The end of financial year is fast approaching and we take this opportunity to advise you of the biggest changes in Superannuation in the last decade.
From 1 July, 2017, the following changes to the superannuation system will become law:
- $100,000 annual cap on non-concessional contributions. The bring-forward option is still available for members under 65 years of age (effectively enables contributions of $300,000 over a three year period).
- Concessional contributions limit for everyone reduced to $25,000.
- Non-concessional contributions restricted to those with less than $1.6m in superannuation. If your combined super balances are more than $1.6 million, you cannot make any further contributions.
- Amounts held in pension accounts will be limited to $1.6m with excess balances having to be either removed from superannuation or transferred into an Accumulation Account.
- Investment earnings of transition to retirement pensions to be taxed at 15%, the same as super accumulation accounts.
Please note that if you are moving an excess pension balance into an accumulation account, a special capital gains tax (CGT) relief concession will apply to those members with pensions currently in place. The relief effectively entities you to reset the CGT cost base of selected investments to their market value when a pension worth more than $1.6 million is restructured into a pension and an accumulation account.
You do not actually have to sell an investment to be entitled to this CGT relief. However, you must make an election in writing. The election only covers assets that were in pension mode at that time (not on any assets attributable to accumulation balances).
If you do not elect to apply the CGT relief, the effect is that your SMSF will continue to carry the original cost base of the investments after 1 July, 2017.
The effect of this reset is that a tax concession will apply to some of the capital gains when the investments are subsequently sold.
Things to do before 1 July, 2017
- Trust Deed Updates – Given the magnitude of the superannuation changes, and their impact on the Administration of a Fund, many clients have elected to amend their Fund’s Trust Deed to ensure that they are up to date with current legislation.
- Moving to a Corporate Trustee – If your Fund has an individual trustee structure, it may be timely to consider moving across to a Corporate Trustee.
- Structuring Pension Payments – If you are currently running multiple pension accounts, consider allocating minimum pensions from your largest taxable account and the balance to your tax free pension accounts. This exercise is worthwhile for Estate Planning purposes.
- Recontributing Strategy – In a situation where your account balance is significantly higher than your spouse, consider a recontribution strategy to even up your balances.
- Take Advantage of Higher Contribution Caps – The Non-Concessional (Personal Non-Tax Deductible) contribution caps will be reduced to $100,000 per year (with bring forward of three years option for under 65) from 1 July, 2017. The current cap is $180,000 per annum (or $540,000 over 3 years). It may be worthwhile to take advantage of the higher contribution cap before 30 June, 2017.
- Withdraw Excess from Super – Depending on your taxable income outside Super, it may be worthwhile to consider withdrawing balances in excess of $1.6 million in your pension account from the Fund.