Since the 2016 Federal Budget on May 3 and the Federal Election soon after, there have been minimal developments concerning the proposed changes to superannuation, particularly for accountants in Sydney.
However, the government released draft legislation last week, which is now open for submissions until 16 September and summarised below.
This has been the first clear indication that superannuation reforms will become law, so until set in stone, more outstanding care in planning should be taken.
Re-Cap of the Coalition’s Budget announcements and where we are at
Immediate changes (still to be legislated)
- Introduction of a $500,000 Lifetime Cap on Non-Concessional Contributions (“NCCs”):
- This $500,000 limit applies to NCCs made since 1 July 2007.
- When will there be more clarity? The word is draft legislation by 31 January 2017.
- What to do in the meantime? Should you be thinking of making NCCs as we advance, it would be prudent to check if you have exceeded this lifetime limit to date, and if not, take the conservative approach by not contributing more than $180,000 pa., assuming the 2-year bring forward rule has not been previously triggered.
Measures included in the Draft Legislation – Changes from 1 July 2017
- Removal of the Work Test for individuals aged 65 to 74 who wish to make voluntary superannuation contributions.
- Removal of the 10% test for Personal Concessional Contribution Deductions.
- Introduction of a revised Low Income Superannuation Tax Offset.
Other Measures: Proposed to be effective from 1 July 2017
- Introduction of a $1.6m maximum pension account balance:
- There will be a “transfer balance cap” of $1.6m that an individual can transfer into the pension phase, where the excess amount will be maintained in an accumulation account (where earnings are taxed at 15%).
- When will there be more clarity? Hopefully, later this year, in the second tranche of draft legislation.
- How will this be accounted for? The mechanics of how this will work may impact on but not limited to the following: reversionary pensions and death benefits; commutations and refreshing of pensions; Transition to Retirement Pensions and insurance payouts.
- What to do in the meantime? Some strategies that may be worth considering include: segregating high-earning assets to pension accounts to minimise taxable income, crystallising sizeable unrealised capital gains this current financial year as the tax-exempted earnings still apply; contribution splitting to a spouse with a lower balance.
- Introduction of Catch-up Concessional Contributions for individuals with less than $500,000 superannuation balances.
- Reduction of Concessional Contributions Cap to $25,000 for everyone.
- Reduction of the Division 293 Tax Threshold to $250,000 for everyone.
- Taxation of earnings on Transition to Retirement (TTR) Pensions.
Conclusion
All the above reforms are proposed changes only and are subject to legislative approval, so the current rules should be followed. Only time will tell whether there will be actual legislation before the end of this calendar year.
If you have any queries on the above information, please do not hesitate to contact us today.
Kreston Stanley Williamson Team
*Correct as of September 2016
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
