The most substantial superannuation amendments in a decade are here, with over a dozen separate measures requiring attention for existing super strategies.
Having cleared the first hurdles on 30 June, it is now time to look down the track and start thinking about the next looming obstacles. This article outlines some of the issues that should be front-of-mind during 2017–2018.
One of the biggest changes is the $1.6 million cap on tax-free pension balances. The limit, which will mainly affect wealthy individuals, applies to the total lifetime amount of accumulated superannuation a person can transfer into the tax-free retirement phase. Subsequent earnings on balances in the retirement phase from July 2017 will not be capped.
Individuals with a retirement phase balance that exceeds the $1.6 million limit have to roll back the excess amount to accumulation phase within their super (where it will be subject to the concessional 15% tax rate) or remove the excess amount from the pension system by paying themselves a lump sum (known as “commutation”) – or combine these actions – to bring their retirement phase balance to $1.6 million or less.
If the total of your retirement phase income streams at 1 July 2017 was between $1.6 million and $1.7 million (that is, you have an excess transfer balance of up to $100,000), you may be glad to hear there is a six-month transitional period. You can avoid penalties if you notify the ATO by 31 December 2017 and take action to roll back or commute the excess amount.
A measure has also been recently legislated (with effect from 1 July 2017) that treats certain repayments of LRBAs from an accumulation account as a credit in a member’s pension transfer balance account. The government’s intention with this measure is to prevent SMSF members from circumventing the $1.6 million transfer balance cap by transferring money from an accumulation fund to retirement phase.
Pension balance reporting
Trustees of SMSFs are required to lodge an electronic transfer balance account report (TBAR) with the ATO. The ATO needs this data about individuals’ existing and newly started superannuation income streams to administer the pension cap regime, so the TBAR requirement likely to be strictly enforced.
The ATO has published a Position Paper to explain how events based reported by SMSFs for transfer balance cap purposes will work, including which events SMSFs will be required to report to the ATO and how often these events will be reported.
The Position Paper is suggesting that any “reporting events” for the year ended 30 June 2018 will be required on or before 1 July 2018. From 1 July 2018, the ATO are currently proposing certain “reporting events” be required by 10 days after the end of the month in which the reporting event occurred.
As this will be increasing the regularity of compliance obligations for your SMSF, we ask that you consider whether your SMSF bank account is currently set up to provide us with data feeds. If it is not, please contact us to initiate this process.
The concessional (before-tax) contribution cap has been lowered to $25,000 for the 2017–2018 financial year (down from $35,000 or $30,000, depending on your circumstances). If you have salary sacrifice and/or voluntary pre-tax contribution arrangements in place, it is important to review them and adjust your contribution amounts so you don’t inadvertently breach the new, lower limit. Be mindful, too, that your employer’s 9.5% Super Guarantee contributions are counted within the concessional cap amount. Before-tax contributions in excess of the $25,000 cap, regardless of whether you make them or your employer does, will be considered part of your assessable income and taxed at the relevant marginal tax rate.
The main shift regarding non-concessional (after-tax) contributions is that individuals with a total super balance above $1.6 million are now prevented from making further non-concessional contributions.
Finally, individuals with a total superannuation balance of less than $500,000 on 30 June of the previous financial year can make additional catch-up concessional contributions for unused cap amounts from the previous five years, starting from 1 July 2018. This measure may benefit people with interrupted work patterns, who are likely to end up with unused amounts within the concessional cap some years but may have more money available to contribute in others.