HOW S POST 30 JUNE WORKING OUT FOR YOU? A CHECKLIST OF WHAT S NEXT

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1 HOW S POST 30 JUNE WORKING OUT FOR YOU? A CHECKLIST OF WHAT S NEXT Presented by Tim Miller Miller Super Solutions

2 Disclaimer The material shown in this presentation has been prepared by Tim Miller from Miller Super Solutions and is for general information only. It is not intended to be, nor should it be read as specific personal product or superannuation advice. While all care is taken in the preparation of this material no warranty is given with respect to the information provided, and accordingly no responsibility for errors or omissions, including responsibility to any person by reason of negligence is accepted by Miller Super Solutions. Before acting on any of the information contained in this presentation you should obtain advice from a specialist superannuation or tax professional, whichever is appropriate to your specific needs, objectives and financial situation.

3 Session Overview Beyond 30 June a case study in where we are at Transition to Retirement Pensions Transfer Balance Cap Total Superannuation Balance Capital Gains Tax Relief Non-concessional contributions changes Reversionary pensions Questions

4 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica (63) TRIS $2,045,685

5 Transition to Retirement TTRs are not subject to the Transfer Balance Cap and are no longer entitled to Exempt Current Pension Income (ECPI) deduction from 1 July 2017 Sort of but we will come back to that All withdrawals from TTRs will be treated as Superannuation Income Stream benefits election to treat payment as a superannuation lump sum now revoked Lump sum commutations from unrestricted non-preserved still possible: This amount no longer counts towards minimum pension liability

6 Exceeding 30 June 17 What if you had a pension of $1.6m or more? Action was required prior to 30 June 2017! There is a $100,000 transitional rule to fall back on if your calculations are out by less than that amount i.e. commute pre 30 June 17 and at 30 June balance is $1.65m: Excess transfer balance accruals will not commence until 6 months following 1 July 2017 If over $1.6m then NIL cap space remaining even if greater than $100k rolled back Do not have to take excess amount out of superannuation: Roll to accumulation

7 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica TRIS $2,045,685 What are the immediate issues that you can identify?

8 Transition to Retirement FAQs Does a TRIS cease to be a TRIS once a member permanently retires or turns 65? Does the TRIS auto convert to an account based pension in which the TRIS restrictions do not apply? ATO view was existing law did not facilitate an auto conversion of a TRIS to a different or new pension or income stream. The same TRIS continues on and remains a TRIS until such time as it ceases. The law did provide that once a nil cashing restriction condition of release was met, the limitations of a 10% annual maximum payment and commutation restrictions no longer applied.

9 Transition to Retirement FAQs As a TRIS will now be recognised to be in accumulation phase, the issue was that a TRIS would need to be commuted and a new pension commenced so it could be an income stream in retirement phase. Legislation now amends the definition of retirement phase which means that where a member receiving a TRIS does meet a condition of release that TRIS can be in retirement phase. What this would mean is that if an individual has met a nil condition of release, they should continue to receive the earning tax exemption. This applies to existing TRIS and also TRIS that commence post 1 July 2017.

10 Transfer Balance Cap FAQs Can I make a request to my SMSF to commute excess amounts above my transfer balance cap where the value of that excess amount is not yet known? If this is done, what is the effective date of the commutation? Please note that if, on 1 July 2017, you are over your $1.6 million cap by less than $100,000 and you remove this excess by 31 December 2017, you won t have to pay excess transfer balance tax or account for notional earnings on the excess. Source ATO Questions and Answers 2017

11 Transfer Balance Cap FAQs Practical compliance guideline PCG 2017/5 Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap explains how ATO will review commutations made in circumstances where a commutation is requested before the commutation amount is known by a member of a SMSF, including requirements for these commutations. One key requirement under this guideline is that the commutation amount is required to be calculated, and reflected in the SMSF s financial accounts for , by a date no later than the due date for the SMSF s annual return. If the requirements of the commutation request are met, the effective date of the commutation is generally the requested date (which would be on or before 30 June 2017). It is important to note that if a fund was previously segregated because it was fully in pension phase, then the effective date of the commutation will also be the date the fund stops being fully in pension phase. If this means that the fund switches to the proportionate method for calculating ECPI, an actuarial certificate will be required to claim ECPI for any income from this date onward.

