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You may be aware that the government announced significant changes to superannuation in the last budget. Some of the changes were subsequently amended. These changes (as amended) come into effect on 1 July 2017. The changes give rise to significant issues and careful planning is required – read on for more information!

Summary of changes, issues arising and new strategies

Issue 1: Reduction in Concessional Contribution Cap. The Concessional Contribution Limit will reduce to $25,000 (currently $35,000 for over 50’s and $30,000 for under 50’s)

Strategies to consider:

  1. Consider maximizing contributions to take advantage of this year’s higher limits
  2. If you are salary sacrificing into super then remember to change the arrangements to ensure you do not breach the reduced limit from 1 July 2017
  3. From next year it will be possible to contribute personally and get a tax deduction (i.e. from 1 July 2017, you do not need to salary sacrifice to get a tax deduction for your superannuation contributions. You can make personal contributions and get a tax deduction so long as your total contribution including your employer contribution does not exceed the new lower limit of $25,000)

Issue 2: Reduction in Non-Concessional Contributions Cap. The Non-Concessional Contribution Limit will reduce to $100,000 (currently $180,000). Furthermore, people with over $1.6m on 1 July 2017 will not be able to make non-concessional contributions at all.

Strategies to consider:

  1. Consider maximizing non-concessional contributions to take advantage of the higher limit of $180,000 (or $540,000 under the bring-forward rules) before 30 June 2017.
  2. Consider maximizing the non-concessional contribution limit of $180,000 (or $540,000 under the bring-forward rules) before 30 June 2017 especially if your superannuation account balance is over $1.6m as you will not be able to contribute further from 1 July 2017
  3. Special rules will apply if your balance is between $1.4m and $1.6m from 1 July 2017 and you need to plan ahead

Issue 3: Div. 293 (additional 15% contribution tax on high income earners) will now apply for individuals with incomes over $250,000 (currently over $300,000)

Strategies to consider:

  1. If you fall in this category then you may wish to maximise your contributions this year

Issue 4: Transition to Retirement Pension – TTRP. The income in your superannuation fund will no longer be exempt from tax if you are in TTRP.

Strategies to consider:

  1. TTRP may no longer be a viable strategy for a lot of individuals
  2. Other planning and strategies may apply

Issue 5: Transfer Balance Cap – $1.6m. This is a new measure and essentially limits the amount you can have in pension phase. Currently, there is no limit on the amount you can have in pension phase and all the income earnt by your superannuation fund is tax free. Effective 1 July 2017, the limit will be $1.6m. If your balance is more than $1.6m then you will need to withdraw the excess or move it into accumulation phase.  

Strategies to consider:

  1. Consider if you should make non-concessional contributions before 30 June 2017 as this may be your last opportunity to contribute up to $540,000 per person or $1,080,000 for a couple
  2. Should you withdraw the excess over $1.6m or should you simply move the excess to accumulation phase. Instructions must be supplied to your super fund before 30 June 2017
  3. If you have a self managed superannuation fund – SMSF then there are considerations around valuation of assets, capital gains tax, segregation of assets, etc.
  4. There may be an opportunity to withdraw funds out of your account and contribute into your partners account and thereby reducing your balance to below the limit of $1.6m
  5. Estate planning issues since any reversionary pension from a spouse will also count towards the limit of $1.6m

As can be seen from above, this particular change gives rise to numerous complications, strategies and issues. If you fall in this category or are almost there, then you must seek financial advice immediately as there are a lot of potential issues pitfalls and planning opportunities.

 

This article is an extract from Orion Financial Group written by Sacha Loutkovsky

Property Friends is a specialist Property Investment Advocacy that has been operating for the last 13 years on the basis of 3 principles: Trust, Community & Progress. www.propertyfriends.com.au (03) 9758 5331

 

Uwe Jacobs Property Strategist

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