asset in your fund.
      • In determining this, you will need to take into consideration if the asset has an unrealised gain or loss, if you are likely to sell the asset in the next 12 months and if any of your fund is still in accumulation (see below).
    3. If you have a TTR OR more than $1.6m in pension and it is held in your SMSF AND some of the fund is still in accumulation phase.
      • Applying the CGT relief outlined above will trigger a CGT Event that is likely to result in a taxable capital gain on the portion of the asset still in accumulation.
      • You can either pay the tax on this gain in your 2017 return or defer the payment of the tax to the year in which you sell the asset.
      • The implications of this will also impact on whether you elect the CGT relief. For example, if you expect that the entire fund will be in pension phase at the time you sell the assets in the future, you may decide not to use relief.
    4. If you have a defined benefit Pension
  • There are special rules that apply to your circumstances and you should seek advice.

Book a Consultation

  • As you can see, there are several options that may apply to you and the implications can be significant.

If you need more advice on how the rules may apply to you or help to determine if you need to take any action prior to 30 June, just contact our office and book a consultation with Stephen Jones – our financial planner.

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