future of retirement strategies - institute of public … · 2017. 11. 20. · •retirement phase...

FUTURE OFRETIREMENT STRATEGIES

Disclaimer

© Heffron Consulting Pty Ltd 2017This presentation is based on our understanding of the law as at 25 October 2017 and is for general information only. This presentation does not constitute financial product advice and has been prepared without taking into account any individual’s personal objectives, situation or needs.

Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. Furthermore, it is not intended that it be relied on by recipients for the purpose of making decisions and is not a replacement of the requirement for individual research or professional tax advice. This slide handout was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author.

Contribution StrategiesCONCESSIONAL CONTRIBUTIONS

Reduction in Concessional Cap

• From 1 July 2017

* at least age 49 on 30 June 2016

Year Ended Under age 50 Age 50 or over

30 June 2017 $30,000 $35,000*

30 June 2018 $25,000 $25,000

10% Rule Gone

• From 1 July 2017

• 10% rule for making personal deductible contributions abolished

• All individuals up to age 65 able to make personal deductible contributions up to concessional cap

• Individuals age 65 to 74 too if meet work test

But Be Careful

• Still need assessable income

• Still need to comply with notice requirements

Unused Carry Forward

• From 1 July 2018 – not 1 July 2017 as originally announced

• If don’t fully utilise concessional cap• Unused amounts carry forward

• Rolling basis

• Over 5 consecutive years

Unused Carry Forward

• But!• Only unused amounts from 1 July 2018 can carry forward

• Only available if ‘total super balance’ <$500K• Calculated as at 30 June of year prior to year in which you want to make

additional contributions

Strategy Implications

• Make earlier in life – lower limit

• Unused carry forward• Sale of CGT assets in future – planning around 5 year rule

• $500K cap issue

• Contribution reserving still useful

• Funding children’s super

Strategy Implications

• 10% rule• Salary sacrifice arrangements still beneficial

• Increased flexibility for those taking capital gains

• Increased flexibility to offer strategy to ‘late comers’

• Use to offset tax on termination payments

• Can stop many ‘risky’ practices

Contribution StrategiesNON - CONCESSIONAL CONTRIBUTIONS

Reduced NCC Cap

• From 1 July 2017

• $180,000 annual cap reduced to $100,000

• New eligibility threshold

Eligibility Threshold

• From 1 July 2017• If individual’s ‘total super balance’ is ≥$1.6m

• Non-concessional contribution cap = $nil in that financial year• $1.6m calculated as at previous 30 June

• What if balance subsequently drops below $1.6M?

Exemptions

• Amounts which are already excluded from NCC cap• Structured settlement/personal injury payments

• Amounts which qualify to be tested against the CGT cap• $1,445,000 in current year

• Use of CGT cap & timing more valuable than ever

• $1.6m eligibility threshold doesn’t apply

• But influences eligibility to make NCC in following year

Bring Forward Rule

• Will trigger if exceed annual cap

• Eligible if < age 65 at any time in trigger year• If contribute after 65th birthday, must meet work test

• No longer always 3 x std cap

• No longer always 3 years to use

Bring Forward Rule

• If individual’s ‘total super balance’ is close to $1.6m, bring forward amount & period reduced

Total Super Balance

Bring Forward Amount

Bring ForwardPeriod

< $1.4m $300,000 3 years

≥ $1.4m but < $1.5m

$200,000 2 years

≥ $1.5m but < $1.6m

$100,000 n/a

$1.6m or more Nil n/a

Bring Forward Rule

• If bring forward amount not fully utilised in trigger year• Ability to use remainder depends on ‘total super balance’

Transitional Rules

• For those who triggered b/f mode prior to 1 July 2017 but didn’t fully utilise by 1 July 2017

• Remaining bring forward mode reassessed • If triggered in 2016 year = $460,000 for 1 July 2015 to 30 June 2018

• If triggered in 2017 year = $380,000 for 1 July 2016 to 30 June 2019

• ‘Total super balance’ needs to be < $1.6m immediately before start of year in which remaining amount is to be contributed

Strategy Implications

1. Planning for clients around ‘total super balance’ of $1.6m critical

2. Still using W&R strategies, potentially spanning two years

Using 2 financial years

21

30 June 2017 30 June 2018 30 June 2019

Balance $1.65m $1.39m$1.7m

Growth

Withdraw $310k

Contribute $300k

$1.69m

Critical factor:

