Gearing up for the Budget Superannuation Changes – Things to do before 1 July 2017
WHO SHOULD READ THIS
- Accountants, advisers and financial planners with clients who have significant superannuation balances.
THINGS YOU NEED TO KNOW
- From 1 July 2017 the tax exemption for superannuation earnings supporting complying superannuation pensions will be limited to a $1.6 million transfer balance cap. Additionally the annual non-concessional contributions cap reduces to $100,000 from that date.
WHAT YOU NEED TO DO
- Consider whether clients impacted by these changes need to restructure their current superannuation arrangements. The estate plans of certain clients may also need to be revisited.
On 9 November 2016 the Government introduced the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Bill) to implement its May 2016 Budget superannuation changes. The Bill was passed by both houses of Parliament on 23 November 2016 and is now awaiting Royal Assent.
In this alert we look at two Budget superannuation changes which advisers and their clients should be planning for now. This is particularly important given that some of the proposed changes start from 1 July 2017 and the actions which a taxpayer may need to undertake to deal with the changes may involve a long lead time. Certain actions taken by a taxpayer in this income year may also have practical consequences under these new changes which a taxpayer needs to be aware of.
Reduced limit on non-concessional contributions (NCCs)
The most controversial Budget superannuation proposal was the proposed$500,000 lifetime limit for NCCs from 1 July 2017. In response to vociferous public criticism, the Government replaced this proposal with two measures that apply from 1 July 2017, namely:
- a reduction of the annual NCCs cap from $180,000 to $100,000, and
- a prohibition on any further NCCs once an individual’s ‘total superannuation balance’ exceeds a $1.6 million general transfer balance cap.
Broadly a person’s ‘total superannuation balance’ is the sum of the value of their superannuation in accumulation mode, the value of their superannuation in pension mode and the value of any rollover superannuation in transit.
The annual non-concessional contributions cap will be indexed to average weekly ordinary time earnings in increments of $2,500. The $1.6 million general transfer balance cap will be indexed in line with Consumer Price Index (CPI) in $100,000 increments.
These two new measures will reduce the effectiveness of the three year bring forward rule. Broadly, the three year bring forward rule allows a person who is under 65 years at the beginning of a financial year to make NCCs up to three times the NCCs cap in that financial year, or over the next two financial years without breaching the NCCs cap. The proposed reduction in the annual NCCs cap means that from 1 July 2017 a person can only bring forward a maximum $300,000 (3 x $100,000) in NCCs as opposed to the existing maximum of $540,000 (3 x $180,000). Additionally, the $1.6 million general transfer balance cap limits the number of financial years that can be used in the three year bring forward rule to the extent that it would cause a person to exceed the $1.6 million general transfer balance cap. For instance, if an individual’s total superannuation balance is $1.4 million at 1 July 2017, then the $1.6 million general transfer balance cap operates such that the individual can only bring forward two years of NCCs cap amounts (i.e. $200,000). The individual could not bring forward three years of NCCs because doing so would cause them to breach the $1.6 million general transfer balance cap.
Where an individual invokes the three year bring forward rule in the 2016 or 2017 financial years and their three year bring forward period straddles 1 July 2017, then it is important to note transitional provisions in the Bill adjust the three year bring forward rule based on the lower $100,000 NCCs cap. That is:
- if an individual invoked the three year bring forward rule in the 2016 financial year and has not fully utilised the rule by 30 June 2017 then the total amount of NCCs they can contribute is limited to $460,000 (i.e. $180,000 for 2016 financial year + $180,000 for 2017 financial year + $100,000 for 2018 financial year), and
- if an individual invokes the three year bring forward in the 2017 financial year and does not fully utilise the rule by 30 June 2017 then the total amount of NCCs they can contribute is $380,000 (i.e. $180,000 for 2017 financial year + $100,000 for 2018 financial year + $100,000 for 2019 financial year).
Significantly the reduced $100,000 annual NCCs cap does not apply to contributions of amounts sheltered from capital gains tax (CGT) by the small business retirement exemption or the 15 year exemption up to a CGT cap amount (which for the 2017 financial year is $1,415,000). This is because such amounts are not treated as NCCs. This provides a way for certain small business owners to boost their superannuation balance without breaching the proposed annual $100,000 NCCs cap on the sale of their business asset holdings. This would be where the small business owner makes a capital gain on the sale of their business asset, meets the requirements to claim the small business CGT concessions and uses amounts sheltered from CGT by the small business retirement exemption or the 15 year exemption to make contributions to superannuation. Adding to superannuation in this way does indirectly affect a small business owner’s ability to make further NCCs to superannuation later on since such contributions brings one total superannuation balance closer to the $1.6 million general transfer balance cap. Practically this is not a disadvantage since contributions of amounts sheltered by the small business retirement exemption and the 15 year exemption form part of the tax-free component of one’s superannuation benefits like NCCs.
