Here is a snap shot of some of the key superannuation changes that are to come into effect from 1 July 2017.
Spouse Tax Offset
The spouse tax offset entitles an individual who makes non concessional contributions on behalf of their spouse, married or defacto to claim a tax offset of up to $540.
The spouse’s income* threshold has increased from $10,800 to $37,000. The tax offset gradually reduces above this threshold and completely phases out at an income above $40,000.
The tax offset is not available when the spouse has exceeded their non concessional contributions cap or when their total superannuation balance is $1.6 million or more.
*Definition of income for spouse tax offset = assessable income + reportable fringe benefits + reportable employer superannuation contributions
Low Income Superannuation Tax Offset (LISTO)
The Low Income Superannuation Tax Offset (LISTO) replaces the Low Income Superannuation Contributions (LISC) in name only. The rules regarding eligibility and the calculation of the offset pertaining to LISC remain the same.
A member is entitled to the offset if their adjusted taxable income is below $37,000 and their super fund has received concessional contributions for the financial year.
The maximum offset is $500 and is calculated by the ATO based on the member’s tax return and information supplied by the super fund.
Reduction of Division 293 income threshold to $250,000
The income threshold will fall from $300,000 to $250,000 resulting in more members being caught by this change.
Thus, effective 1 July 2017, a member with income** plus concessional contributions that exceed $250,000 for that financial year is taxed 15% on the lesser of
• the total concessional contributions; or
• the excess amount over $250,000
The tax is levied on the member however, it can be paid from the super fund using a release authority. The tax is in addition to the 15% levied on concessional contributions within the super fund.
**Definition of income for Div 293 = taxable income + reportable fringe benefits + total net investment loss – taxed element of superannuation lump sum – reportable superannuation contributions.
Personal superannuation contributions deduction
A member may in certain circumstances be employed for part or the whole year whilst also being self employed in that same year. For example, a doctor may be employed at a hospital for one day a week whilst the remainder of the week is taken up consulting at their private practice.
In circumstances like this, a member would only be able to make personal contributions to their super fund if their employment income was to be less than 10% of their total income for that year. This is referred to as the 10% rule.
In simplifying this process, the 10% rule will no longer be applicable from 1 July 2017.
Although this will provide immediate relief for those affected by the rule, it also presents an opportunity for members who are solely employed or receiving investment income to now also make personal contributions to their super fund.
A personal contribution is assessed in the super fund and the member is entitled to claim a tax deduction for it in their personal tax return. Note however, that a member’s personal contribution cannot take them into a tax loss position in relation to their personal income tax return.
Currently, a member making a personal contribution is required to provide a notice to their super fund regarding the amount they wish to claim. This notice will still be a requirement after 1 July 2017.
Reduction of the concessional contributions cap to $25,000 per annum
The concessional contribution cap for all members will be set at $25,000 per annum. It will no longer be based on age.
The 2016/2017 financial year is the last year available for members to maximise their concessional contributions caps of:
• Members aged under 49 at 30 June 2016 $30,000
• Members aged 49 and over at 30 June 2016 $35,000
Reduction of non concessional contributions cap to $100,000 per annum
From 1 July 2017 the non concessional contribution cap will fall from $180,000 to $100,000 per annum.
Members under the age of 65 will still be able to access the 3 year bring forward rule, however, the amount will be reduced from $540,000 to $300,000 from 1 July 2017.
2016/2017 is the last financial year a member is able to make non concessional contributions totalling $540,000.
The government has introduced transitional measures for those members that have not exhausted their 3 year bring forward amount at this date.
In addition, from 1 July 2017, members will now also need to consider the level of their total superannuation balance before making any non concessional contribution. A member will only be able to make non concessional contributions if their account balance as at 30 June the previous year is less than $1.6 million. Additionally, thresholds are in place for the 3 year bring forward rule in respect to account balances close to $1.6 million.
