superannuation changes post 2016 australian federal budget
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HillRogersAdvisoryPtyLtdThematerialcontainedinthispublicationisgeneralcommentaryonlyfordistributiontoclientsofHillRogers.Noneofthematerialis,orshouldberegardedaspersonalorfinancialproductadvice.Accordingly,nopersonshouldrelyonanyofthecontentsofthispublicationwithoutfirstobtainingspecificadvicefromHillRogers.Everyefforthasbeenmadetoensurethatthecontentisaccurate,howeveritisnot intendedtobeacompletedescriptionofthemattersdescribed.HillRogers,itsPrincipalsandagentsacceptnoresponsibilitytoanypersonwhoactsorreliesinanywayonanyofthematerialwithoutfirstobtainingsuchspecificadvice.
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Aboutthespeaker
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Garvin’s extensive expertise and technical experience in income tax and superannuation makeshim a valuable advisor to his clients, including SMSFs, High Net Worth Individuals and SMEs.
Garvin’s advises clients in
• Tax planning and compliance
• Wealth creation plans
• Retirement planning
• Regulatory compliance
Garvinispassionateabouthelpingpeopletoplanforthetransitionbetweenworkandretirement inawaythatseestheirfinancialgoalsachieved.
GarvinJones- Director,BBus,CA,SMSFSpecialistAdvisor
Services:SuperannuationHighNetWorth IndividualsandProfessionals
t:+61292325111d:+61292200346e:garvin.jones@hillrogers.com.auw:www.hillrogers.com.au
Superannuationreforms- 2016
• Non-concessionalcontributions(non-deductible)
• Concessionalcontributions(deductible)
• Worktest
• 10%test
• $1.6millionmemberaccountbalance
• Questions?
Wherearewe?
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Revisit2016Federalbudget
1. Concessional Contributioncaps$25,0002. NonConcessionalContributionCap$500,000LifetimeCap
(NCCfrom1July2007,effective3May2016)3. $1.6millionCaponPensionbalances
4. RemovaloftaxfreeincomeforTransitiontoRetirement IncomeStreams(TRIS)5. Division293taxthreshold,$250,0006. Worktestremoved(members65to74)7. ‘10%test’removedfrom1July2017
8. Concessional ContributionsCatch-up(of5years)delayedby1yearnew startdate1July2018(2019FY) BUTmemberbalance˂$500KChangesapply toALLSuperfunds
6
Keybudgetannouncements =superseded bylegislation
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Thingsthathavenot changed
• TaxFreePensionsandLumpSums– 60andover*
• MinimumandMaximumPensiondrawdownfactors
• AccesstoSuperBenefits andPreservationRules
- Reachpreservationage,and- Meetaconditionofrelease(retirement)
• Concessional Contributioncapsfor2016/17
• Non-concessional Contributioncapsfor2016/17
*doesnotapplytodefinedbenefitpensions
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Non-concessionalcontributions(NCC)
9
Age Existingto30June2017
2016BudgetProposal
From1July2017
Up to65 $180,000 /$540,000
$500,000lifetime cap
$100,000/$300,000
65– 74 *$180,000 $500,000lifetimecap
*$100,000
MemberBalance˃ $1.6M n/a n/a Zero
*Worktestfromage65
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Non-concessionalcontributions
• NCCfor2016/17
- Lastchancetouseexistingcaps
- $180k/$540k(bring forward)NCCcapsinplaceto30June2017
• NewannualNCCcapof$100,000from1July2017(4xCCcap)OR$300,000bring forward
• Bewaretransitionalcapsforbring forwards triggered in
- 2015/16and
- 2016/17
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Non-concessionalcontributions
11
Current New*
2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY
AnnualNCCCap $180,000 $180,000 $180,000 $100,000 $100,000 $100,000 $100,000
TrienniumCaps triggerb/f $540,00triggerb/f $460,000
triggerb/f $380,000triggerb/f $300,000
triggerb/f $300,000
Examples
*MemberBalance˃ $1.6M NCCcapiszero
TransitionalCaps
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Non-concessionalcontributions
• Totalsuperbalanceofmorethan$1.6M?
