IS YOUR SMSF READY FOR THE SUPER REFORMS?

Details

Who is affected?

Review Considerations

From 1 July 2017, the government will lower the annual concessional contributions cap to $25,000 for all members.

• Existing members with concessional contributions in-excess of $25,000 p.a.
• Existing members with salary sacrifice arrangements
• to ensure they don’t exceed the cap

From 1 July 2017 the tax threshold is reduced from $300,000 to $250,000

• Review & discussion any potential restructuring of personal tax affairs of affected members – particularly those with income between $250k and $300k who are now likely to be impacted
• From 1 July 2018, release authorities must be returned to ATO with Payment

From 1 July 2018, members will be able to make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

• Consider strategies including contribution-splitting, restructuring of member benefits and potentially investment reserving.

From 1 July 2017, the government will lower the annual non-concessional (after tax) contribution cap from $180,000 to $100,000 per year. This will remain available to members between 65 and 74 years old if they meet the work test. The cap will be indexed in line with the concessional contributions caps.

• Members under 65 may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. If eligible, when contributions greater than the annual cap can use ‘bring forward’ arrangement.
• From 1 July 2017, the non-concessional contributions cap amount that you can bring forward and whether you have a two or three year bring forward period will depend on your total superannuation balance.

From 1 July 2017, the spouse’s income threshold will be increased to $40,000 from the current $13,800 extend the current spouse tax offset

• Identify opportunities for members to make future spouse contributions

The condition that that less than 10% of their income is from salary and wages will be removed from the determination as to whether a member qualifies for deductions

• Identify opportunities and consider timing of concessional contributions
• Prepare for additional reporting requirements – Notices of intent could be received and will lead to acknowledgements needing to be issued.
• Review to see if additional members may now be eligible to claim a tax deduction

From 1 July 2017, eligible members with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.

Low Income Superannuation Contribution (LISC) will be replaced

• Identify possible members that can benefit from the changes and ensure they claim the contribution

Details

 Who is affected?

 Review Considerations

From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be, or has been transferred into the tax-free retirement phase for account-based pensions.

• Which super income streams are to be commuted to comply with the general transfer balance cap
• Should the excess balance amount be withdrawn or retain within accumulation?
• Review of income streams in light of Assess construct of income streams to determine:
• pros and cons of reversionary income streams
• How to structure payments in the event of death  – a death benefit (pension or Binding nomination) which member balance to commute
• Review the likely value of their current or impending pensions as at 30 June 2017 and be ready to reduce the value of these pensions if necessary.
• If assets need to move back to accumulation phase, decide if you will apply CGT relief  (refer below)

After 1 July 2017

• new reporting obligations when members start or commute retirement phase income streams
• Consider implications of additional real time reporting and whether SMSF Software can provide this
• new withholding obligations if the member is over 60 years old for lifetime pension or continuing market linked and life expectancy pension
• Review members that are near or exceed the cap due to growth

From 1 July 2017, the government will remove the tax-exempt status of earnings from assets that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.

Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.

• Assess the benefits of continuing with TRIS having regard to Member’s income needs and age
• Consider benefit of retaining for proportioning rule
• Funds can no longer claim exempt current pension income (ECPI) from assets supporting a TRIS.
• Include income from assets supporting a TRIS, in assessable income.

Complying superannuation funds are able to reset the cost base of assets to their current market value where those assets are reallocated or re-apportioned to the accumulation phase prior to 1 July 2017 in order to comply with the transfer balance cap or new transition to retirement income stream arrangements.

Where the assets are already partially supporting an interest in the accumulation phase, tax will be paid on this proportion of the capital gain made to 1 July 2017. This capital gain may be deferred until the asset is sold.

CGT relief applies differently and is subject to different conditions depending on whether the superannuation fund segregates assets to support its current pension liabilities or whether it applies the proportionate method.

The relief applies to reallocation or re-proportioning made between 9 November 2016 and 30 June 2017 in relation to assets a complying superannuation fund held through that period.

• Determine if the fund is segregated or unsegregated
• Determine if the fund meets a criteria to enable the election of CGT relief (only available where done in order to comply with the transfer balance cap or new transition to retirement income stream arrangements)
• Assess unrealised CGT position of fund assets having regard to: • Tax exemption methodology • Future Tax exemption • Future cash flow needs of members • Future investment performance • Length of time holding fund asset
•  Determine whether one or more assets in the SMSF should have CGT relief applied
• The superannuation fund must formally elect to apply the relief if they wish to do so. The superannuation fund must make this choice and notify ATO in the approved form on or before the day the trustee is required to lodge the fund’s 2016–17 income tax return.