Comments Off on Superannuation, SMSFs and the 2017-18 Federal Budget
Government delivers stability in 2017-18 Federal Budget
Stability and confidence for superannuation is the good news coming out of the 2017-18 Federal Budget. With SMSF members still working through the wide-reaching and complex superannuation changes of the last Budget which take effect from 1 July 2017, this Budget’s minimal changes will result in a period for members to ensure they have the correct strategies in place.
The main change impacting superannuation involves allowing people aged 65 and over to downsize their home and gain exemptions to superannuation caps, a First Home Super Saver Scheme and the rounding up of minor technical changes already announced.
The key changes proposed for superannuation are:
Downsizing exemption to superannuation caps
From 1 July 2018, individuals aged 65 and over will be able to downsize their family home and place proceeds up to $300,000 per member into their superannuation fund without breaching any of the current superannuation caps, work test and age test. The measure will apply to a principal place of residence held for a minimum of 10 years. This means even if an individual has a total superannuation balance of $1.6 million or more they will not be restrained from making an after-tax contribution with their house proceeds. This exemption also extends to the annual after-tax contribution limit which is currently $100,000.
First Home Super Saver Scheme
Individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation to later withdraw to purchase a first home. Voluntary contributions and associated earnings that are withdrawn will be taxed at a person’s marginal tax rate less a 30% offset. The measure will assist first home buyers to save a deposit for their home faster.
Integrity of limited recourse borrowing arrangements
The Government is proceeding with amendments to the transfer balance cap and total superannuation balance rules for limited recourse borrowing arrangements (LRBAs). The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance for all new LRBAs once this legislation is passed.
Integrity of non-arm’s length arrangements
The Government will amend the non-arm’s length income rules to prevent member’s using related party transactions on non-commercial terms to increase superannuation savings by including expenses that would normally apply in a commercial transaction.
Other changes
The Government will reinstate the Pensioner Concession Card for pensioners who were no longer entitled to the pension following changes to the pension assets test from 1 January 2017.
The Government will introduce a major bank levy which will raise $6.2 billion in the next four years.
The Government will introduce a new single body external dispute resolution scheme for financial services from 1 July 2018.
The Medicare Levy will be increased from 2% to 2.5% from 1 July 2019.
You can read more about the Federal Budget handed down on 9 May 2017 on the Australia Government’s official budget website – http://budget.gov.au/.
How can we help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2017-18 Federal Budget, please contact us to discuss your particular requirements in more detail.
Have you ever wondered what your super is actually going to give you once you decide to stop working? When is it going to run out? Will there be any left for the kids? Here, we use the ASFA “Will My Super Savings Be Enough” calculator to show you how you can determine:
When can I access my super?
How much income will it give me?
How long will it last?
Our calculator is great at anticipating that you might want to slow down a little at some point, or take work breaks, for whatever reason. To show this flexibility, we’ve incorporated a desire to work less in our 50’s, and see what impact this is going to have on our ability to accumulate enough passive income for later.
Here’s our scenario:
We’ve then assumed:
…and played around with some assumptions that you can tailor to your situation:
The result is a significant shortfall, and heavy reliance on the Age Pension being available when I hit 64…
For more information, plug your own details into the calculator, and give us a call if you need to accelerate your strategy.
Remember, we’re experts at finding tax savings to boost your bottom line, now and down the track!
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’!
Comments Off on Superannuation largely untouched in “tough measures” budget
Nearly 2 weeks after the Budget announcements, the news is ablaze with protests and opinions on the likelihood of the measures being legislated. But from a Superannuation perspective, it’s largely business as usual.
Here’s our take:
The government saw reason and has announced measures to allow Excess Non-Concessional Contributions to be withdrawn (along with any associated earnings) where a Non-Concessional Contribution Cap (eg $150,000 or $450,000 over 3 years) has been breached inadvertently from 1 July 2013. This administrative issue has had the potential to bite plenty of people, and though SMSF members will benefit most from this change, public offer funds are still scrambling with how they’ll practically implement the relevant calculations if they need to.
The mandated Superannuation Guarantee Contribution will still move to 9.5% in July before being frozen for 4 years. The targeted 12% is set to kick in 2022 instead of 2019, but with at least 3 elections between now and then, there’s no guarantees on that. Our Post Budget Ready Reckoner has the current and proposed increases laid out.
And the most talked about item is that some self-funded retirees may exceed the Income Test for the Commonwealth Seniors Health Card. Superannuation Pension Payments (that are untaxed for tax purposes) will be included in the Income Test for the first time from January 2015. Current adjusted taxable income thresholds are:
$50,000 (singles)
$80,000 (couples, combined), or
$100,000 (couples, combined, for couples separated by illness or respite care).
Note that all existing account based pensions in place prior to this date will be grandfathered. Talk to us today if you’re over or nearing 65 and don’t have one in place.
For existing card holders, the Government will achieve savings of $1.1b over 5 years by ceasing the Seniors Supplement for holders of the CSHC (currently $876.20 per annum for singles and $1,320.80 combined for couples). The Clean Energy Supplement will remain in place, as will a range of concessional benefits including lower co-payments for medicines on the Pharmaceutical Benefits Scheme and access to the lower threshold for the extended Medicare Safety Net. The last payment will be made in June 2014.
