Since the government introduced its superannuation reforms 13 months ago in the 2016 federal budget, there has been a relentless stream of new rules and regulations flowing from legislation necessary to implement the biggest changes to super in more than a decade.
Most of this has focused on retirees who have accumulated more than $1.6 million in various pension arrangements — currently a small minority of all retirees but destined to be a significant proportion in the future, enough to generate billions of extra dollars in taxation.
So where does this leave the current majority of retirees, those with less than $1.6 million?
While they may still have a reasonable amount of super in a pension, unlike those who exceed the pension limit they don't have to transfer any excess into an accumulation account before July 1.
Nor do they have to think about whether they should claim capital gains tax (CGT) relief on investments over $1.6 million that have to be rolled back into accumulation accounts.
Claiming CGT relief on super you've rolled back to accumulation, says pensions expert Meg Heffron of Heffron SMSF Solutions, is worthwhile where you have profitable investments that are rolled back on which you will have to pay some tax when you sell them. A classic example is someone with $2 million in a (currently) tax-free super pension who must transfer $400,000 into an accumulation account because that is how much it exceeds $1.6 million.
Cost price resetting
If you don't establish a CGT relief arrangement by June 30, then 20 per cent (one-fifth of the $2 million) of any future gain on investment earnings from July 1 will be taxable. CGT relief involves resetting the cost price of investments to their value on June 30 rather than what they originally cost.
If CGT relief is not implemented, a retiree who sells investments in the accumulation phase will have to calculate tax based on the original cost price.
While claiming CGT relief is only available to those affected by the $1.6 million transfer balance cap, retirees with individual super pension balances less than this will still have a transfer balance account. Colin Lewis, the senior manager of strategic advice with Perpetual Private, says the Australian Taxation Office will monitor where the value of their pension or pensions will be "recorded as a credit or credits towards the $1.6 million pension cap". This is all part of the new super lingo with which retirees will need to become more familiar after July 1.
One group where CGT relief may be an issue but the $1.6 million transfer balance cap won't necessarily be involves retirees with transition to retirement (TTR) income streams.
From July 1 the tax-exempt investment earnings status of TTR income streams will be removed under the super reforms as they will not longer be considered a retirement pension.
Rather, they will be a special type of income stream available to those who have reached their preservation age of at least 56 when super savings can be accessed but only as income up to an annual limit of 10 per cent.
Whereas the investment earnings of TTR income streams are currently not taxed, says Doug McBirnie of SMSF retirement specialist Accurium, they will be in the future unless they satisfy an exception to the removal of the tax-free status of TTR pensions currently being legislated.
In the latest raft of super reforms before Parliament, if a member (who need not be a retiree) has satisfied one of a number of conditions that allows their super to be released, such as attaining the age of 65, a TTR income stream will automatically convert to a full retirement pension.
This legislation was referred to in my last column, prompting a reader to ask about other conditions that could satisfy an automatic conversion to a retirement pension.
In particular, she wanted to know about a currently topical condition where someone with a TTR pension who is over 60 experiences a substantial change to their working life when a position they have with an employer is terminated.
This employer has been contributing super on her behalf into a self-managed fund under this arrangement. Does an end to this arrangement also qualify for automatic conversion into full pension mode, she asks.
It does, responds Lewis, under a condition described as ceasing gainful employment after age 60. For those who want a reference to the various conditions that allow super to be accessed, they appear in schedule 1 of the Superannuation Industry Supervision regulations.
A common example of such arrangements he has helped clients with are medical specialists who as well having a private practice may also be working in the public health system, in a hospital for instance. It could also be a private hospital.
If they ceased working in the hospital, says Lewis, but continued in private practice and they're over 60 they would qualify to start a pension from their super.
All they have to do is cease a position of gainful employment.
Another example is where someone has a private company that employs them where they are also a director. They have an SMSF into which the company pays super. If they are over 60, the fund may be paying them a TTR income stream.
They can cease to be an employee but remain as a director and, as long as they are over 60, they can access their super if they haven't started a pension or automatically convert a TTR income stream into a full account-based pension.
What if you have two jobs both paying you super into the one fund (an SMSF) and you stop one — is it necessary to distinguish between the two?
You don't have to, says Lewis. If you satisfy a condition of release with one job and your benefits from that position are in the fund, all the super will become what is described as unrestricted and non-preserved, making it totally accessible as a pension or lump sum withdrawals. It doesn't matter where those benefits are sourced from.
John Wasiliev The Financial Review 16 June 2017