With less than a month until the superannuation changes start on 1 July 2017, now is the time to consider if you’ll be affected by the changes and whether you need to take action. The Australian Taxation Office (ATO) has enlisted the support of renowned Australian finance expert Peter Switzer, to outline the top actions Australians should consider before 1 July, to ensure they’re able to effectively prepare for the changes.
- Consider the changes to the super contributions caps
The annual contributions caps for both before-tax contributions, and after-tax contributions, will be reduced from 1 July. The before-tax (or concessional) contributions cap will be reduced to $25,000 per year, and the after-tax (or non-concessional) contributions cap will be reduced to $100,000 per year.
To take advantage of the higher limits before 1 July 2017, you should check what contributions have been made to all your super funds from 1 July 2016, to make sure you have not, and will not, exceed your current annual caps. All additional contributions need to be paid and received into your super accounts before 1 July 2017.
Remember if you exceed the before-tax contributions cap, the excess amounts will be included in your assessable income where they are taxed at your marginal rates plus an additional charge. If you do not withdraw the excess, then it will also count towards your after-tax contributions cap. For after-tax contributions, you would need to withdraw the excess contributions and any associated earnings, and those earnings will be included in your income tax assessment.
- Make sure you don’t exceed the $1.6 million transfer balance cap
The new $1.6 million transfer balance cap starting on 1 July 2017 will limit the total amount of super you can transfer from your accumulation super accounts to tax-free retirement phase accounts to receive a super income stream.
Act now and check with your income stream provider (for example your super fund) whether you will be over this amount on 1 July. If your balance exceeds $1.6 million, you need to move the excess back into an accumulation account or out of your super by 1 July 2017.
If you don’t do this and your balance exceeds the new limit of $1.6 million on 1 July, you may face consequences such as having to remove the excess and being liable for excess transfer balance tax. If on 1 July 2017, the total value of your retirement phase accounts is between $1.6 million and $1.7 million you have six months to remove the excess capital without penalty.
If you have a defined benefit income stream, then you may have to pay higher tax on the payments received and your fund may withhold amounts from payments.
- Utilise the transitional CGT relief before 1 July
Transitional Capital Gains Tax (CGT) relief is available to provide temporary relief to super funds from certain capital gains that might arise as a result of its members complying with the new $1.6 million transfer balance cap and changes to the Transition to Retirement Income Stream (TRIS).
If your fund chooses to use the transitional CGT relief, then you will need to act now to prepare for the changes. That is, you may need to commute (reduce) your income streams to comply with the transfer balance cap or the TRIS changes before 1 July 2017 in order for your fund to be able to apply the CGT relief to its assets. Your fund may also need to act before 1 July to reallocate its CGT assets.
CGT relief is only for assets held throughout the entire period from 9 November 2016 to 30 June 2017. This relief does not apply where you take action to comply with the super changes, or your fund reallocates assets, after 1 July 2017. Your fund will also need to make an election to use the transitional CGT relief on or before your fund is ‘required to lodge’ its 2016-2017 tax return as it is not automatic.
If you don’t take the necessary action to comply with the transfer balance cap or the TRIS changes before 1 July 2017, and your fund does not make an election to use the relief within the required time, then there will be no ability to access CGT relief at a later date.
The ATO is consistently updating information on its website to provide more information to help you prepare for the super changes.
Visit ato.gov.au/superchanges for more information and to determine whether you should take action before 1 July 2017.