In the May 2016 Federal Budget the Government announced a raft of proposals to change the superannuation rules. Since that time there has been considerable debate, consultation and political negotiation. In September and October 2016 exposure draft legislation was released, providing additional detail of the changes.

It is likely to be months before we see final legislation passed by Parliament and for some people there will be a short timeframe in which to take action to avoid penalty or adverse outcomes. Advice should therefore be sought sooner rather than later to ensure that you are ready for the changes.

Summary of proposed changes

The proposed changes include:

• Reduction in the concessional contribution cap from $30,000 or $35,000 to $25,000 per annum

• Reduction in the non-concessional contribution cap from $180,000 to $100,000 per annum and ban on further non-concessional contributions where super balance already exceeds $1.6 million

• Introduction of a $1.6 million cap on the amount that can be held in superannuation pension accounts

• Transition to retirement pensions will no longer attract tax concessions in a superannuation fund

• Allowing over 65s to make personal super contributions and removal of the “10% test”, allowing anyone up to age of 75 to claim a tax deduction for concessional contributions

• Ability to “catch-up” unused concessional contribution caps over 5 year period where super balance is below $500,000

• Extending the tax offset for low income spouses

Start date

The start date for most of proposed changes is 1 July 2017. The catch-up of concessional contributions will commence from 1 July 2018.

Planning opportunities

Business owners will need to be aware of the changes, particularly where business assets are held in self-managed superannuation funds. The new measures may adversely impact succession plans and also the ability to continue to fund limited recourse borrowing arrangements.

The 2016/17 financial year represents the final opportunity for people with available funds to make large super contributions before the lower limits start to apply. If the three year “bring forward” limit for non-concessional contributions has not already been utilised, a contribution of up to $540,000 can be made, even if the current balance exceeds $1.6 million. A contribution can be made in cash, a transfer of listed shares or business real property.

The small business CGT cap of up to $1.415 million continues to apply and this represents a significant opportunity for eligible people to top up their super savings in addition to the standard caps. The small business CGT concessions apply to the disposal of active business assets.

Anyone with current super pensions exceeding the proposed $1.6 million “transfer balance cap” will need to make some decisions prior to 30 June 2017 and will be required to roll some of their super back into an accumulation account. Superannuation death benefit nominations and estate plans will need to be revised as reversionary pensions are adversely affected by these proposals.

Transition to retirement pensions may no longer be worthwhile for some people as the tax exemption on associated earnings is proposed to be removed from 1 July 2017. This will affect anyone who started a superannuation pension before retirement, or reaching age 65.

It is important to obtain personal advice to understand how these proposals will affect you and what planning opportunities may be available, particularly in the lead up to 30 June 2017. For further information, please contact your Pitcher Partners representative.

Author

Louise Meijer

Partner, Private Clients

Pitcher Partners Sydney

T: +61 2 8236 7748

E: louise.meijer@pitcher.com.au

W: www.pitcher.com.au