What to do in respect of the reduced limit on NCCs by 30 June 2017?
Implications of the above discussion are:
- individuals who wish to make large contributions to superannuation (usually persons close to retirement age) should do so before 30 June 2017 to take advantage of the higher $180,000 annual NCCs cap
- individuals who were under the age of 65 years on 1 July 2016 and who not have in the last two financial years invoked the three year bring forward rule, should consider contributing the full $540,000 by 30 June 2017 since this is the last financial year when this larger amount can be contributed, and
- individuals who have already triggered the three year bring forward rule in the 2015 or 2016 income years should consider contributing up to the full $540,000 limit by 30 June 2017, or otherwise they will be subject to the lower $100,000 annual cap from 1 July 2017.
Devising a strategy to fund such large NCCs is likely to take time. Notably, no tax deduction can be claimed in respect of borrowing costs incurred to make personal contributions to superannuation.
In the discussions that the Treasurer had with the media subsequent to the Budget there was conjecture that there may be exceptions to the reduced NCCs cap for one-off life time events such as divorce or accidents, or in situations where a superannuation fund had already committed to a large transaction (e.g. entered into an off-the-plan contract or a limited recourse borrowing arrangement) which relied on the existing NCCs regime. The Bill does exclude contributions of structured settlement amounts from the $1.6 million general transfer balance cap and such contributions are already not classed as NCCs. However, there are no exceptions for other one-off lifetime events or large transactions entered into prior to the Budget. Trustees of superannuation funds who have entered into large transactions should seek to take advantage of the higher NCCs cap available this financial year to ensure the funding of such transactions is bedded down.
The reduced limit on NCCs lessens the effectiveness of strategies and arrangements that rely on NCCs to work. Consequently, clients considering such arrangements should consider implementing them prior to 1 July 2017. Three affected arrangements spring to mind, namely:
- recontribution strategies either to reduce the tax payable:
- by beneficiaries of superannuation death benefits who are not classed as ‘dependents’ for tax purposes, or
- on a superannuation pension by a recipient between the ages of 56 to 59 years.
Whilst a recontribution strategy can still be implemented under the reduced NCC limits, the amount converted into a tax-free component by implementing the strategy will be less. The Australian Taxation Office (ATO) has previously indicated that it was unlikely to apply Part IVA to a basic recontribution strategy. However, it is not clear if this view would continue to apply if the strategy was implemented multiple times
- in specie NCCs of business real property and listed securities by members to their superannuation funds – this is a useful strategy if a member is ‘asset rich’ but cashflow poor since the stamp duty and CGT on an in specie transfer by a member to their superannuation fund can often be minimised. Generally duty is not payable on the transfer of securities except where the securities are in company or trust which holds a significant amount of land such that land holder duty may apply. There are also stamp duty concessions in New South Wales, Victoria and Western Australia on the transfer of dutiable property to a superannuation fund provided certain conditions are met. Additionally, depending on the tax profile of a member they may be able to claim the benefit of the 50% CGT discount and small business CGT concessions to mitigate the tax on any capital gains made on such an in specie contribution, and
- the tax effective repatriation of overseas superannuation back to Australia. An Australian resident taxpayer who repatriates overseas superannuation is subject to tax in Australia on overseas superannuation earnings derived during the time when the taxpayer first became an Australian resident and the time when the overseas superannuation is withdrawn (such earnings are called ‘applicable fund earnings’). A taxpayer can elect to avoid personal taxation on applicable fund earnings at their marginal tax rate by choosing to contribute the whole amount of an overseas superannuation transfer to a complying superannuation fund. Where such an election is made, the superannuation fund is taxed on the applicable fund earnings at the lower 15% superannuation tax rate. Significantly, the contribution of an amount of an overseas superannuation that is not applicable fund earnings (which reflects superannuation accrued prior to an individual becoming an Australian resident) constitutes a NCC. The reduced NCC limit may mean that from 1 July 2017 individuals with overseas superannuation may be reluctant to bring it back into Australia because of the large upfront tax. Such individuals may instead choose to draw an overseas superannuation pension.
