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. This Bill also proposes the reduction to the threshold at which high-income earners pay division 293 tax on their concessional taxed contribution to superannuation to $250,000.
Both houses have also passed Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 which imposes an excess transfer balance tax on the notional earnings of capital moved into a retirement phase superannuation account that is in excess of $1.6 million.
The Bill will now need to receive Royal Assent before it is formally law. This is generally accepted to be a mere formality.
There are a multitude of changes to consider and seven months to advise clients and to implement the appropriate strategies.
Consider CGT relief
The object of the provisions is to provide relief for complying superannuation funds from the tax consequences for capital gains accumulated before 1 July 2017, where these gains would have been exempt if realised prior to a commutation being made to comply with the transfer balance cap or the change to the treatment of TRIS.
The CGT relief will reset the cost base for the chosen assets to their current market value immediately before the cessation time (30 June 2017). It will also reset the 12 month period for the assets to be eligible for the CGT discount.
The CGT relief will not impact on the following clients:
- Clients that are solely in accumulation phase
- Clients that have pensions accounts which are valued at less than $1.6 million
The CGT relief will impact on the following clients:
- Clients with pension accounts which are valued at greater than $1.6 million
- Clients with a combination of pension and accumulation accounts which are valued at greater than $1.6 million
Clients that have pensions and/or accumulation accounts in excess of $1.6 million need to review their pensions and/or commence new pensions with their accumulation accounts prior to 30 June 2017. There is a particular advantage for pensions that have commenced before 9 November 2016, the date the legislation was introduced to Parliament.
The following is an overview of the key changes that will occur 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.
- Introducing a concessional contributions catch-up regime for those with total super balances of less than $500,000 from 1 July 2018.
- Allowing a deduction for personal contributions without testing the proportion of employment income received (the 10% test).
- Reducing the non-concessional contribution cap to $100,000 pa (or $300,000 under the bring forward provisions), limiting the ability to make NCCs to people who have a total superannuation balance of less than $1.6 million and introducing transitional rules for those who triggered the bring forward rule prior to 1 July 2017.
- Abolishing the anti-detriment payment.
- Removing tax exempt earnings for transition to retirement income streams.
- Lowering the income threshold for Division 293 tax to $250,000.
We will continue to keep you updated as the legislation receives formal approval.