Starting on 1 July 2017, a number of superannuation reforms announced in the 2016 Federal Budget will take effect. As we quickly approach the end of financial year, there are several impending changes that you may need to consider.
It is a good idea to review your existing position and analyse what you can do moving forward. This will help you to tax effectively grow and protect your wealth and superannuation.
We have broken down the reforms and detailed the changes most likely to impact on your current and future super:
Concessional contributions are contributions individuals can make to their super with their before-tax salary.
As of 1 July 2017, the concessional contributions cap will be lowered and the maximum amount you will be able to contribute to super from your before-tax income will be $25,000 per year. Previously for those 49 years and over this was $35,000 and $30,000 for everyone else.
However, for individuals whose superannuation balances below $500,000, up to five years of the unused portion of your concessional contributions cap will be able to ‘carried forward’.
Non-concessional contributions (NCCs) are contributions made to super using after-tax dollars.
Starting on 1 July 2017, these contributions will be decreasing from $180,000 annually to $100,000 annually. Or from $540,000 over three years for those under 65 to up to $300,000 over three years.
In addition to these changes, those with more than $1.6m in their super accounts will be unable to make non-concessional contributions.
Transfer Balance Cap
The government will also be limiting how much of your super you can retain in your superannuation pension account which will be tax free.
This limit is called the ‘transfer balance cap’. It will start at $1.6 million, and will be indexed in line with the consumer price index (CPI), rounded down to the nearest $100,000.
Multiple transfers into the retirement phase may be made, as long as there is available cap space. If a person exceeds their transfer balance cap, they may have to remove the excess from one or more retirement phase income streams, and pay tax on the notional earnings related to that excess.
There are different tax rules for those who receive ‘capped defined benefit income streams’, as usually excess amounts cannot be transferred or removed from these income streams.
Transitional CGT relief
To be under the cap before 1 July 2017, it may be necessary to move assets from a retirement phase account into an accumulation account. If this is the case, capital gains tax (CGT) relief may be available to reset the cost base of these assets.
CGT relief is available if a fund holds the assets from 9 November 2016 to 30 June 2017.
Transition to Retirement Income Streams (TRIS)
TRIS are currently available to assist individuals to gradually move to retirement by accessing a limited amount of super. As of 1 July 2017, investment earnings from assets used to provide TRIS will not be exempt from tax. While, currently the fund receives tax-free earnings on the super assets that support it.
Earnings from assets supporting a TRIS will now be taxed at 15%, no matter when the TRIS commenced. Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
Not sure how these changes will affect you? It’s definitely better to be safe than sorry. Give us a call on 07 3394 8216 to ensure you are in the best possible position when these reforms come into play.
Please note that the above comments are provided for general information only. As individual circumstances can be quite different you should refer to your Accountant or Licensed Financial Adviser for more specific information related to your personal situation.