Comments Off on 2016 Superannuation Reforms passed both houses
Superannuation legislation proposed end of September 2016 have passed through both houses of parliament today. These make significant changes to the superannuation laws and do differ from the original changes announced in the Federal Budget in May 2016.
The below changes will apply from 1 July 2017 so it might be sensible to for you to start thinking about how your superannuation and retirement planning will be impacted by the changes now and whether you need to change any of your super arrangements.
Changes in the legislation which you might need to consider include:
The new $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017.
Note – this includes defined benefit funds in the assessment eg CSS/PSS pensions
Contributions
The lower contribution caps for all taxpayers applying from 1 July 2017. The new caps will be:
Concessional contributions (pre-tax contributions) — $25,000 per year.
Non-concessional contributions (after-tax contributions) — $100,000 per year
Revised limit of $300,000 on the bring forward provision of 3 years’ worth of contributions to a single year. However to note:
If you have triggered but not utilised the whole amount of the $540,000 limit in 2015-2016 or 2016-2017, the balance left to contribute needs to be reviewed carefully as a reduced limit may apply.
If you have super balances exceeding $1.6 million you will no longer be able to make non-concessional contributions post 1 July 2017.
Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
Removing the tax-free treatment of assets that support a transition to retirement income stream.
From 1 July 2018 the following change will apply:
Individuals with balances of less than $500,000 will be able to ‘carry forward’ unused concessional cap space for up to five years. This will provide greater flexibility for those with broken work patterns.
How can we help?
The above legislative changes will most likely have an impact on your circumstances if you have a superannuation balance close to or over $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now.
If you would like to discuss your particular circumstances in more detail as a result of the above please do not hesitate to contact us to arrange a meeting.
Comments Off on Don’t get hit with Super death taxes
What happens after you go is often one of those things left for someone else to worry about. But your adult kids won’t thank you for an unnecessary tax bill, so what can you do about it?
A large portion of most people’s Super is considered “taxable” due to the fact that they or their employer have received a tax deduction when it was contributed. By the time a pension is drawn from the fund post retirement or after age 60, it is generally tax free anyway, so largely ignored.
BUT, if the Super finds itself in the hands of adult children (over 25 or over 18 and not studying full-time), they will pay 17% tax on a portion of the proceeds. The portion is determined by the percentage of the fund that was considered “taxable” at the point when a pension was first commenced.
For example, let’s assume Jack has $1m in his super fund today, of which 80% had been created through contributions that have received a deduction, along with the associated earnings. If he were to pass away today, his children could be up for $136,000 in tax.
The solution is to put in place a proactive “Withdrawal and Re-contribution” strategy that increases the percentage of the fund that is considered “tax-free”.
To do this, Jack needs to:
Be retired, or over age 65 and therefore able towithdraw lump sums from his super fund without paying tax. If he’s retired he can withdraw up to $180,000 as a one-off tax free payment between the ages of 55 -59, or at 60 he can withdraw any amount tax free.
Be able to contribute to super (if retired be under age 65, or if over 65 be able to meet a 40 hours in 30 days “work test”)
Be able to re-contribute the amount to super without breaching any Contribution Caps (which are typically $180,000 per year or $540,000 using the 3 year bring forward rule under age 64). See our Post Budget Ready Reckoner for further details.
Assuming we start this strategy early enough, Jack may be able to eradicate the taxable portion of his fund completely and save his children the $136,000 in tax.
There’s a range of complexities and opportunities that make advice critical for the over 55’s when it comes to Super. Ensure you, or your family members, don’t make costly mistakes during this important self-funded retirement period.
Comments Off on Last Minute Tax Savings Before 30 June
June 30 falls on a Monday this year, which given bank timings, really means that Friday 27th should be what you consider the deadline for this year… If you’re keen on saving some tax just before the deadline, here’s some Super ways to do it!
Pre-Tax Contributions (Personal Deductions and Salary Sacrificing)
If cashflow permits, the most tax effective means of saving for most people in higher income brackets is to reduce total taxable income AND pay the lower 15% contributions tax on the way into the Super environment.
Of course, given the age at which you can then access Super is somewhere between 55 and 60, the closer you are to this number, the more attractive an option it seems.
But the government does limit how much of a good thing you can have by imposing “Contribution Caps”. So to work out how much you can contribute this year, do these 2 things:
– You’ll need to know what your employer has already contributed on your behalf. If they are paying standard Superannuation Guarantee Contributions (SGC), it should be 9.25% of your total salary including bonuses, up to a maximum of $17,774.80. But it is best to check your latest Pay Slip or Superannuation Online portal if you have one. Once you know this amount, subtract it from the below “Caps” and that is how much you can still contribute up to. Note the age thresholds and caps change for next year, so for more details see our Post Budget Ready Reckoner
Year
Aged under 59 @ 1/7/13
Aged 59 and over @ 1/7/13
2013-14 (now)
$25,000
$35,000
– You can also use this calculator provided by the Australian Securities & Investment Commission (ASIC) to work out how best to allocate any excess cashflow that you have, and what tax the additional contributions will save you.
