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Superannuation: The Picture Becomes Clearer

Clive Todd

November 2016

2experience. new thinking

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


What Are The Changes?


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


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


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


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)


Any amount in excess of $1.6 million must be left in accumulation

Available capacity tracked via Transfer Balance Account (TBA)


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Subsequent earnings on pension balance will not be required to be withdrawn


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


Transition to Retirement Changes Earnings on assets supporting Transition to

Retirement Income Streams will no longer be tax free


No longer able to treat income stream payments as lump sums for tax purposes


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


Division 293 Tax Additional 15% contributions tax for high earners


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


Spouse Superannuation Tax Offset 18% offset available up to $540 for

contributions made to eligible spouse’s super


Income threshold increasing from $10,800 to $37,000

Counts towards spouse’s non-concessional cap


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)


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


What Didn’t Change?

Tax-free withdrawals for over 60’s

Maximum tax rate on earnings still 15%


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


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)


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)


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


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


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


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


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.


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).


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.


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.


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.


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.


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).


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.


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


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


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.


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


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


Things To Do Before 30 June 2017

Talk to your Hanrick Curran adviser (it is complicated!)


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

experience. new thinking www.hanrickcurran.com.au


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


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


Any questions?

Thank you

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