Top Five Super FAQs As Advisers Race To Meet July 1 Deadline

With financial planners flat out advising clients on the new superannuation rules that kick in on July 1, issues cropping up the most include what to do with private pension accounts that hold more than $1.6 million, maximising the current higher super contribution limits and reviewing transition to retirement (TTR) strategies.

So what are clients doing with assets in excess of the $1.6 million ceiling on the amount of money that can be held in a tax-free private pension? "For those over the $1.6 million, a problem most would like to have, where allowable, it is preferable to transfer the excess, or some of it, to a spouse's super account if the spouse is under the $1.6 million cap, as this enables the excess funds to remain in the tax-free pension environment," says Suzanne Haddan, managing director of BFG Financial Services.

For most of Haddan's clients, though, the reality is that the excess is going into an accumulation account in their fund. Why? "We've consistently over many years recommended that both members of a couple have similar super/pension balances, as this minimises the chances of negative outcomes due to legislative change like the 2016 federal budget," says Haddan.

The picture is similar at Smythe Financial Management, says managing director Ben Smythe. "There has been some rebalancing where there is capacity with a spouse's non-concessional cap, and if they can meet the work test after 65, but in the main [the excess] is being rolled back to their accumulation account for the time being," he says.

Other key issues facing clients, Smythe adds, include whether to put some of the excess over $1.6 million in their personal names rather than in an accumulation account, whether reversionary pensions should be switched off in favour of a binding death benefit nomination and over what assets they should apply for capital gains tax relief.

Ensuring clients make the most of current the contribution caps, says Haddan, is also keeping planners busy.

Some savers have been accelerating non-concessional, or after-tax, contributions to make the most of the so-called bring-forward rule, which means they can inject up to $540,000 into super by June 30. Others have been using the bring-forward rule in re-contribution strategies to increase the tax-free component of a pension account.

From July 1, the three-year bring forward cap will fall to $300,000 and the annual post-tax contributions limit will decline to $100,000. Concessional (or pre-tax) contributions will be capped at $25,000 a year for everyone, compared with $35,000 for those over 50 and $30,000 for everyone else.

The Tax Office is also busy answering questions from superannuants who are trying to get their financial affairs in order. The following five questions, says the ATO, are among the most frequently asked, along with the ATO's answers – with some help from Perpetual Private senior manager of strategic advice Colin Lewis.

Q: Can I still contribute $540,000 before July 1, 2017? What happens if I trigger a bring-forward arrangement but don't fully use it before July 1, 2017?

A: Yes, you may be able to contribute up to $540,000 if you are under 65 and have not previously triggered a bring-forward strategy in the previous two years.

If you make a contribution of $540,000 in 2016-17, you won't be able to make any more contributions until July 1, 2019 without triggering excess non-concessional contributions. If you have made a non-concessional contribution in 2015-16 or 2016-17 that triggered the bring forward but have not fully used your bring forward before July 1, 2017, transitional arrangements will apply, so the amount of available bring forward will reduce.

Where the non-concessional contribution bring forward was triggered in 2015-16, the transitional cap will be $460,000 (instead of $540,000). If the bring-forward was triggered in 2016-17, the transitional cap will be $380,000.

Q: What income is included in the 'Division 293' threshold of $250,000?

A: Broadly, says Lewis, you pay an additional 15 per cent contribution tax if your total earnings, including pre-tax super contributions (ie, compulsory employer, voluntary salary-sacrifice contributions and any personal deductible contributions) are greater than $250,000. This threshold is reduced from $300,000 at the moment.

Q: How is my total super balance calculated?

Your total super balance, says Lewis, includes the balance of all your super accumulation accounts, pension accounts, the value of any defined benefit pensions and any benefits currently between funds that you are in the process of moving to a different fund. It excludes any contributions made with the proceeds of a personal injury compensation payment.

Q: Will I be able to claim a deduction for personal (after-tax) super contributions I make to my fund that I have a defined benefit interest in (such as government employee schemes CSS and PSS)?

From July 1, 2017, says Lewis, you will be unable to claim a tax deduction for a personal super contribution to constitutionally protected funds (like GESB in Western Australia) and untaxed defined benefit funds, such as old government schemes.

Q: I currently salary sacrifice to my super fund. Can I stop my salary sacrifice and just claim my personal (after-tax) super contributions as a deduction?

A: Yes. You can claim a personal super contribution deduction, but not for the sacrificed amounts already made, and only if you meet the eligibility conditions. Before July 1, you are only able to claim a deduction if you meet a number of conditions, including earning less than 10 per cent of your income from salary or wages. From July 1, you will not be required to meet the 10 per cent maximum earnings test. However you'll still need to ensure you meet all other conditions to be eligible to claim a personal super contributions deduction. Members who cease salary-sacrificing may want to remind their employer to ensure their super guarantee contributions are paid as per their obligations.

Debra Cleveland

Financial Review

23 May 2017

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