Super Reforms – What you need to know before 1 July 2017

With less than two months left in this financial year, it is time to consider the opportunities still available prior to 1 July.

In this article we will discuss some of the major super policy changes that may affect your plans ahead.

Super Pension Reform:

Currently, there is no limit on the amount you can transfer into the tax-free pension phase as long as at least one of the conditions of release is satisfied. Effective from 1 July 2017, there will be a cap of $1.6 million imposed on how much can be transferred into the retirement phase. Furthermore, the new rules effectively force Australians with more than $1.6 million of super as at 1 July 2017 to withdraw the excess super benefits from pension phase.

For those who expect their super pension balance from all pension accounts to exceed $1.6 million by 1 July 2017, you can choose to either commute the extra funds into an accumulation account, where earnings are taxed at 15%, or withdraw the excess amount from your super fund, where potentially you can utilise your personal tax free threshold.

Another big change applies to transition to retirement income streams (TRIS) in which the tax exemption of income and capital gains from assets supporting the TRIS will be removed starting on 1 July 2017. Going forward, earnings from assets supporting a TRIS will be taxed at 15% – the same rate as accumulation accounts.

Under both changes, there will be an option of CGT relief available to complying super funds which re-allocate or re-proportion their assets back to accumulation phase as a result of the new pension transfer balance cap or the removal of tax exemption on earnings from assets supporting a TRIS. The option allows funds to reset the assets’ cost base to market value as at 30 June 2017. The implications will be that after the asset is sold some time in the future, after 1 July 2017, only capital gains arising from 1 July 2017, will be taxable.

Super Contribution Reform:

The annual non-concessional (after-tax) contributions cap is currently $180,000, with a bring-forward rule option for all Australians under the age of 65 to make up to three years of contributions ($540,000) in one financial year. From the 2017/2018 year onwards, the non-concessional contributions cap will be cut down to $100,000 per annum and a maximum bring-forward of $300,000 will apply.

For members who have triggered the bring-forward rule in the 2015/2016 or 2016/2017 financial years, transitional arrangements will be available. Furthermore, access to the non-concessional contributions will only be granted to members whose total superannuation account balance is below $1.6 million on 30 June of the previous financial year.

Consequently, if you are under age 65 and your total superannuation balance is more than $1.5 million, you will still not be able to take advantage of the bring-forward rule.

With regards to the concessional contributions caps, currently one can contribute $35,000 this financial year if you are age 49 or over on 30 June 2016, otherwise the cap is $30,000. However, if you plan to take advantage of the current caps, please be mindful that the caps will be reduced to $25,000 from 1 July 2017 for everyone.

Super policies that remain the same:

  • Compulsory Superannuation Guarantee rate at 9.5%
  • No increase in concessional tax rate (15%) on Super investment earnings in Accumulation phase
  • Tax-free Super benefits for over-60s
  • Tax exemption on investment earnings for super pensions (but note anyone with more than $1.6 million in pension phase as at 30 June 2017 needs to take action)
  • Low Income Super Contribution continues
  • Co-contribution scheme remains in place
  • Tax treatment of death benefits remains the same (apart from removal of anti-detriment payment from 1 July 2017)

If you are wanting to learn more about how to maximise the size and tax-effectiveness of your superannuation benefits, or you want to speak with someone who can help educate you on what superannuation arrangements and investment strategies might be appropriate for you, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email info@ugc.net.au to learn more.

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The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment you should also consider that past performance is not a reliable indicator of future performance