Managing the $1.6m Super Cap

It is often the case where one partner slogs away at home bringing up the family and the other escapes on a regular basis to go to work, that at the end of the day your superannuation balances may be very uneven.

With the introduction of the $1.6m cap it is more important then ever to utilise the strategies available to help even out these balances. Some of these strategies will continue to be available after 1 July 2017 but some will not.

So if uneven balances are a problem for you please call to discuss your options.

Lindsay 02 8090 4112

Quick – get those Non Concessional Contributions in now

Finally, the proposed  super reforms have gone through with many changes to take place from July 2017.

One of these well publicised reforms is a change to the Non-Concessional Contribution (NCC) cap, which is to be reduced to $100k p.a. (previously $180k).

However, there are further changes to the NCC affecting those of you lucky enough to have $1.6m in super, or those who hope to attain those lofty heights in the medium to near term, which have had less press.

As an aside, to maintain reading interest & due to popular request, this is our fairly recent new family member (the horse not the child) which seems to be somewhat reducing our capacity for NCC’s, at least in the short term. He is lots of fun though, especially when I get to ride him while short-thing is at school, and then send her a selfie to really rub it in!

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Anyway back to the point….

After 1 July 2017, if you have a total of more than $1.6m in super (whether in pension, transition to retirement pension, or super) you will not be allowed to put any NCC’s into super at all. That’s none whatsoever. Nil. Only the $25k concessional contributions will be allowed (eg SGC, salary sacrifice and personal deductible).

You may ask, why would I want to put more in super as earnings on balances over $1.6m will be taxed? This is quite correct, but the earnings will be taxed at a mere  15% on income and 10% on most capital gains, so it is not that bad really. Additionally if your superfund is invested in Australian shares, it will still receive the 30% franking credits which reduce (or possibly eliminate) any tax due.

ACTION POINT

The good news is that the old rules still apply until 30 June 2017, therefore assuming you have not triggered the bring forward caps in the last two years (in which case there are transitional rules), this is a last opportunity for those near or over the $1.6m cap and under age 65 (or over age 65 and passing the work test), to pop an additional $540k into super as a tax free NCC.

If you think this might be relevant please call to discuss your situation in more detail.

Lindsay 02 8090 4112

Super Reforms Passed

The budget super reforms have now passed the senate and only require royal assent to become law, which is thought to be a mere formality.

The major changes are as follows

  • Introducing a $1.6 million transfer balance cap which limits the amount that can be transferred to the retirement phase, where earnings are tax-free. This measure will also apply to death benefit income streams.
  • Reducing the non-concessional contribution cap to $100,000 pa (or $300,000 under the bring forward provisions), limiting the ability to make NCCs to people who have a total superannuation balance of less than $1.6 million and introducing transitional rules for those who triggered the bring forward rule prior to 1 July 2017.
  • Removing tax exempt earnings for transition to retirement income streams.
  • Lowering the income threshold for Division 293 tax to $250,000.
  • Reducing the concessional contributions cap to $25,000 for all taxpayers.
  • Introducing a concessional contributions catch-up regime for those with total super balances of less than $500,000 from 1 July 2018.
  • Allowing a deduction for personal contributions without testing the proportion of employment income received (the 10% test).
  • Introducing a low income superannuation tax offset to replace the low income superannuation contribution (which will be abolished from 1 July 2017).
  • Increasing the annual income threshold from $10,800 to $37,000 for eligibility for the spouse contribution tax offset.
  • Abolishing the anti-detriment payment.

Next Steps

We will be in touch with our clients that will be affected by the pension cap and changes to existing transition to retirement pensions soon to discuss available options.

I will post a series of blog updates running through the changes in more detail. However if you have any questions please don’t hesitate to call.

One thing to consider now is if you have the means to contribute $540k as a non-concessional contribution, the 2016/17 year is your last opportunity to this before the caps are lowered (note conditions apply).

Lindsay 0413 952 180

Why have my PAYG instalments bounced back up?

The September tax instalment notices have recently been issued. You may notice that if you had previously varied your instalments down, they will have bounced back up again.

This is due to the fact that the September instalment is the first instalment for the 2016/17 year. As this is a new tax year, the ATO ignores any previous amendments to the instalments you may have made and goes back to looking at the last lodged return. You can tell which return the ATO is looking at by checking the year printed in tiny numbers next to the amount due box – it’s probably 2015.

The problem is easily fixed by varying the new instalment down if appropriate. Be careful though, as if you choose to pay less than the instalment and it turns out that you have not paid enough, there will be interest to pay when you lodge your 2016/17 return.

If you would like us to vary your instalment just get in touch with an estimate of your 2016/17 income.

Lindsay 0413 952 180

Further Changes to the Proposed Super Reforms

Today the Treasurer has announced changes to 2016 Budget super reforms. These are not yet legislated and could of course change again, however it is a start;

The changes to the proposals are:

  • The $500,000 lifetime cap for non-concessional contributions (NCCs) will be replaced with an annual $100,000 non-concessional contributions cap. So they have removed the retrospective nature of the proposed change, and the upper cap on lifetime contributions in part.
  • The current NCC cap carry forward provisions will continue for those under age 65, allowing members to contribute up to $300,000 of NCCs over a 3 year period. Those with accumulation balances over $1.6 million will no longer be able to make non-concessional contributions. The measures above are intended to be effective 1 July 2017.
  • The proposed carry forward of unused concessional contributions cap amounts will remain, however commencement will be delayed until 1 July 2018.
  • The work test for those aged 65 to 75 will remain – this is a shame.

The following proposed Budget reforms will remain:

  • Removing the less than 10 per cent employment income test for personal superannuation contribution deductions. Great news.
  • The $1.6 million transfer cap for benefits transferred to pension phase.
  • Reducing the annual income threshold for Division 293 tax on concessional contributions to $250,000. A real shame as many more will get caught by this extra tax.
  • Reducing the concessional contributions cap to $25,000 pa and allowing a carry forward of unused cap amounts for up to 5 years where account balances are under $500,000.
  • Income on assets backing transition to retirement income streams will be taxed at 15 per cent.
  • The increase to the spouse income threshold for claiming a tax offset for spouse contributions.
  • Continuing the Low Income Superannuation Tax Offset.

 

I will keep you all updated with any further changes as they occur

Lindsay

 

PAYG SUMMARIES NOW DUE

For those of you that are employers or have an SMSF that is paying a pension your PAYG annual summaries are now due.

The ATO will probably have posted pink forms to you for completion. The forms are always sent direct to you. Employees need to be given their copy by 14th July and the forms lodged with the ATO by 14 August if you are preparing them yourself. Extensions are available where we prepare them.

If you are using MYOB/Xero you can prepare an electronic file which can be sent to the ATO. You can give employees the PAYG summary prepared from the software. However, don’t assume the summaries are correct without going through the checks below.

Some important notes when completing your forms

  1. If your forms are for an SMSF please don’t try and complete them at all !- please forward to me
  2. Check the total gross payments on the summary page equals the sum of the amounts declared at W1 in your BAS for the year
  3. Check the total tax withheld on the summary equals the tax withheld on your BAS at W5 over the year
  4. Do not include salary sacrificed amounts in gross income
  5. In the box marked “reportable employer superannuation contributions” only include salary sacrifice amounts – not the standard SGC
  6. If an employee has been with you only for part of a year, put the start and or end dates in as appropriate in section B
  7. Keep a copy of the forms and send them to us with your 2016 tax documents – we can’t access them on the ATO portals so this is really important

If you have any questions please call, and in the event you make a mistake don’t panic as amendments can be lodged

Lindsay 0413 952180