Major Super reforms pass Parliament

In late November 2016 the superannuation Bill passed through Parliament reaffirming several proposed changes to the superannuation system in the May 2016 Budget.

From 1 July 2017, we will see the introduction of a transfer balance cap which sets a limit on the amount of money that can be used to fund a superannuation pension. We will also see a reduction in both the concessional (pre-tax) and non-concessional (post-tax) contribution caps and the eligibility around using these. Other interesting changes include the ability for anyone who is eligible to make personal super contributions to claim a tax deduction for these contributions and the ability (from 1 July 2018) to carry forward unused concessional contributions.

$1.6M transfer balance cap (TBC)-

In addition to the $1.6M retirement phase cap, from 1 July 2017, there will be another $1.6M balance cap that we will need to be aware of- the Transfer Balance Cap (TBC).

The TBC will limit the total amount of superannuation that can be transferred into pension phase. The limit will apply per member.

Each person will have a Transfer Balance Account (TBA) which will track the net TBC amount. The TBA will help determine whether or not an individual has exceeded their TBC on any given day. The account will be administered by the ATO and will operate similarly to a bank account. Any transfers to and from Pension phase will need to correspond to increases (credits) and decreases (debits) in the transfer balance account.

It is a lifetime account and will only cease on death. Indexation will apply.

Contribution Caps-  

From 1 July 2017, the following changes will apply:

  • The annual contribution cap (CC) will reduce to $25,000 regardless of age.
  • The income threshold above which an additional 15% tax is payable on CC will reduce to $250,000
  • All individual under the age of 65 will be able to claim a tax deduction for their personal super contributions, currently the claim on a tax deduction is limited to self- employed or those who earn less than 10% of their income from employment.
  • From 1 July 2018, individuals with total super balances of up to $500,000 will be able to carry forward their unused CC cap amounts on a 5 year rolling basis.
  • The annual non-concessional contribution (NCC) will reduce to $100,000
  • The ‘bring forward’ NCC cap is reduced to $300,000.
  • Transition rules will apply if the ‘bring forward’ cap was triggered in 2015/16 or 2016/17.
  • NCCs are not permitted if the total super balance exceeds the transfer balance cap of $1.6M on 30 June of the previous financial year.

Transitional CGT Relief

Transitional CGT relief is available for assets moved out of pension phase to comply with the transfer balance cap (TBC) and the taxation of earnings on transition to retirement (TTR) pensions.

The purpose of the transitional CGT relief is to provide a tax relief to super funds for capital gains accumulated before 1 July 2017 where the gains would have otherwise been exempt.

The relief will ensure that CGT is only payable (on sale of these assets after 1 July 2017) on capital gains accrued from 1 July 2017; CGT will not apply on capital gains accrued up to 30 June 2017. This means CGT will only be applied to gains that accrue once the asset is no longer supporting pension assets (or only partially supporting pension assets). To enable the CGT relief the cost base of CGT assets that are moved or reapportioned from pension phase to accumulation phase prior to 1 July 2017 can be reset.

 

Yes it gets complicated but never fear, we will be in touch in early 2017 once further clarity has been provided about the practicalities of how these will be implemented by the administration platforms and to discuss how you may be impacted by the legislated changes.

 

Nina Kazmierczak- Sovereign Wealth Partners

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