Super Changes Webinar 28 February 2017
First, a little more about you 2
Welcome Super Changes Most changes start 1 July so it is important that you and your clients are prepared. Outline key aspects of the change and practical implications Future webinars will provide more technical content Law Companion Guidelines (LCGs) 3
Overview Members growing their superannuation Concessional contributions Non concessional contributions Streamlining excess contributions process Members accessing super benefits Transition to retirement income streams (TRISs) Retirement income streams and Transfer Balance Cap (TBC) Paying member s death benefits Child death benefits Valuations and reporting 4
Members growing their superannuation Concessional contributions cap From 1 July 2017, the annual concessional contributions cap will be reduced to $25,000 for all members regardless of their age. The $25,000 cap will be indexed in $2,500 increments rather than the current indexation arrangements of $5,000. Tax treatment of excess concessional contributions remains unchanged. 5
Members growing their superannuation Catch-up concessional contributions From 1 July 2018, members can carry forward unused cap amounts for up to five years, provided they do not exceed a maximum total super balance of $500,000 as at 30 June of the prior year. Total super balance is generally, the sum of a member s accumulation and retirement phase interests across all their superannuation providers, including life insurance companies. The total super balance should reflect the actual value of a member s superannuation interests 2019/2020 will be the first year a member can use any unused concessional contributions. 6
Members growing their superannuation Deductions for personal contributions 10% test From 1 July 2017, members will be able to claim a deduction for personal contributions regardless of the source of their income, as the 10% test will no longer apply. Where a deduction is claimed, personal contributions will be taxed at 15% inside the SMSF and count towards a member s annual concessional contribution cap. To claim a deduction the member must notify the SMSF of their intent. Spouse contributions: No deduction is available for personal contributions for a spouse. Spouse tax offset may be available. 7
Members growing their superannuation Concessional contribution wrap up Division 293 tax Contributions to constitutionally protected funds Defined benefit schemes 8
Members growing their superannuation Non Concessional Contributions From 1 July 2017 annual cap reduced from $180,000 to $100,000. From 1 July 2017, if a member has a Total Super Balance of greater than $1.6m as at the prior 30 June, they will no longer be eligible to make non concessional contributions. From 1 July 2017 the maximum bring-forward non-concessional contribution available to members who are under the age of 65 will be $300,000, for a three year period. The amount of the bring forward will depend on their total super balance at 30 June of the year prior to the year they make the contribution. If total super balance is between $1.4m - $1.5m, the bring forward rule will be limited to a maximum cap of $200,000 for two years; If total super balance is between $1.5m - $1.6m the bring forward rule will not be available, and the member will be limited to their annual cap of $100,000. Up until 30 June 2017, the existing caps remain and there are no restrictions based on a member s total super balance. Transitional arrangements may apply. 9
Members growing their superannuation Streamlining excess contributions process From 1 July 2018 there are changes to streamline the release authority process and the timing of a determinations where there is an excess. Elections to release amounts from super will be extended to Division 293 assessments. Members will be able to make their election via ATO Online or paper, nominating their funds and release amount. The period available to make an election will be aligned for all products being 60 days The process and timeframes for release authorities for all products will be aligned. 10
Poll Question Year 1 Ed starts his 3yr NCC bring forward. Year 2, Ed s Total Super Balance (TSB) is over $1.6m so his NCC cap is nil. Year 3, Ed s TSB is under $1.6m, what is his NCC cap? (a) Nil cannot bring his TSB over $1.6m (b) The unused remainder of his 3-year bring-forward (c) The annual NCC cap for Year 3 (d) Trigger a new 3-year bring-forward The answer is (b) As his total super balance was under $1.6m just before the start of Year 3, he can continue to make use of the bring-forward he started in Year 1, so his cap is the unused remainder of that bring-forward. 11
Members accessing their superannuation Transition to Retirement Income Streams (TRIS) From 1 July 2017, SMSFs will no longer be able to claim a tax exemption on the investment income earned on assets supporting a TRIS. From 1 July a member can no longer elect to convert a pension payment to a lump sum. Technical query whether a TRIS auto-converts to an ordinary account based pension when a member meets a condition of release with a nil cashing restriction. 12
Members accessing their superannuation Retirement phase and Transfer Balance Cap (TBC) From 1 July 2017 the concept of retirement phase is introduced to cap the total amount of super that a member can transfer into a tax-free retirement account. The new cap is referred to as the Transfer Balance Cap. From 1 July 2017 the TBC will be set at $1.6m and will be subject to indexation in line with CPI, in increments of $100,000. Proportional indexation may apply. A member s transfer balance account tracks amounts counted towards their transfer balance cap (through credits) and amounts that cease to be counted towards the transfer balance cap (through debits). 13
Members accessing their superannuation Exceeding the Transfer Balance Cap (TBC) Pre 1 July 2017, take steps to reduce pension balance to $1.6 million or less before then. Post 1 July 2017 excess triggers and excess transfer balance determination The member will be required to remove the excess amount plus notional earnings from their account based pension. Notional earnings based on general interest charge, compounds daily until the breach is rectified or an excess transfer balance determination is issued. These amounts can be transferred back into an accumulation account or withdrawn from the super system. Member liable to pay excess transfer balance tax on notional earnings. 2017/2018 rate is 15% 2018/2019 onwards rate 15% first breach, 30% for subsequent breaches. Exception to the excess transfer balance tax Pension prior to 1 July 2017 In breach by less than $100,000 on 1 July 2017 Rectified within 6 months from 1 July 2017. 14
