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The new super

The start of the 2017-2018 financial year heralded a number of significant changes to superannuation, yet there’s still a lot of confusion around what it all means. Here we dissect some of the key changes and help with a few suggestions for your next steps.

CONCESSIONAL CONTRIBUTIONS CAP REDUCED TO $25,000. From 1 July 2017, the concessional contributions cap reduced to $25,000 for all super members, regardless of age. You should make a point of reviewing any salary sacrifice arrangements in place to ensure you don’t breach the new cap going forward.

INCREASED ACCESS TO PERSONAL SUPER CONTRIBUTIONS DEDUCTION. From 1 July 2017, any individual under 65 can claim a deduction in their tax return for personal super contributions; as well as those people aged 65 to 74 – provided they meet the work test. This ability was previously restricted to those who receive less than 10% of their income from salary and wages. These contributions are included in the concessional contributions cap.

NON-CONCESSIONAL CONTRIBUTIONS CAP REDUCED TO $100,000. From 1 July 2017, the non-concessional contributions cap reduced from $180,000 to $100,000. Further, members with a total super balance (across all super funds) of $1.6 million or more as at 30 June the prior year will not be able to make any non-concessional contributions. Transitional arrangements also apply to the three year ‘Bring Forward’ rule for people under the age of 65 – ie. if your total super balance at 30 June 2017 is less than $1.4 million, your maximum non-concessional contribution for the first year is $300,000 and the bring forward period is three years; if your super balance is less than $1.5 million, you maximum contribution is $200,000 and the bring forward period is two years; for super balances less than $1.6 million, $100,000 is the maximum first year contribution and the bring forward period is one year; and if your super balance at 30 June 2017 is $1.6 million or more, you are not eligible for the bring forward rule. This rule can be complex now, so best to check with us before making large contributions.

INTRODUCTION OF THE TRANSFER BALANCE CAP.A $1.6M CAP FOR RETIREMENT PHASE PENSIONS. From 1 July 2017, an individual can transfer up to a total of $1.6 million into tax-free retirement phase pensions (generally, account based pensions). This cap applies per taxpayer across all of their super funds, not per super fund. This is a lifetime cap and will be subject to indexed increases from time to time. Individuals who had retirement phase pension balances that exceeded $1.6 million at 30 June 2017 were required to remove the excess by either commuting to the accumulation phase or withdrawing it from the super system altogether.

Special rules apply to people with certain lifetime pensions (such as defined benefit pensions) that cannot be valued the same way as an account based pension.

REMOVAL OF TAX EXEMPTION FOR TRANSITION TO RETIREMENT INCOME STREAM (TRIS) PENSIONS. From 1 July 2017, assets supporting a TRIS will no longer be exempt from income tax. That is, income earned on assets supporting the TRIS will be taxed at 15% (same as accumulation phase). The TRIS balance will not count towards the $1.6 million Transfer Balance Cap and withdrawals from a TRIS will still be taxed in the same manner.

TRANSITIONAL CAPITAL GAINS TAX RELIEF. Super funds that are required to adjust pension balances to comply with the new Transfer Balance Cap or have TRIS pensions will have the option of resetting the cost base of its assets to the current market value (generally 30 June 2017) to bring to account capital gains accrued (notional capital gain) that would have been exempt from income tax but no longer will be because of these changes.

The CGT relief is made by an irrevocable election on an asset by asset basis to be made by lodgement of the 2017 tax return or lodgement due date (whichever is earlier). Depending on the conditions met, the notional capital gain can either be disregarded completely, or deferred until the asset is sold. Choosing to defer the gain may not always be the best option.

CARRY-FORWARD CONCESSIONAL CONTRIBUTIONS OF UNUSED CAPS OVER FIVE YEARS. From 1 July 2018, members will be able to make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire. From the 2019-2020 year, members can access unused concessional contributions.

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