Overview
The end of financial year is fast approaching and with that brings new Superannuation legislation that comes into effect 1 July 2017 – the biggest changes to superannuation in nearly a decade!
We’ve summarised below some last minute planning opportunities and also issues that you may need to consider.
If you think you may be affected by any of the below issues or would just like to review your superannuation and retirement planning position please do not hesitate to contact our office.
Concessional Cap
Concessional Contribution Cap will decrease to $25,000 for everyone.
The concessional contribution cap will be reduced from $30,000 to $25,000, or for those who were 49 or older on 1 July 2016, from $35,000 to $25,000.
Concessional contributions include your employer’s contribution (the compulsory 9.5%), plus any amount you salary sacrifice, or if self-employed, any amount you claim a tax deduction for.
Action Required: If you are making salary sacrifice contributions, you will need to review these from 1 July to make sure that you are under the new cap of $25,000.
Planning Opportunity: As this is the last year of the higher cap, the obvious strategy is to assess whether you can utilise the full cap in 2016/17. If cashflow permits, accelerate salary sacrifice amounts this year, or if self-employed, make the full contribution prior to 30 June 2017.
Non-Concessional Cap
Non-Concessional Contribution Cap will drop to $100,000.
The non-concessional cap reduces from $180,000 to $100,000. Non-concessional contributions are your own personal contributions for which you can’t claim a tax deduction.
Planning Opportunity: Do you have cash or assets that you could or were planning on moving into superannuation? Can you make the contribution before 30 June 2017?
Bring-Forward Rule
Accessing the Bring-Forward Rule (Applies to Non-Concessional Contributions).
With the decrease in the non-concessional cap to $100,000, the limit under the “bring forward” provisions, which allows people who are under 65 to make up to three years of non-concessional contributions in a single financial year, will fall from $540,000 to $300,000.
Planning Opportunity: If you want to get a large amount into super, do it before 30 June 2017. And as the limit applies per person, if you have a partner, then you can effectively get up to $1,080,000 in super now. From 1 July 2017, this will only be $600,000 combined.
Balances Above $1.6 Million
If your total superannuation balance exceeds $1,600,000, you won’t be able to make any non-concessional contributions at all.
This is a new constraint to apply from 1 July 2017. Super balances will be measured each June 30 (i.e. your balance at 30 June 2017 will determine whether you can make a non-concessional contribution in the 2017/18 financial year).
Planning Opportunity: If your superannuation balance is greater than $1.6 million you will need to make a contribution before 30 June 2017 as, after this time you will no longer be able to contribute into superannuation personally.
Pension in Excess of $1.6 Million
Anyone who has more than $1.6 million in pension phase will need to remove the excess, either by a lump sum withdrawal from super, or by rolling it back into the accumulation phase within your super fund.
The measurement date is 30 June 2017.
Transitional relief is available if your balance is between $1.6 million and $1.7 million – you will have until 31 December 2017 to comply. If you have more than $1.7 million however, you are required to comply by 1 July 2017.
From a tax point of view, it will usually make sense to roll the money back into the accumulation phase as the 15% tax rate is still concessional. However, if you are not utilising your personal tax free threshold of $18,200 then, from a tax point of view, withdrawing some or all of the excess as a lump sum and investing it in your own name may deliver a better outcome.
Transition to Retirement Pensions
The investment earnings of assets supporting a TRIS will be taxed at 15% from 1 July 2017, rather than the current 0%.
As this removes the key financial incentive to have a TRIS, you will need to consider if this is still a viable option for you or if you should cease your TRIS.
Government Co-Contribution
Government Co-Contribution – Money for nothing!
If you meet the following criteria:
- Your total income is equal to or less than the lower threshold ($36,021 for the 2016/2017 financial year);
- 10% of your eligible income must come from employment-related activities, carrying on a business, or a combination of both;
- You were less than 71 years old at the end of the financial year;
- You lodge a tax return;
- You make personal contributions of $1,000 to your super account.
Then you will receive the maximum co-contribution of $500.
If your eligible income is above the lower threshold of $36,021 but below the upper threshold of $51,021 for the 2016/2017 financial year, and you satisfy the above criteria, you will be eligible to a reduced Government Co-Contribution.
SMSF Trust Deed Update
Review your SMSF Trust Deed – An update may be required.
Does your Trust Deed allow the ability to specifically nominate or remove reversionary beneficiaries during the lifetime of the superannuation pension without ceasing the pension? If not, you need to consider updating your trust deed.
Having this flexibility is beneficial for the following reasons:
- Maintaining Centrelink grandfathering provisions for pre-January 2015 super pensions in relation to the Commonwealth Seniors Health Card (CSHC) and Age Pension income test;
- Maximising the amount of money you can retain in pension phase if you are the recipient of a death benefit pension in the future;
- Allowing a 12-month period to correct a breach of the $1.6 million pension cap when a superannuation member receives a death benefit pension from a deceased member. For example, if each member had a pension balance of $900,000 and one member dies, leaving the super pension to the surviving member, the surviving member will now have $1.8 million invested in pension phase – $200,000 over the $1.6 million cap. Where a reversionary pension nomination is in place, the surviving member will have 12 months to correct this excess. This extra time to make corrections is valuable at what is an already stressful and emotional time.