$1.6 transfer balance cap
The Bill introduces a $1.6 million transfer balance cap that limits the extent an individual can benefit from the tax-free exemption for superannuation fund earnings that support a complying superannuation pension. From 1 July 2017 only income streams which are in the ‘retirement phase’ benefit from the tax-free exemption are subject to the $1.6 million transfer balance cap. Account based pensions payable to individuals who have retired or have attained the age of 65 years are in the ‘retirement phase’. Transition to retirement income streams (TRISs) are not in the ‘retirement phase’ and so will not benefit from this exemption from 1 July 2017.
The way the $1.6 million transfer balance cap is measured by way of a transfer balance account where debits and credits are made. Each individual acquires a transfer balance account when they start to receive a superannuation pension in retirement phase. The main credits that arise in an individual’s transfer balance account are the value of all existing retirement phase superannuation pensions as at 30 June 2017, and the value of any new retirement phase superannuation pensions commenced on or after 1 July 2017. For instance, if an individual commences an account based pension on 1 July 2017 with a value of $1 million then a $1 million credit arises in their transfer balance account. The main debits to a transfer balance account relate to pension commutations and situations where a superannuation pension ceases to comply with superannuation law or ceases to be in retirement phase because the individual has exceeded the $1.6 million transfer balance cap and has not commuted the pension in time to bring themselves within the cap. (There are modified transfer balance account rules for defined benefit pensions which we do not discuss in this Focus Alert.)
The $1.6 million transfer balance cap is assessed based on these debits and credits whose value is determined at the relevant time of the debit or credit. Investment earnings earned on amounts credited to the transfer balance account are not counted for cap purposes. For instance, if Alice starts an account based pension of $1.6 million on 1 July 2017 and investment earnings increase the pension balance to $1.63 million, Alice is not required to transfer the excess $30,000 into accumulation. The converse also applies should an investment loss occur such that the pension balance falls to $1.4 million. Alice’s transfer balance account will still remain at $1.6 million. The fact that earnings in a pension account have no consequence for a recipient’s transfer balance account suggests that from 30 June 2017, to maximise the pension earnings exemption, high yield assets should be segregated to the pension account. This will be relevant where a superannuation fund trustee is considering whether or not to elect to apply the transitional CGT relief for fund assets supporting pensions.
If an individual’s transfer balance account reaches a $1.6 million credit, no further pensions can be commenced by the individual that can benefit from the tax free pension earnings exemption. Where a pension causes an individual to exceed their $1.6 million transfer balance cap, the pension must be commuted to bring the individual under their cap and excess transfer balance tax is payable.
The $1.6 million transfer balance cap is indexed annually in $100,000 increments to the CPI. There is also a proportional indexation of an individual’s unused transfer balance cap. For example, if an individual’s transfer balance account is $800,000 in credit then they will have 50% of unused transfer balance cap. If indexation increases the transfer balance cap to $1.7 million this does not mean that the individual has $900,000 of unused transfer balance cap left. Rather proportional indexation of the unused cap means that the individual’s unused transfer balance cap is $850,000 (i.e. 50% x $1.7 million). The proportional indexation of the unused transfer balance cap means a strategy of leaving a few hundred dollars of the transfer balance cap unused with a view of taking advantage of indexation does not work. However, if in later years it appears that an increase in the transfer balance cap is imminent, there may be benefit in waiting for the indexation to occur before commencing a pension since a lower proportion of the transfer balance cap would be used.
The way the transfer balance cap system works means that from 1 July 2016 the focus will be on minimising the amount of credit in an individual’s transfer balance account. Since commutations are debited to the account, thought may be had to an individual drawing the minimum pension amount and then taking the rest of the amount needed for living purposes as a partial commutation of the pension. Relevant compliance requirements would need to be satisfied to implement this strategy including the necessary paper work and for account based pensions, ensuring that an amount at least equal to the minimum pension amount less any pension payments already made in the relevant income year is left in the pension account after the commutation.1 It is unclear what the ATO’s attitude is to adopting a strategy of annual partial commutations to reduce one’s transfer balance account. On the one hand, superannuation law has always allowed an individual who has met their condition of release to start or commute a pension at any time they wish. However, an annual practice of partial commutations could materially reduce the amount of credit in an individual’s transfer balance account.
What to do in respect of the $1.6 million transfer balance cap by 30 June 2017?
Relevant actions which should be done by 30 June 2017 are assessing whether:
- a client’s current pension arrangements meet the $1.6 million transfer balance or whether commutations are required
- the superannuation fund trustee should elect to claim the CGT transitional relief for assets supporting pensions up to 30 June 2017, and
- a client who has reached preservation age (i.e. 56 years) should consider commencing a TRIS in the 2017 financial year.
