The final countdown: super reforms start on July 1
Over the past weeks we’ve been doing our best to present the impacts of the upcoming super reforms in a way that’s clear and gives you a sense of what you need to expect on 1 July. And as we enter the final month of the financial year, we hope you have prepared yourself and your superannuation for the upcoming changes. Just in case you haven’t, here’s a quick summary of the main reforms and what you might need to do to be ready for each. You will need to act quickly (if you haven’t already) so perhaps put your financial adviser on speed dial for the next few weeks. Below, we’ve listed the topics of our recent series on super reforms and included a link to each blog so you can easily find out more about whichever topic concerns you. And of course, your first step should be to contact your financial adviser.
The transfer balance cap- large super balance holders beware
The new transfer balance cap limits the total balance that any individual can roll into a tax-free income stream to $1.6m. From 1 July 2017, every time any Australian rolls accumulated super into a pension, the transfer balance will be recorded. There’s no limit on the number of times you can transfer accumulated super into pension phase, as long as the $1.6m cap is not exceeded1. And if you’re already in pension phase with a balance over $1.6m, you must commute (remove) enough funds to bring your balance under the cap by 1 July 2017. This is not a quick process, and if you haven’t begun it by now, we recommend that you do…fast. Here’s our blog on the Transfer balance caps.
Concessional contributions- great news for lumpy earners
If you were planning on making concessional contributions before July 1 you may wish to do so to take advantage of the higher cap ($35,000 for over 50s, $30,000 if you’re younger) that is still in place. If you are a freelancer, part-timer or just returning to work, (and your super balance is under $500k) you might be glad to know that your lumpy income is no longer a disadvantage when it comes to your ability to contribute to super. And if you earn over $250,000, at least the 30% tax rate you’ll pay on any concessional contributions is less than the 47% you must pay on your other income. Here is our blog on concessional contributions.
Non-concessional contributions – move fast or lose the chance
Post 1 July the annual limit for non-concessional contributions will drop from $180,000 to $100,000. Investors can still bring forward two years of contributions and deposit up to $300,000 into super during 2017/18, (and make no further contributions until the cap resets in 2020/21). So, if you’re planning to make a large contribution to your super, it would be wise to do so before 1 July 2017 if you can. There’s potential, if you act quickly, to still make a $540,000 contribution to your super before the cap drops to $300,000 on July 1. Here’s our blog on non-concessional contributions.
Transitional CGT relief is available as part of the super reforms
Transitional CGT relief has been brought in as part of the super reforms specifically to assist individuals who must reduce their super balance below the $1.6m transfer cap balance, and/or are choosing to cease their transition to retirement pension because earnings are no longer tax exempt. Earning on assets brought back into accumulation phase will be subject to 15% tax on earnings and 15% CGT (10% if held in an SMSF) unless you take advantage of this relief.
If you have held an asset for over a year in a super account, you now have the option to reset the cost base for certain, identifiable assets within the account, reducing your CGT liability if the value of that asset is realised and commuted back into accumulation. You must identify these assets before 1 July 2017 and notify the Commissioner for Taxation of your intentions1. Here’s our blog on Transition to Retirement Pensions and CGT relief.
How super reforms impact on those receiving a Death Benefit pension
When it comes to managing death benefits one of the most important things to remember is that while you can inherit a death benefit pension (an income stream from your deceased spouse or parent) you can’t inherit their transfer balance cap. This means it’s up to you to act to avoid any death benefit pension you receive from a deceased spouse or parent exceeding your Transfer Balance Cap. You’ll need to speak to your financial adviser or accountants and wrap your brain around some tricky subjects. Not an easy task when you’re mourning a loved one. Here’s our blog on Death Benefits.
If you only have a Defined Benefit pension you CAN’T exceed the Transfer Balance Cap
If your Defined Benefit pension is the only superannuation you hold, you’re not required to commute your pension as you would if you also held an SMSF or had funds in a retail fund. Even if the calculated value of your pension is well over the $1.6m Transfer Balance Cap, Defined Benefit schemes are considered too complex to return to a lump sum form and are therefore exempt. Instead, the super reforms attempt to make things fair by charging extra tax on the income stream you receive. There are also additional concessions for tax you may have already paid on your income as part of the terms of the pension. Here’s our blog on Death Benefits.
Time to make that call to your financial adviser
Only a few weeks out from July 1 and the pressure is growing on individuals to reorganise their affairs and to comply with the changes going on in super. Now is the time to contact your financial adviser and find out exactly what you need to do to bring your super balance under the new Transfer Balance Cap or to take advantage of higher contribution limits before they are dropped in the new financial year. The time to make major decisions is passing and you risk finding yourself and your affairs unprepared for the changes if you don’t act soon.
We recommend you contact the experts at Modoras who can help you act quickly and arrange your superannuation affairs before the deadline. Call us on 1300 888 803.
Over to you
Are you paralysed with fear when you think about the looming July 1 deadline? Or are you all set? Let us know in the comments.
1. Macquarie Dec 2016 David Barrett – Super reform pension restructuring: CGT relief
This article is published by Modoras Pty Ltd ABN 86068034908 AFS and Credit License No. 233209. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.