For further information in relation to the transitional measures and the non concessional amounts available to be made where superannuation balances are between $1.3 million to $1.6 million please refer to the article, Implications of the Proposed Non Concessional Contributions Cap on our website www.concisesuper.com.au
Removing the tax exempt status for Transition to Retirement Income Streams
A member who has met their preservation age*** and is currently working full or part time is able to receive an income stream referred to as a transition to retirement (TTR) income stream from their super fund.
The intent of the TTR income stream is to assist members transitioning to retirement who reduce their working hours and supplement their income by drawing down an income stream.
Generally, a proportion of the assets of the super fund are used to support the members TTR income stream. The income resulting from those assets are not taxed within the fund, as they are tax exempt. This results in minimising the tax the super fund would otherwise pay.
The Productivity Commission has found that the TTR income stream has been used for tax minimisation purposes rather than its initial intent. Generally, members were not reducing their working hours and did not necessary need the income stream to supplement their income.
As a result, from 1 July 2017 the earnings on the super fund assets supporting a TTR income stream will no longer be tax exempt. The income will be assessed at 15%. The TTR income stream will form part of a member’s accumulation balance going forward.
Members will need to consider whether to continue their TTR income stream in light of the removal of the tax exempt status or cease it altogether.
In either circumstance, transitional CGT relief provisions will be available to members transferring their assets back to accumulation stage (see Transitional CGT Relief below).
***Current preservation age is 56 (members born between 1 July 1960 – 30 June 1961).
Transfer balance cap of $1.6 million for pension accounts
Generally, a member is able to commence a pension without any limitations on the amount of that pension. The income on the assets supporting the pension are tax exempt.
From 1 July 2017 the government is placing a cap on the maximum amount that can be transferred into a pension account. The purpose of this cap is to limit the tax exempt income that a super fund is entitled to claim on its pension assets. The cap amount is $1.6 million.
Members already receiving a pension prior to 1 July 2017 and are in excess of $1.6 million will need to action the points below by 30 June 2017:
1. commute the excess back into their accumulation account; and/or
2. withdraw the excess amount from their super fund
The $1.6 million is referred to as the general transfer balance cap. This cap is indexed in line with the consumer price index and will increase in $100,000 increments.
From 1 July 2017 each member will have their own personal transfer balance cap for the duration of their lifetime that is determined by when they first commence a pension. Members with a pension in existence prior to 1 July 2017 will have their personal transfer balance capped at $1.6 million. Members that commence a pension post 1 July 2017 will have their personal transfer balance capped at the general transfer balance cap at that point in time.
As with the TTR income stream changes, transitional CGT relief provisions will be available to members transferring their assets back to accumulation stage.
Transitional CGT Relief
Members that have a TTR income stream or who have a pension in excess of $1.6 million are required to reallocate/reapportion those assets from pension to accumulation stage. As the assets are moving from a tax exempt to a taxable environment, the government has introduced provisions to provide relief from capital gains that might arise in complying with these requirements.
The CGT relief will allow trustees of super funds to reset the cost base of those assets reallocated/reapportioned to their market value by 30 June 2017. The choice can be made on an asset by asset (and even on a parcel by parcel) basis. Note that the choice is irrevocable and an election must be made before the 2016/2017 super fund annual return is lodged.
However, there is no requirement on the trustee to utilise the CGT relief. Each super fund is unique and there are many considerations to take into account including how it affects the members account.
The assets subject to the relief must have been owned by the super fund before or on 9 November 2016 and held to 30 June 2017. This is referred to as the pre commencement period.
The calculation of the CGT relief will depend on whether the segregated or proportionate method is being used in calculating the exempt income of the super fund.
The CGT relief is a one off opportunity that will end on the 30 June 2017.
Although, the article contains some technical jargon, in general as trustees it is important to be abreast of the upcoming changes to determine if it affects you or not. For some trustees, there may not be a huge impact; alternatively, there may be opportunities to explore well before 1 July 2017.
Before you act, contact Concise Super to seek professional advice on how the changes may affect you.
February 2017 ~ Fabio Salvatore, Concise Super
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