- Measuredatprevious30June
- Indexedsameas$1.6mtransferbalancecap(CPI,$100kincrements)
- For2017/18,NCCallowedifbalanceon30June2017is$1.6morless
• Ifapproaching$1.6m,bewarebringforwards…
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Bringforwardconsiderations– from1July2017
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Totalsuperbalanceat30Juneprior
NCCcapforthefirstyear
Bringforwardperiod
Lessthan $1.4M $300,000 3years
$1.4Mtolessthan$1.5M $200,000 2years
$1.5Mtolessthan$1.6M $100,000 Nobring forwardavailable
$1.6ormore Nil n/a
Note:• Ifthebringforwardruleistriggered,insubsequent yearsthemember’stotalsuperbalancemust
beunderthegeneraltransferbalancecapat30JunepriorinorderfortheNCCstobepermitted.• Incrementsof$100,000
Bringforwardconsiderations- from1July2017
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Superbalanceat30Juneprior
Allowablebringforwardamount**
Balanceafterbringforwardamount
$1.3M $300K $1.6M
$1.35M $300K $1.65M
$1.395M $300K $1.695M
$1.4M $200K $1.6M
$1.45M $200K $1.65M
$1.495M $200K $1.695M
$1.5M $100K* $1.6M
$1.595M $100K* $1.695M
*Nobringforward,standard$100Kapplies**$100,000incrementsto$1.6M
Non-concessionalcontributions: items
• Bringforwardsplannedfor2016/2017– lastchance
• In-speciecontributionsalreadyintrain
• Contractedproperty:settlementsumfundedbyNCC
• UKpensiontransfersalreadyintrain
• Futurerecontributions
• LRBAs:dependentonlargeNCCforrepaymentorassetimprovement
Review
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Non-concessionalcontributions: items
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• Remember:disalloweddeductiblecontributionscount!
• ReimburseSMSFexpensespaidpersonally
• Bewareimprovements tofundassetsfor$0
• Obtainadvicebeforemakingcontributions
• Includeallsuperwhentesting$1.6Mbalance
WatchforinadvertentuseofNCCcap
Non-concessionalcontributions
• Additionalcapsarestillavailable;
- SmallBusinessCGTcaps
- $500,000 retirementexemption lifetimecap
Theseremaininplaceandareinaddition toNCCcap
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Contributionrulesfrom1July2017
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Age *WorkTest **ContributionType
Lessthan65 N/A Member,spouse, employer
66to69 Yes Member,spouse, employer
70to74 Yes Memberandemployer
75andover Yes SGandAwardonly
*WorkTest: appliestopeopleaged65+inrespectofall contributions.Paidforworkingatleast40hoursover30consecutivedayspriortomakingacontribution ineachFY.
**MemberContribution– includesConcessionalandNon-concessional
Contributionrulesfrom1July2017
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10%Testwillceasetohaveapplication
Whocanclaimataxdeduction?
Member, onlyif;income+benefits from“employment”arelessthan10%oftotalincome
Member, fortop-uptoconcessionalcap
Old
New
• 10%ruletoberemovedfrom1July2017
• Eligibletoclaimadeductionregardlessofemploymentcircumstances*
• Removesneedforsalarysacrificeagreements
• AllowsallindividualstomakeortopupCCtotheCCcap
• Deductionslimitedtoassessableincome
• Taxdeductionelectionprocessremainsunchanged(Sec290-160Notices)
*worktestfromage65
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Taxdeductionsforpersonalcontributions
Concessionalcontributioncaps(CC)
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Existingto New**
Age 30June 2017 From1July2017
49 – 74 *$35,000 *$25,000
< 49 $30,000 $25,000
*Work testfromage65**IndexedtoCPIinincrementsof$2,500
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Allowingcatchupconcessionalcontributions
• Newandbeneficialchangeforclaimingsupercontributions
• Oldrulesto30June2017,‘useitorloseit’
• Newrules‘anaveragingtypearrangement’
• Allowsunusedamountstobecarriedforward
• UnusedportionofCCcapcarriedforwardonarolling5yearperiod
• Effectivefrom1July2018(2019/20firstcatch-upopportunity)
• Notabringforwardentitlement
• “Totalsuperannuationbalance”mustbelessthan$500Kat30Juneprior
• Mustapplyunusedamountsinorderfromtheearliestyeartothemostrecentyear
• Amountsnotusedafter5yearswillexpire
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Allowingcatchupconcessionalcontributions
IncreasedCCcap- calculatingCCcatch-up
DeductionClaimedin‘Year6’$25,000capfor2023/24+$15,000unusedcapfrom2018/19
*Musthavelessthan$500Kintotalsuperasat30June2023
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Year 1 2 3 4 5 6
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24CCcap $25,000 $25,000 $25,000 $25,000 $25,000 $25,000CCmadebymember/employer
$10,000 $10,000 $10,000 $10,000 $10,000 $40,000*
Availableunusedcap
$15,000 $15,000 $15,000 $15,000 $15,000 $0
RollingCCcapavailable
$15,000 $30,000 $45,000 $60,000 $75,000 $60,000
Example– usingCCcatch-up
FrankhasnoCCsandhasn'tusedhisCCcapfor5years.
