NORTHERN TAX & FINANCIAL SERVICES
For those with superannuation balances higher than $1.6M, it’s vital you consider the new Superannuation Reforms.
Legislation to implement the Government’s superannuation reforms passed the Parliament on 23 November 2016. This has set out a clear objective for superannuation: ‘to provide income in retirement to substitute or supplement the Age Pension’, which guided the superannuation changes.
The government also has created this ‘$1.6 million transfer balance cap’, which is aimed to limit the total amount of superannuation savings that can be transferred from accumulation phase into ‘a tax-free retirement account’, according to the 2016 Federal Budget papers.
Superannuation in Accumulation phase is when the member is contributing into a superannuation investment portfolio with the expectation of funding their own future retirement.
Once accumulated, and a member is of certain age and/or meets certain conditions, then the superannuation balance can be transferred into Pension phase (which is this ‘tax-free retirement account’). This is the time during which the superannuation fund pays the member an ‘income stream’ or ‘pension’.
So it is particularly important for those with the excess of over $1.6 million of super, who, if in pension phase, will need to either consider:
1. a withdrawal of the excess balance OR
2. Revert the excess amount to accumulation phase (which is then subject to 15% earning tax), before 1 July 2017.
This second option may likely be your preferred option. Reverting the excess amount can be facilitated by your administrator/accountant, with a transfer from the pension account into a new accumulation account. But it has consequences that you need to be aware of.
It is also imperative that all SMSF clients have their deeds reviewed and consider an update (by way of a ‘deed or variation’) if required. This is very important now that the legislation has been mandated and we are certain of the rules commencing 1 July 2017.
Many of our SMSF clients utilise a subscription ‘deed upgrade service’, that once a deed of variation is prepared, they are able to subscribe by way of a small annual fee, to provide both them and us, the reassurance that the deed is automatically updated for all changes with legislation as the changes occur. Many of our trustees enjoy the peace of mind this service provides.
In updating the Rules of the deed, the updates take into consideration matters such as:
• The trustees and the members ability to undertake any SMSF strategies allowed by law;
• ensuring all rules are current and up-to-date;
• that members don’t impose any limits over and above those required to stay compliant;
• the Rules should authorise trustees to (where appropriate) meet the requirements for any applicable concessions of stamp duty/transfer duty.
Why do you need to engage an expert at this most critical time? You will need to be sure your deed is up to date, that you are ready for the new rules to take effect, and furthermore, have the awareness that your fund may also be eligible to take advantage of capital gains tax (CGT) relief, which may be a vital consideration in this lead up to 1 July 2017.
The information provided is general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of a qualified advisor before you make any decision regarding any products mentioned. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly Northern Tax & Financial Services Pty Ltd employees or agents shall not be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.