On Wednesday (Nov 23, 2016), both houses of Parliament passed the Treasury Laws Amendment (Fair & Sustainable Superannuation) Bill 2016 as well as the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 which will impact Superannuation Legislation post July 1, 2017.
The major impacts these changes have on existing superannuation legislation include as follows:
A $1.6 million tax free cap on funds held in pension (income) phase.
This means that clients with current pension or superannuation balances above this cap will either need to roll the excess portion of their pension back to ‘accumulation’ phase or continue to hold the excess amount in ‘accumulation’ phase once they decide to commence a pension (income) plan.
While funds in pension phase will be held in the tax free income environment, funds remaining in the superannuation (accumulation) environment will continue to be taxed at the current concessional superannuation tax rate of 15% (subject to legislation).
Annual concessional (taxable) contributions will be reduced from $30,000 pa (for those aged 48 years or younger) and $35,000 pa (for those aged 49 years or older) to a flat, across the board contribution cap of $25,000 pa.
As taxable contributions include those contributions paid into the superannuation environment by your employer under the Superannuation Guarantee (SG) Contribution ruling as well as personal salary sacrificed contributions and self-employed personal contributions, there could be substantial impacts where client's are currently maximising these existing contribution caps and will need to reduce their taxable contribution amounts post July 1, 2017.
Annual non-concessional (tax free) contributions will be reduced from $180,000 pa to $100,000 pa or from $540,000 utilising the rolling three (3) year bring forward provisions to $300,000 under the same basis.
The impact of non-concessional contributions may not be so prevalent among Adviser’s clients; however it is important that Advisers take into consideration the clients circumstances, goals needs and objectives to ensure that opportunities are not missed to maximise the current allowance to utilise the larger contribution room, which is available up until the changes come into effect on July 1, 2017.
While Advisers may find that these Bills will not impact on all clients, they will find that a portion of their clients may and will be affected in one way or another, both immediately and in the future. This applies to both pre and post pension phase clients.
With just over seven (7) months remaining before these changes come into effect on July 1, 2017, now is the time that Advisers, and their support staff, should be proactive in reviewing their client bases. These reviews should consider how the upcoming changes will impact their clients and what can be done in advance to ensure that there are no major impacts to their clients, their goals, needs or objectives.
So what are some of the potential areas you should be looking at?
Over the coming weeks we will be updating the Insights Hub with posts that provide details and examples regarding to potential scenarios and strategies that could help their clients and what Advisers (and their support staff) should be looking for when reviewing their client bases.
We look forward to bringing you these additional updates regarding to the impending superannuation changes.
This post was written by Janine McLean, Owner and Paraplanner at Financial Planning Support Solutions.