superannuation - the picture becomes clearer
TRANSCRIPT
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The Year That Was 3 May 2016 – Federal Budget announces
major changes 2 July 2016 – LNP wins Federal Election 16 September 2016 – Backbench revolt &
NCC Lifetime Limit scrapped 22 November 2016 – Changes pass House of
Representatives 23 November 2016 – Changes pass Senate
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Concessional Contributions Cap Reduced to $25,000 from 1 July 2017 for
everyone2015/16 2016/17 2017/18
Under 50 $30,000 $30,000 $25,000
Over 50 $35,000 $35,000 $25,000
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Increased Access to Personal Contributions Removes “10% rule” Effective from 1 July 2017
All individuals under age 75 are able to claim tax deductions for personal contributions in addition to having employer contributions up to total of $25,000
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Catch-Up Concessional Contributions Unused concessional contribution cap amounts can be carried
forward
Effective from 1 July 2018
Restricted to individuals with a super balance less than $500,000
Calculated on a rolling basis over 5 consecutive years
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Transfer Balance Cap (TBC) Restricts the total amount of super that can
be converted to tax-free pension phase to $1.6 million (ie purchase price)
Effective from 1 July 2017
Any amount in excess of $1.6 million must be left in accumulation
Available capacity tracked via Transfer Balance Account (TBA)
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Existing pensions greater than $1.6 million will have to transfer excess to accumulation or withdraw from super
Will be indexed in $100,000 increments in line with CPI
If cap exceeded then notional earnings taxed and excess converted to accumulation
Subsequent earnings on pension balance will not be required to be withdrawn
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Transitional CGT Relief Applies if in pension mode prior to 1 July 2017
(but conditions) Choice to re-set cost base Both account based pensions and transition
to retirement income streams can utilise Depends on method currently used for tax
exemption Treasury and ATO have warned anti-avoidance
may apply if trying to exploit
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Transition to Retirement Changes Earnings on assets supporting Transition to
Retirement Income Streams will no longer be tax free
Effective from 1 July 2017
No longer able to treat income stream payments as lump sums for tax purposes
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Non-Concessional Contributions Cap Annual limit reduced to $100,000 Effective from 1 July 2017 Can only be made if a member’s Total
Superannuation Balance (TSB) is below $1.6 million
‘Bring forward’ still applies if under 65 CGT Small Business Rollovers not included
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Division 293 Tax Additional 15% contributions tax for high earners
Effective from 1 July 2017
Income includes taxable income, reportable fringe benefits, net investment losses & concessional contributions
Can be paid personally
Income threshold reduced from $300,000 to $250,000
Only applies to contributions that exceed the $250,000 threshold
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Spouse Superannuation Tax Offset 18% offset available up to $540 for
contributions made to eligible spouse’s super
Effective from 1 July 2017
Income threshold increasing from $10,800 to $37,000
Counts towards spouse’s non-concessional cap
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Low Income Superannuation Tax Offset Refund of the 15% contributions tax for low
income earners
Apply to individuals with adjusted taxable of less than $37,000
Capped at $500
Replaces Low Income Superannuation Contribution (LISC)
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What Didn’t Make It?
Removal of the Work Test Over 65’s need to be working to contribute
NCC Lifetime Limit of $500,000
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What Didn’t Change?
Tax-free withdrawals for over 60’s
Maximum tax rate on earnings still 15%
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What About This Year? Same rules from 2016 FY apply to 2017 FY
NCC cap is $180,000, can bring forward & contribute up to $540,000
CC cap is $30,000 if under 50, $35,000 if over
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Q: Barry is 55 and makes a NCC of $320,000 on 16 April 2017 and no further NCC before 30 June 2017.
What NCC can he make after 1 July 2017?
His Total Superannuation Balance at 30 June 2017 is $1.65m.
A: None.
As his TSB is >$1.6m he can make no further NCC (however he could have made a further $220,000 prior to 30 June 2017)
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Q: What if his TSB at 30 June 2017 was $1.35m?A: $220,000? ($540,000 - $320,000)
2017 FY - $180,0002018 FY - $100,0002019 FY - $100,000
$380,000Therefore, $380,000 - $320,000 = $60,000
XNew Bring Forward balance (triggered in 2017 FY)
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Q: Michelle is 52 and has a TSB at 30 June 2017 of $1.45m.
What is the maximum NCC she can make in 2018 FY?
