The super reforms provide a unique opportunity for SMSF professionals to review existing services offered to clients as well as provide new products, services or advice to meet the changing needs of members.
There are a large number of considerations and a short time to implement the changes. The challenge is also that there is no “one-size fits all” approach. Members’ individual circumstances will need to be considered when, for example determining whether CGT relief should be applied or whether excess pensions remain in the fund. New strategies such as multiple SMSFs are being considered to ensure the members’ structure is best to handle the current arrangements as well as future estate planning considerations.
There are also other considerations
The below is a summary of the changes, a view of what member groups are impacted and some considerations – both from a service and a regulatory point of view.
|Impact of changes
|Reduction of concessional (pre-tax) contributions cap to $25,000 per annum
From 1 July 2017, the government will lower the annual concessional contributions cap to $25,000 for all members.
|May affect members planning to make concessional (pre-tax) contributions in excess of $25000
|Existing members with concessional contributions in-excess of $25,000 p.a.
Existing members with salary sacrifice arrangements to ensure they don’t exceed the cap
|Reduction of Division 293 income threshold to $250,000
From 1 July 2017 the tax threshold is reduced from $300,000 to $250,000
|Members with income in excess of $250,000
|Review & discuss any potential restructuring of personal tax affairs of affected members, particularly those with income between $250k and $300k who are now likely to be impacted
From 1 July 2018, release authorities must be returned to ATO with payment
|Carry-forward concessional contributions of unused caps over five years
From 1 July 2018, members will be able to make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
|Members with balances of less than $500,000
|Consider strategies including contribution-splitting, restructuring of member benefits and potentially investment reserving.
|Lowering the non-concessional (post-tax) contributions cap to $100,000 per annum
From 1 July 2017, the government will lower the annual non-concessional (after tax) contribution cap from $180,000 to $100,000 per year. This will remain available to members between 65 and 74 years old if they meet the work test. The cap will be indexed in line with the concessional contributions caps.
|Members making non-concessional (post-tax) contributions
|Members under 65 may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. If eligible, when contributions greater than the annual cap can use ‘bring forward’ arrangement.
From 1 July 2017, the non-concessional contributions cap amount that you can bring forward and whether you have a two or three year bring forward period will depend on your total superannuation balance.
|Spouse tax offset
From 1 July 2017, the spouse’s income threshold will be increased to $40,000 from the current $13,800 extend the current spouse tax offset
|Couples that support each other in saving for retirement, low-income earners and people with interrupted work patterns
|Identify opportunities for members to make future spouse contributions
|Personal Super contributions deductions
The condition that less than 10% of their income is from salary and wages will be removed from the determination as to whether a member qualifies for deductions.
|Primarily self-employed members that meet certain conditions
|Identify opportunities and consider timing of concessional contributions
Prepare for additional reporting requirements – Notices of intent could be received and will lead to acknowledgements needing to be issued.
Review to see if additional members may now be eligible to claim a tax deduction
|Low Income Superannuation Tax Offset (LISTO),
From 1 July 2017, eligible members with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.
Low Income Superannuation Contribution (LISC) will be replaced
|Low Income earners
|Identify possible members that can benefit from the changes and ensure they claim the contribution
|A transfer balance cap of $1.6 million for pension phase Accounts
From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be, or has been transferred into the tax-free retirement phase for account-based pensions.
|The transfer balance cap will affect members currently receiving a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017.
|Before 1 July 2017
Which super income streams are to be commuted to comply with the general transfer balance capShould the excess balance amount be withdrawn or retain within accumulation?Review of income streams in light of Assess construct of income streams to determine:
Pros and cons of reversionary income streams
How to structure payments in the event of death – a death benefit (pension or Binding nomination) which member balance to commute
Review the likely value of their current or impending pensions as at 30 June 2017 and be ready to reduce the value of these pensions if necessary.
If assets need to move back to accumulation phase, decide if you will apply CGT relief (refer below)
After 1 July 2017
Consider implications of additional real time reporting and whether SMSF Software can provide this
New withholding obligations if the member is over 60 years old for lifetime pension or continuing market linked and life expectancy pension
Review members that are near or exceed the cap due to growth
|Transition to Retirement Income Streams
From 1 July 2017, the government will remove the tax-exempt status of earnings from assets that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.
Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
|Members receiving or looking to commence a TRIS
|Assess the benefits of continuing with TRIS having regard to Member’s income needs and ageConsider benefit of retaining for proportioning rule
Funds can no longer claim exempt current pension income (ECPI) from assets supporting a TRIS.
Include income from assets supporting a TRIS, in assessable income.
|CGT Relief implications
Complying superannuation funds are able to reset the cost base of assets to their current market value where those assets are reallocated or re-apportioned to the accumulation phase prior to 1 July 2017 in order to comply with the transfer balance cap or new transition to retirement income stream arrangements.
Where the assets are already partially supporting an interest in the accumulation phase, tax will be paid on this proportion of the capital gain made to 1 July 2017. This capital gain may be deferred until the asset is sold.
CGT relief applies differently and is subject to different conditions depending on whether the superannuation fund segregates assets to support its current pension liabilities or whether it applies the proportionate method.
The relief applies to reallocation or re-proportioning made between 9 November 2016 and 30 June 2017 in relation to assets a complying superannuation fund held through that period.
|Members receiving a TRIS or are over the $1.6M transfer Cap
|Determine if the fund is segregated or un-segregated
Determine if the fund meets a criteria to enable the election of CGT relief (only available where done in order to comply with the transfer balance cap or new transition to retirement income stream arrangements)
Assess unrealised CGT position of fund assets having regard to: tax exemption methodology, future tax exemption, future cash flow needs of members, future investment performance, length of time holding fund asset
Determine whether one or more assets in the SMSF should have CGT relief applied
The superannuation fund must formally elect to apply the relief if they wish to do so. The superannuation fund must make this choice and notify ATO in the approved form on or before the day the trustee is required to lodge the fund’s 2016–17 income tax return.
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