Every year, it seems, they change the rules – the retirement age, the contributions cap, and so it goes on.
We are analysing each of the newly legislated super changes, to ensure that you fully informed, understanding if you are affected and if so, how you are affected.
The first of the changes we are focusing on is;
The introduction of $1.6m cap on the amount that can be
transferred into the tax-free retirement income stream
The $1.6m transfer balance cap measure is a limit imposed on the total amount that an individual can transfer into a tax-free pension phase account from 1 July 2017.
Earnings and capital growth on assets supporting pension liabilities are ignored when applying the personal transfer balance cap. Thus, a personal retirement income stream may grow beyond the $1.6m cap.
Any amount in excess of an individual’s transfer balance cap can continue to be maintained in an accumulation account in the superannuation environment. Therefore, individuals can maintain up to $1.6m in pension phase and retain any additional balance in accumulation phase.
The inclusion of death benefit pensions (as part of the reversionary beneficiary’s transfer balance cap) may have a significant impact on the succession plans of individuals who collectively with their partner have more than $1.6m in superannuation. Furthermore, if you and your partner do not quite have $1.6m collectively in superannuation, but have Life or Disability insurance cover, this could potentially increase your superannuation to over $1.6m, meaning that you may be affected by this new cap.
Fortunately, there is an important concession. Any excess will only occur as a result of a death benefit pension, six months from the date the partner becomes entitled to receive the reversionary pension.
Individuals who exceed the cap, will have their superannuation income streams commuted (in full or part) back into accumulation phase and notional earnings on the excess amount will be subject to an excess tax. The tax is 15% on notional earnings for the first breach and 30% for subsequent breaches.
There is a plethora of rules that need to be followed when working your way through the $1.6m balance cap, including;
- Credits system
- Debits system
- Indexation of the balance cap
- Excess personal transfer balance cap
- CGT relief
- Segregated assets
- Unsegregated assets
The $1.6m cap measure involves substantial changes to Australia’s superannuation system, which will be complex to manage and administer, with breaches having an impact on your retirement savings with a potential tax of 30% on notional earnings.
Please speak with your Judge adviser on 02 4032 7934 to discuss how these changes affect you.
Matthew McCabe is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.