Superannuation changes – what is and what isn’t from 1 July 2018
As the new financial year is now truly underway, here is an overview of what lies ahead in 2019 so that you can ensure your SMSF is ready.
a) Concessional contributions: this pre-tax contributions cap remain at $25,000 for everyone and includes the employer’s 9.5% super guarantee (unchanged from last year), salary sacrifice and personal deductible contributions
• For individuals aged 75 and above, only super guarantee may be accepted up to 28 days after the month in which they turn 75
b) Non-concessional contributions: this post-tax contributions cap depends on what an individual’s total super balance was as at 30 June 2017:
• under $1.6m then $100,000 per year
• the “bring forward” rule of contributing up to $300,000 in one year will available for those with < $1.4m and the individual has not triggered this rule in the previous two financial years; for those with a balance between $1.4m – $1.5m then part of the “bring forward” rule is available
c) Work test continues to apply to all individuals over age 65 wishing to make any type of contribution excluding super guarantee contributions
• to meet the work test, an individual must be gainfully employed for at least 40 hours during 30 consecutive days during the financial year, and before the contributions is made
2. Commencing new pensions and commutations of existing pensions will now have to be reported for Transfer Balance Account Reporting (“TBAR”) purposes to the ATO. The frequency of reporting depends on whether:
• any members of the fund with a total super balance > $1m or more: the events must be reported within 28 days of the quarter end in which the event occurs;
• all members of the fund have a total super balance < $1m: the events are reported annually when the fund’s income tax return is due
As such, the pension commencement or commutation value will now depend on the member’s TBAR value and not the market value of the pension. Penalties may apply if trustees do not lodge their TBARs on time so please ensure you contact your fund’s administrator as soon as possible when a reporting event occurs.
3. Limited Recourse Borrowing Arrangements (“LRBA”) Related Party Safe Harbour interest rate remains unchanged at 5.8% for real property and 7.8% for listed shares or units
4. Total Superannuation Balance and new LRBAs from 1 July 2018: draft legislation is currently in progress for the proportion of the outstanding loan balance to be “added back” to a member’s Total Superannuation Balance where the LRBA was entered into on or after 1 July 2018
5. First Home Super Saver Scheme: access to the voluntary contributions and earnings to this scheme will be available from 1 July 2018, subject to eligibility criteria being met
6. Downsizer Contributions: a one off non-concessional contribution of up to $300,000 from the sale of their home for individuals (or up to $600,000 for a couple) age 65 and over will be available under this scheme. These contributions do not count towards the non-concessional contribution caps nor are they affected by the total superannuation balance test.
7. Catch up Concessional Contributions: individuals with a superannuation balance of less than $500,000 as at 30 June 2019, will be able to carry forward their unused concessional contribution cap from the previous year for a rolling five-year period.