Hartley Australia Pty Ltd Post July 2017 Superannuation The New Reality. 19 September 2017

Transcription

1 Hartley Australia Pty Ltd Post July 2017 Superannuation The New Reality 19 September 2017

2 Disclaimer The information in this presentation contains generalisations of the law and does not constitute legal or financial advice. Readers should not act on this information without seeking professional advice.

3 Overview Ø Background to reform Ø Reform summary Ø Reform details & opportunities Ø Checklist from 1 July 2017 Ø Questions

4 Background to reform Ø In simpler super introduced Ø In May 2016 fair and sustainable reform proposed Ø 6 months of extended consultation Ø 9 November 2016 bill introduced Ø 23 November 2016 bill became law Ø Certainty (almost) Ø Action pre and post July 2017

5 Reform summary 1. Changes to contribution caps New Total Superannuation Balance Ø Concessional Contributions (CC) cap reduced Ø Non Concessional Contributions (NCC) cap reduced Ø New carry forward unused CC cap 2. Changes in exempt current pension income New $1.6M Transfer Balance Cap (TBC) Ø Cap on initial pension amount Ø Removal of segregated method for SMSFs and SAFs Ø Removal of tax concessions for Transition to Retirement Income Streams (TRIS) Ø Transitional capital gains tax (CGT) relief for asset transfers

6 3. Changes to contributions tax Ø Tax-deductible contributions by anyone removing 10% rule BUT Ø Extending spouse tax offset Ø Div 293 tax threshold reduced Ø Low income super tax offset (LISTO) replaces Low income super contribution (LISC) Ø Removal of anti-detriment provisions Ø no objective of superannuation (still!) Ø no removal of work test from ages 65-74

7 1. CC cap reduced Ø Deductible contributions Ø Previously Ø If under age 49 on 30 June 2016: $30K p.a. Ø If age 49 or over on 30 June 2016: $35K p.a. Ø Now (from 1 July 2017) Ø Everyone $25K p.a. Ø Indexed in $2.5K increments AWOTE

8 2. NCC cap reduced Ø Non-deductible contributions Ø Previously Ø Everyone $180K p.a. Ø Bring forward (BF) rule if under age 65 Ø $540K w/in 3 years Ø Now (from 1 July 2017) Ø Everyone $100K p.a. Ø BF rule if under age 65 (see next 2 slides)

9 Ø $300K w/in 3 years if trigger from 1 July 2017 but less if total super balance $1.4M+ Total super balance on 30 June 2017 BF NCC cap BF period <$1.4M $300K 3 years $1.4M - <$1.5M $200K 2 years $1.5M - <$1.6M $100K No BF period, general NCC cap applies $1.6M or more Nil N/A

10 Ø Reduced BR rule cap if trigger before 1 July 2017 (i.e. not rest of $540K). Depends on year first triggered 30 June June June June June June 2020 $180K $180K $180K $100K $100K $100K $0-540K $0-460K $0-380K $0-300K

11 3. Carry forward unused CC cap Ø Now Ø Use it or lose it each year Ø From 1 July 2018 Ø If have less than $500K member balance on 30 June of previous financial year Ø Can carry forward unused CC cap for up to 5 years

12 4. Cap on initial pension amount Ø Currently Ø No cap on amount in pension phase (tax free) Ø From 1 July 2017 Ø If member pension balance exceeds $1.6M, must transfer balance to not trigger excess transfer balance tax Ø Transfer = rollover/commute to accumulation phase (15% tax) or withdraw (tax at MTR) Ø Cap operates with debits and credits Ø To affect almost 80K SMSFs and 150K SMSF members Ø Proportional indexation in $100K tranches

13 Debits Ø Pension commutations Ø Structured settlements Ø Family law split Ø Fraud Ø Void transactions No difference Ø Investment gains/losses Ø Pension payments Credits Ø Pensions before 1 July 2017 Ø Pensions from 1 July 2017 Ø Reversionary pensions not withdrawn w/in 12 months of being payable (incl. those paid before 1 July 2017) Ø Non-reversionary pensions from date paid to beneficiary Ø Notional earnings on excess $1.6M TBC amounts Ø LRBA asset in pension account if paid by accumulation account

14 Ø Death benefit pensions Ø Reversionary Ø Non-reversionary Ø Modified TBC for child Ø Excess amounts must be cashed out of the super system Ø Revisit succession of pensions and death benefits

