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New super rules passed by parliament


Parliament recently passed legislation that has reduced the money retail investors can transfer into the superannuation environment and still enjoy tax benefits.


 

Parliament recently passed legislation that has reduced the money retail investors can transfer into the superannuation environment and still enjoy tax benefits.

This has implications for SMSF investors of which they need to be aware to ensure their funds remain complaint when most of the new rules come into effect in 2017.

One of the new measures is the introduction of the pension transfer balance cap. This limits amounts in tax-free retirement income stream accounts to an aggregate account balance of $1.6 million after 1 July 2017.

But, as Damian Liddell, a financial adviser with Browell’s Financial Solutions explains, it’s important to remember the limit applies per person. “So it’s possible for up to $3.2 million to be transferred to a pension account by a couple,” he says.

On top of the changes to the pension transfer balance cap the concessional contribution cap has been reduced to $25,000 per year for all eligible contributors. Also, the annual non-concessional contribution cap has been lowered to $100,000, or $300,000 under the three-year bring forward provisions.

Liddell says as a result of the new rules, there’s going to be a greater need to put money into super regularly.

“Start thinking about when are you planning to put money into super. If the proceeds from a potential sale of a large asset are intended to go into super, think about doing it this financial year so the existing $180,000 non-concessional cap can be used. The idea is to take advantage of the bring forward provisions that allow you to contribute up to $540,000 into a super fund now, rather than be affected by the lower $300,000 amount that will come in next year.”

Additionally, says Pete Pennicott, a director and financial adviser with financial advice firm Pekada, one change that has not received as much attention is transitional CGT rollover relief regulations.

“This means super funds will be able to reset the cost base of assets prior to 1 July 2017 and avoid potential capital gains tax consequences,” says Pennicott.

“This relief is available for super fund assets that have been transferred from pension phase to accumulation phase to comply with the transfer balance cap or new transition to retirement income stream arrangements,” he explains.

This reset means the fund’s underlying assets can remain as they are currently, regardless of the existing size of the capital gain, providing the cost bases are reset prior to 1 July 2017.

“The reset ensures that people who are affected by the changes can achieve the same starting point for CGT purposes,” says Pennicott.

“Any asset sales resulting in capital gains in the future would then be calculated from the reset cost base,” he adds.

The transitional provisions avoid the need to sell and repurchase assets, to ensure the fund has a clean slate in terms of its cost base before funds are transitioned from a tax-free environment in pension phase into accumulation where capital gains tax applies.

Pennicott’s advice to SMSF investors is to take the time to understand to a granular level the underlying components of the fund and member accounts, as these will ultimately drive the strategy that will deliver fund members the best outcome.

“Take a long-term view when considering strategies and look beyond the obvious short-term solutions.”

For example, re-contribution strategies that can deliver significant estate planning benefits are impacted by the changes to non-concessional contribution caps.

But given SMSF members may not realise the benefits of such a strategy for many years, it can be easy to make mistakes around contribution rules. If that happens there can be penalties down the track that impact retirement outcomes.

As such it may be worth SMSF trustees working with a financial adviser and an accountant now to work through how the recent changes to the superannuation environment may affect their fund.

Running an SMSF is complex especially in light of the ever-changing superannuation rules. As a result, it’s important for trustees to stay on top of evolving superannuation rules to ensure their funds remain complaint now and into the future.

 
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