A broader ongoing issue is the need to review clients’ superannuation estate plans to ensure adverse consequences do not arise under the $1.6 million transfer balance cap, and also to consider whether they should be adjusted to place intended beneficiaries in the best position in light of the cap.
Coming under the $1.6 million transfer balance cap
Where a client’s current pension arrangements causes them to exceed the $1.6 million transfer balance cap at 30 June 2017, it is necessary to consider commuting all or part of a pension to come under the cap by that date. The Bill makes no prescription as to which pension must be commuted and consequently, clients receiving multiple pensions can choose which pension to commute. Factors relevant in making this decision include:
- the client’s age – e.g. where the client is under 60 years, there may be a preference to commute the pension with the higher taxable component, to minimise the tax payable on the pension income
- whether a pension was commenced for estate planning purposes with the intention that the reversion would go to a particular beneficiary (usually the surviving spouse) as their share of the testator’s overall property. Commuting such a pension may cause a revision of estate plans, and
- whether the pension was commenced prior to 1 January 2015 so as to preserve entitlements to the aged pension and the Commonwealth Seniors health care card. In such a case, it would be prudent to consider how a commutation would affect access to these entitlements before commuting the pension. A partial commutation may be preferred to preserve the grandfathered nature of the pension.
Recognising that a superannuation fund’s accounts can take time to compile and it can be difficult for individuals to predict what their transfer balance account will be at 30 June 2017, the Bill contains a transitional exception which provides that breaches of the $1.6 million transfer balance cap of less than $100,000 at 30 June 2017 will be disregarded provided the breach is rectified within six months.
Commuted pension amounts fall back into the pensioner’s accumulation account. Depending on the individual’s personal circumstances sometimes it may be more tax effective to withdraw the accumulation amounts from superannuation and to invest the amounts outside superannuation. This involves weighing up the benefit of the $18,200 tax free threshold for individuals as compared to the 15% superannuation tax rate which applies to every dollar earned by a superannuation fund. Relevant financial advice should be obtained from a licensed adviser prior to such a withdrawal. The reduced NCC limit makes future contributions to superannuation more difficult, which in turn makes a decision to withdraw amounts from superannuation not a decision to be taken lightly.
Transitional CGT relief
When the Government first flagged the $1.6 million transfer balance cap, there was a general thinking that superannuation funds in pension mode may seek to dispose of assets with large unrealised capital gains by 30 June 2017 to lock in the pension exemption one last time. To avert the spectre of mass sales and their detrimental impact on prices2, the Bill provides transitional CGT relief for superannuation funds who have accrued unrealised gains on assets supporting pensions as at 30 June 2017. The relief is divided between the segregated and proportionate methods of determining exempt pension earnings. The relief applies on an asset by asset basis and will require detailed record keeping.
The CGT transitional relief for the segregated method only applies to assets held as segregated current pension assets on 9 November 2016 (the date the Bill was introduced into Parliament). The relief applies where:
- at some time (called the cessation time) during the period between 9 November 2016 and 30 June 2017 (this period is called the pre-commencement period) the asset ceases to be a segregated pension asset
- throughout the pre-commencement period the fund held the asset and was a complying superannuation fund, and
- the superannuation fund trustee makes an irrevocable choice, in approved form, to claim the CGT transitional relief by the time the fund is required to lodge its tax return for the 2017 income year.
When the CGT transitional relief is chosen, the effect is that the superannuation fund is deemed to have sold and bought back the asset for its market value at the cessation time. This resets the cost base of the asset to its market value. The deemed sale does not triggers no immediate capital gain since the asset was segregated just before the deemed disposal.
The main issue with adopting the CGT transitional relief for the segregated method relates to determining when the cessation time occurs – this the date when the asset’s cost base is reset to market value. There are a number of ways an asset can cease to be segregated and the timing of when this occurs differs as follows:
- an asset could be directly removed from the segregated asset pool in which case the cessation time occurs at that time. For some funds that have only one large asset supporting a pension (e.g. business real property) it may be necessary to move the whole asset from segregation as part of a pension commutation to get under the $1.6 million transfer balance cap. This may be so even if say the asset is worth $2 million and only $400,000 of the pension must be commuted to come within the cap. This is because the ATO has a longstanding position of not accepting partial segregation of an asset3
- the superannuation fund trustee could choose to change to the proportionate method for calculating exempt pension earnings, in which case the cessation time occurs at 30 June 2017, and
- where a superannuation fund is entirely in pension mode, by default all of its assets would be regarded as segregated pension assets. If an amount is added to a member’s accumulation account that will cause the superannuation fund’s assets to cease to be segregated at that time. This could be by way of a contribution to a member’s account or alternatively a commutation of a pension to get under the $1.6 million transfer balance cap.