15 Ø Consequences if exceed cap Ø Commissioner makes determination (crystallise excess) and default commutation from pension if no action taken Ø Excess transfer balance earnings notional at general interest charge = 8.76%? (was 9.2% in FY) Ø Excess transfer balance tax on the individual Ø All FY breaches or 1 st time = 15% tax on notional earnings Ø From FY 2 nd time+ breaches = 30% tax on notional earnings Ø Disregard earnings and tax if breach by <$100K on 30 June 2017 if rectified within 6 months Ø ATO PCG 2017/5: commutation requests before 1 July 2017 Ø ATO PCG 2017/6: commutation of death benefit income streams before 1 July 2017

16 Ø Commensurate treatment for market linked pensions, lifetime pensions and life expectancy pensions Ø No excess penalties on capital (b/c can t commute) Ø Tax free after age 60 up to $100K p.a. (indexed) Ø Tax at MTR after age 60 with no rebate/offset on pension exceeding $100K p.a. Ø Taxed source (usually private sector) funds 50% of excess Ø Untaxed source (usually public sector) funds 100% of excess Ø Value of pension exceeding $1.6M Ø ABP = account balance Ø LTP = 16 x annual entitlement of pension Ø MLP/LEP = remaining term x annual entitlement of pension NB: Annual entitlement based on first payment for FY that s then annualised

17 5. Removal of segregated method Ø For calculating exempt current pension income Ø Previously Ø Use segregated method or unsegregated (proportional) method Ø Now (from 1 July 2017) Ø For SMSFs and SAFs Ø Must use unsegregated method if: Ø during income year fund has an interest in retirement phase and Ø just before that income year a person has a balance over $1.6M and the person receives a pension

18 6. Removal of tax concessions for TRIS Ø Previously Ø Tax-exempt treatment of earnings Ø Now (from 1 July 2017) Ø Can still commence a TRIS Ø No tax-exempt treatment of earnings Ø 15% on earnings Ø 10% CGT if held asset for 12 months Ø TRIS is tax exempt on Nil condition of release Ø Age 65 Ø Other condition and notify trustee

19 7. Transitional CGT relief Ø Able to reset asset cost base to market value Ø If asset moved from pension phase to accumulation phase before 1 July 2017 Ø Alters CGT payable when asset sold Ø Must irrevocably choose to opt in before fund s income tax return is due Ø If don t choose/make no choice = no relief Ø Tax avoidance focus was purpose of reset due to TBC or TRIS reform?

20 Ø Was asset segregated to support pension on 9 November 2016? If yes, use segregated method for relief Ø Conscious election with supporting evidence Ø 100% pension phase If no, use proportionate method for relief Ø Date of acquisition for one-third CGT discount reset i.e. 12 months starts again

21 8. Removal of 10% rule for CC Ø Previously Ø No CC if more than 10% of income sourced from employment Ø Now (from 1 July 2017) Ø Everyone can claim a tax deduction for CC Ø Notice of intention required Ø Work test still applies for members aged 65 and above Ø Use of salary sacrifice arrangements?

22 9. Extending spouse tax offset Ø Previously Ø 18% tax offset for making contribution to spouse s super Ø $540 maximum offset for spouses who earn up to $10,800 p.a. Ø Now (from 1 July 2017) Ø 18% tax offset for making contribution to spouse s super Ø $540 maximum offset for spouses who earn up to $37,000 p.a. Ø Phases out at $40,000 p.a.

23 10. Div 293 tax threshold reduced Ø Division 293 tax applies to excess (15% more tax on CC) Ø Previously - if adjustable taxable income over $300K Ø Now (from 1 July 2017) - if adjustable taxable income over $250K

24 Checklist from 1 July Modified NCC if have $1.4M+ or BFR if not completely used by 30 June 2. Catch-up CCs from 1 July Review viability of TRIS 4. Review CGT position 5. Review viability of LRBAs Ø Extra contributions to reduce debt Ø New arrangements from pension phase

25 Checklist from 1 July Review viability of salary sacrifice arrangements 7. Review existing pensions Ø Ø Reversionary vs non-reversionary Death benefit pensions Ø commute own pension to accumulation and opportunity if spouse before 1 July 2017 Ø Pay excess as lump sum (or direct to estate?) Ø Review/rewrite BDBNs 8. Plan for SMSF trustee/member incapacity Ø Ø EPOA Corporate trustee

26 Questions? Andrew Farrell Hartley Australia Pty Ltd Accountants & Advisors 3A/62 De Havilland Road, Mordialloc, Victoria, 3195 P (03) E AndrewF@hartleyaustralia.com.au W