12 Total Superannuation Balance Total Superannuation Balance is a method for valuing all of an individual s superannuation interests. It incorporates: All accumulation phase interests at that time (consolidated reporting requirement) The actual balance of the TBA (not less than zero) at that time Rollover amounts not reflected in either of the above LESS structured settlement contributions

13 Total Super Balance and NCC Where an individual has triggered the bring forward of their non concessional contributions caps prior to the 2017/18 financial year, their remaining cap is set out in the following table: Trigger in 2015/16 (must be <65 on 1 July) Non-concessional contributions cap Triggered in 2016/17 (must be <65 on 1 July) Non-concessional contributions cap 2015/16 $180, /17 $180, /17 $180, /18 $100, /18 $100, /19 $100,000 Allowable $460,000 Allowable $380,000 SUBJECT TO TOTAL SUPERANNUATION BALANCE BELOW $1.6m WARNING: 65+ must satisfy work test

14 Total Super Balance and NCC Where an individual is eligible to commence their bring forward non concessional contributions caps from the 2017/18 financial year, their cap for the first year is set out in the following table: Total superannuation balance on 30 June 2017 Non-concessional contributions cap for the first year Bring forward period Less than $1.4 million $300,000 3 years $1.4 million to less than $1.5 million $200,000 2 years $1.5 million to less than $1.6 million $100,000 No bring forward period, general non-concessional contributions cap applies $1.6 million or more Nil N/A Excludes Small Business CGT contributions Excludes Structured Settlement/Personal Injury contributions

15 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica (63) TRIS $2,045,685 How much can either Davey or Jessica contribute?

16 Transitional CGT relief SMSF integrity New clause added to ability to claim ECPI If a Fund is SMSF/Small APRA: At least one interest in fund is in Retirement Phase; and Just before start of the income year; A person has a total superannuation balance that exceeds $1.6m The person is a retirement phase recipient of a income stream; and At a time during the income year that person has an interest in the fund Do not have to have a pension within that fund; just have to be over $1.6m & receiving a pension Disregarded small fund assets

17 SMSF Integrity FAQs I ve heard that I can get around the new restriction on using the segregated method to calculate my SMSF s exempt current pension income by setting up a second SMSF. Can I do this? You should be careful if you are considering strategies like this. Whilst the establishment of a second SMSF by itself does not give rise to compliance issues, we will further examine the circumstances of those cases where it appears that the establishment of a second SMSF has been a pre-cursor to subsequent behaviour intended to manipulate tax outcomes. This behaviour could include, for example, switching each of the respective funds between accumulation and retirement phase.

18 Transitional CGT relief - segregated SMSFs with 100% pension members are automatically using the segregated method and are not currently obtaining an Actuarial Certificate Must be a segregated current pension asset at start of pre-commencement period Must cease to be a segregated current pension asset during the same period: i.e. must become a segregated non-current asset; or Fund must decide to use the proportionate method Asset sale deemed to be sold at the time it ceases to be a segregated pension asset Purchase date is the same date: 12 month CGT discount rule applies from that date As segregated method was used gain is disregarded; as are losses

19 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica (63) TRIS $2,045,685 Do the Jones have a case to apply CGT relief?

20 Keeping up with the Jones The Jones SMSF Assets Units Cost base Market Value Gain/(loss) Cash as bank $1,057,744 $1,057,744 $0 Res Property 1 $1,090,000 $2,200,000 $1,110,000 BHP 1,000 $11,940 $24,840 $12,900 CBA 4,000 $36,320 $339,080 $302,760 CAR 4,270 $39,946 $43,981 $4,035 HVST 20,000 $400,000 $408,400 $8,400 WES 200 $11,700 $8,800 ($2,940) Total $2,647,650 $4,082,845 $1,435,195 Ignores cash

21 Jones SMSF - Segregated Relief Applied - Pooled Ignores cash Pension Accum At 30 June 2017 $2,482,845 moved from pension to accumulation CGT relief election on $3,025,101 (ignore cash) $4,082,845 $1,600,000 ($1,589,906 CB) $1,435,195 gain $3,025,101 CB $2,482,845 Up-lift in cost base from $1,589,906 to $3,025,101 acq date 30/6/17 At 1 July 2017 TBA credited with $1,600, /18 ECPI Calculation = $1,600,000/$4,082,845 New ECPI Percentage = 39%

22 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica (63) Accumulation $2,045,685 What if Jessica was in accumulation? What are the issues now?

