Pensions, actuarial certificates and the super reforms www.accurium.com.au P | 1800 203 123
The information in this presentation has been prepared by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is general information only and is not intended to be financial product advice or legal advice and should not be relied upon as such. Whilst all care is taken in the preparation of this presentation, no warranty is given with respect to the information provided and Accurium is not liable for any loss arising from reliance on this information. Scenarios, examples and comparisons are shown for illustrative purposes only and should not be relied on by individuals when they make investment decisions. We recommend that individuals seek professional advice before making any financial decisions. 2
Agenda Transfer balance cap CGT relief Pension documentation Update on actuarial certificates and ECPI 3
Superannuation reforms www.accurium.com.au P | 1800 203 123
Transfer balance cap Applies from 1 July 2017 $1.6million general transfer cap on how much can move into retirement phase Credit: Pension commencements & reversionary pensions Debit: Partial or full commutations 6 month $100,000 grace period to comply with the cap Once in retirement phase value of assets due to pension payments and earnings does not affect the cap 5
Transfer balance cap Applying the cap at 1 July 2017 1. Work out a person’s total retirement phase balance 2. If estimated total balance < $1.6m = NO changes – Transfer balance cap remaining = $1.6m – total retirement phase balance 3. If estimated total balance > $1.6m = reduce retirement phase balances to $1.6m – Have used up transfer balance cap – Using ABPs commute excess to accumulation or withdraw from super – If still have excess due to non-commutable DB pension then no penalties apply 6
Valuing income streams TTR pensions = don’t count as not ‘retirement phase income streams’ ABP = market value Lifetime pension SISR 1.06(2) = 16 x annualised payment Term pension SISR 1.06(7) = term remaining x annualised payment Flexi pension SISR 1.06(6) = ?? Commute to ABP and value at market value?? Talk to your superannuation provider for other types of pensions/annuities 7
CGT relief Preserving capital gains Available if SMSF has TTR income streams, or will commute ABP balances to comply with the $1.6m cap Complying with new rules will decrease assets in tax free retirement phase Allows trustee to lock in gains/losses under the current rules If eligible – Elect on a per asset basis – Different methods based on status of asset in pre-commencement period Relief works by – Resetting cost base of an asset – Effectively realising gain/loss of the asset based on 2016-17 tax position 8
Segregated assets Was an asset a segregated pension asset at 9 Nov 2016? Did it cease to be a segregated pension asset due to amounts being commuted to accumulation phase or because the asset was supporting a TTR pension? If ‘YES’ to both can apply CGT relief using segregated method Two options for applying the relief: – Pick specific assets to commute to accumulation phase – Decide to move to using the unsegregated method on all assets Date assets are no longer segregated pension assets is the date you apply the relief Reset cost base to market value at that date Gain or loss on asset is disregarded ATO suggests fund solely in pension phase at 9 Nov 2016 is considered ‘segregated’ 9
Unsegregated method Were there unsegregated assets between 9 Nov 2016 and 30 June 2017? Did the fund commute balances to accumulation phase to comply with the cap or were assets supporting a TTR pension? If ‘YES’ can elect to apply the relief to all unsegregated assets at 30 June 2017 Reset cost base to market value Gain or loss is taxed based on 2016-17 tax exempt percentage – Must realise losses in 2016-17 annual return – Can realise gain in 2016-17 annual return or defer until asset is sold If asset became ‘segregated’ post 9 Nov 2016 cannot apply the relief to that asset 10
Applying the relief Make election on or before day fund is required to lodge tax return for 2016-17 Election made on a per asset basis – don’t have to apply the relief Keep appropriate records Sometime might be beneficial NOT to apply the CGT relief – If tax exempt percentage expected to increase prior to when will sell the asset e.g. members not yet all fully retired – Moving to the unsegregated method may provide best outcome for many segregated funds – Segregated losses will be disregarded 11
Reversionary income streams Reversionary or death benefit pensions count as credit to transfer balance account – Reversionary pensions have grace period of 12 months before credit received – Death benefit pensions have credit applying at commencement If result in excess transfer balance for the beneficiary must commute excess – Cannot roll back to accumulation phase – Must pay out as lump sum death benefit Child pensions have special rules 12
Questions?? If you are an Accurium client then your membership provides access to our technical team. You to call or email us with questions. Decision charts and case studies on the Technical Hub Blog article: https://www.accurium.com.au/blog/cgt-relief-two-strategies-you-need-to- know 13
Pension commencements Are you making a mistake? www.accurium.com.au P | 1800 203 123
Pension commencements are important ECPI is generally the largest tax concession of the fund $1.6m retirement phase cap Expect a greater number of pensions to commence using only part of retiree balances 15
Documenting pensions Signed trustee minutes/pension documentation to commence a pension – Type of pension – Commencement date – Starting balance – Tax components – Reversionary or not – Min pension payment – If employing a segregation strategy document as part of investment strategy Signed trustee minutes to cease a pension or make partial commutation – Full commutation back to accumulation phase – Partial commutation to facilitate lump sum payment 16
Case Study – pension commencement David and Victoria Super Fund Both members in accumulation phase at 1 July 2016 David is looking to retire on 9th January and start a pension Fund transactions to 9 January: – $150,000 opening accumulation balance per member – $10,000 concessional contributions per member – $180,000 non-concessional contribution for David Pension commencement for David on 9 January with amount of $180,000 17
Case Study – pension commencement Understanding tax components David’s accumulation balance on 9 January: $150,000 opening balance = 100% taxable component $10,000 concessional contributions = 100% taxable component $180,000 non-concessional contributions = 100% tax free component 18
Pension valuation & tax components Each member can only have one accumulation interest Tax components of accumulation interest are always changing Must revalue assets to start a pension Tax components of a pension interest are the same as the accumulation interest directly before the pension commencement 19
Pension valuation & tax components ATO guide to starting a pension “... The value of the separate interest, including the amount of its tax free and taxable components, must be determined when the super income stream commences. The proportions of the tax components of this separate interest, will be the same as the proportions for the tax components of the member’s original non-pension interest just prior to the commencement of the income stream. This prevents members from choosing which tax components they wish to start a super income stream with.” 20
Case study – pension commencement Calculating the tax components David’s accumulation balance on 9 January was $342,000: $150,000 opening accumulation balance + $10,000 concessional contributions + $180,000 non-concessional contribution + $2,000 earnings 21
Case study – pension commencement Calculating the tax components David’s accumulation interest of $342,000 at 9 November: $180,000 tax free $162,000 taxable Tax component calculation: 180,000 / 342,000 = 52.63% tax free 1 – 0.5263 = 47.37% taxable 22
Tax components Setting the terms of the pension Tax components of pension are fixed Income and pension payments do not change the tax components Tax payable on the taxable component of benefits paid: – prior to age 60 – to non-dependants Multiple pension interests will each have their own tax components 23
The tax exempt percentage calculation Allowing for pension commencements Revaluation of assets important to ensure ECPI is claimed correctly Tax exempt percentage is a daily weighted average that must allow for pension commencements and commutations during the year Actuarial tax exempt percentage calculation requires: – Pension purchase price on commencement date – Amount remaining in accumulation (if any) after pension commenced 24
Tax exempt percentage calculation Actuarial calculation for unsegregated funds 25
Recommend
More recommend