Members accessing their superannuation CGT Relief May be available where you take action to comply with the transfer balance cap or TRIS changes please refer to LCG 2016/D8 for further clarity. Reset the cost base of certain assets Held by the SMSF on the 9 November 2016, continue to hold until 1 July 2017 Applies differently for segregated method versus proportionate method Is not an automatic entitlement Election is irrevocable. Must be made on or before the day the SMSF s 2016/17 annual return is due to be lodged. Reporting of the CGT relief via the CGT schedule. Two new labels will be added to the schedule. Keep adequate records to ensure that the correct capital gain or loss is determined at the time when a CGT event occurs. 15
Poll Question In 2017/18, Mel starts a pension using 60% of her Transfer Balance Cap (TBC). In 2020/21 the general TBC indexes to $1.7m. What is Mel s indexed TBC? (a) $1.7m the full indexation increase (b) $1.66m 60% of the indexation increase (c) $1.64m 40% of the indexation increase (d) $1.6m no increase The answer is (c) Since Mel has used 60% of her TBC, she is only entitled to 40% of the indexation increase. The general TBC increases by $100,000, so she is entitled to 40% of that: $40,000. Her personal TBC has increased by this amount, from $1.6m to $1.64m [Please note: during the Webinar presentation the incorrect response options were presented to attendees. The correct options are contained on this slide.] 16
Members accessing their superannuation Paying member s death benefits Compulsory cashing - must cash a deceased member s remaining super interests to their nominated beneficiary(ies) as soon as practicable. Can still be cashed as a lump sum, an income stream or as a combination of the two. For more information on who can be paid a death benefit please go to LCG 2017/D3 When a member in receipt of a retirement phase income stream dies on or after 1 July 2017, their transfer balance cap will die with them. Any amount paid as an income stream to their beneficiary will count towards the beneficiaries own transfer balance cap. Reversionary pension Amount credited to beneficiary s transfer balance account 12 months after the primary pensioner s death. Credit equal to the market value of the interest at the time of the primary pensioner s death. No auto reversion Amount credited to the beneficiary s transfer balance account on the day that the new pension commences. Credit will be the market value of the primary pensioner s pension interest at the time the new pension starts. 17
Members accessing their superannuation Child death benefit pensions Where a child receives a death benefit income stream from their deceased parent, a modified transfer balance cap applies. Child in receipt of a death benefit income stream prior to 1 July 2017, transfer balance cap set at $1.6m. Post 1 July 2017 Where deceased parent does not have a transfer balance account, child's transfer balance cap is $1.6m or a proportion of the $1.6m to reflect a proportionate share of the death benefit. Where deceased parent does have a transfer balance account, child's transfer balance cap is proportionate share of the parent s benefits in retirement phase at the time of death. Cashing rules generally pension to be commuted at the age of 25. A child s modified transfer balance account will typically cease when the child is 25 or when the capital is exhausted. For children with a disability who can continue to receive the pension beyond age 25, then their modified transfer balance account ceases when the capital is exhausted. 18
Timing of reporting Inherent lag in end of year reporting, which will limit the ATO s ability to assist Real benefits for SMSFs to be able to bring forward valuations and reporting to us. We have heard concerns that delays in finalising accounts to accurately reflect members benefits make it problematic to report before the SMSF annual return is due to be lodged. Valuations Valuations and Reporting We have heard consistently that the ATO s current valuation guidelines adequately support industry and are aligned with the needs of the new measures. As such we believe that there is no need to formally revisit the ATO valuation guidelines at this time, however we will monitor their application and if appropriate re-engage with industry post implementation. An example of where we have already worked well industry to date is in relation to the anticipated changes to the CGT schedule to allow an SMSF to elect for CGT relief, which we have already discussed. Additional reporting requirements which we are working through with industry relate to Changes to the SMSF annual return to show the balance of the accumulation phase holdings with additional information regarding the balance of retirement phase holdings and the associated income stream types. This change is expected for the 2017-18 annual return which will be due by May 2019. Details of the type of income streams being commenced and or commuted and the date of these transactions. Details of other values of credits and debts that we discussed earlier as counting towards a member s transfer balance account. New withholding and reporting obligations for SMSFs paying a capped defined benefit income stream to a member over 60. 19
Law Companion Guidelines (LCGs) LCG 2016/D8 - Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds LCG 2016/D9 - Superannuation reform: transfer balance cap LCG 2016/D10 - Superannuation reform: defined benefit income streams non commutable, lifetime pensions and lifetime annuities LCG 2016/D12 - Superannuation reform: total superannuation balance LCG 2017/D1 - Superannuation reform: defined benefit income streams pensions or annuities paid from noncommutable, life expectancy or market-linked products LCG 2017/D3 - Superannuation reform: Transfer Balance Cap- Superannuation death benefits 20
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