23 Keeping up with the Jones The Jones SMSF Assets Units Cost base Market Value Gain/(loss) Cash as bank $1.557,744 $1.057,744 $0 Res Property 1 $1,090,000 $2,200,000 $1,110,000 BHP 1,000 $11,940 $24,840 $12,900 CBA 4,000 $36,320 $339,080 $302,760 CAR 4,270 $39,946 $43,981 $4,035 HVST 20,000 $400,000 $408,400 $8,400 WES 200 $11,700 $8,800 ($2,940) Total $2,647,650 $4,082,845 $1,435,195

24 Jones SMSF Pooled Assets Relief Applied - Pooled Pension $2,037,160 $1,600,000 ($1,589,906 CB) $319,695 gain $1,909,601 CB Accum $2,045,685 $2,482,845 At 30 June 2017 $437,160 moved from pension to accumulation CGT relief election??? BHP, CBA & CAR Up-lift in cost base from $88,206 to $407,901 acq date 30/6/17 Gain = $319, /17 ECPI Calculation = $2,035,962/$4,082,845 = 49.87% Discounted gain = $213,109 x 49.87% Taxable gain = $106,831 Deferred tax = $16,024

25 Keeping up with the Jones The Jones SMSF Assets Units Cost base Market Value Gain/(loss) Cash as bank $1,057,744 $1,057,744 $0 Res Property 1 $1,090,000 $3,025,101 $1,935,101 Total $1,090,000 $3,025,101 $1,935,101 At 30 June 2017 $437,160 moved from pension to accumulation CGT relief election on property Up-lift in cost base from $1,090,000 to $3,025,101 acq date 30/6/17 Gain = $1,935, /17 ECPI Calculation = $2,035,962/$4,082,845 = 49.87% Exempt amount = $1,290,067 x 49.87% Taxable gain = $646,710 Deferred tax = $97,006

26 Keeping up with the Jones The Jones SMSF Davey (64) ABP $2,037,160 Jessica (63) Accumulation $2,045,685 When will Jessica move into pension? Is the relief in their best interest 2016/17?

27 CGT Relief FAQs How will reporting of the CGT relief election work?

28 CGT Relief FAQs Q - If a fund is taken to be using the segregated method as it is fully in pension phase, and received a contribution prior to 1 July 2017, how will CGT relief apply? Pension commences Segregated Assets $35,000 Concessional Contribution 1/7/2015 9/11/2016 1/4/ /6/2017 Are assets no longer segregated?

29 CGT Relief FAQs - answer If the fund's documentation makes it clear that the relevant assets were segregated current pension assets after they received the contribution, the fund can remain segregated even though it stops being fully in pension phase. The fund may still have access to CGT relief if they subsequently choose to switch to the proportionate method. If there is no evidence of a decision to segregate, the assets may have ceased to be segregated current pension assets when the fund stopped being 'fully in pension phase'. CGT relief may be available on that date. Source ATO Question & Answers 2017

30 Death Benefit - Reversionary When a member dies with a reversionary pension, that pension is added to the spouse s Transfer Balance Account If the spouse already has a pension then this may create an excess transfer balance amount Reversion amount will not be credited until 12 months from the date of death so action is required: Amount credited based on balance at death (or 30 June 2017) Commute part of an existing surviving spouse s pension; or Commute reversionary pension - take part lump sum/part pension Death benefit pensions can be rolled-over but not commuted back to accumulation

31 Au.linkedin.com/in/timmillersms Miller Super Solutions tim@millersupersolutions.com.au PO Box 69, Mitcham Shopping Centre SA 5062