New Superannuation Laws – New Transfer Balance Cap and Total Superannuation Balance   In the September/October 2016 edition of the Super Brief we we provided an outline of the Government’s new superannuation reforms that have now come into law. We have recently seen regulations that have come into force that have attempted to address some of the anomalies under the original legislation. One in particular relates to the necessary commutation of market linked and other non-commutable income streams in circumstances where a Member is in excess of their balance transfer cap. There has been quite a bit of confusion and misunderstanding between Advisers and clients in particular relating to the rules concerning the new $1.6 million total superannuation balance cap and the $1.6 million general transfer balance cap. The purpose of this month’s Super Brief is to focus in on these issues in the issues that clients and Advisers have to address before 1 July next when the new rules come into operation.             $1.6M Total Superannuation Balance Cap From 1 July next the Government will lower the annual non-concessional (post – tax) contribution cap from $180,000 to $100,000 and will introduce a new constraint that individuals with an account balance of $1.6 million or more will no longer be able to make non-concessional contributions. This effectively means that from 1 July next any Superannuation Fund Member will not be able to add non – concessional contribution amounts including any bring forward non – concessional contributions where they have a total member superannuation account balance of $1.6 million or more. This account balance is based on all Superannuation Fund interests and is not limited to the account balance for any one Fund. The $1.6 million eligibility threshold is based on an individual’s balance as at 30th June the previous year. This means that if an individual’s balance as at the start of the financial year being the contribution year is $1.6 million or more they will not be able to make any further non-concessional contributions. Individuals with balances close to the $1.6 million threshold will be able to use the bring forward annual cap amount for up to 3 years limited to the individual $1.6 million threshold. There are transitional rules which apply where clients have invoked the bring forward rules prior to 30 June 2017. Based on recent guidelines the $1.6 million total superannuation balance threshold is calculated by adding the value of a Members: Accumulation phase superannuation interests (i.e. preretirement benefits); Transfer balance account (see further below); and The value of any rolled over superannuation benefits that are not reflected in an accumulation account value. (This would occur for example when a Member has rolled over a superannuation benefit that is received after 30 June any financial year).           What is not counted towards the threshold is what is referred to as “structured settlement contributions”. These are effectively contributions referred to in the Income Tax Assessment Act as a compensation payment arising out of a personal injury settlement. These benefits have and currently remain exempt from the superannuation contribution rules and are also excluded for the purposes of the $1.6 million superannuation balance Cap. What is also not counted towards the threshold are amounts or benefits that modify and create a credit to an individual’s transfer balance in respect of a Member receiving income stream benefits from their Fund. In essence these include: Amounts withdrawn out of superannuation income stream (i.e. commutations); Superannuation benefits reduced as a result of fraud, dishonesty or bankruptcy; Superannuation benefits transferred out as a result of a payment split arising on divorce or relationship breakdown; It should also be remembered that the $1.6 million total superannuation balance does not prevent a Member making annual concessional (tax deductible) contributions which, from 1 July next, regardless of age, will be $25,000 per person per annum. Further, the total superannuation balance Cap does not take into account amounts received into a Fund as a result of the small business CGT concessions referred to as the “CGT exempt amount”. This is an amount of up to $1,415,000 per Member being the current lifetime CGT Amount for this financial year (i.e. $2,830,000 per couple). As a result of the amounts that are not counted, a Member could have an account balance excess of the $1.6 million beyond 1 July next. Please also note that these rules apply as from 1 July next. They do not prevent a Member from accumulating an account balance in excess of $1.6 million before this date and there is no provision in the rules for a Member to reduce their total superannuation account balance if they have already exceeded this threshold.             *Where possible increase your superannuation balance by either cash or in specie asset transfers (that are permitted under the super rules) if a Member is currently close to or has exceeded their $1.6 million balance threshold;  *Consider using your non – concessional bring forward amount for any other amounts. If you have not invoked your bring forward three-year contribution cap limit there is the opportunity to contribute $540,000 per Member up until 30 June next (i.e. 3 x $180,000 current non – concessional Cap) . After the 1st July this will reduced to the new 3 year bring forward cap of $300,000 per Member. Please note that there are transitional rules if you have already used up a part of three-year bring forward amount within the last three years.  *Calculate and value your Fund assets shortly prior to 30th of June 2017 where you intend to invoke the three you bring forward rule after that date. For SMSFs, this will require assets being valued in line with the ATO’s market valuation principles.               Outline of new $1.6 million Transfer Balance Account When a person enters into the retirement phase of their life they usually commence a superannuation income stream (i.e. pension). Under the previous rules, all … Continue reading THE SUPER BRIEF NEWSLETTER – January/February 2017