Opportunities after Government back-flip on the superannuation reforms announced in the 2016 Budget.


Superannuation - What's in , What's out the door!

Superannuation – What’s in , What’s out the door!

So the ironclad changes to superannuation turned out to be more flexible and government policy more akin to a revolving door, one second its in and next it’s out the door. I am angry that the government created all this angst over the last 6 months only to water-down the changes and have damaged yet again the confidence in the superannuation system. They should have consulted with industry, ATO and their own members before announcing such major changes. However change was needed so at least they did show flexibility.

Below is a summary of the measures that have been amended. The detail of each measure will only be known once draft legislation is published and the final outcome will only be known after Parliament considers the legislation.

Non-concessional contribution cap – Lifetime limit –gonnnnnee!

The original proposal was to replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

To ensure the passage of the Government’s broader superannuation package through the Parliament, Treasurer Scott Morrison confirmed this measure is to be replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on four times the lower concessional contribution cap of $25,000.

However, people with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year. Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the fund balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.

Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.

As the existing rules remain until 1 July 2017, SMSF trustees and other superannuants who are able to utilise the existing thresholds should consider doing so once the legislation is finalised. This is particularly important for those who have total superannuation savings of close to or exceeding $1.6 million. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make an NCC.

So if an SMSF member is under age 65 and hasn’t triggered the bring-forward rules, they could do so this year and contribute up to $540,000 this financial year.  This is a real opportunity for those who were concerned they wouldn’t be able to make any further contributions.

Recontribution Strategy back on the table

The recontribution strategy can now be reconsidered where appropriate but limited to the new $100,000 or 3 times that using the bring forward rule if under 65. This may help improve the taxable/ tax-free components of your account and aid with reducing tax on death benefits to non-dependant beneficiaries.

Important Note for Small Business Owners: There are no changes to the contributions made under the CGT cap amount of up to $1.415 million relating to the small business CGT concessions.

Work test over 65 to continue

The Government will retain the existing requirement that you must meet a work test to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement). So to make a contribution after age 65 you need to work at least 40 hours in a 30 day period during the year  and before you make the contribution. You are also limited to $100,000 non-concessional contributions with no 3 year bring forward available to you.

Catch up concessional contributions

The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 from 1 July 2017. However, the commencement date for the catch up contributions will be delayed until 1 July 2018.

From 1 July 2018, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire.

This measure is limited to individuals with a super balance of less than $500,000. There is no detail as to when the account balance is assessed to determine eligibility.

If who have the capacity to fully utilise the current CC cap for 2016/17 may wish to consider doing so before the CC cap reduces.

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Others measures going ahead as proposed.

  • Reduce the CC cap to $25,000 from 1 July 2017
  • $1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017
  • Tax on earnings for amounts held in a transition to retirement pension
  • Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on CCs
  • Ability for all individuals to claim a tax deduction for superannuation contributions with the removal of the 10% test
  • Increase of the income thresholds for eligibility for the spouse superannuation contribution tax offset
  • Introduce the Low Income Superannuation Tax Offset (similar to the Low Income Superannuation Contribution which will be abolished from 1 July 2017)
  • Abolish anti-detriment payments
  • Apply the measures to defined benefit funds.

While I understand the need for budget secrecy to some extent, the government need to understand that their changes effect major systems like the ATO, Superannuation software and Accounting software as well as the reality that not all superannuation balance or contribution history information is available or up to date.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

New changes to Superannuation in summary for SMSF Trustees


Firstly nothing to scary but some stings in the tail.    Tax Reform

Mr Swan and Superannuation Minister Bill Shorten fronted announced a tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent from 01/07/2014.

Based on a 5% earnings rate that would only impact on those with super assets of more than $2 million. Remember this is per account so for a couple each of them could have $2,000,000 without paying tax on their pension

The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.

Special Treatment for Capital gains on Assets purchased before 01/07/2014 ( Did not proceed)

-  For existing assets (such as property or shares) that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

-  For new assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and

-  For new assets that are purchased after 1 July 2014, the new limits will apply to the entire capital gain.

