The introduction of a $1.6 million pension cap
From 1 July, the maximum amount of super that can be held in the tax free pension environment will be reduced to $1.6 millions per member. This is referred to as the Transfer Balance Cap.
This means that when starting an account based pension to fund retirement, any balance above the $1.6 million balance cap will need to remain in accumulation phase where it will continue to be taxed at 15% tax rate applicable to superannuation, rather than being tax free.
The cap does not apply to transition to retirement income streams, which from 1 July will no longer be considered ‘retirement income streams’.
A Capital Gains Tax (CGT) Relief election has been introduced in an attempt to alleviate the possible taxation consequences of the introduction of the $1.6 million transfer balance cap. The CGT Relief is intended to help to preserve the tax-free status of capital gains accrued while the assets were supporting a pension ie. before 1 July 2017. An irrevocable election must be made to reset your cost base prior to the lodgement of your 2017 super fund tax return.
The introduction of the Transfer Balance cap measure may also have estate planning implications that need to be considered.
Changes to the concessional contribution cap
The limit for contributing concessional contributions to super (ie contributions made from pre-tax monies, such as employer or salary sacrifice contributions) will be reduced from $30,000 for those under age 50 and $35,000 for those over 50, to $25,000 per annum for all individuals from 1 July.
If you are currently making additional salary sacrifice contributions in excess of the $25,000 cap, you should contact your employer to discuss reducing your regular contributions effective from 1 July.
Changes to the non-concessional contribution cap
At present, individuals are eligible to contribute $180,000 per annum to superannuation from post-tax money. If you are under age 65, you are also eligible to bring forward up to two years of non-concessional contributions. This means you could contribute $540,000 this financial year – as long as you have not triggered the ‘bring forward’ provision in the previous two financial years.
From 1 July, this amount will be reduced to $100,000 per annum or $300,000 using two years of ‘bring forward’. Transitional arrangements will also apply if individuals have utilised, but not maximised, the bring forward provisions in the previous two financial years.
It is also important to note that if your total superannuation balance exceeds $1.6 million on 1 July 2017, you will no longer be able to contribute non-concessional contributions to superannuation.
Changes to taxation of transition to retirement (TTR) income streams
From 1 July, TTR income streams will lose their tax-free earnings status and will revert to being taxed at the normal accumulation rate of 15%. This may mean that the benefit of a transition to retirement strategy is reduced, particularly if you are under the age of 60.
If you believe any of the above measures will have an impact on you and you would like to discuss the implications in more detail, please contact us on 02 4304 8888.