The New Super Reforms are coming into force in 1 July 2017 and it is essential that everyone is aware of and fully understands the legislation and its' impact on their superannuation. The next few posts will cover a couple of the changes that everyone should take note of.
This post will cover:
1. The introduction of the $1.6m transfer cap and,
2. The Introduction of 'Catch up' Concessional (Deductible) Contributions
3. Introducing the Low-Income Superannuation Tax Offset.
The $1.6m Transfer Cap
Introduction of the $1.6m transfer balance cap applies to those that have "purchased" (commenced) any superannuation pension. It will encompass ALL pension accounts, across all super funds, held in your name.
What the new rule is:
These measures apply to the combined total of ALL superannuation pension accounts across ALL super funds held in your name. Should any members have superannuation accounts outside of the SMSF or with several different retail or industry funds, extra care must be taken to ensure that all balances are considered.
From 1 July 2017, any amount currently held in a pension account, above $1.6m will need to be either:
· rolled back into an accumulation account for the member. This means that while the earnings on that $1.6m will remain tax free, the earnings on those funds rolled back to accumulation will be taxed at 15% going forward, or
· withdrawn from the Superannuation fund, which will mean that the earnings on any amounts invested externally will be taxed at the marginal tax rates of the member.
What do you need to consider?
• How much should be allocated to the pension account & how much to the accumulation account?
• Should any excess be withdrawn from the Superannuation Fund?
• What will happen to the capital growth on the investments and any tax payable once realised?
• Will the transitional provisions apply to reset the cost base of the investments therefore reducing potential future capital gains tax?
• How will the proportionate indexation method apply?
• What will be the impact on any reversionary pensioner?
Introduction of tax deductible 'catch up' payments of super
One of the best changes for low balance superannuation members is the ability going forward to make these additional tax deductible contributions to super in "the good years". Basically, if you do not utilise all your contributions in one financial year they will carry over for 5 years (providing you have a balance of less than $500,000 in your super fund).
For example, if (after 1 July 2017) Jill did not put any contributions into her super for three financial years, because she was building the business and did not have the cash flow to do so, in the fourth financial year she would be able to contribute up to $100 000 ($25,000 per year for 4 years) to her super fund.
Another example of this would be if Rick deposited $10,000 into his super fund in the 2017/18 and the 2018/19 financial year in the 2019/20 financial year he would be able to contribute up to $55,000 ($25,000-$10,000 + $25,000) into his super fund.
Introducing the Low-Income Superannuation Tax Offset
What is the new Rule?
From 1 July 2017, the Low-Income Superannuation Tax Offset will be introduced. It effectively refunds the tax paid on concessional contributions (contributions that are included in your SMSF's assessable income and taxed at a concessional rate of 15%, a common concessional contribution is salary sacrifice, employer contributions (such as super guarantee)) by individuals with a taxable income of up to $37,000. The maximum refund is $500.
Things to consider
• Which individuals will be affected by this measure?
• Are there any individuals with taxable incomes of close to $37,000 and are in receipt of discretionary income sources – consider whether this discretionary income could be redirected elsewhere to bring the taxable income to below $37,000.
This advice is general, to discuss your situation contact us for an obligation free consultation with a qualified self-managed superannuation specialist.