SUPERANNUATION PLANNING UPDATE – SEPTEMBER 2016

It appears the dust has finally settled on changes to legislation originally announced in the last budget although it should be noted legislation still needs to be passed. Two significant changes have been made that will have a significant impact on planning.

Non Concessional Caps

As widely predicted the unpopular $500,000 lifetime limit has been scrapped. This is to be replaced by an annual cap of $100,000 as long as your balance is below $1.6m at 30 June in the year before the contribution. Bring forward provisions remain in place allowing up to $300,000 in advance to cover a three year period. A critical change is no more non concessional contributions are allowed if your balance exceeds $1.6m.

Note the new rules apply from 1/7/17 so existing rules with the current cap of $180,000 apply this year. A significant planning opportunity exists to contribute up to $540,000 before 30/6/17 for those that are eligible and in particular for those with balances exceeding $1.6m as this may be your last chance to make non concessional contributions.

Contributions Between 65 to 74

The work test for ages 65 to 74 will remain reversing the budget announcement. This will adversely impact retirees still trying to top up their superannuation accounts and place greater urgency on contributions before 65 for those who intend to be retired by then.

Budget Changes Rehash

So where does that leave us with changes to be implemented from 1 July 2017 and any planning considerations?

Lifetime Superannuation Pension Cap of $1.6m

- Consider if you want to segregate assets to carve out specified assets into the tax free pension component.

- Consider early conversion to pension from 1/7/17 to lock in potential high yielding assets that could grow the pension balance beyond $1.6m.

- Recycling strategies should be considered where one spouse has in excess of $1.6m & the other is below so both can maximize use of the tax free cap.

- For those in pension phase with balances over $1.6m you may wish to consider realizing any significant capital gains while they are tax free up until 30/6/17. This will depend on whether there is a lift to market value which would negate the need to realize assets.

Transition to Retirement Income Streams (TRIS)

- The loss of the tax exemption for TRIS’s will force many to reevaluate the effectiveness and roll back to accumulation from 1/7/17 as all TRIS’s will be subject to income tax although pension draws for those over 60 will remain tax free.

- Note previously discussed tax free lump sum withdrawals from a TRIS are still in play until 30/6/17 for those between 56 and 59.

- A reminder that that those over 60 do not necessarily have to retire for a pension to not have the restrictions of a TRIS. A resignation from employment is sufficient.

Concessional Contributions Changes

- The cap reduces to $25k but there is a catch up provision over 5 years which could allow contributions of up to $125k after 5 years. This could be handy for taxpayers with unusually high incomes due to a capital gain where super contributions can be used to reduce taxable income. Note however the catch up provision is to be deferred from 1/7/17 to 1/7/18.

- The scrapping of the 10% rule from 1/7/17 will make it easier to top up superannuation with deductible personal contributions for those also receiving employer superannuation support.

With so many changes in play many clients will need to review their superannuation planning so please contact our office to seek advice where necessary. Please note under new financial services legislation we may need to issue a statement of advice.

Disclaimer- The material contained in this newsletter does not constitute advice. D P Loewy & Co Pty Ltd is not responsible for any action taken or reliance on any information in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.