At Butler Chartered Accountants, we pride ourselves in being a leader in the provision of services to Self Managed Superannuation Funds (‘SMSFs’).
We strive to be at the leading edge of strategy and developments in this industry. In the past few years we have invested heavily in upskilling our service and qualifications to ensure that we provide the best possible service to our clients.
To this end, Sue and myself have individually achieved the following:
* Via the Australian Superannuation Fund Association (‘ASFA’) she has also attained an Advance Diploma of Financial Planning (Superannuation).
* Through the University of NSW, I have attained the status of CA SMSF Specialist as awarded by the Institute of Chartered Accountants Australia and New Zealand.
* Via the Institute of Chartered Accountants Australia and New Zealand I have also attained a Diploma of Financial Planning.
At a firm level, we have invested in establishing our own independent limited Australian Financial Services Licence (AFSL No: 488244) in our associated entity Butler Private Pty Ltd. Butler Chartered Accountants is now an authorised representative of that licence and both Sue and myself are sub-authorised representatives.
Obtaining this license is a significant step for Butler Chartered Accountants. It is largely in response to regulatory changes that apply to accountants from July 1, 2016 working in the superannuation field. We are one of only a small number of accounting firms who have been successfully approved by ASIC for this type of license.
Most importantly though, having our own independent licence means that we can provide independent and objective advice to our clients. The alternative would be to be backed by a larger financial or banking institution.
Consequently, we believe we are best placed to guide our clients through the most significant and complex changes that are to occur to superannuation in recent years.
We shall be in contact with all our SMSF clients early in the New Year to discuss how these changes affect them and, where necessary, advise upon strategies that can be implemented to minimise the impact of these changes on their Nest Eggs.
As always, we are working closely with DBA Lawyers, who are experts in the SMSF field, to ensure our clients are kept up-to-date with the latest strategies not only for these changes but in the industry in general.
Summary of the Key Changes
On November 23, 2016 the planned superannuation changes announced in the 2016 May Federal Budget were passed by Parliament. The Act – Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016, contains some of the most complex and significant changes to our superannuation system that we have seen.
In general terms, the following key changes are to apply from July 1, 2017:
* Tax free pension accounts to be limited to $1.6 million: Now referred to as a transfer balance cap (TBC) a limit of $1.6 million is in place from July 1, 2017 on the total amount of superannuation assets a member can transfer to a tax-free pension.
Members who are in receipt of account based pensions (ABP) above $1.6 million just before July 1, 2017 will be required to reduce their pension assets to $1.6 million by July 1, 2017. However, there will be no additional tax payable provided a members account does not exceed $1.7 million for a pension that was payable prior to July 1, 2017 provided the members TBC is reduced to below $1.6 million by December 31, 2017.
* Reducing concessional contributions (CC) cap to $25,000: The annual CC will be reduced from the current $30,000 ($35,000 if your age was 49 or over prior to June 30, 2017) to $25,000 each financial year regardless of age.
Limited indexation will apply to this limit.
* Reducing non-concessional contributions (i.e. after tax contributions) to $100,000 per annum: Previously the non-concessional contributions (NCC) cap was $180,000 with the ability to bring forward up to three years into one (i.e. up to $540,000).
The $100,000 limit will apply from July 1, 2017, however, should a member’s total superannuation benefits (TSB) exceed $1.6 million then no NCC’s can be made.
Broadly, a member’s TSB is the sum of their accumulation accounts, pension interests and any rollover superannuation benefit that may be in transition.
If a members TSB is less than $1.4 million then they may be able to bring forward up to 3 years and contribute up to $300,000 of NCC’s. For balances between $1.4 million and $1.6 million there are restrictions on the amounts that can be contributed.
* Removal of the tax exemption on earnings derived from asset supporting transition to retirement income streams (TRIS): The removal of this exemption means that any earnings on assets supporting a TRIS will be taxed at 15% (or 10% on capital gains).
Consequently, those who have attained their preservation age and who attain 65 years of age or retire will generally be interested in converting their TRIS to an ABP in order to obtain a pension exemption.
* Transitional Capital Gains Tax (CGT) relief: CGT relief can be elected on assets moved from pension to comply with the TBC or TRIS changes for those that were in place prior to July 1, 2017. An election can be made on an asset by asset basis and must be completed in approved form prior to lodgement of the SMSF’s 2017 income tax return.
Broadly, this enables the cost base of assets moved out of pension to be reset at market value as at July 1, 2017. Effectively, this attempts to lock in the tax-free component of the asset whilst they were under pension prior to July 1.
* High income earners threshold lowered to $250,000: the threshold at which high income earners pay an additional 15% contributions tax will be reduced from $300,000 to $250,000 from July 1, 2017.
* Tax deduction for personal contributions: In one of only a few positive outcomes, members will be able to claim an income tax deduction for personal superannuation contributions up to their CC cap. However, those over 65 years must satisfy a gainful employment test before making a contribution.
For example, if a member has made contributions of $10,000 via their employment, they may be able to make an additional $15,000 of personal CC’s and claim a tax deduction for that amount (subject to having sufficient taxable income to offset the deduction).
This removes the troublesome 10% rule, whereby in order to qualify for a deductible personal superannuation contribution members had to have less than 10% of their assessable income from employment. This was also referred to as a self-employed contribution.
* Rolling 5 year concession contribution – 1 July 2018: In another positive move, from July 1, 2018, members with a TSB just before the start of the financial year of less than $500,000 will be permitted to make additional CC’s where they have not reached their CC’s in the previous five years. This will effectively equate to a rolling average CC of $125,000 (as indexed) for those that satisfy the five year on year CC carried forward criteria.
As can be seen from our attempt to simplify some of the more important changes above, you can only imagine the complexity involved in the underlying legislation and rulings that are required to be interpreted and advised upon. Never before has it been more important to
engage SMSF experts to provide you with the most appropriate and tailored advice to suit your needs.
In the lead up to July 1, 2017, a number of strategies need to be considered and, where possible, implemented in order to maximise the position of your SMSF and its members.
These strategies include (but not limited to):
* Consider rebalancing strategies to members’ accounts to ensure that the $1.6 million is maximised between members;
* Ensure the correct CGT elections are made to crystallise the most tax effective cost base outcome moving forward for assets transferring out of pension to accumulation;
* Implement strategies to maximise and preserve the long-term TBC of a member;
* Roll back pensions to ensure they are within the $1.6 million TBC; and
* Implement strategies for TRIS pensions.
As mentioned above, we intend to be in contact with many of our SMSF’s who, in our opinion will be impacted most by these changes, in January or February, 2017. However, if you wish to discuss these changes earlier or have not been contacted by the end of February, 2017, we encourage you to contact our office directly and book in an appointment so that we may assist you.