Taking action on the super reforms
It is critical that SMSF practitioners begin the process of reviewing the impact of the super changes on each individual SMSF client in the lead up to 30 June. What are the basics that need to be looked at?
On 23 November 2016, certain bills concerning superannuation passed through Parliament, receiving royal assent on 29 November 2016. The new legislation introduced significant amendments to superannuation and associated law, both with respect to contributions and more broadly.
Contributions to your clients’ SMSF
Concessional contributions cap: From 1 July 2017, the maximum annual amount that clients can contribute to their SMSF as a concessional contribution is $25,000 regardless of their age. This amount will be subject to indexation.
For this financial year:
- If they are 49 or older on 30 June 2016, their maximum concessional contribution is $35,000;
- If they are less than 49 years of age on 30 June 2016, their maximum concessional contribution is $30,000.
Catch-up concessional contributions: From 1 July 2019, any unused concessional contributions cap amounts from up to five previous years may, in certain cases, be utilised in any one year to make contributions above the set concessional amount. Unused concessional contributions only begin to accrue from 1 July 2018 and you will not be able to benefit from this carry-forward rule where your total superannuation balance exceeds $500,000 before the start of the relevant financial year.
Non-concessional contributions cap: From 1 July 2017, the annual non-concessional contributions cap is reduced to $100,000 from $180,000. This amount will be subject to indexation in later years and is also subject to change depending upon your total superannuation balance.
Following from the new rules concerning the non-concessional contributions cap, from 1 July 2017 new numbers apply regarding non-concessional payments that can be ‘brought forward’. Putting to one side indexation, for superannuants under 65 years of age, an amount of up to $300,000 can be brought forward over three years, depending upon that individual’s superannuation balance. The magic figure, initially, when it comes to determining the amount that can be brought forward is $1.6 million. The ATO advice is as follows:
Total superannuation balance*
Contribution and bring forward available
Less than $1.4 million
Access to $300,000 cap (over 3 years)
Greater than or = to $1.4 million and less than $1.5 million
Access to $200,000 cap (over 2 years)
Greater than or = to $1.5 million and less than $1.6 million
Access to $100,00 cap (over 1 year)
Greater than or = to $1.6 million
* As at 30 June on the previous financial year.
Some things to remember
- Contributions must be received by the fund before 1 July 2017 to count as contributions for the 2016-17 year;
- Changes to the law on contributions may mean that clients need to change their salary sacrificing arrangements;
- Transitional arrangements will apply if someone has utilised the bring-forward rule and the three-year period applicable to them for this bring forward continues past 30 June 2016;
- Clients will not be able to rely on the catch-up contribution regime forever. If they have not used any unused concessional contributions after a period of five years, the ability to carry those contributions forward is lost; and
- Time is running out if clients need to tip money into their fund to meet contractual obligations, including, for example, under any limited recourse borrowing arrangement.
$1.6 million cap: For the 2017-18 financial year, $1.6 million is the maximum amount that can be transferred into the retirement phase of superannuation i.e. that phase where you do not pay tax on the earnings. This amount will be indexed annually.
Balances in excess of the cap will need to be removed to an accumulation account, or out of superannuation savings, and will attract an excess transfer balance tax. If you do not pay the excess transfer balance by the due date for payment, you will be liable to pay interest on that amount, calculated by reference to each day that the amount, and any interest, remains unpaid.
Transitional arrangements apply to those who breach the cap by less than $100,000 as at 1 July 2017, but if in this category you will have a maximum of six months from 1 July 2017 to bring the transfer balance in the retirement phase of your superannuation to the relevant figure or less.
Resistance is futile. Significant change to superannuation is here. SMSF practitioners and their clients have an obligation to keep themselves informed about how the changes will impact super funds. As an SMSF practitioner, you may need to revaluate your clients’ superannuation saving strategies and investment classes. At worst, SMSF clients may need to make some changes to their superannuation savings – and budget for a bigger tax bill.
Kathleen Conroy, partner, Gadens