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Changes to super rules mean planning is essential

Recent changes to superannuation legislation have raised some interesting points and highlighted that planning is key. Ian Gath, McKinley Plowman’s superannuation specialist explains how these changes may affect you.

New pension rules

From 1 July 2017, tax exemptions on super income streams are limited to pension balances of $1.6m for each tax payer. This means anyone with a balance over $1.6m will need to carefully consider either cashing out or transferring the excess back to an accumulation account by 30 June 2017.

Reversionary pensions (a super pension which automatically becomes payable to another person upon the death of the SMSF member who is receiving the pension) will also count towards the surviving spouses $1.6m cap.

In the past, I could use my spouse’s balance upon her death as my own pension without penalty. From 1 July, my spouses balance also counts towards my own pension cap and I will be limited as to how and when I choose to pay death benefits.

It’s now more important than ever to have a strategy in place to manage this process.

Transition to retirement pensions have been hit, from 1 July 2017 the earnings will no longer be concessionally taxed.

I’m not saying the news is all bad though.  These changes mean that growth on investments will almost certainly push account balances back over the $1.6m cap, but that’s ok. For example, a pension commencing with $1.6m at 30 June 2017, and growing to $2m at 30 June 2018 will not need to transfer the excess out of the pension account as we covered above.

The $1.6m will continue to have its earnings concessionally taxed and for those tax payers that are over 60 years old, pension payments will continue to be tax free.

Changes to non-concessional contributions

From 1 July 2017, the non-concessional contributions cap (the one you don’t claim a tax deduction for) will be $100k, down from $180k. The non-concessional cap will also be proportionately reduced for tax payers with more than $1.4m in super, and cutting out completely for those over $1.6m.

From 1 July 2017 the three year bring forward contributions amount will be $300k.

This year is the last opportunity for you to contribute up to $540k.

Planning is key. As your partner in superannuation, allow us to review your individual superannuation circumstances before 30 June 2017 to ensure you are prepared for the 1 July changes. Click here to contact us today.

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