How to Survive and Thrive under the new Super System

Transcription

1 How to Survive and Thrive under the new Super System

2 THE NEW SUPER SYSTEM. In my presentation I plan on covering What will the effect be of the 2018 budget Revisiting CGT relief for transfers back to accumulation Timing the sale of investments when you have accumulation members Costs and benefits of having a separate accumulation super fund When is it best to invest outside of super How does the death of a member affect your SMSF Super contributions not affected by the $1.6 million total superannuation balance limit How to use the new downsizing contributions to maximise your super The new Transfer Balance Account Reporting system What needs to be done before June 30, 2018 Labour franking credit policy

3 The Federal Budget Superannuation An exemption from the current work test for contributions for members aged between 65 & 74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements. All inactive superannuation accounts of less than $6,000 will be transferred to the ATO so it can reunite these inactive accounts with the member s active accounts Tightening of the notice of intent (NOI) processes for claiming personal superannuation contribution tax deductions.

4 The Federal Budget Superannuation Insurance within superannuation will move from a default framework to be offered on an opt-in basis for: members with low balances of less than $6,000; members under the age of 25 years; and members whose accounts have not received a contribution in 13 months and are inactive. Individuals with multiple employers with income over $263,157 choose employers That are not subject to the superannuation guarantee (SG) from 1 July 2018

5 The Federal Budget SMSFs SMSF that have three consecutive years of clear audit reports, and that have lodged the fund s annual returns on time, only need an audit once every three years. Maximum number of members to increase from 4 to 6 from 1 July 2019 and will provide for greater flexibility for large families Superannuation fund trustees will be required to develop a retirement plan for members and offer a wider variety of products (Comprehensive Income Products for Retirement (or CIPRs))????

6 The Federal Budget Income Tax Taxpayers will not be allowed a deduction for expenses associated with holding vacant land from 1 July Where the denied deduction would ordinarily form part of the cost base of a capital gains tax asset, it may still be included in the cost base of the asset. There are exceptions where: *A property has been constructed and has received approval to be occupied and is available to rent; or *The owner is using the land to carry on a business. Distributions from Testamentary Trusts to minor beneficiaries will only be available for income generated from the assets placed in the Testamentary Trust by the deceased.

7 The Federal Budget Income Tax New tax offset for low and middle income thresholds: Offset Benefit amount Income threshold $200 $37,000 or less Offset will increase at a rate of 3 cents per dollar to the maximum benefit of $530 $37,001 to $47,999 $530 $48,000 to $90,000 Offset will phase out at a rate of 1.5 cents per dollar $90,001 to $125,333 The $20,000 instant asset write-off has been extended for a further 12 months to 30 June 2019, for businesses with an aggregated annual turnover of less than $10 million

8 The Federal Budget Centrelink From 1 July 2019, the pension work bonus will be increased to $300 per fortnight (total carried forward balance of $7,800). The pension work bonus will also apply to selfemployment income.

9 Revisiting CGT relief Investments selected for CGT exemption have effective purchase date of June 30, 2017 Investments sold during the 2018 financial year will not receive the one third CGT discount on the increase in their value from June 30, This should not matter as you should still get a tax benefit

10 Revisiting CGT relief Magellan Example Sold Dec 17 total gain when sold 3350 CGT concession gain claimed 2852 Gain not eligible for CGT Disc 498 Tax at 15% 74.7 Accumulation portion at 35% If no CGT discount claimed Sold Dec 17 total gain when sold 3350 Tax Payable at 10% 335 Accumulation portion at 35%

11 Timing investment sales when members in accumulation phase When a super fund is made up of retired members in pension phase, and members that have not met a condition of release, timing the sale of investments can save tax. SMSF at June $ Account based pension fund member balance 1,600,000 Accumulation account due to excess TBC 500,000 Accumulation account for member aged 59 1,900,000 Tax free pension % June % Tax free pension % after member retires 80%

12 Costs and benefits of separate super for accumulation members Benefits By having accumulation accounts rolled into another super fund, all income and capital gains in the SMSF are tax free. Example $ Pension Members 3,200,000 Accumulation Members 1,600,000 Income and assessable gains 360,000 Tax on 1/3 of income 18,000 Costs Another SMSF 1,500 to 3,000 Industry Fund 170 to 250

13 When is it best to invest outside of super If no or little income outside of super need to soak up tax free income threshold rather than pay tax at 15% in SMSF. Single Couple $ $ Low Income Tax Offset Seniors Tax Offset 2,230 1,602 Total 2,675 2,047 Income equivalent 14,079 10,774 Tax Free Income limit 18,200 18,200 Total Tax Free Income 32,279 28,974 Assets earning 6% 537, ,895

14 How does the death of a member affect your SMSF Administration issues If members are acting as individual trustees need to appoint another person to act as trustee, or appoint company to take over as trustee. If company acting as trustee nothing needs to be done except ASIC Notification and other general administration such as changing signatories and names on some investments. Reversionary pensions An assessment needs to be made of whether surviving member will exceed the $1.6 million transfer balance cap. In this situation trustees have 12 months to correct excess. Value of the deceased pension account is the value at the date of death.

