It is now 6 months since the May budget superannuation announcements, these announcements in some cases have been significantly amended and now we are at the stage where legislation is being introduced to Parliament. Finally!
So what does it all look like and what will it mean for taxpayers?
There are many different components to the proposals, which will affect taxpayers in different ways. The way the proposals affect you will depend on what stage of life you are at, what level of assets you have in superannuation and what your plans are for the distribution of your assets upon your death.
Concessional Contributions – will reduce to $25,000 from 1 July 2017. Can you take advantage of the higher thresholds of $35,000 and $30,000 (depending on your age) in the current tax year?
Non-Concessional Contributions – will reduce from $180,000 ($540,000 under the 3 year bring forward rule) to $100,000 per year ($300,000 under the bring forward rule) from 1 July 2017. How does this affect your future planning?
The $1.6m pension transfer cap – this is probably the most complex of the changes. In summary it means every taxpayer will be allowed to have earnings on the first $1.6m of pension savings to be exempt from income tax within the superannuation fund. Any earnings on the excess will be taxed at 15%. As an example if you have $2.0m currently in your pension account, then $1.6m will be retained in an exempt pension account and $400,000 will be an accumulation account. The earnings on the $400,000 (20% of the overall earnings) will be subject to tax at 15%.
- Taxpayers will need to understand the likely potential extra tax impact and if affected, will need to determine whether they are better off earning this amount of taxable income in their own individual name. Why? Because each individual is allowed to earn $18,200 in their own name without paying tax. If you are over 65, the amount you can earn without paying tax is much greater than $18,200.
- There is also a significant impact upon the death of a pension member. Death of a member and transferring the pension to a surviving spouse from 1 July 2017 will now only be allowed up to the surviving spouse’s unused pension transfer cap. If this has already been used in full this may require the complete payout of the deceased member’s benefit from the Fund to the surviving spouse. This will be a significant issue if the Fund owns illiquid assets such as any type of property. It will also mean future taxable earnings on the assets transferred into the name of the surviving spouse will be taxed at their marginal tax rates.
Changes to the Transition to Retirement Income Stream (TRIS) income tax exemption – from 1 July 2017 a Superannuation Fund will lose the tax exemption on investment earnings where a TRIS is paid. The exemption can only be retained if the income streams being paid to the member are account based pensions. For this to occur, the member has to satisfy a Condition of Release (generally these are A/ reaching preservation age and retiring; B/ reaching age 65; or C/ having one arrangement by which you are gainfully employed cease after you reach age 60).
Abolition of the 10% rule – this is a big win for taxpayers for the 2018 year. Currently if you receive more than 10% of your assessable income in the form of wages/employment income, you are unable to claim a personal deduction in your income tax for any superannuation contributions. Under the proposed changes, all eligible taxpayers, regardless of their employment situation, will be able to claim a deduction in their individual tax return for personal contributions to superannuation. This will be a wonderful tax planning opportunity (but will still be subject to annual concessional contribution limits).
ONCE THESE PROPOSALS BECOME LAW – it is essential you get some advice to ensure you are aware as to how these proposals will affect you.
YOU WILL HEAR FROM GREEN TAYLOR PARTNERS AS SOON AS THESE PROPOSALS BECOME LAW – WE ALSO PLAN TO RUN SEMINARS FOR CLIENTS IN MARCH/APRIL/MAY 2017.
Under changes made to how superannuation advice can be provided, as accountants we are unable to recommend a course of action to you. We are only able to outline the taxation, cash flow or compliance consequences of any actions you take or do not take. In order to provide any recommendations in relation to your superannuation, this can only be done under a specific financial advice license.