Withdrawal meant balance BELOW

$1.4m at 30 June 2018, allowing $300k

contribution in 2018/19

Strategy Implications

3. Make NCC before CGT cap amounts

4. If possible, make non-concessional contributions later in year – balance known

5. Contribution timing - ECPI

New ATO view

23

1 Jul 2017 31 Dec 2017 30 Jun 2018

100% pension phase Contribution made

Assets segregated (100% income tax exempt)

Unseg assets(% income tax exempt)

… Or …

24

1 Jul 2017 31 Dec 2017 30 Jun 2018

50% pension

phase Contribution made

Segregated (100%) % (unseg)% (unseg)

New pension starts,

now 100% pension

phase

Contribution StrategiesPROPOSED CHANGES

Downsizer Contributions

• Bill before Parliament

• Contribution into super with proceeds of home sale• Only contracts entered into on/after 1 July 2018

• Must be principal place of residence

• Held for min 10 years (by contributor or spouse)

• Property in Australia, not mobile home, caravan or houseboat

Eligibility Criteria

• Age 65 or over (no upper limit, no work test)

• Contribution amount limited to lesser of• Sale proceeds of dwelling

• $300,000 per person ($600,000 per couple)

• Only one dwelling per person

• Contribution made within 90 days of disposal

Treatment

• Not taxed in fund

• Creates tax free component

• Excluded from NCC & CC cap

• Can be made regardless of ‘total super balance’

• If converted to pension, counts towards TBC

• No changes to Age Pension assets test

Strategy Implications

1. No need to downsize

2. Clients not meeting work test

3. Not cap tested

Pension Strategies

Strategy Implications

• Only drawing minimums• Extra from accumulation?

• Extra as commutation from pension?

• More likely to have income/assets outside superannuation

TRIS Issues

• Now have 2 types of TRIS• ‘Retirement phase TRIS’• TRIS

• If not age 65, retired• TRIS• Balance not counted towards cap• Since 1 July 2017, no tax exemption on earnings

• If reached age 65, retired pre 30 June 2017• TRIS is ‘retirement phase TRIS’• Balance counted towards cap on 1 July 2017• Fund entitled to tax exemption on earnings

Strategy Implications

• For clients not yet 65, retired• Fund tax exemption now reduced

• What does that mean for fund income/asset sales?

• If pension ceased, when likely to recommence pension?

• If pension continued, when likely to qualify as ‘retirement phase TRIS’?

Reach Age 65 – Post 1 July 2017

• Immediately becomes ‘retirement phase TRIS’

• Immediately regains tax exemption in fund

• Immediately counts towards cap

Retiring – Post 1 July 2017

• Doesn’t become ‘retirement phase TRIS’ until notify trustee

• Regain tax exemption in fund on notification to trustee

• Counts towards cap on notification to trustee

Strategy Implications

• TRIS balance on 65th birthday/retirement needs to be reported to ATO

• Clients need to contact you in lead up to reaching age 65, retiring

Asset RealisationStrategies

No CGT Relief

• If didn’t need to reduce pension balance because no mbrhas > $1.6m

• Not eligible for CGT relief• Eg Spouses with $1m each in ABP

• No impact now because no accum balance but what will happen on death?

• Timing of asset sales?

Unit Trust Assets

• Units eligible for CGT relief, not underlying assets of trust

• If trust asset sold after 1 July 2017 & distribution made to fund

• Taxable to fund in usual manner

• Unless trust wound up & units sold, fund gets no benefit from CGT relief (although will have cap loss to offset against future gains)

• What can be done to maximise ECPI in year of sale?

Death Benefit Strategies

Strategy Implications

• Anti-detriment going …. gone

• Ability to rollover but not rollback• Lump sum death benefits able to be rolled over to new fund

• Provided recipient is spouse, child < 18, disabled child etc & used to immediately commence pension

• Death benefit pensions not able to be ‘rolled back’ to accum

Clients not yet Impacted by Changes

• Drawing retirement phase pensions but <$1.6m each

• Fund tax exemption remains the same

• For couples, may have issues once one dies if combined balance will exceed $1.6m

• Focus on estate planning

Clients already Impacted by Changes

• Drawing retirement phase pensions & >$1.6m

• Had to rollback or take monies out of super

• Fund tax exemption potentially reduced• What does that mean for fund income/asset sales?

• For couples, may have further issues once one dies• Focus on estate planning

Questions