It took some time for the superannuation changes announced in the May 2016 Federal Budget to be legislated but in November 2016, they officially became law. While there are many changes that come into effect from 1 July 2017, the ones below will impact many investors.
Pension cap of $1.6 million
A limit of $1.6 million (known as a transfer balance cap) is to be placed on the amount of capital that can be transferred into retirement phase of superannuation. People with defined benefit pensions will have their income stream valued against this cap. This will limit the tax-exempt earnings in superannuation. Earnings on balances above $1.6 million will be taxed at up to 15%.
Capital Gains Tax (CGT) relief
CGT relief is provided for those who are required to unwind existing pensions. Note that there may be cases where trustees might not choose to apply the relief.
Transition to Retirement pensions (TTR)
Anyone drawing a pension from superannuation while continuing to work (known as a transition to retirement pension) will lose the earnings tax exemption. Earnings within the TTR pension will be taxed up to 15%.
Reduction in non-concessional contributions (after tax contributions)
The annual limit of $180,000 will be reduced to $100,000 for members with less than $1.6 million in super. For those with $1.6 million or more, no non-concessional contributions can be made. The 3-year bring forward rule for those under 65 still applies allowing up to $300,000 to be contributed.
Reduction in concessional contributions
The annual limit will be reduced from $30,000/$35,000 to $25,000 regardless of age.
Deducting personal contributions
Regardless of whether a person earns less than 10% of their total income from employment, a tax deduction can be made when making personal contributions.
Should I speak to my financial adviser?
The list below highlights some circumstances where an individual or couple may potentially be impacted.
- People with superannuation balances above $1.6 million.
- Couples with large uneven balances.
- A person with the ability to make large non-concessional contributions before 30 June. This includes people with more than $1.6 million in superannuation.
- Anyone expecting to receive large funds after 30 June 2017 and can borrow short term to make non-concessional contributions before 30 June 2017.
- Anyone receiving a transition to retirement pension and do not need the pension to meet their cash flow needs.
- Anyone with a defined benefit pension.
- Clients that have already used the bring forward rule in 2015/16 financial year.
These new rules are both substantial and complex so we recommend speaking with a financial adviser for more detail.
For more information contact us on (03) 8610 6396.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.