Though not specifically Super related, the Age Pension age was already set to increase to 67 by 1 July 2023. Now, from 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035. People born before 1 July 1958 will not be affected by this change. Also, there has been no change to the preservation age for accessing preserved superannuation benefits. See our Post Budget Ready Reckoner for Age Pension eligibility dates.
And in case you thought the Budget Repair Levy may apply to tax free income derived from a Superannuation Pension, it doesn’t. However it has captured non-arms length income derived from SMSF Investments such as discretionary trust income, private company dividends or non-arms length transactions with related parties, increasing it from 45% to 47%.
Other important Super Strategies to consider right now
Changes to the Concessional Contribution Caps were introduced prior to Budget Night and will come into effect on 1 July 2014.
Year
Aged under 59 @ 1/7/13
Aged 59 and over @ 1/7/13
2013-14 (now)
$25,000
$35,000
Year
Aged under 49 @ 1/7/14
Aged 49 and over @ 1/7/14
2014-15
$30,000
$35,000
But the big ticket item here is if you’re considering a Non-Concessional Contribution to get money into Superannuation right now, make sure you hold off until 1 July this year where possible. The increased caps will enable you to contribute up to $90,000 extra by holding off.
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
*Annual limits applicable where under age 65, plus 65-74 where 40 hours in 30 day work test is met **Bring forward rule only applicable if age under 65So for now, it’s more about using Superannuation effectively to reduce your tax and ensure a well-funded lifestyle for the future.
Talk to us today about a range of strategies to suit you — Call now on 1300 368 775
Comments Off on Oops – divorce on the horizon? What now?
Divorce is the worst-case scenario for a marriage. Amongst the emotional, legal and financial turmoil – which is only compounded if there are kids or pets involved – it can be easy to forget about your super.
If you are already within an SMSF, chances are your soon-to-be ex-partner is also a trustee. So what happens when retirement plans, like so many other things, were built with a shared future in mind?
Superannuation splitting within an SMSF does not differ greatly to super held within a traditional fund structure in the eyes of the law. Any difficulties are mostly commonly caused by the relationship between the trustees and the nature of assets held in the fund. Superannuation splitting laws exist to make sure a settlement is fair however, there are still several things to be aware of to avoid an unfair distribution of super.
Here are our top 4 things to keep in mind when navigating SMSF and super splitting due to divorce.
1. If you were married before 1975 make sure that your Deed allows for the requirements set out by the Family Law Act 1975.
Make sure your SMSF Trust Deed to reflect the requirements set out by the Family Law Act 1975. If your deed hasn’t incorporated the requirements, it won’t stop the law – it will just make things confusing for your Fund’s trustees. We can help you both through the process, set out below:
Obtaining information
Determining the documentation method
Determine the splitting time and calculation
Serving the superannuation agreement/order
Notifying the parties
Implementing the superannuation agreement/order and making payment.
2. Use a Family Court Document to request all of the information you will need. You will need to submit this yourselves, but you can get help from your adviser or accountant (or Greenlight).
3. Use your Consent Order (where the parties agree), Court Order (where the parties don’t agree) or a Superannuation Agreement to document how your combined super assets will be split. Just make sure you’re not planning to rely on a Stat Dec as it won’t suffice. Never heard of a Superannuation Agreement?
If you opt for a superannuation agreement, Greenlight can help you manage the process with your legal representatives or contact a specialist advisor on your behalf. Together, we will make sure your superannuation agreement is in the correct format, obtain signatures from both yourself and your partner, and organise a legal declaration which states that each party has received independent legal advice. This legal declaration will be accompanied by a statement from each legal practitioner that advice was provided. Superannuation agreements are a more expensive option across the board because of the added necessary legal expertise than the first two options.
4. The hard bit – splitting the assets. You’ll either be physically separating the assets immediately (Payment Split) or flagging the arrangements until a condition of release (such as Retirement) is met. This is called Payment Flagging.
There are two main payment types:
A payment split – the super payment is made now.
This payment type is the most consistent with the Family Court’s desire that property settlements represent a clean break. It involves creating an interest for the non-member spouse, either in the same fund or in a fund of their choice, which cannot be cashed until the non-member spouse meets a condition of release.
A payment flag – the super payment is deferred until a condition of release is met.
When the condition of release is met, the trustee notifies the court that a splittable payment will become payable. These may be suitable for defined benefit funds where a retirement benefit significantly larger than the current withdrawal benefit may be payable in the near future. However, they are rarely used in an SMSF.
The three main methods of calculating the amount of a payment split are:
A percentage amount – a percentage of the account balance is payable
A base amount – a fixed dollar amount is payable
A calculated base amount – a method by which a base amount can be calculated
The hardest part about this when parties are in dispute is realising asset values, especially if valuations fluctuate considerably. Don’t make this time any harder on yourself, make sure you’re across all the facts and secure your retirement future.