Hehas$40Kofinvestmentincome,plusanassessablecapitalgaininyear6of$150K.
Frankcanusethecatch-upprovisions tomakepersonaldeductiblecontributions ofupto$150Ktoeliminatethecapitalgain.
- 5yearsofunusedCC =$125,000
- CurrentyearCC =$25,000
$150,000
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‘Catchup’unusedconcessionalcontributions
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• Brokenworkpatterns
• Lumpyincomeorvariablecontributionlevels
• Greaterdisposableincomelaterinlife
• Largecapitalgains
Usefulforthosewith<$500Kinsuperand
Otherproposedcontributionschanges
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Division293Tax
• Additional15%paidonConcessionalContributions
• Effectistotaxconcessionalcontributionsat30%
• Incomethresholdtoreducefrom$300,000to$250,000
Effective1July2017
Pensionsandthe$1.6Mcap
• Itsallaboutlimitingthetaxfreeincomeinsidethesuperfund
• Nothingtodowithaccessingtaxfreesuperbymembers
Dispelling theconfusion!
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$1.6Mpensioncap:example
• JaneandBobare70
• $2meachinsuper
• Currently,allinpensions (oneeach)
• Fundearnsaround$200kpa
• Notaxpaidbythemembersorthefund
• Theydrawaround$300kp.a.inpensionsandwanttokeepitaround there(eventhough theminimum is$200k)
Balancesinexcessofcap
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Effectof$1.6mpensioncap:excess
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Jane$2m
Bob$2m
$1.6m
$0.4m
Pension
Accumulation
$1.6m
$0.4m Accumulation
Pension
Fund Incomenowonly80%taxfree
20%($40k)taxable
Approx.$6ktax
Jane&Bobchoose tokeeprolledbackamounts insuper...
Pensions(otherthanTRIS)
• Called“TransferBalanceCap”
• Assessedat- 1July 2017forexistingpensions
- Commencement dayfornewpensions
• Pensionbalancesinexcessofcap
o Mustberolledbacktoaccumulation,ifnot,ATOwilllevyexcesstransferbalancetaxandexerciseauthoritytoforcerollback.
- Usualpreservation/taxrulesapplytorolledbackamount
- Investment incometaxableagain(15%onincome,10%onCG)
o Orremovedfromsuper
$1.6MCaponamountswhichcanbetransferred toretirementphasepensions
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Definitions– newterms
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• Sumof:Accumulationphasevalueof individual’s superinterest• Pensionphasevalueofindividual’s superinterest• Rolloversintransitasof30June
Totalsuperannuation
balance
• $1.6Min2017/18andsubjecttoindexedtoCPIin$100Kincrements
Generaltransfer
balancecap(TBC)
• Themaximumamountanindividual cantransfertopensionphase– sameastheGeneralTransferCap
Personaltransfer
balancecap
$1.6mpensioncap
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• Earnings(or losses)onpensionbalanceafterassessmentdonotcounttowardscap
• IndexedtoCPI,in$100kincrements
• Proportionatemethodusedtodeterminehowmuch‘capspace’available
• Limitpermember,notperfund, notperaccount
• Trackmovements in/outofpension phasevia“TransferBalanceAccount”(likeabankaccountoraccounting ledger)
Effective1July2017
Effectof$1.6mpensioncapperperson
• ‘Evenup’balances
• Contributionsplitting(concessional)
• Recontributionforspouse/family
• Excess>$1.6M- leaveinaccumulationorwithdraw&holdoutsidesuper?
• Segregation– notavailabletoSMSFwhereanypensionmember hasmorethan$1.6Mastotalsuperannuationbalance
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Whatelseistheretothinkabout?
Effectof$1.6mpensioncapperperson
• ReviewCGTpositionintaxexemptfunds
• Multiplepensions
o Howtokeeptaxfree/taxableseparate?
- Consideranotherfund
o Whichtorollback?
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TRIS:removaloftaxconcessionsEffective1July2017– newandexistingTRISaccounts
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• Notaxexemptionon investmentincomegeneratedfromassetsunderpinning TRISbalance
• $1.6Mpensions capdoesnotapply
• NOCHANGEtotheeligibility rulestocommencetoTRIS
TRIS:Whatnow?
• Willmoststop1July2017(orbefore)?• Havemembercircumstanceschanged?• Moreinterestintriggering retirementdefinition (TRIS ABP)
TRISconverts toABPonretirement- Ceasedapaidjobafter60?
- Decidetoneveragainwork10ormorehoursperweek?
