TAX BULLETIN – PRE-BUDGET PLANNING - APRIL 2016

The 2016 Federal Budget will be handed down on 3 May. There are rumours in the media that there will be a crackdown on superannuation tax breaks. Now may be the time to make the most of the benefit allowed under the current rules.

Superannuation Contribution Limits for 2015/16
Concessional (before tax)
If you were under 49 at 30/06/2015 you can contribute up to $30,000 a year. This increases to $35,000 if you were 49 or over.

Non – concessional (after tax)
The annual cap is $180,000 per financial year. If your under 65, you are allowed to bring forward up to 3 years’ worth of contributions and contribute up to $540,000. If you’re over 65, you must satisfy a work test.

Transition Pension
It may be worth considering starting a transition to retirement pension to access your super now if you’ve reached the “preservation age” of 56 (As at July 1, 2015). The attraction of a pension is that investment earnings on a super balance in pension phase is tax free.

Contribution/Pension Strategy
A strategy worth considering is making a large super contribution and then converting this immediately into a pension.

New Pension Strategy
In a recent private ruling a disconnect between the rules governing superannuation funds (SIS laws) and the tax rules governed by the ATO have created a tax planning opportunity for those taxpayers born between 1 July 1956 and 1 July 1960.

There is the possibility to convert your superannuation balance to a pension which will render the underlying superannuation balance tax free. The exercise is often not undertaken because the taxable component of the pension is subject to tax at marginal rates less a 15% rebate.

A loophole has been in place for some time for those who have met a condition of release that allows lump sum payments. This allows taxpayers to make a draw as a lump sum but it also counts towards the minimum pension draw. The twist is the lump sum draw has a lifetime tax free component of $195,000 so amounts up to that level can be drawn tax free. By using this loophole the superannuation balance and the draw becomes tax free.

The recent private ruling has established that an amount can be drawn as a pension under SIS legislation but under tax legislation you can elect not to have it treated as a pension so it defaults to a lump sum draw even though you have not met a condition of release for lump sum amounts.

There is a catch however in that a private ruling only applies to the taxpayer it is issued to. We can use it as a guideline to the ATO stance on the matter but there is also the risk the ATO will change their opinion at a future point and seek to treat any lump sum draws as pensions.

We therefore recommend anyone considering using this strategy only do so with a private ruling.

SMSF Advice
From 1 July 2016 new laws come into play and accountants will have to hold a license to be able to give clients advice about superannuation funds.

We would like to let you know DP Loewy & Co will be holding a limited Australian Financial Services license from 01/07/2016 so it will be business as usual and we will continue to be able to provide advice on superannuation and self-managed superannuation funds.

If you have any questions in regards to the above, please do not hesitate to contact our office.

Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.