Measure

Details

Considerations

$1.6 M transfer balance cap

From 1 July 2017 a $1.6M transfer balance cap will be imposed on the amount that can be transferred to the pension phase.

Defined benefit pensions that have no account balance will have additional tax applied where pension payments are in excess of $100,000

Pensions already commenced need to be revisited as the measures are not grandfathered.

Consider rolling back excessive balances to take advantage of CGT relief.

Taxation imposed where transfer balance cap is exceeded

Where the cap is exceeded the fund will be instructed to commute the excess to an accumulation account for the individual or to the individual as a lump sum benefit payment.

The excess will include a notional earnings on the excess and the individual will be liable for tax on this.

The excess transfer balance tax is set as follows:

• 2017/18 – 15%
• 2018/19 onwards – 15% for first breach & 30% for all subsequent breaches.

If an excess on 1 July 2017 applies considerations should be made to determine which pension interest should be commuted and whether to keep these benefits in super or not.

Not dealing with the excess will result in the ATO making a determination on the client’s benefits.

Concessional contribution cap

From 1 July 2017 the concessional contribution cap will be reduced for everyone to $25,000

Opportunity exists for 2016/17 financial year to take advantage of the higher caps

From 1 July 2017 those who are making concessional contributions to super either personally or via salary sacrifice need to be mindful of the lower caps

Div 293

From 1 July 2017, the Division 293 tax threshold will reduce from $300,000 to $250,000

Whilst more people will pay the higher tax of 30% on concessional contributions, it is still significantly lower than the top marginal rate from 1 July 2017 of 47%.

Carry forward Concessional Cap

From 1 July 2018, those who have a super balance of less than $500,000 on 30 June in the previous financial year can carry forward any unused concessional contributions for up to five years.

Opportunities may apply to play catch up as they have been out of the work force or those that have variable income.

Deducting personal contributions

From 1 July 2017 the 10% test will be removed when determining who can make a personal deductible contribution. 

The measure will not apply to members of untaxed superannuation funds nor to defined benefit schemes that elect not to be subject to the measure.

People who have previously failed to satisfy the 10% test may have the ability to make personal deductible contributions.

However, salary sacrifice is generally administratively easier and will still suit many clients.

Non concessional contribution cap

From 1 July 2017 the non- concessional cap will be reduced to $100,000 and the ability to make NCC will only be available to those who have a super balance below $1.6 M.

Where the bring forward is triggered from 1 July 2017, the amount of the bring forward (the bring forward cap) and the bring forward period will depend on the difference between the general transfer balance cap (i.e. $1,600,000 as at 1 July 2017) and the  members total superannuation balance at that time (first year cap space).

Consideration exists this financial year to utilise the $540,000 bring forward.

Low income tax offset

From 1 July 2017, people with an adjusted taxable income of less than $37,000 will effectively receive a refund of the tax paid on their concessional contributions up to $500.  

People on lower incomes will receive an incentive to save through superannuation.

Tax offset for spouse contributions

From 1 July 2017 the total spouse income threshold will be increased from $13,800 to $40,000. The maximum offset will remain at $540 and be payable where a spouse’s income is no more than $37,000.

No offset will be allowable where the receiving spouse has exceeded their non-concessional cap for the relevant year.

Opportunity exists for to access the tax offset, and also assist spouses improve their super balances

Innovative income streams and integrity

The tax exempt status will be extended to new lifetime products such as deferred products and group self-annuities. This measure seeks to address longevity risk worn by retirees.

The tax exemption on the earnings of transition to retirement income streams will be removed from 1 July 2017.

SMSFs and small APRA regulated funds will be prevented from using the segregated methods to calculate earnings tax exemptions where their total super balance exceeds the $1.6 million transfer balance cap.

TTR pensions may consider bringing forward any rebalancing of their portfolios to this financial year to access the tax exemption on earnings of pension assets.

SMSF trustees should manage their fund structure to ensure that they can make effective use of the CGT relief.

Anti-detriment provisions

From 1 July 2017, superannuation funds will no longer be able to claim a tax deduction for a portion of the death benefit paid to eligible dependants.  

Terminally ill people who may pass away this financial year should consider rolling their benefits to a fund which pays anti-detriment. This is especially important for those who are members of SMSFs which generally don’t pay anti-detriment.

Administrative streamlining

Amendments will be made simplify and consolidate the release authority process where excess contributions (either concessional or non-concessional) are withdrawn from superannuation

People who have an excess on an annual basis are aware of the new processes for dealing with those excesses.