Legislation to implement the Government's superannuation reforms passed the Parliament on 23 November 2016. This means we now have certainty around the new rules so you can start to plan how best to use them to your advantage.  

The following is a summary of the measures, plus ‘IMPORTANT ISSUES TO CONSIDER’.

  • A limit if $1.6 million on the amount of money that can be held in a tax-free private pension.  

      • This is also referred to as a ‘transfer balance cap’.

      • This cap is initially set at $1.6 million and indexed to CPI.

      • Amounts in excess of $1.6M, as at 1 July 2017, will be transferred back to the accumulation stage and subject to the current 15% tax environment. 

  • Lowering the cap on concessional contributions (tax deductible) to $25,000 from 1 July 2017.  

      • The concessional cap is currently $30,000, with a $35,000 cap for some older people.

  • Lowering the cap on non-concessional contributions (not claimed as a deduction) to $100,000 from 1 July 2017. 

      • The non-concessional cap is currently $180,000.

      • The three-year bring forward rule will remain, though non-concessional, contributions will be prohibited for superannuation balances over $1.6 million, indexed to the Transfer Balance Cap.

      • Restricting non-concessional contributions for people with high super balances. 

  • Lowering the income threshold at which the higher contributions tax is levied to $250,000 from $300,000.  

      • This increases the contributions tax rate for high income earners from 15% to 30% from 1 July 2017.

  • SMSFs will not be able to segregate assets between pension and accumulation accounts.  

  • SMSF’s will be able to reset the cost base of assetsthat are reallocated from the retirement phase to the accumulation phase between November 9, 2016 and June 30, 2017.

      • The upside of this allowance is that any tax-free capital gains that have been locked in to date will be retained. Capital gains tax will be payable only on gains made after the reset base.

      • The downside is that capital losses won’t be able to be carried forward and it will be important to ensure that all assets are properly valued. 

  • Making it easier for people to claim tax deductions for personal super contributions.

      • Carry forward rules for unused concessional contributions means that individuals with a super balance of less than $500,000 can make catch-up contributions from 1st July 2018, where they have not used up all of their previous annual concessional contribution caps within the previous 5 years.

  • Removal of the 10% rule for deductible contributions from 1st July.  

      • This will allow taxpayers to make a contribution from after tax money to super, up to $25,000 (including employer contributions) and claim a tax deduction. 

  • People aged 65-74 will still need to meet the ‘work test’ in order to make super contributions. 

  • Removing the earnings tax exemption for assets supporting Transition to Retirement Income Streams (TRIS).  

      • Transition to Retirement pensions are prevented from being eligible for Exempt Current Pension Income (ECPI), from 1 July 2017. In other words, super funds would start to pay tax on income relating to the pensions at the same rate as if the balance was in accumulation phase, or a maximum of 15%. 

  • Introducing the Low Income Super Tax Offset (LISTO), which replaces the Low Income Superannuation Contribution (LISC).  

      • This cancels out up to $500 of contributions tax for low income earners.

  • Changes to the tax offset for spouse contributions.  

      • Expanding access to the low income spouse superannuation tax offset by increasing the income threshold for the low income spouse. It is proposed the upper threshold increase from $13,800 to $40,000 for the 2017/18 and later years.

  • Upon death of a spouse, 12 months will be given to meet the transfer balance cap rules if the combined funds over $1.6M.

  • Single Touch Payroll is a system for the automatic electronic reporting of superannuation and payroll information to the ATO from business payroll software. 

      • Employers with 20 or more employees will be required to comply with Single Touch Payroll reporting requirements from 1 July 2018.

      • The Government says it has not yet decided to require small employers to use Single Touch Payroll, though the ATO is conducting a pilot program. 

IMPORTANT ISSUES TO CONSIDER

  • Before 30th June 2017, you should utilise the current contribution rules to ensure you get as much into the tax efficient super environment as possible. 

      • For example: The timing of the ‘bring forward’ of non-concessional contributions will be even more important from 1 July 2017. 

  • If you are planning to use the ‘catch-up’ for concessional contributions, it will be important to carefully plan timing with other caps and balances (being less than $500,000 threshold at the end of the prior income year). 

  • Review investments in your super fund to ensure they are appropriate for the forthcoming changes. 

  • The valuation of assets, especially for SMSFs, will be extremely important in determining whether you are near or over any caps. As always, you need to get individual advice to understand how the above measures effect your situation. Please contact your adviser at WLM for further information or to make an appointment to meet.