Super Reforms Written and Presented by: Con Gotsis FCPA (FPS), CTA, SSA, SSAud, AFP Director, Pascoe Partners Accountants 5 th May 2017
Agenda • Contributions • Pensions • CGT Exemption • Checklist • Questions
Contributions
CURRENT CONTRIBUTION LIMITS • Concessional Contribution Caps – Under 49 at 30 June 16 - $30,000 – 49 or over at 30 June 16 - $35,000 • Non-Concessional Contribution Caps –$180,000 a year –Under 65 during 30 June 16 - $540,000 over 3 years
CONTRIBUTIONS – Post 30 June 2017 • Concessional Caps – Under 49 at 30 Jun 17 - $25,000 – 49 and over at 30 Jun 17 - $25,000 – 10% rule abolished • Non Concessional Caps – $100,000 a year – Under 65 during 30 June 18 - $300,000 over 3 years – Only available if “TSB" < $1.6m previous 30 June
WHAT IS TOTAL SUPERANNAUTION BALANCE (“TSB’)? • Accumulation Balance less structured settlement contributions • Pension Balance • Rollovers in transit not included in the above two
Untaxed and Defined Benefit Funds • Concessional contributions can’t cause an excess contribution by itself • It will however limit the ability to make contributions to other taxed funds • Personal contributions to untaxed funds are not deductible post 30 June 2017
WHAT NCC CAN BE MADE 2018 FY? Total Superannuation NCC cap for the Bring forward • Use Arial 24 for main body Balance 30 June 2017 for the first year period • No more than 5 main points per slide Less than $1.4m $300,000 3 years • No more than 15 slides for a 45 minute presentation $1.4m to < $1.5m $200,000 2 years • Bullet Point 4 • Bullet Point 5 $1.5m to <$1.6m $100,000 n/a $1.6m or more $- n/a
NCC TRANSITIONAL RULES - 2018 Total Superannuation Year NCC cap NCC • Use Arial 24 for main body Balance 30 June 2017 Triggered • No more than 5 main points per slide Less than $1.6m 2016 $460,000 less • No more than 15 slides for a 45 minute presentation 2016 & 2017 NCC • Bullet Point 4 Less than $1.6m 2017 $380,000 less 2017 NCC • Bullet Point 5 $1.6m or more 2016 or 2017 Nil for remaining term
Contribution Example • Eddie aged 60 has $1,000,000 in super. He made NCCs in 2016-17 of $450,000 and the fund earned $100,000 in that year. Can he make a further NCC in 2018?
Contribution Example • Eddie’s TSB at 30 June 2017 is under $1,600,000 • BUT bring forward cap clawed back in 2017-18 to $380,000 • No further NCC can be made in 2017-18 or 2018-19 even though under $1,600,000 • No excess results from $450,000 • Use it or lose it ……
Pensions
Transfer Balance Cap • Tax exemption only available on $1.6M per taxpayer – Per taxpayer, not per fund • Excess over $1.6M must either be: – Rolled back to accumulation; or – Taken as a lump-sum and withdrawn from superannuation • If an excess arises, notional earnings calculated at 9% and taxed at 15%
The Transfer Balance Cap Account Debits (reduce) Credits (increase) Value of all income stream interests Value of lump sum payouts reducing as at 30 June 2017 and new pensions income streams after (Not TRIS’s) Value of reversionary income stream Value of income streams that cease at time person becomes entitled (date of death) Structured settlement payments Notional earnings that accrue on Loss due to fraud, bankruptcy excess TB amounts Family law payment splits
The Transfer Balance Cap Account • Note earnings and losses are disregarded if the pension grows no issue with it being more than $1.6m • Note that pension payments do not decrease the account balance • Treating min payments beyond the excess as lump sum payments will reduce the balance
Transitional Rule • Transfer balance cap breaches of less than $100,000 that occur on 30 June 2017 do not give rise to notional earnings or an excess transfer balance tax liability if they are rectified within 6 months
What Happens if You Breach the Cap? • Commutation authority – The superannuation fund is required to reduce the superannuation income stream within 60 days – Failure to comply will mean the income stream will not be in the retirement phase (ie lose tax exemption benefit)
Defined Benefit Pensions • Lifetime annuities, complying pensions, market linked pensions which can’t be stopped until death have different valuation rules • Cannot create a excess transfer balance amount on its own, value calculated to: – Determine if other member pensions exceed the cap – Assess member TSB