A: $300,000? X
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TSB on 30 June 2017
Non-concessional contributions cap for the first year
Bring forward period
Less than $1.4 million
$300,000 3 years
$1.4 million to less than $1.5 million
$200,000 2 years
$1.5 million to less than $1.6 million
$100,000 No bring forward period, general non-
concessional cap applies
$1.6 million or more Nil N/A
A: As her TSB at 30 June 2017 is between $1.4m and $1.5m, her maximum NCC using the bring forward is $200,000
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Q: What if she contributes $150K in 2018 FY and at 30 June 2018 her TSB is then $1.6m.
What NCC can she make in 2019 FY?
A: Zero
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Main Points About NCC
Use it or may lose it
Doesn’t impact ability to make CC
$1.6m TSB is a moving target
Reduces effectiveness of re-contribution strategies
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Q: Donald is 70 and has an account based pension in a SMSF.
The value of this at 30 June 2017 is $2.4m.
What happens on 1 July 2017?A: $1.6m remains as an account based pension and $800,000 is rolled back into accumulation. He does not need to take the excess out of super.
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Q: What are the taxation implications?
A: Earnings on the pension portion remain tax-free.
Earnings on the accumulation portion are taxed at 15% (CGT Relief may apply).
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Q: Donald has some high yielding assets – can these be applied to his pension balance so that the earnings are tax-free?
A: No. The legislation contains an “Integrity Measure” restricting the ability to segregate assets. Earnings will be proportional between accounts.
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Q: Is there anything he can do about this?
A: Yes.
1. He could withdraw his accumulation balance leaving only pension so therefore 100% tax-free. (Depends on personal tax situation).
2. He could establish a second SMSF and roll accumulation balance over to it resulting in a tax-free fund and taxable fund.
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Q: Donald’s total balance in his SMSF has risen from $2.4m at 30 June 2017 to $3m at 30 June 2018.
What impact is there on his pension and accumulation accounts?
A: Earnings are applied proportionally – pension balance is now $2m and accumulation is $1m.
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Q: Donald’s financial adviser, Ivanka, turns out to not be very good and his fund balance drops to $1.5m leaving him $1m in pension and $500,000 in accumulation.
Can he now top up his pension?
A: No. Investment losses do not decrease his Transfer Balance Cap. NB: Unless as a result of fraud or dishonesty and an individual is convicted of an offence regarding it.
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Q: Bill (70) and Hillary (69) have superannuation balances of $2m and $1m respectively.
How can they equalise their benefits to maximise their tax benefits?
They both work (for now….).
A: Bill has unrestricted access to his benefit so can withdraw whatever he wants. This could then be contributed to Hillary (up to limits).
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Q: Can they utilise a Contribution Splitting strategy for their concessional contributions?
A: No. As Hillary is over 65 this is unavailable.
Contributions can be split to a spouse either below preservation age or between preservation age and 65 and not retired.
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Main Points for Transfer Balance Cap TBC is different to TSB
Assets can’t be segregated while in one fund
No requirement to withdraw excess if balance over $1.6m
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Q: Mike is currently in receipt of a Transition to Retirement Income Stream (TRIS).
Given the removal of the exemption on earnings tax post 1 July 2017 is it worthwhile continuing?
A: Maybe
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1. Mike may have reduced work hours so needs payments to top up income
3. CGT relief applies to TRIS as well – may be beneficial taking on new cost base
2. If over age 60 withdrawals are still tax-free. Could be used to pay down non-deductible debt, re-contribute or simply live the good life.
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He could also look to satisfy a retirement condition of release
TRIS would then become an account based pension
preservation age to 60 – cease gainful employment and have no intention of becoming gainfully employed in the future
60 to 65 – cease gainful employment arrangement
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Is It Over Yet?
Scott Morrison has promised the Govt will not take any further changes to super to the next election
Labor still not happy and want further changes: Reduce annual NCC limit to $75,000 Keep the “10% rule” Remove ability to catch-up concessional contributions Extra contributions tax to apply to people earning
over $200,000
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Things To Do Before 30 June 2017
Talk to your Hanrick Curran adviser (it is complicated!)
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HC Wealth Advisers Since 1 July 2016 we have been licensed to provide
Strategic Advice
Areas we can now assist with are: Strategic Financial Plan – a blueprint of your financial future Contributions advice – how much you should contribute as
opposed to how much you can
Pension commencement advice – when and how much you should purchase, not just the facts about what you can.
We can continue to recommend establishing an SMSF
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Things To Consider Before 30 June 2017 What concessional and non-concessional
contributions to make If super balance >$1.6m then what is the impact What effect do the changes have on your Estate
Planning? Will it be worthwhile continuing TRIS? Is the CGT relief going to be applicable to you and
beneficial? Potentially look to equalise member balances
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DisclaimersThis document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.
We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication.
© Hanrick Curran, November 2016All rights reserved