Tuesday, 28 March 2017

Superannuation tax reforms - Are you ready for 1 July 2017?

The Tax Institute’s Superannuation Technical Committee has released a list of key points from the new superannuation tax reforms.

The list is designed to provide a ‘flag’ to readers of the main issues that will need to be considered in the lead-up to 1 July 2017.

It does not set out complete details for these new measures and is not a comprehensive summary of all the reforms. Further advice should be sought and research undertaken before taking action.

Matters that need to be considered pre 1 July 2017

The new superannuation tax laws substantially commence from 1 July 2017. Many of the measures require careful consideration for super fund members, trustees and their advisers.

This includes a number of matters that need to be considered prior to 1 July 2017, including:

  • Transfer balance cap for members who will have more than $1.6 million in pension accounts in retirement phase (including defined benefit pensions) – action will need to be taken before 1 July 2017 under the transfer balance cap measure to commute such pensions back to accumulation phase so that pension accounts do not exceed $1.6 million to ensure they do not incur excess transfer balance tax: LCG 2016/9.
  • Death benefit pensions – will be subject to the $1.6 million transfer balance cap (with a modified cap for child pensions) with any excess being required to be cashed out of the superannuation system. From 1 July 2017, whether a pension is auto-reversionary on death, has more significance: LCG 2017/D3.
  • Transition to Retirement Income Streams (TRIS) – consider the ongoing appropriateness of transition to retirement income streams and whether they should be continued or commuted post 30 June 2017. Some members may be in a position to convert their TRIS to a pension account in retirement phase if they have retired or satisfied a condition of release with a nil cashing restriction: LCG 2016/8.
  • Elections for transitional CGT relief (cost base reset) – there are different applications of the relief depending on whether the fund has used the segregated method or the proportionate method – this will need to be considered. Availability for funds that have used the segregated method will require action prior to 1 July 2017. However, a decision for funds that have applied the proportionate method may be deferred up to the date of the lodgement of the fund’s FY2017 tax return: LCG 2016/8.
  • Valuations – consider whether it is prudent to obtain new or updated valuations to support any CGT relief elections (cost base reset) and the balance of any transfer balance accounts.
  • Defined benefit pensions – will generally be counted for the purposes of the transfer balance by the application of a special value for a lifetime pension, life expectancy and marked linked pension to the annualised first retirement phase pension payment following 30 June 2017, and generally 50% of a member’s annual defined benefit pensions that exceed $100,000 will be taxed at marginal tax rates: LCG 2016/11.
  • Non-concessional contributions cap of nil for members with more than $1.6 million in total superannuation benefits across all funds (including defined benefits) – applies for each financial year commencing on 1 July 2017 with the total superannuation benefits measured at 30 June of the immediately preceding year. Considering liquidity issues for self-managed superannuation funds affected by a member’s inability to make further non-concessional contributions from 1 July 2017 will be important. 
  • Non-concessional contributions cap for members with less than $1.6 million in benefits – the non-concessional contributions cap will reduce from 1 July 2017 to $100,000 ($300,000 bring-forward rule). However, the current cap of $180,000 or $540,000 under the bring-forward rule remains available until 30 June 2017. 
  • The concessional contributions cap – the concessional contributions cap will reduce to $25,000 from 1 July 2017. However, the current cap of $30,000 (or $35,000 for members aged 49+ at the end of the previous financial year) will be available until 30 June 2017. 
  • Tax deductibility available for contributions made by employees – from 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary-sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
  • Different measurements – the $1.6 million transfer balance cap (relevant for determining an excess transfer balance of pensions in retirement phase) is measured differently from the $1.6 million total superannuation balance measure (which is relevant for the non-concessional contributions cap): LCG 2016/12.

Superannuation Webinar Series offers detailed insights

The Tax Institute is hosting a Superannuation Webinar Series from Monday, 3 April to Wednesday, 12 April to help you navigate these changes.

In addition to this, the Institute has put together a series of corresponding workshops to highlight the key steps, strategies and practical tips that you need to be aware of in the lead-up to 1 July 2017. Four workshop sessions draw on the national webinar series and cover recent changes; pensions; the new contribution provisions; isolated changes and legacy provisions; succession and estate planning, and more.

Find out more about our:

For more information on the superannuation tax reforms, please contact The Tax Institute's Tax Policy and Advocacy team on (02) 8223 0011 or at taxpolicy@taxinstitute.com.au.