The above discussion indicates that actions that a client does from now until 30 June 2017 can have a material impact on the cessation time and in turn the extent of relief provided by the CGT transitional relief for segregated assets.
The CGT transitional relief for assets subject to the proportionate method applies where:
- the proportionate method applied to the asset throughout the pre-commencement period
- the superannuation fund was a complying superannuation fund throughout the pre-commencement period, and
- the superannuation fund trustee makes an irrevocable choice, in approved form, to claim the CGT transitional relief by the time the fund is required to lodge its tax return for the 2017 income year.
Where the relief is chosen, the effect is that the superannuation fund is deemed to have been sold and bought back the asset for its market value at 30 June 2017. Since the proportionate method applies, a proportion of the net capital gain derived by the superannuation fund on this deemed disposal is assessable to the fund in the 2017 income year. The fund can make an irrevocable choice by the date the fund lodges its tax return for the 2017 income year to defer the tax on this notional capital gain until a later time when the asset is sold.
Choosing the proportionate method CGT transitional relief may not always produce the best tax result. Whether a superannuation fund should choose the relief depends on when the client proposes to retire and the expected growth of superannuation fund assets up to that time. For instance, if the client is within the $1.6 million transfer balance cap and will be retiring soon such that their self managed superannuation fund (SMSF) converts to 100% pension mode, choosing to apply this relief to an asset may cause the fund to be taxed on the deferred notional capital gain later on when the asset is sold. Such tax would not have otherwise arisen if the relief was not chosen, since the pension earnings exemption would otherwise apply. The prospect of extra tax being inadvertently triggered by the transitional CGT relief for SMSFs reflects the fact that the relief is more targeted at large superannuation funds.
CGT discount if CGT transitional relief chosen
A superannuation fund that chooses the CGT transitional relief under either the segregated and proportionate methods must wait a further 12 months before it can claim the benefit of the CGT discount. This is because of the deemed sale of the asset. Consequently, if there are plans to sell the asset soon, depending on the numbers it may be more tax effective not to apply the relief to that asset.
Transition to retirement income streams (TRISs)
The attractiveness of TRISs decreases after 30 June 2017 when the pension earnings exemption is removed for TRISs. However, clients who have reached their preservation age but who are under 65 years or not yet retired may still want to start a TRIS to supplement their other earnings outside superannuation. This could to enable the client to pay down their mortgage or to cut back their hours and ease into retirement (which was the original thinking behind TRISs).
The benefit of starting a TRIS in the 2017 income year is that clients still have one year of pension earnings exemption available. Additionally, the TRIS/lump sum strategy will be removed from 1 July 2017. This strategy allows a pension payment from a TRIS to be assessed as a lump sum for tax purposes where a lump sum election has been made for tax purposes. This strategy may enable an individual to take a material amount from superannuation (within the 10% TRIS limit) tax free up to the ETP cap amount of $195,000, to further assist with their cash flow needs.
The CGT benefits of commencing a TRIS in this income year may seem attractive since:
- the pension earnings exemption will still shield from tax a capital gain made on a segregated asset in the 2017 income year, and
- the proportionate method CGT transitional relief can be chosen if a TRIS is commenced in the 2017 income year.
However, one would be wary of commencing a TRIS in this income year other than for non-tax purposes. The ATO is alive to the strategy of starting a TRIS to secure CGT benefits and would likely apply Part IVA Income Tax Assessment Act 1936 (Cth) to a TRIS which had no main non-tax purpose.
The $1.6 million transfer balance cap may cause many individuals to revisit their superannuation estate planning. For instance, estate plans which involve gifting a non-commutable pension to a surviving spouse (usually a second spouse who needs to be maintained for their lifetime but the desire is to give capital to the children of the first marriage) would probably need to be revised.
