In late 2016, the Senate signed off some complex superannuation changes that apply from 1 July 2017. There is an opportunity to act prior to the legislation taking effect to ensure you are in the most favourable position at the start of the next financial year.
The new rules can be categorised into two areas: contributions and pensions. The key changes are summarised below.
- The concessional contributions cap will be reduced to $25,000. This is a reduction from the current cap of $30,000 for persons under 49 years and $35,000 for persons over 49 years. The $25,000 cap will apply to everyone, regardless of age.
- A significant change is the introduction of a $1.6 million superannuation balance cap for persons making non-concessional contributions. If a person’s superannuation balance is greater than $1.6 million at the previous 30 June, non-concessional contributions cannot be made. This cap applies from 1 July 2017, therefore the year ending 30 June 2017 may be the last opportunity for persons with significant superannuation balances to make non concessional contributions.
- The annual non-concessional contribution cap will be reduced from $180,000 to $100,000. The 3 year bring forward rule will be modified under transitional measures. However, the ability to make non-concessional contributions is subject to conditions including the $1.6 million superannuation balance cap. The reduction in contribution caps and the transitional rules provide an opportunity to maximise non-concessional contributions prior to the 30 June 2017.
- The threshold at which high income earners pay an additional 15% tax on their concessional contributions has been reduced to $250,000 (previously $300,000).
- Individuals can now claim tax deductions for personal concessional contributions as the 10% test has been removed, which precluded the majority of employees from claimed tax deductions for superannuation deductions.
In light of the above changes, we recommend you contact your Ageis advisor to discuss contribution strategies prior to 30 June 2017.
- From 1 July 2017 a $1.6 million Transfer Balance Cap will be introduced which limits the assets that can be held in a tax free pension account. Any excess currently held in a pension account over the cap must be commuted to an accumulation account.
- The transfer balance cap is assessed at the time of commencing the pension.
- The income and capital gains from assets supporting an accumulation account will be subject to tax.
- From 1 July 2017 the Transition to Retirement (TTR) pensions will no longer be tax exempt. Consideration should be given to whether the TTR pension can be converted to an account based pension if a condition of release has been satisfied.
- CGT relief can be applied to reset the cost bases of assets which ceased to support a pension and which were required to be moved from Pension Phase to Accumulation Phase due to the new legislation. Trustees need to elect CGT relief on or before the date the fund is required to lodge its 2017 income tax return.
In light of these significant changes, it is important to be informed and reach out to contact your Ageis advisor to discuss the best course of action for your personal situation.
We are well prepared and ready to assist you and your family in navigating the new rules. We look forward to the opportunity to help you remain a step ahead.