SWEEPING SUPER CHANGES: PLANNING IS ESSENTIAL

The latest super changes, passed in Parliament on 23/11/16, will have an enormous impact on everyone who has any amount in superannuation. The changes represent many pre-30/6/17 windows of opportunity which should be considered as a matter of urgency.

$540,000 non-concessional contribution cap limit removed.

The current annual non-concessional contribution caplimit of $180,000 and 3-year bring-forward limit of $540,000 has been reinstated up to 30/6/17 only. However, from 1/7/17, an annual non-concessional cap of $100,000 and 3-year bring-forward limit of $300,000 will only be available to members with super balances below $1.6 million. Depending on your circumstances, it is therefore quite important that you consider whether you wish to make any non-concessional contributions before that 30/6/17. Remember, this doesn’t have to be a cash contribution’ it can also be a contribution of listed shares.

The 1.6-million-dollar question.

Under the recent changes to super, $1.6-million is the figure that has been most discussed. From July 1, 2017, it is this figure that will allow or disallow you from making additional non-concessional contributions to super. It's also the number that places a cap on how much money you can transfer to a retirement pension within super and have earnings on the underlying assets supporting your pension free from tax.

Why $1.6-million?

The government believes that $1.6 million will give you a return that is close to four times the age pension.

This does not mean that funds have to pay out the excess over the $1.6 million to their members. It's just a limit on what can be used to start a pension account, where earnings are tax free.

The other important change under the $1.6 million Transfer Balance Cap, is that the new legislation will require anyone who receives income from a defined benefit pension to multiply the amount by a factor of 16 and then assess this against the $1.6 million tax-free pension limit.

If the recipient of the defined benefit pension exceeds the $1.6 million limit, the excess must be commuted from the pension account and either withdrawn or transferred to an accumulation account, where the investment earnings will be taxed at 15%.

Lowering the concessional contribution cap to $25,000 for all individuals.

The concessional contribution cap will be lowered to $25,000 for all taxpayers from 1 July 2017. This financial year 2016-17 is the last year that we will have concessional contribution caps of $30,000 for people aged under 50, and $35,000 for those aged above 50.

Removal of 90/10 rule.

Currently, only doctors who earn less than 10% of their income from a salaried source can claim a tax deduction for their personal superannuation contributions.

The Government has removed this condition. Doctors, from 1 July 2017, irrespective or their source of income (e.g. from the hospital via VMO and/or salaried position), can make personal deductible contributions.

This means that doctors will no longer need to salary sacrifice superannuation contributions, which can be difficult to organise and administer.

Reduction of income threshold from $300,000 to $250,000 where doctors pay an additional 15% (Div. 293).

From 1 July 2017, Australians with adjusted taxable income of $250,000 or more will pay the extra contributions tax, which means all concessional contributions will be taxed at 30% rather than 15%.

Transition to Retirement Income Streams (TRIS).

The tax-exempt treatment of earnings on assets supporting a transition to retirement income streams will cease from 30 June 2017.

Reset of cost base for pre 1 July 2017 pension assets.

Super funds need to make a choice via an election to apply for the Capital Gains Tax (CGT) Relief, which will allow funds to reset the cost base on CGT assets that are moved or reapportioned from the retirement phase to accumulation phase.

This will ensure that when assets are sold the cost base is reset at market value as at 30 June 2017. This measure may result in substantial tax savings compared to the CGT that would otherwise be payable without the relief available.

In summary:

We have various strategies for clients, including:

1. Equalisation of balances between family members.

2. Superannuation splitting of deductible superannuation contributions.

3. Resetting the cost base for pre 1 July 2017 pension assets.

4. Segregating assets between pension assets and accumulation assets.

5. A focus on non-concessional and concessional contribution caps.

As mentioned previously, these are some of the biggest changes to superannuation in 10 years. Please don’t miss out. If you own real estate or defined benefits through super, or you’re over 50, it is critically important that you act before 30 June or, ideally, before 31 May.