This week Jeff Taitz, TAMIM Managing Director, reviews the recent Government announcements to the proposed Superannuation legislation
Fairer Superannuation? - 21 September 2016 -
Last week the Federal Treasurer, Scott Morrison announced the Government's final 'landing' on the superannuation changes that were originally announced in the May 2016 Budget. The changes are reflective of a government which rules by a slim majority and is therefore reliant on an increasingly powerful backbench and, to some extent, opposition. We will have to wait for the final votes to fully understand the practicalities of how the changes will operate but early indications are that the changes will be passed into law. The proposed changes to the superannuation system do have merit in that they are designed to improve its long term viability. We do however believe that the manner in which these changes were approached has done little to nothing to assure households that their retirement capital is secure. There is also ongoing concern about how their superannuation savings will be transferred to future generations.
Superannuation does remain a powerful vehicle for wealth accumulation with a view to self funding your retirement. If you have been able to accumulate a substantial account balance then superannuation is still by far the most advantageous vehicle for holding wealth savings. The challenge for those who have not accumulated enough into superannuation will now be how to make this happen.
The government's key proposals are detailed below:
$1.6 MILLION CAP OF PENSION ACCOUNT
From 1 July 2017, qualifying pension members will be permitted to have $1.6 million in a tax-free pension account. This will be indexed to CPI annually in $100,000 increments. Pension withdrawals received by the individual will continue to be tax-free to the individual. This is a per member balance limit, therefore two members will have a tax free pension account total of $3.2 million.
For a member superannuation balance in excess of $1.6 million as at 1 July 2017, this can remain in superannuation but earnings on this account will be taxed at 15% (with reduced capital gains tax of 10%). The excess above $1.6 million must either be moved back to the accumulation phase or withdrawn from superannuation altogether. For account based pension members, superannuation still remains very attractive with amounts withdrawn from this accumulation account treated as tax free lump sum withdrawals.
LOWERING THE ANNUAL NON-CONCESSIONAL CONTRIBUTION CAP
From 1 July 2017 a member will have a reduced annual ‘non-concessional’ contribution (NCC) limit of $100,000 per annum. Previously the limit was $180,000 pa. Members under 65 years age may still bring forward three (3) years of contribution in advance. Importantly, non-concessional contributions will only be able to be made where the member account balance is less than $1.6 million as at 30 June the prior year and then only up to $1.6 million. For those members aged 65 to 74, they may make non-concessional contributions up to the annual limit of $100,000 provided they meet the 'work test'. Prior to 1 July 2017, members may utilise the current $180,000 annual limit and if they qualify, bring this forward amounting to $380,000.
LOWERING CONCESSIONAL CONTRIBUTION CAP
‘Concessional’ contributions, paid into superannuation by an employer or paid personally where a tax deduction is claimed, will be reduced to $25,000 per annum from 1 July 2017 (down from either $35,000 or $30,000, depending on age). However, flexibility will be introduced from 1 July 2018 to allow members to rollover unused concessional contribution caps within the prior five years, that is, to catch-up concessional contributions in future years where cash flow permits (up to 5 years). This is only where their account balance is less than $500,000.
PLANNING GOING FORWARD
The current and ongoing changes to superannuation make this a complex area for most SMSF trustees to understand and manage. It is extremely important to take care and ensure the correct forward planning is exercised to ensure superannuation members do not inadvertently fall foul of the new rules. It is important for your tax and estate planning to be considered within the broader context of your overall wealth plan. We hope the above information provides you with some clarity on the changes and should you wish to have a more in depth discussion on your investment options please do not hesitate to contact us.
The information provided on this website should not be considered financial or investment advice and is general information intended only for wholesale clients ( as defined in the Corporations Act). If you are not a wholesale client, you should exit the website. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions. Where the website refers to a particular financial product, you should obtain a copy of the relevant product services guide or offer document for wholesale investors before making any decision in relation to the product. Investment returns are not guaranteed as all investments carry some risk. The value of an investment may rise or fall with the changes in the market. Past performance is no guarantee of future performance. This statement relates to any claims made regarding past performance of any Tamim (or associated companies) products. Tamim does not guarantee the accuracy of any information in this website, including information provided by third parties. Information can change without notice and Tamim will endeavour to update this website as soon as practicable after changes. Tamim Funds Management Pty Limited and CTSP Funds Management Pty Ltd trading as Tamim Asset Management and its related entities do not accept responsibility for any inaccuracy or any actions taken in reliance upon this advice. All information provided on this website is correct at the time of writing and is subject to change due to changes in legislation. Please contact Tamim if you wish to confirm the currency of any information on the website.