Are you ready for the 1 July 2017 superannuation changes?
Last month saw the changes to superannuation in the May 2016 Federal Budget passed and receiving Royal Assent. They are now law.
A summary of the final superannuation reforms is as follows:
- Annual limit of Non-Concessional Contributions (“NCCs”) will be reduced to $100,000 from the current cap of $180,000 from 1 July 2017
- no NCCs will be permitted once the super balance exceeds $1.6m
- The 3 year “bring forward” NCC provision is still available however the maximum bring forward from 1 July 2017 will be $300,000 (currently $540,000)
- the current maximum bring forward remains at $540,000 up until 30 June 2017 (for individuals less than age 65)
- special transitional rules apply where this bring forward period overlaps 1 July 2017
- Work test for individuals aged 65 to 74 will continue to apply
- Concessional contributions cap will be reduced to $25,000 from 1 July 2017 (currently for individuals 48 or under it is $30,000 and for those 49 and over it is $35,000)
- the catch up concessional contributions for individuals with superannuation balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years are now to commence from 1 July 2018
- 10% employment income test removed from 1 July 2017
- the current requirement for an individual to claim a personal tax deduction for super contributions includes the requirement of have less than 10% of their income from salary and wages; this criterion will be removed but all other criteria will remain unchanged
- $1.6m transfer cap balance from 1 July 2017 limiting the amount held in pension phase and receiving tax-free earnings
- $1.6m pension account threshold and asset segregation – for those members with more than $1.6m in pension assets, segregation will not be permitted
- this will include reversionary pension accounts and death benefit income streams being counted towards the beneficiaries’ $1.6m transfer cap balance
- this $1.6 cap will not apply to Transition to Retirement (“TTR”) pensions
- Transitional CGT relief and cost base reset election available to fund members where they exceed the $1.6m transfer balance cap and reallocate benefits from retirement phase to accumulation phase
- applicable for assets held on or after 9 November 2016 to 30 June 2017
- special rules apply if fund had segregated assets as at 9 November 2016
- Restrictions on accessing TTR pensions from 1 July 2017
- the earnings on assets supporting a TTR will no longer be tax-free and will be taxed at 15%, regardless of the TTR start date
- payments from a TTR can no longer be classified as lump sum payments
- Reduction of the Division 293 Tax Threshold for high income earners
- the threshold will be lowered to $250,000 (from the current $300,000) at which high income earners pay additional contributions tax on their concessional contributions.
In summary, most of the above changes are effective from 1 July 2017. Therefore any changes to your existing SMSF to ensure it complies with these new laws need to start being considered now in the lead-up to year end.