Extensive changes to the superannuation rules were announced in the 2016-17 Federal Budget on 3 May 2016. A number of these measures were changed between the initial announcement and finally being passed into law on the 29th of November 2016, with the final result being extensive changes to the taxation treatment of superannuation earnings, contributions and pensions.
The key changes we consider most important for clients of Baumgartners to note are:
- From 1 July 2017, a new cap of $1.6m will be imposed on the total superannuation benefits a member is permitted to hold in tax-free pension phase. Members with pension balances already exceeding $1.6 million will need to revert the excess of their tax-free pension balance above this level back to accumulation phase, the taxable earnings on which will attract the usual superfund rate of 15% (or 10% for some capital gains). There is also the option to withdraw the excess from superannuation, though such decisions should be made carefully as there may be limited opportunities to return funds to superannuation in future.
Capital gains tax relief (‘CGT’) will be available for superannuation funds, including SMSFs, that move assets from pension phase back to accumulation phase in order to satisfy the $1.6m Transfer Balance Cap rules. The CGT relief essentially allows the cost base of affected assets to be “reset” to market value so that future taxable gains are minimised. These concessions can be complicated to apply in practice and are optional to apply. If a superfund chooses not to apply relief an immediate CGT liability can arise immediately before 1 July 2017.
New administration requirements will be imposed on all superannuation members from 1 July 2017 whereby a member must track their lifetime Transfer Balance Account in order to determine how much of their $1.6m Transfer Balance Cap (indexed to inflation in $100,000 increments) remains available.
- From 1 July 2017, the non–concessional contribution cap will be reduced to an annual maximum amount of $100,000 (currently $180,000), with the 3 year bring-forward rule remaining available for under those under 65, albeit with correspondingly lower thresholds. No non-concessional contributions can be made from 1 July 2017 where a member’s super balance exceeds $1.6 million.
There is an opportunity in the lead up to 30 June 2017 for individuals to take advantage of the current non-concessional contribution cap and 3 year bring-forward rule. For example, an individual under 65 who has not yet activated their 3 year bring-forward rule may be able to contribute up to a further $540,000 in non-concessional contributions before 30 June 2017. Care should be taken if considering this strategy as a misstep can result in penalties and other financial consequences.
- The concessional contribution cap, which currently stands at $30,000 for those under 50 and $35,000 for those over 49, will be reduced to $25,000 from 1 July 2017 for all age groups.
- From 1 July 2017, all superannuation members under 75 will be able to claim a deduction for personal superannuation contributions. This measure will be particularly welcome by those who are not able to salary sacrifice in order to maximise their concessional contributions.
- From 1 July 2017, a reduction will apply to the income threshold at which high-income earners pay division 293 tax (an additional 15% tax) on their concessional contributions. This threshold reduces to $250,000 (currently $300,000). Note that income is calculated in a particular way for this purpose.
- Removing taxation concessions associated with transition to retirement pensions. From 1 July 2017, income generated from assets supporting the payment of transition to retirement pensions will lose their tax-exempt status and be taxed at usual superannuation rates of 15% (10% for some capital gains). The ability to elect to treat a withdrawal from transition to retirement pension account as being a lump sum will also be removed.
- The spouse tax offset will be extended. The tax offset available to individuals who make contributions on behalf of their spouses is to be extended to spouses earning up to $40,000 (from the existing $10,800).
- Anti-detriment payments will no longer be possible from 1 July 2017. A number of our clients have implemented anti-detriment strategies which are a carry-over concession from the early days of superannuation dating back to the 1980s. This appears to be purely a policy decision by the government to remove a concession of limited scope that is complex, not widely used and applied inconsistently in practice.
These new rules contain a number of one-off opportunities and make strategies such as superannuation splitting between spouses even more important to consider. Therefore, even if you are not of pension age, we recommend you get in touch with us to seek a review of your superannuation circumstances in the lead up to these new rules taking effect.
If you would like to discuss how the above changes might impact your financial position or Self-Managed Superannuation Fund please contact Brad Hunt at Baumgartner Financial Services on 03 9851 9024 or your usual Baumgartners contact.
Head of Financial Services