New superannuation rules are on their way and you could be penalised if you don’t understand them.
That may seem harsh, but the Federal Government generally doesn’t muck around if someone breaks the law.
And we all know that ignorance is no defence.
The thing is there are significant changes to superannuation rules coming into effect on 1 July this year and anyone unprepared could lose out on significant financial benefits.
So, with only three months before the changes become law, it’s imperative that you act now.
If you don’t, you may experience major super losses, instead of preserving the significant value in your fund.
Your financial future is truly in your hands so this two-part article has been written to help you successfully navigate the 10 key superannuation law changes.
This first article will discuss the first four.
1. Maximum super fund balances
From 1 July, the maximum super balance that will attract zero tax in pension stage has been reduced to $1.6 million per member – this is a drop from a previous uncapped amount.
So, if you are in pension stage and have a member balance in excess of this, you will need to apportion (or segregate for some) any excess amount and move it to the accumulation stage where income and capital gains will be taxed.
If you act on time, and I certainly hope you will, you will be allowed to move the market value of the amounts over $1.6 million in these funds as at 30 June 2017 to the accumulation stage, which will ensure that only any growth post-1 July 2017 will be taxed.
2. Transition to retirement (TTR)
From 1 July this year, income and capital gains in super while in TTR will be taxed at 15 per cent for income and 10 per cent for capital gains, when it used to be zero.
Many members will therefore move out of TTR to accumulation stage, but it should be noted that the tax rate will be the same in either category.
Also moving to accumulation will stop the pension payment.
So, if required, an option may be to maintain the TTR as there is no impact on the tax payable.
Many members may also be able to move from TTR to an account-based pension if their age or work circumstances allow, thus retaining the tax-free status in super.
Prior to this upcoming change, the allocation between TTR and account-based pension may not have been as critical given the super fund was not taxed in either facility, but now it will be different depending on the labelling.
3. Spouse balances
There are two areas for you to consider under this heading.
Firstly, with the upcoming caps on superannuation it may be advisable to rebalance the individual member totals between spouses if one is over the maximum $1.6 million cap and the other is well below.
Secondly, if your spouse earns less than $10,800, or up to $13,800 (pro-rated), you can put $3,000 into their super fund and get up to a $540 (18 per cent) tax offset.
The $3,000 needs to be an after-tax (non-concessional) contribution into their super fund to be eligible for the tax offset.
Next financial year (that’s after 1st July 2017), it’s proposed that the low income threshold to receive the full tax offset will rise from $10,800 to $37,000, allowing many more people to utilise this opportunity.
Please note, that there are age and or work tests for this benefit.
4. Super splitting
Given the reduction in the allowable superannuation caps, super splitting could assist in limiting one spouse’s balances but retaining the amounts within the family super environment.
Super splitting allows one person to redirect their annual super contributions (less 15 per cent contributions tax or 30 per cent for those who earn over $300,000 per annum this year) to their spouse’s super fund.
Most super funds allow one annual transfer of the after contributions-tax amount.
But the receiving spouse will still need to limit any contributions to within that spouse’s concessional caps
The bottom line…
The looming changes to our superannuation framework are complex and potentially confusing for many Australians.
That’s why it’s important to access professional advice to ensure that you are staying on the right side of the law, while also protecting and growing your super balance.
Keep an eye out for the second part of this article, where I’ll discuss the remaining six key superannuation changes.
The above information is general in nature and not intended to be taken as advice. Any information contained in this analysis has been prepared without taking into account your objectives, financial situation or needs and is considered general in nature. Before acting on any information contained herein we recommend that you consider whether it is appropriate for your circumstances. Please discuss with your licensee’s adviser before acting on any of the information. If this analysis contains reference to any financial products we recommend that you consider the Product Disclosure Statement (PDS) or other disclosure document associated with the product before making any decisions regarding any products.