If you are self employed, June is the most common time to assess cashflow and make the contribution, bearing in mind that in order to claim the contribution (to be tax deductible) any income received as an employee (being “overall assessable income PLUS super contributions (ex SGC) PLUS reportable fringe benefits”) needs to be less than 10% of your total assessable income for the year.
If you’re employed, you may find it difficult to forego a large amount of salary, or get your employer to help you out at this late stage, but you should consider monthly amounts for 2015 while you’re thinking about it!
The government also limits how much Super you can contribute after tax, which has meant that the days of leaving savings outside of super until the last minute are all but gone. For 2013/14, the caps are the same:
Year
Limit per year*
Over 3 years (referred to as “bring forward rule”)**
2013-14
$150,000
$450,000
The 3 year “bring forward rule” means that you can effectively contribute 3 years’ worth of contributions today, and then not contribute any more for 3 years. This can be done anytime, but many people leave it until the last minute before retirement and then realise just how good the tax savings are! If you’re near 65 and/or retiring, timing becomes critical and somewhat complicated:
Once you get to age 65, you need to meet a work test of 40 hours or more in a 30 day period in order to make a contribution and can only contribute the annual amount each year ie $150,000
Therefore if you’re under 65 and no longer working you may want to contribute $150,000 per year and then use the 3 year rule opportunity as close to age 65 as possible
Once you reach age 75 no further contributions can be accepted by a super fund unless they are the super guarantee amounts ie 9.25% of salary
Here’s is an illustration of how to get as much into super before age 65 to maximise tax free income in retirement. It’s all about not using the “3 year bring forward rule” too early.
To complicate matters further, next year the Non-Concessional Caps actually increase, and so where possible, you would hold off using the “3 year bring forward rule” until the 2014-15 tax year to take advantage of the extra $90,000.
Year
Limit per year*
Over 3 years (referred to as “bring forward rule”)**
2013-14
$150,000
$450,000
2014-15
$180,000
$540,000
Use next year’s Caps to offset this year’s Tax Liabilities
Although not commonly understood individuals or employers can actually contribute beyond this year’s concessional cap, claim a tax deduction this year, but have the super fund allocate the second contribution (which must be made in June as a separate deposit) to next year’s cap prior to 28 July. It’s done by holding the portion to be allocated to the next financial year in a contribution reserve account on the basis it has not been allocated to a specific member. If the contribution is a “member concessional contribution” they need to complete a Notice of Intent to Claim a Tax Deduction in order to claim this second contribution in the year it was actually funded. This strategy can be used to offset significant tax liabilities that fall this year, such as the capital gains tax on a business or property investment.
The above case assumes the client is aged over 59 this financial year, therefore accessing the $35,000 Cap for both years. See the Post Budget Ready Reckoner for the increases next year for those aged over 49.
Off Market Transactions
Contributions can also be made using “in-specie contributions” or transfers of physical assets without selling down. Although the transaction still triggers Capital Gains Tax, you may be able to avoid a tax liability if your Marginal Tax Rate is nil (because you are in pension phase), or you are able to claim a personal tax deduction on contributions (because you are self employed).
Tips and Traps:
– There are restrictions on which assets you can transfer in this way (for example, Listed Shares but not Unlisted Shares, Business Real Property but not Residential Property)
– You’ll need to be able to determine a market value of the asset being transferred to ensure that it fits within the contribution caps
– The paperwork trail needs to be implemented correctly as the auditor will likely need to check for dates of the asset transfers matching valuations
Exempt Current Pension Income Deduction
Income derived from SMSFs in Pension phase are exempt from paying income tax. However to ensure the SMSF is entitled to the exemption you must:
Check that you’ve met the required minimum pension payments for the year
Re-value all assets to their appropriate market value at year end
If cashflow is an issue in meeting minimum pension requirements, consider whether a “lump sum in-specie payment” of an asset might work. Even though you can’t actually call the transaction a pension payment itself, new rules now allow a lump sum to be counted towards the minimum pension payments for the year. Although it is a “workaround”, this can be helpful if you have artwork or other collectibles you want to remove from the super fund and the pension you draw is more than you need. You will need to get an independent valuation of the asset.
If you need any help getting organised for 27th June, contact Danielle or Vanessa as soon as possible. It’s all better in your pocket than the tax offices’!
