Superannuation Where is it now?
Superannuation: The Picture Becomes Clearer
Clive Todd
November 2016
www.hanrickcurran.com.au
The Year That Was3 May 2016 Federal Budget announces major
changes2 July 2016 LNP wins Federal Election16 September 2016
Backbench revolt & NCC Lifetime Limit scrapped22 November 2016
Changes pass House of Representatives23 November 2016 Changes pass
Senate
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experience. new thinkingWhat Are The Changes?
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experience. new thinkingConcessional Contributions CapReduced to
$25,000 from 1 July 2017 for everyone2015/162016/172017/18Under
50$30,000$30,000$25,000Over 50$35,000$35,000$25,000
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experience. new thinkingIncreased Access to Personal
ContributionsRemoves 10% ruleEffective from 1 July 2017All
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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experience. new thinkingCatch-Up Concessional
ContributionsUnused concessional contribution cap amounts can be
carried forwardEffective from 1 July 2018Restricted to individuals
with a super balance less than $500,000Calculated on a rolling
basis over 5 consecutive years
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experience. new thinkingTransfer 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
2017Any amount in excess of $1.6 million must be left in
accumulationAvailable capacity tracked via Transfer Balance Account
(TBA)
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experience. new thinkingExisting 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 CPIIf cap
exceeded then notional earnings taxed and excess converted to
accumulationSubsequent earnings on pension balance will not be
required to be withdrawn
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experience. new thinkingTransitional CGT ReliefApplies if in
pension mode prior to 1 July 2017 (but conditions)Choice to re-set
cost baseBoth account based pensions and transition to retirement
income streams can utiliseDepends on method currently used for tax
exemptionTreasury and ATO have warned anti-avoidance may apply if
trying to exploit
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experience. new thinkingTransition to Retirement ChangesEarnings
on assets supporting Transition to Retirement Income Streams will
no longer be tax freeEffective from 1 July 2017No longer able to
treat income stream payments as lump sums for tax purposes
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experience. new thinkingNon-Concessional Contributions CapAnnual
limit reduced to $100,000Effective from 1 July 2017Can only be made
if a members Total Superannuation Balance (TSB) is below $1.6
millionBring forward still applies if under 65CGT Small Business
Rollovers not included
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experience. new thinkingDivision 293 TaxAdditional 15%
contributions tax for high earnersEffective from 1 July 2017Income
includes taxable income, reportable fringe benefits, net investment
losses & concessional contributionsCan be paid personallyIncome
threshold reduced from $300,000 to $250,000Only applies to
contributions that exceed the $250,000 threshold
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experience. new thinkingSpouse Superannuation Tax Offset18%
offset available up to $540 for contributions made to eligible
spouses superEffective from 1 July 2017Income threshold increasing
from $10,800 to $37,000Counts towards spouses non-concessional
cap
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experience. new thinkingLow Income Superannuation Tax
OffsetRefund of the 15% contributions tax for low income
earnersApply to individuals with adjusted taxable of less than
$37,000Capped at $500Replaces Low Income Superannuation
Contribution (LISC)
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experience. new thinkingWhat Didnt Make It?Removal of the Work
TestOver 65s need to be working to contributeNCC Lifetime Limit of
$500,000
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experience. new thinkingWhat Didnt Change?Tax-free withdrawals
for over 60sMaximum tax rate on earnings still 15%
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experience. new thinkingWhat About This Year?Same rules from
2016 FY apply to 2017 FYNCC cap is $180,000, can bring forward
& contribute up to $540,000CC cap is $30,000 if under 50,
$35,000 if over
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experience. new thinkingQ: 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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experience. new thinkingQ: 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 = $60,000XNew Bring
Forward balance (triggered in 2017 FY)
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experience. new thinkingQ: 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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experience. new thinkingTSB on 30 June 2017Non-concessional
contributions cap for the first yearBring forward periodLess than
$1.4 million$300,0003 years$1.4 million to less than $1.5
million$200,0002 years$1.5 million to less than $1.6
million$100,000No bring forward period, general non-concessional
cap applies$1.6 million or moreNilN/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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experience. new thinkingQ: 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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experience. new thinkingMain Points About NCCUse it or may lose
itDoesnt impact ability to make CC$1.6m TSB is a moving
targetReduces effectiveness of re-contribution strategies
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experience. new thinkingQ: 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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experience. new thinkingQ: 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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experience. new thinkingQ: 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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experience. new thinkingQ: Is there anything he can do about
this?A: Yes.
He could withdraw his accumulation balance leaving only pension
so therefore 100% tax-free. (Depends on personal tax situation).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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experience. new thinkingQ: Donalds 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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experience. new thinkingQ: Donalds 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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experience. new thinkingQ: 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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experience. new thinkingQ: 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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experience. new thinkingMain Points for Transfer Balance CapTBC
is different to TSBAssets cant be segregated while in one fundNo
requirement to withdraw excess if balance over $1.6m
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experience. new thinkingQ: 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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experience. new thinkingMike may have reduced work hours so
needs payments to top up incomeCGT relief applies to TRIS as well
may be beneficial taking on new cost baseIf 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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experience. new thinkingHe could also look to satisfy a
retirement condition of releaseTRIS would then become an account
based pensionpreservation age to 60 cease gainful employment and
have no intention of becoming gainfully employed in the future60 to
65 cease gainful employment arrangement
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experience. new thinkingIs It Over Yet?Scott Morrison has
promised the Govt will not take any further changes to super to the
next electionLabor still not happy and want further changes:Reduce
annual NCC limit to $75,000Keep the 10% ruleRemove ability to
catch-up concessional contributionsExtra contributions tax to apply
to people earning over $200,000
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experience. new thinkingThings To Do Before 30 June 2017Talk to
your Hanrick Curran adviser (it is complicated!)
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experience. new thinkingHC Wealth AdvisersSince 1 July 2016 we
have been licensed to provide Strategic AdviceAreas we can now
assist with are:Strategic Financial Plan a blueprint of your
financial futureContributions advice how much you should contribute
as opposed to how much you canPension 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
experience. new thinkingwww.hanrickcurran.com.au
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experience. new thinkingOf note, we are not licensed to give
specific product or investment advice however can refer you to
specialists in our network for assistance in those areas as
required.38
Things To Consider Before 30 June 2017What concessional and
non-concessional contributions to makeIf super balance >$1.6m
then what is the impactWhat 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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experience. new thinkingDisclaimersThis 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
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experience. new thinkingAny questions?
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experience. new thinking
Thank youwww.hanrickcurran.com.au
