You may be aware of the passage of a raft of superannuation changes through the Parliament during the past week.
Two superannuation Bills, which include the proposed introduction of the $1.6 million transfer balance cap and changes to concessional contributions, have now been passed by both houses of Parliament.
The Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 amends five acts including a $1.6 million cap on the amount of capital that can be transferred to the tax-free earnings retirement phase of superannuation.
The Bill will now need to receive Royal Assent before it is formally law. This is generally accepted to be a mere formality.
So what does all of this mean for you?
As part of our annual follow up after completion of your 2016 year end accounts, we will conduct a review or “health check” of your fund to ascertain what impact, if any, the changes will have on the individual members of the fund and the superannuation fund overall. Furthermore, it may result in some opportunities for you to improve the health of your SMSF and prompt you to take the necessary action where it is required. Importantly, any changes that are required to your fund will need to be in place by 30 June 2017.
The following highlights those members that will be effected by the introduction of the $1.6 million transfer cap
- Funds with pension accounts which are valued at greater than $1.6 million;
- Funds with a combination of pension and accumulation accounts which are valued at greater than $1.6 million.
Members who meet the following criteria will need to seek advice in relation future contributions:
- Funds that are solely in accumulation phase;
- Funds that have pensions accounts which are valued at less than $1.6 million.
The key message is that members that have pensions and or accumulation accounts in excess of $1.6 million need to review their pension arrangements prior to 30 June 2017. There is a particular advantage for pensions that commenced before 9 November 2016, the date the legislation was introduced to Parliament.
In summary the key changes that will impact members from 1 July 2017:
- Introducing a $1.6 million transfer balance cap which limits the amount that can be transferred to the retirement phase, where earnings are tax-free;
- Reducing the concessional contributions cap to $25,000 for all taxpayers;
- Abolishment of the 10% rule allowing members receiving employer contributions to top up with personal contributions and claim a tax deduction for any top up contributions;
- Reducing the non-concessional contribution cap to $100,000 pa (or $300,000 under the bring forward provisions). Members with balances in excess of $1.6 million cannot make any further concessional contributions post 30 June 2017;
- Anyone with a Transition into Retirement pension will no longer be eligible to claim tax free pension earnings;
- members with income of more than $250,000 will pay an extra 15% tax on their concessional contributions.
We will continue to keep you updated as we finalise the review of your annual accounts and as the legislation receives formal approval early in the New Year.