Last year’s Federal Budget posed some of the most significant changes to superannuation in the past ten years and means that individuals and advisers have a number of matters to action before the new rules commence on 1 July 2017.
Our top five things that advisers and individuals need to consider now in order to meet the 30 June deadline are:
1. Higher concessional limits
Take advantage of the opportunity for higher concessional limits by implementing salary sacrifice strategies or contributing additional deductable super contributions. From 1 July, the cap for concessional contributions is due to reduce to $25,000pa.
2. Transfer balance cap
The $1.6 million Transfer Balance Cap kicks in from 1 July. This means there is a limit on the total amount of tax free super than an individual can retain in “Pension Phase”. The transfer balance cap will be applied to current retirees and to individuals yet to enter retirement from 1 July. Individuals with balances over $1.6 million in Pension Phase will need to reduce their Pension balance to $1.6 million or less, by transferring the excess amount to Accumulation Phase or removing the excess amount from the superannuation system entirely.
The ATO will apply penalties to amounts over $1.6m in Pension Phase after 30 June.
3. Non-concessional contribution limits
The annual cap of $180,000 per person will reduce to $100,000 from 1 July.
Accordingly, the bring-forward cap of $540,000 will reduce to $300,000 after 30 June this year.
4. Transition to retirement
Pensions will no longer be considered tax exempt from 1 July 2017, therefore individuals need to consider whether a transition to retirement pension is still appropriate for them.
5. Estate planning
While individuals are considering the impact of superannuation changes, now is a good time to check estate plans, making sure that Wills and Power of Attorney are up to date.
Fund trustees and their advisers need to consider if the 1 July rule changes cause any existing death benefit nominations or reversionary pensions to become invalid after 30 June.
BDO superannuation partner, Paul Rafton, advised against complacency in light of the numerous superannuation changes coming into force from 1 July this year.
The clock is ticking and it’s time for individuals and advisers to take action. Make sure you are across what the changes could mean for your super and what opportunities you could take advantage of before the end of financial year.
Paul Rafton, Superannuation Partner, BDO Australia
