Superannuation changes from 1 July 2017

June 16, 2017

Matt Richardson

Is the world about to end??

With two weeks to go until 30 June 2017 I thought it was the right time to offer a reminder of what is happening to superannuation from 1 July 2017.  It is also the right time to remind you of what actions you might need to take to ensure you are well prepared for these changes.

New Rules – Summary

1. Concessional Contribution limit reduces to $25,000;
2. Non-Concessional Contribution limit reduces to $100,000;
3. $1.6m pension cap begins;
4. Transition to Retirement Income Streams (TRISs) lose tax-free status on investment earnings;
5. Removal of option to treat a pension payment as a lump sum payment for tax purposes.

Actions Required

1. The current financial year is the last chance to take advantage of the $35,000 concessional contribution ($30,000 if under 50).  If able to claim a tax deduction on superannuation contributions, ensure this is worth your while by doing some tax planning with your accountant.  From 1 July 2017 those employees with salary sacrifice arrangements who are currently maximising their super contributions, you will need to contact your employer to reduce your contributions to take into account the lower $25,000 limit;
2. You only have 3 weeks to determine whether you wish to maximise your non-concessional superannuation contributions using the $180,000 limit.  You may also be eligible under the 3 year bring forward rule to contribute up to $540,000 (3 years’ worth).  This financial year is your last chance to make these larger contributions so make sure you obtain appropriate advice relating to the suitability of this;
3. If you will be exceeding the $1.6m pension limit you will need to make a choice as to whether you will be withdrawing the excess or simply converting the excess to an “accumulation account”.  For SMSF trustees affected by this we will be helping you manage this process prior to 30 June by providing you with the appropriate Trustee Meeting paperwork for signing.  It is not necessary to calculate the exact amount of the excess over the $1.6m as this can be worked out after 30 June 2017, but the Trustee paperwork can be prepared prior to this date.  Trustees will also be required to nominate which assets they will be applying for CGT relief (for accrued capital gains up to 30 June 2017), however this does not have to take place until the SMSF tax return is lodged.  Again, we will help you with this process;
4. For anyone who is currently receiving a TRIS, you can continue to receive the income, but the earnings within the Fund will now be taxed at 15%.  The only way to change this is if you satisfy a Condition of Release (COR) and notify the Trustees that you have.  Once you satisfy a Condition Of Release the TRIS converts to an Account Based Pension and its earnings are now exempt from tax!  The 3 common Conditions of Release are:
   1. Attained Preservation Age (currently 56) and have no intention of being gainfully employed again;
   2. Attained age 65 (regardless of your employment status); or
   3. Are at least age 60 and one arrangement by which you are gainfully employed has ceased (this is often overlooked!)

You may have satisfied a Condition of Release without even knowing it (example c above), which could make a significant difference to the tax paid by your SMSF.  It is essential you have paperwork on file to confirm this.

5. If you wish to take advantage of this measure you need to make sure you have an appropriate election in place as well as ensuring the correct PAYG Payment Summary is completed.

The world is not about to end – in fact there are still opportunities to enhance your position in the last 3 weeks of the year.  Massive selling of SMSF assets or transfers into your individual names are not required – selling/transferring assets may actually be the worst thing you can do because you may not be able to get these assets back into an SMSF structure. You might also incur unnecessary costs!

Be ready. Get appropriate advice. Enjoy your day – then make someone else’s day!