Higher concessional cap for people aged 60 and over brought forward

Accordingly, the government will bring forward the start date for the new higher concessional cap of $35,000  to July 1 for people aged 60 and over. Concessional includes employer SGC (9-12%) and Salary Sacrifice.

Individuals aged 50 and over will be able to access the higher concessional cap of $35,000 from the current planned start date of 1 July 2014.

The general concessional cap is expected to reach $35,000 from 1 July 2018 for those under 50.

Excess contributions tax to be reformed

Mr Shorten said the government will reform the system of excess contributions tax (ECT) that was introduced by the former government in 2007, to make it fairer and give individuals greater choice.

Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent.

Now you will pay tax on the excess contribution to match what you would have paid at your marginal tax rate. for example if you are on the 37% tax bracket you would pay ECT at 22% rather than 30% if you had to pay it on the top marginal rate of 45% (plus Medicare).

Income Streams will be Deemed like non-superannuation assets

Under the change announced today, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.

Instead of the concessional treatment of Account Based Pensions currently for those accessing an Aged Pension, they will be deemed like normal assets. This will affect those on the borderline of $55K income for a single person and $80K for a couple who previously benefited from deductible amounts on their account based or allocated pensions.

Extending concessional tax treatment to deferred lifetime annuities

The Government will encourage the take-up of deferred lifetime annuities (DLAs), by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.

Mr Swan also announced the Gillard government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

Here is the link to the full press release “A fairer superannuation system”

As always please contact me if you want to look at your own particular situation and we will break it down in plain English for you. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AdvDipFS

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook 

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in NextGen Wealth Solutions, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

What are the New Age limits & Work Test Restrictions for Superannuation Contributions from July 2013?


This is crucial for employers, self-employed and anyone considering working past age 65. It is important to understand that it is your age on the date of the contribution that counts. Employees currently do not receive the 9% SG contribution after the age of 70 but that will change on July 1st 2013 so here is an update.

Member’s age at date of contribution Can my SMSF or Superannuation fund accept this contribution?
Under 65 No age limit or work restriction applies
65 but under 75 Mandated Employer Contributions – for example including superannuation guarantee contributions (SGC , usually 9%),                                      orMust have been gainfully employed on at least a part-time basis for at least 40 hours in any one day period during the financial year in which the contributions are made.
75 + Mandated Employer Contributions – including super guarantee contributions (SGC). You cannot make personal voluntary concessional or non-concessional contributions regardless of meeting the work test or not.

 
There is a slight leeway for people to make contributions shortly after their 75th birthday in that the rules allow for a contribution during the period 28 days after the end of the month in which the member turns 75.

Also A regulated superannuation fund may accept contributions in respect of a member if the trustee is reasonably satisfied that a contribution is in respect of a period during which the fund may accept the contribution in respect of that member, even though the contribution is actually made after that period. So if your employer forgot to make a payment and does a catch-up contribution after you have passed an age limit.

Remedy:

If a SMSF or other regulated superannuation fund receives a contribution for a member who does not meet the relevant age and work test it must reject it or return it to the entity making the contribution within 30 days of becoming aware of the breach.

For SMSF trustees the ATO appears to have a more stringent view that the deadline is 30 days from the date of the excess contribution not 30 days from when they become aware of the breach. That is an “ATO view” so not written in to the regulations and subject to challenge.

Tax File Number

The regulated superannuation fund must not accept any member contributions if the member’s tax file number has not been quoted (for superannuation purposes) to the trustee of the fund.

For more information on the existing rules refer to REG 7.04 of the SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 and for the changes http://www.moresuper.gov.au/content/Content.aspx?doc=faqs.htm

One final note – Increase to SG Contributions

Employers need to ensure they implement the new Superannuation Guarantee (SG) changes which take effect on 1 July 2013. Specifically, the SG rate will increase from 9.0% to 9.25% from that date. Further increases will apply in subsequent years until the rate reaches 12% in 2019/20

For employers; to assess if you need to pay Superannuation guarantee payments for a particular person you can use the ATO’s SG Eligibility Decision Tool

As always please contact me if you want to look at your own particular situation . We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AdvDipFS

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook  SMSFCoach Blog

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in NextGen Wealth Solutions, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

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