The end of the financial year always seems to come faster than it should. Given the impending July 2017 superannuation changes, being on top of your end of financial year planning is as important as it has ever been.
This year it is essential that you consider maximising the existing contribution limits for superannuation before they decrease on 1 July 2017. While maximising contributions should be front of mind it is imperative you don’t forget your other obligations as trustee of your Self Managed Superannuation Fund (SMSF) to keep it on track.
Decreased concessional contributions cap
For anyone who was under 49 years of age on 30 June 2016 the maximum amount of concessional (tax deductible) contributions that can be made to superannuation without penalty is $30,000. However, for anyone who is at least 49 years of age or older on 30 June 2016 the maximum amount is $35,000. This includes amounts your employer may make as compulsory super and salary sacrifice contributions as well as any personal deductible contributions you may have made if you qualify.
You need to ensure that ALL contributions are deposited with enough time so they are received by your fund before Friday 30 June 2017.
From 1 July 2017, this cap will fall to $25,000 for everyone, so if you have a salary sacrifice arrangement in place, this will need to be reviewed and adjusted accordingly.
If you are older than 65 you will need to meet a work test of working for at least 40 hours during 30 consecutive days prior to making the contributions to super.
Claiming a tax deduction for personal superannuation contributions
From 1 July 2017, everyone who is eligible to make a contribution will be able to claim a tax deduction for personal superannuation contributions without needing to satisfy the 10% rule which currently applies. The 10% rule requires you to earn less than 10% of your income from employment related activities.
Making after tax contributions to super
You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. This financial year the maximum personal after tax contribution is $180,000, however, if you are under 65 years of age you can contribute up to $540,000 over a fixed three year period, being the current and two subsequent years.
From 1 July 2017, this cap will fall to $100,000 per annum with a $300,000 fixed year bring forward. This also means if you triggered the bring forward rule before 2016/17 but the full $540,000 was not contributed, you will be limited to a transitional bring forward cap.
Those with a total superannuation balance of $1.6 million or more will not be able to make after tax contributions past 1 July 2017, so the current financial year will be the last opportunity for some to contribute to super.
Drawing superannuation pensions
If you are in pension phase make sure the minimum pension has been paid to you for this financial year. If you do not take your minimum pension, the pension account is to cease and the assets that supporting this pension are deemed to not be in retirement phase for the whole year meaning your fund will lose its tax exemption on earnings!
Transition to retirement income streams losing their tax-exempt earnings status
From 1 July 2017, superannuation fund members will lose the tax-exempt treatment of earnings on assets that support a Transition to Retirement Income Stream (TRIS). Members will still be able to start new or maintain existing TRISs if they wish.
Drawing superannuation lump sums
Once you reach 60 years of age all lump sums from superannuation are tax free. However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit. No tax currently is payable on taxable amounts of up to $195,000, in total, you receive prior to age 60.
Preparing for the $1.6 million transfer balance cap and capital gains tax (CGT) relief
Be aware of the new $1.6 million transfer balance cap that will limit the amount you can keep in the pension phase of superannuation from 1 July 2017. This new cap will limit the assets you can have supporting superannuation pensions to $1.6 million.
Any superannuation amount over this will need to be in accumulation phase where the earnings is taxed at 15 per cent, or 10% if a capital gain and the asset was held for more than 12 months. You may be eligible for CGT relief on assets affected by the new rules.
Minutes should be created detailing the fund members’ intent to transfer assets out of retirement phase to avoid breaching the new transfer balance cap.
Re-balancing accounts between spouses
The end of financial year is also the perfect opportunity to rebalance pension accounts between spouses before the new superannuation rules take effect on 1 July 2017. As long as you have available contribution space and are eligible to withdraw, rebalancing will ensure that super balances are as even as possible and the $1.6 million transfer balance cap is maximised per member.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.