The Turnbull Government has made some changes to the superannuation system which will commence from 1 July 2017. These changes will impact many of our clients either now or in the future. We will provide a brief overview of the different changes to the super system but it is our recommendation that clients make contact with their accountant prior to June 30 to discuss how the super changes may affect them.
- Change to the Concessional Contributions Cap – Time to Review Salary Packaging Arrangements
From 1 July 2017, the annual concessional contribution cap will reduce to $25,000 for all individuals (irrespective of age). Concessional contributions include your employer superannuation guarantee payments and any amounts salary packaged.Therefore, if you salary package superannuation as part of your wage, we recommend reviewing your arrangements prior to 1 July 2017. You may need to advise payroll to reduce your concessional contributions to ensure you are below the $25,000 cap.
- New Transfer Balance Cap
Due to the introduction of the new ‘transfer balance cap’ from 1 July 2017, super fund members with pension balances (in ‘retirement phase’) exceeding $1.6 million will need to partially commute one or more of their pensions to avoid the imposition of excess transfer balance tax.In addition, members in receipt of a transition to retirement income stream (‘TRIS’) will lose the pension exemption from 1 July 2017.This means that the future disposal of any assets currently supporting such pensions will potentially generate a higher taxable capital gain (even though the disposal of the asset prior to 1 July 2017 could be fully or partially tax-free, depending on whether the asset is a segregated or unsegregated asset).Fortunately, to avoid funds selling off assets before 1 July 2017, transitional provisions have been introduced to allow super funds to apply CGT relief in certain situations.Although the choice to apply the CGT relief can be made up until the day the super fund is required to lodge its 2017 tax return, in many cases, action must be taken on or before 30 June 2017 for the fund to even be eligible to make that choice. In particular, funds calculating exempt pension income using the segregated assets method will generally need at least a partial commutation of the pension.Please contact our office if you need any information regarding the super reforms, including what needs to be done to obtain CGT relief (if necessary), whether a TRIS should be commuted to accumulation phase or continued into the 2018 year, and how the new contribution rules will affect contributions in both the current and future years.
- Change to the Non-Concessional Contributions Cap
The annual non-concessional (after-tax) contributions cap has been lowered from $180,000 to $100,000. This will affect clients who are making non-concessional (after-tax) contributions to their super and clients who are considering how to maximise their savings for retirement.The calculation of the non-concessional contribution cap is dependent upon the total superannuation balance relative to the limit of $1.6 million and any bring-forward arrangements previously triggered.
- First Home Superannuation Saver Scheme
The Turnbull Government has also announced an intention to encourage home ownership by allowing first homebuyers to ‘build a deposit’ inside their superannuation fund. Whilst this announcement has not currently been legislated, it is proposed that individuals, from July 1 2018, can apply to withdraw voluntary contributions made to super after 1 July 2017 for the purpose of a first home deposit. These voluntary contributions of up to $15,000 per year, and $30,000 in total can be released for a first home deposit.
These changes to the superannuation system are designed to improve the sustainability, flexibility and integrity of Australia’s super system. Please check to see if you are directly affected and how these changes may allow for you to maximise your savings for retirement. Please consider seeking financial advice from our office.