The typical choice of a spouse gifting their superannuation to the surviving spouse by way of a death benefit pension may no longer be viable if it causes the surviving spouse to exceed their transfer balance cap because they are already receiving a superannuation pension. In such a situation, the surviving spouse would either have take part of the death benefit as a lump sum or commute part of their existing superannuation pension. It is not possible to retain any part of a death benefit in accumulation in the superannuation fund because SIS Reg 6.21 requires that death benefits be cashed out as soon as practicable. The way the $1.6 million transfer balance cap affects a surviving spouse’s entitlement to superannuation death benefits is best seen in the following example drawn from the Explanatory Memorandum to the Bill.
Assume a husband and wife each start a $1 million account based pension. The husband dies and leaves around $800,000 in death benefits to the wife. In this situation the wife has the following choices to ensure she does not exceed her $1.6 million transfer balance cap:
- take a $600,000 death benefit pension and a $200,000 death benefit lump sum, or
- commute her existing pension by $200,000 (this amount can be retained in accumulation within the fund since it does not relate to a death benefit) and take an $800,000 death benefit pension.
Some individuals may continue to gift all their superannuation to their surviving spouse on the basis that the surviving spouse can deal with the $1.6 million transfer balance cap later on. Other individuals may choose to gift an amount of superannuation to a surviving spouse that takes them up to their $1.6 million transfer balance cap, and then the balance to their legal representative to distribute to a testamentary trust for the surviving spouse’s benefit.
The need cash out a death benefit and the fact that the $1.6 million transfer balance cap prevents a surviving spouse from drawing a death benefit pension from their deceased spouse’s superannuation benefits, may cause some SMSFs to be unwound. For instance, say the major asset in a SMSF is business real property. If the husband dies, it may be that the property must be sold in order to cash out some of the husband’s superannuation benefits. It may be that such a SMSF may need to take out life insurance and adopt an insurance reserve strategy to prevent the forced sale of the asset on the death of one of the spouses. Insurance reserve strategies have their own issues since insurance premiums are not deductible and a large reserve is created which may cause later issues under the concessional contributions cap.
Significantly, child beneficiaries are treated differently from spouses in relation to death benefit pensions under the Bill. A ‘child beneficiary’ is a child who at the date of the deceased member’s death is under 18 years, between the ages of 18 and less than 25 years and financially dependent on the deceased, or severely and permanently disabled. A child beneficiary is entitled to a transfer balance cap increment that broadly reflects their proportionate share of their deceased parent’s retirement phase interests. The transfer balance cap increment is separate from any personal transfer balance cap that a child may later have when they retire. It is possible for a child beneficiary to inherit transfer balance increments from both parents which is higher than the $1.6 million transfer balance cap. For example, say a mother dies with a retirement phase pension that has a value of $1 million at the date of her death and then the father dies with a retirement phase pension of $1.6 million. In this scenario, the son who receives both parents’ death benefits would have an aggregate transfer balance cap increment of $2.6 million (i.e. $1 million from the mother and $1.6 million from the father). The son can commence a death benefit pension to the value of $2.6 million. Such a pension would need to be commuted once the son turns 25 years. It is not clear why child beneficiaries are given preference over spouses with regards to this favourable treatment under the $1.6 million transfer balance cap.
The transfer balance account system focuses on the value of debits and credits, since they determine whether or not an individual comes under the $1.6 million transfer balance cap. In this respect, it is noted that the system may cause a revival in reversionary pensions. The amount credited to the transfer balance account of a recipient of a reversionary pension is the value of the pension at the date of deceased’s death. This is a lower amount than the amount credited when a non-reversionary superannuation death benefit pension becomes payable – in this situation the amount of the credit includes earnings derived after death up to the time when the non-reversionary superannuation death benefit pension becomes payable. The time when the credit arises in the transfer balance account for a reversionary pension is deferred until 12 months after the time of the deceased member’s death. This 12 month delay provides the reversionary beneficiary with time to adjust their superannuation arrangements to ensure they meet the $1.6 million transfer balance cap. A non-reversionary superannuation death benefit pension does not have the benefit of this 12 month delay and needs to be paid (and credited to the transfer balance account) as soon as practicable.
There are probably many more strategies and implications arising from these Budget superannuation changes. The above discussion indicates that advisers need to be pro-active in guiding clients through the changes since there are some real actions that may need to done (or not done!) to put a client in the best position ‘super wise’ from 1 July 2017.
1 Regulation 1.07D(1)(c) Superannuation Industry (Supervision) Regulations 1994 (SIS Regs).Ac
2 Compare to the introduction of the collectible rules for self managed superannuation funds in section 62A Superannuation Industry (Supervision) Act 1993 and Regulation 13.18AA SIS Regs which depressed the art market.
3 See Taxation Determination TD 2013/D7.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.