Issue Number 30
March 2017

www.mcleandelmobentleys.com.au

Superannuation Reforms – impact for those with more than $1.6 Million in Superannuation

On 23 November 2016 legislation to implement the Government's superannuation reforms proposed in the May 2016 budget were passed by both houses of Parliament. .Under this legislation from 1 July 2017 there is now a $1.6 Million superannuation pension balance cap that will limit the amount you can have in your fund in the retirement (pension) phase.

What do those with more than $1.6 Million in superannuation need to consider prior to 30 June 2017:

1. Check your superannuation account balance

To calculate your superannuation balance you needto add all balances that you have in Superannuation Funds, not just your SMSF. If you have a non-account based pension (eg. defined benefit pension) these are normally valued at 16 times the yearly pension amount.

If a fund member has a balance of more than the $1.6 million transfer balance cap & they are in pension mode then by 1 July 2017, that person must:
  • allocate the excess amount of the pension balance over $1.6 Million to accumulation phase or
  • make a lump sum withdrawal to keep within the transfer balance cap. 

There are complicated transitional rules to allow members to realise capital gains using the current (exempt) tax rules without having to sell investments.

2. Analyse your fund

If you choose to allocate part of your pension account to an accumulation account or make a lump sum withdrawal, you need to carefully review the Fund’s unrealised gains or losses together with the fund’s tax-exempt position (now and in the future). To ensure the correct values are being used to calculate your superannuation balance compared to the new cap, the SMSF’s investments will also need to be valued leading up to 30 June 2017.

The transitional rules allow 2 methods to calculate Capital Gains Tax (CGT) relief:

 i) Segregated method (fund is 100% in pension mode):

  • asset takes on its market value as its cost base,
  • can elect on an asset by asset basis,
  • assets out of pension mode & into accumulation mode, &
  • remaining assets in pension do not get a cost base reset

ii) Proportional method (fund not 100% in pension mode):

  • asset takes on its market value as its cost base,
  • can elect on an asset by asset basis, &
  • CGT relief applies to all assets.
3. Consider impact of taking excess over $1.6 Million cap out of the Fund

Before 30 June 2017 you should consider the impact of taking excess amounts over the cap out of the Fund. You will need to consider this taking into account your current and expected future personal marginal tax rate. 

 4. Review your available non-concessional caps

From 1 July 2017 Fund members will not be able to make further non-concessional contributions if they have more than $1.6 million in superannuation. Members will need to consider making contributions before 30 June 2017 before the legislation changes.

 5. Spouse balances

A review should be done of each member’s spouses balance and consideration be given to the ability to “even up” superannuation balances.

Australian super - the changes from 1 July 2017

New rules (from 1 July 2017)

Previous rules (up to 30 June 2017)

Concessional (tax deductible) contributions limited to $25,000 per year.

Down from $30,000 for under 50’s and $35,000 for over 50’s.

The addition of a rolling 5-year catch-up for concessional contributions for those with a balance of less than $500,000.

No catch-up opportunity.

Personal concessional contributions able to be made by anyone (subject to aged based tests).

Only people who had less than 10% of their total assessable income as salary and wages could make a personal contribution.

Non-concessional (after tax) contributions limited to $100,000 per year (or $300,000 over 3 years if under 65) provided you have less than $1.6 million in super and under 65 (or meeting the work test from age 65 to 74). No further non-concessional contributions permitted if you have more than $1.6 million in superannuation.

Down from $180,000 per year (or $540,000 over 3 years if under 65) regardless of balance.

 

Tax on contributions increased to 30% (rather than 15%) where annual income is more than $250,000.

Down from $300,000.

 

Limit of $1.6 million on the amount that can be used to start a pension or hold in retirement phase (reducing the tax rate on earnings to 0%).

Previously no limit.

Earnings on funds supporting a transition to retirement income stream (TRIS) to be taxed at 15%.

Previously the earnings on funds supporting a TRIS were tax exempt.

 

The new super rules are very complicated – the decisions you make now can have a significant impact to future tax implications of your superannuation. To put yourself in the best possible position, arrange for your advisor to review your personal situation.

Rohan Mansfield
Partner Superannuation


Important: This is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly.

We therefore recommend that our formal advice be sought before acting in any of the areas. This document is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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