Defined Benefit Pensions • Taxed defined benefit arrangements - half of any pension income over $100,000 is included in the recipient’s assessable income and taxed at the individual’s marginal rates • Untaxed defined benefit arrangements – 10% offset limited to the first $100,000 of benefit received
Death Benefit Pensions • Deceased’s balance must be paid via a pension or lump sum after death • What happens if the death benefit pension causes an excess beyond $1.6m for the survivor? • Twelve month period of grace where excess is counted but won’t require action – only where the deceased’s pension reverts automatically – all other cases will be treated as a new pension
Death Benefit Pensions • To reduce an excess transfer balance to the survivor you could choose to roll back their own income stream to get under the limit • If there is no choice but to roll back the deceased’s pension, the commuted amount must be paid out of the superannuation system as a lump sum
Death Benefit Pension Planning • Bill and Dawn’s $3.2m fund has grown to a $4m fund by 30 June 2018 each have two pensions • Bill dies Oct 18 his two pensions revert to Dawn • Dawn now has $4m in pension • 12 months to deal with this • What is the plan?
Death Benefit Pension Planning Balance Jun-18 Oct-18 Oct-19 Component Bill Pension 1 1m Taxable Bill Pension 2 1m Tax Free Dawn Pension 1 1m 1m Taxable Dawn Pension 2 1m 1m Tax Free Death Benefit Pension 1 1m .6m Taxable Death Benefit Pension 2 1m 1m Tax Free Accumulation 2m 50/50 Lump Sum Payout .4m Taxable Total 4m 4m 4m
Transition to Retirement Income Streams • Post 30 June 2017 earnings tax exemption provisions now do not apply to a TRIS • Post 1 July 2017 TRIS salary sacrifice strategy still benefits those over 60, sacrifice amount is taxed at 15% whilst the pension paid is tax free • Those with a TRIS can obtain CGT relief
CGT Exemption
Transitional CGT Relief Rules • Allows funds to reset the cost base on CGT assets • Election is per asset • Two choices – Segregated method – Proportionate method • Elections to be done with 2017 income tax return – Must be lodged by return due date or invalid
Transitional CGT Relief Rules • Proportional asset provisions – applies to pension assets acquired pre 9 November 2016 – assets selected have their cost base refreshed to MV – notional gain is determined by your fund’s exemption percentage at 30 June 2017 • Where the majority of the fund is in pension minimal gain – any gain will form part of the net gains for the year unless deferred to when that asset is eventually sold
Transitional CGT Relief Rules • For segregated current pension assets: – applies to segregated pension assets acquired pre 9 Nov 2016 – assets transferred from retirement phase back to accumulation phase to comply with the $1.6 million cap will be taken to be disposed of and reacquired on the day of being transferred – unlike proportionate method doesn’t refresh all assets as its limited to the capital value of the reduction
Checklist
Checklist • Review Salary Sacrifice Arrangements • Members with balances over $1.6m – maximise NCC as this could be final chance • Utilise NCC for members with balances over $1.6m to even up balances with spouses • Utilise NCC for re-contribution strategies to improve death benefit tax situation
Checklist • Maximise NCC’s before making CGT rollovers • Maximise personal contributions to untaxed funds to claim a deduction before 30 June 2017 • Consider contribution opportunities that may be available following the removal of the 10 per cent rule • Look at contribution splitting and spouse contributions
Checklist • Commutation resolution to be signed by 30 June 2017 for pensions over $1.6m, pick high taxable pensions first • Last year to maximise TRIS strategy, review whether your TRIS should continue after 30 June 2017 • Have you retired or changed jobs after 60? • Check that existing pensions are reversionary
Checklist • Make sure CGT elections are made and that 2017 Fund Income Tax Return is lodged by it’s due date • Remember that those with TRIS’s can use the CGT election • Valuations be very careful • Don’t forget to pay you pension minimums!
Disclaimer The material and opinions in this presentation should not be used or treated as professional advice and attendees should rely on their own enquiries in making any decisions concerning their own interests.
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