SMSF and Superannuation legislation changes
Between the 7th and 14th of October 2016, the Government released three batches of draft legislation to implement its planned changes to the superannuation laws. These new changes were originally announced in the 2016 Federal Budget and subsequently modified by the treasurer on the 15th September 2016.
Of concern for Self-Managed Superannuation Fund or Retirement Strategies
Many of these changes will apply from 1 July 2017, so it is worth considering if your Self-Managed Superannuation Fund or retirement strategy will be impacted. You may still have time to modify your strategy and make arrangements to avoid or reduce any negative outcomes for yourself or your SMSF.
The latest Government draft legislation were amendments relating to:
- Implementing the Government’s $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017. If you have more than $1.6 million in pension phase already, you will be required to roll some back to accumulation phase.
- Lowering the concessional contributions cap to $25,000 per year for all taxpayers from 1 July 2017.
- Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
- Providing greater flexibility for individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years. This measure will not commence until 1 July 2018.
- Removing the tax-free treatment of assets that support a transition to retirement income stream.
- Removal of the 10% Rule so that people who earn more than 10% of their income as Salary and Wages will still be able to make deductible personal Superannuation contributions up to the new annual limit of $25,000 per year.
- Extending the spouse tax offset of $540 so it can be claimed where a spouse income is up to $40,000 from the current level of $10,800.
Non Concession Contribution (NCC) Limits
The other significant change released in the third exposure draft is to the to Non-Concessional Contribution (NCC) Limits.
As announced in the 2016 Federal budget, a retrospective lifetime NCC limit of $500,000 was announced. However, this proposal has been modified, and the new rules will allow an annual NCC of $100,000 (it is currently $180,000) for those people with Superannuation balance of under $1.6 million. Importantly individuals with a superannuation balance of over $1.6 million will, from 1 July 2017, no longer be allowed to make NCC’s.
Under these new rules, there will still be a ‘bring forward’ provision for those under the age of 65 and balances under 1.6 million which can allow up to $300,000 to be contributed in a single instance.
‘What should I do now?’
Some of these changes may require you to adjust your investment, contribution, pension, and estate planning strategies going forward.
This will most likely be the case if you have a superannuation balance of over (or close to) $1.6 million, plan on making significant contributions to superannuation over the next few years, are a high-income earner or have a transition to retirement pension in place now.
How can Bizally help?
If you are concerned that the Government’s changes to superannuation are going to affect you, call Bizally on (03) 9887 9144 to arrange a face-to-face discussion with our SMSF expert, Ben Stokes about your particular concerns and circumstances.