There are just over four months left for people to take advantage of the final opportunity to ramp up superannuation balances before a new, more restrictive, superannuation regime comes into force, says Andrew Yee, director of superannuation at HLB Mann Judd Sydney.
“The current window of opportunity hasn’t received a lot of attention, but it is important that people are aware of the full impact of the changes that come in effect on 1 July this year, and take action now to make contributions while they still can,” he said.
“It seems that most of the focus has been on the $1.6 million pension cap, which only affects a small number of Australians. But there are other changes that we believe are just as – if not more – significant.
“One of the most important changes is the reduction in the non-concessional contribution cap. This is coming down from $180,000 a year to $100,000 a year (or $300,000 if brought forward over three years, down from $540,000).
“This creates a final opportunity to maximise non-concessional contributions to superannuation.
“Indeed, we believe that it represents a superannuation contribution opportunity of a magnitude not seen since the 2007 financial year, when the Government allowed everyone a “one-off” non-concessional contribution limit of $1 million.
“For those with more than $1.6 million in superannuation, this may be their last opportunity to make non-concessional contributions to their superannuation fund.
“On the other hand, those with little or no superannuation have the opportunity to make a substantial start on their retirement savings.”
Mr Yee said that some of the common questions and misunderstandings about the superannuation changes include:
1. What other changes are being introduced from 1 July 2017?
As well as the $1.6 million total superannuation balance cap and the reduction in the non-concessional contribution cap, the main changes include:
In addition, from 1 July 2018, those with balances of less than $500,000 will be able to access their unused concessional contribution caps to make additional contributions over five years.
2. Is it only SMSFs that are impacted or is it all superannuation accounts?
No, all superannuation accounts are affected. However it is likely that SMSFs will be the most affected, as SMSFs would have a greater population of members with super and pension balances above $1.6 million.
3. What do SMSF trustees need to do before 30 June 2017?
4. What can people do with the balances over $1.6 million that must be withdrawn?
Generally balances above $1.6 million do not have to be withdrawn from superannuation while it is still in accumulation phase. The main exception is if the balance is being paid as a death benefit reversionary pension to a surviving spouse. If this is the case the balance above $1.6 million can be paid into another savings and wealth accumulation entity such as a family trust, or paid to the estate and then housed in a testamentary trust which provides flexibility in terms of distribution and the taxing of beneficiaries.
5. Does the $1.6 million apply to the total balance of an SMSF?
No. It applies on a per member basis, so a standard two member fund with husband and wife could have up to $3.2 million.
6.Is a new Will needed to cover amounts withdrawn?
A new Will should be made if super balances are over $1.6 million and the surviving spouse has no capacity to receive the death benefit. For example, the surviving spouse may already be receiving a pension from the SMSF worth $1.6 million or above. Therefore the new Will needs to be able to deal with a payment from superannuation above $1.6 million that can no longer be kept in the super system.
7. Do standing nominations need to be changed?
Standing nominations should be reviewed as they may need to be changed to provide for the payment of death benefits above the $1.6 million reversionary pension to be paid as a lump sum directly to the beneficiary, e.g. spouse, or paid to the deceased’s estate.
8. Can transfers be made within the SMSF e.g. to a spouse with less than $1.6 million balance, or opening a new account for another member?
Generally speaking, no. Transfers within an SMSF can only be made if it is through a death benefit being paid directly as a pension to a surviving spouse.
Transfers can also be made within an SMSF in the case of payment of a death benefit pension to a dependent child under age 25, or a disabled child.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.
For more information please contact:
Phone: 02 9020 4213