New Super Laws
The new super laws, announced in the May 2016 Federal budget, are the most significant changes to the superannuation system since 2007. Most of the new laws commenced on 1 July 2017.
To help you navigate the new super laws, Sladen Legal has prepared a number of articles on their application. These include:
As reported in our previous Sladen Snippet, the Australian Taxation Office (ATO) is currently developing a new self managed superannuation fund (SMSF) event based reporting regime to be called the Transfer Balance Account Report or TBAR.
Self managed superannuation funds (SMSFs) are not required to obtain an actuarial certificate if 100% of the SMSF is in “pension phase” for 100% of the year.That is, the SMSF uses the segregated method for the whole year. But what happens for SMSFs that use the segregated method for the 2017 year but, because of the transfer balance cap measure, have to commute back their pensions to $1.6 million by 30 June 2017?
The Treasury Laws Amendment (2017 Measures No. 2) Bill 2017 has been tabled in Parliament. The Bill proposes to make two important changes to transition to retirement income streams (TRISs). Firstly, to allow certain TRISs to qualify for “retirement phase” and, secondly, to ensure TRISs qualify for the cost base reset.
As part of administering the new transfer balance cap measure, the Australian Taxation Office (ATO) is currently developing a new self managed superannuation fund (SMSF) event based reporting regime. This regime is likely to be in the form of a report to be called the Transfer Balance Account Report or TBAR. At this stage, the reporting regime is expected to be as follows:
There is some good news and some bad news with the ATO’s release of Practical Compliance Guide PCG 2017/6. The good news is that spouses in receipt of death benefit pensions may commute their death benefit pensions in excess of the transfer balance cap back into accumulation before 1 July 2017. The bad news is that this concession does not apply to non-spouses and won’t apply after 30 June 2017.
The Australian Taxation Office (ATO) has released Practical Compliance Guideline PCG 2017/5 which gives guidance as to how trustees of self managed superannuation funds (SMSFs) can commute pensions by 30 June 2017 in order to comply with the new transfer balance cap measure.
As a result of the commencement of the new super laws on 1 July 2017, Sladen Legal has prepared a number of document packages.
On 28 February 2017, Sladen Legal’s Phil Broderick, Melissa Colaluca and Rob Jeremiah gave presentations on the new super laws. To see a video of their presentations, please click below:
The cost base reset measure has been implemented to help alleviate the retrospective application of the transfer balance cap measure (so that only future gains are taxed). However, as discussed in the article, the cost base reset does not always work for super funds that hold units in unit trusts as the cost base reset occurs at the unit level not the underlying asset level.
With the new super laws commencing from 1 July 2017, advisors and trustees of self managed superannuation funds (SMSFs) are starting to consider whether they need to update their SMSF trust deed or their pension documents.
There seems to be some confusion about the fate of transition to retirement income streams (TRIS). TRISs will not be abolished from 1 July 2017. Rather, they will no longer qualify for “pension phase” (or retirement phase under the new terminology).
The new super laws are the biggest changes to super since 2007. Given that most of the measures commence on 1 July 2017, there are a number of planning matters to consider prior (and after) that date.
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Under the transfer balance cap measure market linked pensions (MLPs) are lumped with other defined benefit pensions. Defined pensions are treated differently to account based pensions given the inability to commute such pensions.
The transfer balance cap is the new limit on how much a member can have in their pension account and accordingly is a limit on how much a super fund can have in “pension phase”. Income and capital gains are tax free to the extent they are in pension phase. To the extent that a super fund is in “accumulation phase” its income is taxed at 15% and capital gains, on assets held for more than 12 months, are taxed at 10%.
The transfer balance cap measure includes a transitional CCT relief via a cost base reset. This relief is designed to ensure that only capital growth post the introduction of all of transfer balance cap (ie from 1 July 2017) is taxed. However, like all of the new measures the relief is complicated and requires careful consideration prior to 1 July 2017.
One of the most significant consequences of the transfer balance cap is the effect it has on the payment of death benefits. This will affect all couples who have a combined superannuation balance of $1.6 million.
Non-concessional contributions cap
The headline items to this measure is that the non-concessional contributions cap will be reduced from $180K to $100K, the “bring forward rule” will be reduced from $540K to $300K and that members with account balances over $1.6 million will not be able to make non-concessional contributions. But like most of the new measures there are additional complexities to the new non-concessional cap measures.