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Only 85 more sleeps until super D-Day!

Paul Rickard
Thursday, April 06, 2017

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By Paul Rickard

There are only 85 more sleeps until the biggest changes to super in a decade take effect on 1 July. For some affluent Australians, this is going to be their last chance to get money into super. With time running out, here is what you need to do before 30 June.

1. Bring forward salary sacrifice arrangements

The concessional contributions 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 includes 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.

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. Also, as this is the last year of the higher cap, the obvious strategy is to see whether you can utilise the full cap in 2016/17. If cash flow permits, accelerate salary sacrifice amounts this year, or if self-employed, make the full contribution prior to 30 June.

2. Make non-concessional contributions

The non-concessional cap reduces from $180,000 to $100,000. Non concessional contributions are your own personal contributions which you aren’t able to claim a tax deduction for.

The other change is that if your total superannuation balance is over $1,600,000, you won’t be able to make any contribution 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 17 will determine whether you can make a non-concessional contribution in 2017/18).

Of course, to make a non-concessional contribution, you need to have the cash on hand. SMSF members can also consider in specie transfers, which must be done at market value and can’t include certain assets such as a residential investment property (it can include shares, managed funds and business real property).

If you are selling assets to generate cash, or transferring in specie, these will count as disposals for capital gains tax purposes. You may also have to pay stamp duty, for example, on business real property.

3. Access the bring forward rule

With the change in the non-concessional cap to $100,000, the limit under the "bring forward" rule, which allows people who are under 65 to make up to three years of non-concessional contributions in one year, will fall from $540,000 to $300,000. So, if you want to get a large amount into super, do it before 30 June. And as the limit applies per person, if you have a partner, then you can effectively get up to $1,080,000 in super. From 1 July, this will only be $600,000.

If your total super balance is between $1.5m and $1.6m, your limit (under the bring forward rule) will still only be $100,000, and if your total super balance is between $1.4m and $1.5m, your limit will be $200,000.

4. Remove any excess pension balances

The law relating to the transfer balance cap of $1.6m requires anyone who has more than $1.6m in the retirement phase of super (that is, in assets supporting the payment of the pension) to remove the excess, either by a lump sum withdrawal, or by rolling it back into the accumulation phase of super. The measurement date is 30 June 17.

Transitional relief is available if your balance is between $1.6m and $1.7m - you will have until 31 December 2017 to comply. If you have more than $1.7m, you are required to comply by 1 July.

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 will deliver a better outcome.

Capital gains tax relief is available if you are required to comply with the new transfer balance cap. This won’t be needed if you are making a lump sum withdrawal (as the asset would still be in the 0% pension state when sold), but will be required if the funds are being rolled back into the accumulation phase. If the assets are segregated current pension assets, relief can be accessed and the cost base of the asset is re-set to the market value when compliance occurs. If the proportionate method is used, the cost base is re-set to market value on 30 June.

One new provision is that SMSFs with a member who has more than $1.6m in superannuation assets and who has some of this is in the retirement phase won’t be able to use the segregated assets method from 1 July 17.

5. Check whether you want to keep your TRIS

The investment earnings of assets supporting transition to retirement income streams or pensions (TRIS) will be taxed at 15% from 1 July, rather than the current 0%. As this removes the key financial incentive to have a TRIS, you will need to consider one of three choices:

  • keep the TRIS, in which case, continue to make minimum withdrawals of between 4% and 10% of the account balance each year;
  • roll the TRIS back into the accumulation phase; or
  • If circumstances allow, consider permanently retiring.

One new provision to apply from 1 July is that it will no longer be possible to treat an income payment from a TRIS as a lump sum withdrawal and access the tax free low rate cap of $195,000. Lump sum withdrawals will still be possible, however they will not count as meeting the minimum payment standard.

With investment earnings on a TRIS now taxable, the only reason to keep a TRIS post 30 June is if you need (or want to) access some of your super early. If you don’t and aren’t ready to retire, discontinue the TRIS and roll it back into the accumulation phase.

Only 85 sleeps to go - time to get moving!

Published: Thursday, April 06, 2017

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