15 How does the death of a member affect your SMSF Non-reversionary pension A decision has to be made whether to commence a death benefit pension, or pay out total of members balance. Value of death benefit pension will be the value of the deceased account at date pension is commenced. Vitally important therefore for paperwork to show commencement date of death benefit pension to be date of death. Transfer Balance Account Reporting The ATO will need to be advised under the new TBAR reporting system.

16 How does the death of a member affect your SMSF Analysis of taxable and tax-free superannuation If the surviving member has one superannuation account with a higher percentage of taxable benefits, an assessment should be done as to how much super will be required to fund their lifestyle for their life expectancy. If there is excess superannuation the decision can be made to pay out a lump sum from the superannuation account with the higher taxable percentage rather than leaving it in the SMSF and have non-dependent beneficiaries pay the 17.5% tax.

17 Super contributions not affected by $1.6 million limits The three non-concessional contributions that are not affected by the $1.6 million TBC are: Eligible personal injury payment contributions as a result of a structured settlement, Downsizing super contributions, and Small business capital gains tax concessional contributions.

18 The New Downsizing contribution To make a downsizing contribution a person must meet the following requirements: be 65 or older the amount contributed must be from the proceeds of the selling of the house after July 1, the home must've been owned by you or your spouse for 10 or more years the home is not a caravan houseboat or other mobile home

19 must be from the The New Downsizing contribution the capital gain from the sale must've been eligible for the main residence CGT exemption you have provided your super fund with the relevant downsizer contribution form you make the downsizing contribution within 90 days of receiving the sale proceeds you have not made a previous downsizing contribution

20 The new Transfer Balance Account reporting system First reporting requirement is on or before July 1, 2018 showing the balance of each member's retirement phase income stream. Reporting requirements differ depends on the size of a members balance. For a fund with a member that has a balance of $1 million or more events affecting a members transfer balance account must be reported within 20 days of the end of the quarter in which the event occurs. Funds with members of less than $1 million lodge their transfer balance account transactions by February 28 following the end of the financial year if they lodge their own return, and by May 15 if they lodge through an agent.

21 The new Transfer Balance Account reporting system The events that must be reported on a TBAR form, in addition to the first TBAR form reporting members retirement stream balances at June 30, 2017, include: new retirement phase income streams, some limited recourse borrowing arrangement payments, compliance with a commutation authority issued by the ATO, personal injury structured settlement contributions, and commutations of retirement phase income streams.

22 What needs to be done before June For funds paying retirement phase income stream make sure the minimum pension required has been paid. Were all members are in accumulation assess if a member is likely to exceed the $1.6 million TBC and consider strategies such as payout and contribution for member with a lower balance and splitting concessional contributions with spouse.

23 Labor s Franking Credit Policy Thought Bubble 1 Franking credits will not be able to produce a tax refund affecting individuals and SMSFs Thought Bubble 2 Now excludes people receiving an Age pension SMSFs with one member receiving the Age pension when policy becomes legislation, but excludes SMSFs that have members receive the Age pension in the future.

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25 The new $1.6 million nonconcessional limit The value of a person's superannuation balance at the end of the previous financial year dictates what can be contributed. Member s balance Maximum Less than $1.4 million $300,000 Between $1.4 to $1.5 million $200,000 Between $1.5 to $1.6 million $100,000

26 Concessional superannuation contributions From July 1, 2017 there will be one concessional contribution limit of $25,000 per annum. This adverse change to tax deductible super contributions is offset by: The new unused concessional contribution rules The removal of the 10% employment income test for personal tax deductible super contributions

27 Unused Concessional Contributions When an individual has concessional contributions less than the $25,000 limit, and the value of their superannuation is less than $500,000, the unused amount can be carried forward for up to 5 years. The ability to carry forward unused concessional contributions will commence from July 1, Example: If the concessional contributions for the 2018 to the 2021 financial years with $10,000 each, the maximum nonconcessional contribution for the 2022 year would be $55,000

28 Tax deductible personal concessional contributions Currently for a person to claim a tax deduction for personal concessional super contributions their employment income must be less than 10% of their total taxable income. From July 1, 2017 the only restriction on an individual making a tax-deductible concessional super contribution will be the contribution limit.

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