Looming changes to superannuation laws to begin on July 1 create a range of challenges for almost everyone in the SMSF sector.
If you are an SMSF member who is aged 65 or is turning 65 before July 1 there several particular adjustments you need to be aware of to take full advantage of the current and the new superannuation laws.
If you haven’t made any superannuation contributions into your SMSF this financial year (2016-17), and have not made any in the past two financial years then it could be time to consider using the full two year bring-forward non-concessional contributions cap and make a $540,000 non-concessional contribution into your SMSF by June 30.
The transitional two-year bring-forward cap will be reduced to $380,000 from July 1 due to the new annual non-concessional contribution cap of $100,000. This is because the annual cap for the current financial year is $180,000. When combined with the new annual cap for the next two financial years, the transitional bring forward cap will be $380,000.
If you have already contributed more than $380,000 non-concessional contributions but did not use the full $540,000 bring-forward cap, you do not have to remove the amount above $380,000 from your SMSF.
But if you have used only, for example, $200,000 of the current bring-forward cap by June 30, it means you can only put in a further $180,000 in the next two financial years due to the reduced bring-forward limit of $380,000. Separately, keep in mind that from July 1 the new law also requires your superannuation balance to be below $1.6 million in order to make further contributions.
Also remember that once a member is aged 65 they can access their superannuation savings in their SMSF, regardless of whether they are working or not. Also, members that are aged 60or over do not pay any tax on their superannuation benefits received from their SMSF.
So, for example: if an SMSF member (aged 65) has a spouse (aged 62) whose superannuation balance is much lower than theirs, they could consider withdrawing a lump sum and giving it to their spouse so that their spouse could take advantage of the $540,000 bring forward-cap before July 1. This is provided their spouse has not already used up the entire bring-forward cap. This is one way for you and your spouse to ensure your pension accounts do not exceed the $1.6m cap.
You could also consider splitting your superannuation with your spouse, where 85 per cent of your concessional contributions made in the last financial year are put into your spouse’s superannuation account. Of course the most you will be able to split is $29,750 (i.e. $35,000 x 85 per cent) which might not be enough to reduce your pension balance to below the $1. 6m cap.
Another thing SMSF members, who are currently in receipt of a transition to retirement income stream (TRIS), may not realise is that their TRIS will turn into an account-based pension once they turn 65 or retire from work. This means the new $1.6m transfer balance cap, limits the amount they can have in their pension account where investment earnings are exempt from tax. Therefore, they would need to consider either transferring the excess to their accumulation account or pay the excess out as a lump sum superannuation benefit. They also need to consider if they are going to apply for the transitional CGT relief to reset any of their TRIS assets that have been moved into the accumulation phase.
Please do not stick your head in the sand and think that the changes to the superannuation law will not affect you ... or that they are all too difficult.
As I said, it affects every SMSF member in one way or another. By having basic understanding of the law, you can ensure you will have more money in your SMSF where investment earnings are either exempt from tax or taxed concessionally at a maximum of 15 per cent.