- Age65
• EarningsonABPtaxfree(subject to$1.6Mcap)
ForexistingTRIS
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Definedbenefitpensions
• CountsaspartoftheTransferBalanceCap
• Valuedat16xannualpayments
• Ifmemberexceeds$1.6MTBC
- NoexcessTBCtax
- Norequirementto‘rollback’BUT
- Samerestrictionsapplytomemberwithsuper>$1.6M(nomoreNCCetc.)
• Taxconcessionstotheindividualmembers– lessgenerous
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Otherissues
• Whatwillhappenondeath
- Memberdrawingpensionattimeofdeath?
- Membernotyetinpensionattimeofdeath?
- Insuranceproceeds?
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Example– deathandsuper
DavidandJennyage75,eachhasa$2Mpensionbalance.Daviddies-• Undercurrentrules- David’spensionwould reverttoJenny
- Jennynowdrawing2pensions totalling$4M
- Taxfreeincomeinsuper
- Taxfreepensions toJenny
• Butfrom1July2017TBCrulesapply
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Example– deathandsuper
• At1July2017- DavidandJennyrestructuretheirpensions leaving$1.6Meachinpension&transferthe
balanceof($400K)outofsuper
- Reversiontospouse(ondeath)
BothhaveexhaustedtheirTBC
• Now1July2020- David’sbalance$800,000
- Jenny’sbalance$1.4M
Daviddies-
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Example– deathandsuper
• UndertheTBCrulesJennyhasalreadyusedher$1.6Mcap
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Option1
Option2
JennytakesDavid’ssuperinterestof$800,000asadeathbenefit lumpsum,cashedoutofthesuperfund.Alternatively;
Jennycommutes$800,000ofher$1.4MABPretaining itinaccumulationphaseandtakesadeathbenefit incomestreamof$800,000.
IfJennychoosesoption 2,shewouldnotneedtocashanyofDavid’ssuperoutofthesuperfund asadeathbenefit lumpsum.
Capitalgainstax
Currentlaw• Capitalgainsrealisedonthedisposalofassetsthatunderpinpension
accounts(incl.TRIS)areexemptfromtax,eventhosegainsaccruedovermanyyears
Newrules• TRISsandthe$1.6mtransfercapwillconstrainfutureCGTrelief• Assetssoldin2016/17arenotaffectedbythenewrules
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CapitalgainstaxConceptually,thereliefisdesignedtoensurethatwhenanassetissoldafter1July2017:• capitalgainsthataccruedpost1Julywillbetaxable/taxexemptinaccordancewiththenew
rules;while
• capitalgainsbuiltupbefore1Julywillgetsomerecognitionthattheywouldhavebeenwhollyorpartlytaxexemptundertheoldrules
Choice- 2pathstoCGTrelief
• onlyappliestoassetsactuallyheldat9November2016(notnewassetsboughtsincethattime)
• “opt in”process,notanautomaticprocess
• The“optin”willbeirrevocable
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Takeaways
• NCCcaps
- Lastchancetotakeadvantageof$180,000/$540,000
- Bewaretransitionalcapsforbringforwardsbeyond30June2017
• CCcaps
- Allreducedto$25,000from1July2017
- Catch-upsforunusedCCcapavailablefor5years(balance<$500,000)
- Removalof10%testallowsallindividualstotop-upCC
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Takeaways
• TRISpension
- Fund incometaxedasifitwereinaccumulationphase
- Trigger retirementevent?StopTRIS?
• $1.6Mpension cap
- Limitstaxfreeincomeinfund
- Excessrolled– backtoaccumulation
- Allofyoursupercountstowardsthe$1.6Mcap
- Newlaws‘inplace’provideopportunity tomakedecisionsandactbefore1July2017
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t+61292325111f+61292337950www.hillrogers.com.au| info@hillrogers.com.au
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H.R.P.HPtyLimitedpractisingasHillRogers|ABN12003718 518MemberofMorsion KSi,anassociationofglobal independentaccountingfirms.Liability limitedbyaschemeapprovedunderProfessional StandardsLegislation.
Disclaimer:HillRogersAdvisory PtyLtdThe material contained in this publ ication is general commentary only fordistribution to cl ients of Hi ll Roger s. None of the material i s, or shou ld beregarded as persona l or financial product advice. Accordingly , no per sonshould rely onany of the contents of thispublication without f irst obtain ingspecific advice from Hil lRogers. Every effort has been made t oen sure thatthe content is accurate, however it is not intended to be a completedescription of the matter s described. Hil l Roger s, its Pr incipals and agentsaccept no respon sib ility to any per son who actsor re lies in any way on anyof the material without first obtaining such specific advice.
H.R.P.HPtyLimitedpractisingasHillRogers|ABN12003718518MemberofMorison KSi,anassociationofglobal independentaccountingfirms.Liability limitedbyaschemeapprovedunderProfessional StandardsLegislation.
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