Superannuation: Transfer Balance Cap, Transition to Retirement Income Stream and Year End Planning

1Jun

Superannuation: Transfer Balance Cap, Transition to Retirement Income Stream and Year End Planning - Peter Vickers Business Group

1 Jun 2017 |

Transfer Balance Cap:

If you receive a pension and the assets supporting that pension exceed $1.6 million then you need to commute the part of the assets that exceed $1.6 million before 1 July 2017. To make the commutation the trustees need to agree to do so.

Unless we hear otherwise, we will assume that all trustees of self-managed superannuation funds for whom we act as accountants have held such meetings and we will prepare the minutes accordingly when we prepare the annual accounts.
The actual amount commuted, the amount above $1.6 million, will be calculated when the accounts are prepared but this must be done before the date for lodgement of the 2017 income tax return.

If your pension assets exceed $1.6 million and some or all of the assets are in another fund other than a SMSF then you have to notify the trustees of that fund before 1 July 2017. If you have multiple funds then you have to decide which funds will have the $1.6 million in pension assets and thus the rest will go back to accumulation phase.

Transition to Retirement Income Stream TRIS:

John Howard, when he was Prime Minister, just before an election changed the way superannuation was handled in Australia. He introduced the concept that people might wish to partially retire when they reached the age of 55. The only problem with partial retirement is that one’s income goes down in the same proportion but one’s spending does not. He thus allowed those people to supplement their income from their superannuation funds.

Various smarty accountants then worked out that there was a tax advantage to having a TRI if you were over 60 and thus the fund would pay no tax on the income that supported that pension and as the person was over 60 no tax was payable on the pension received. That comes to an end from 1^stJuly 2017 and the income is taxable at 15% as if it was in accumulation phase.

A TRIS ends when another “condition of release” occurs, usually when you turn 65.

As the real purpose for a TRIS was to make the super fund tax free, it is suggested that if you are receiving a TRIS, you should cease the pension and revert (or commute it) to accumulation phase.

When John Howard brought in the TRIS there were two extra conditions above a normal pension:

" there is a maximum of 10% of the balance at 1^st July that can be paid out and that it was not commutable. "

The Taxation Office on its website has confirmed that the “Commissioner will not apply compliance resources to review the commutation of a superannuation income stream a member has in an SMSF that is made before 1 July 2017” (interesting wording!). We then went on a hunt through the SIS legislation to see how we had missed this possibility.

The conditions for a TRIS are contained in Reg 6.01 (b) of SIS Reg 1994. We defy anyone to understand the double and triple negatives and multitude of conditions that refer to numerous subparagraphs.

Anyway, as with the transfer cap, unless we hear otherwise, we will assume that those
clients that are receiving a TRIS from their SMSFs for whom we act as accountants have informed their trustees (themselves) that they wish to terminate their TRIS as at 30 June and we will prepare the relevant instruction and minutes accordingly when we prepare the annual accounts.

This ability to wait until the accounts are prepared to get everything correct is one of the benefits of having a SMSF rather than an industry or retail fund.

Planning for next year:

If you are salary sacrificing some of your income into your superannuation fund then you need to relook at the amounts going into super.

From 1^st July 2017, the maximum that can be contributed as a concessional (tax deductible to yourself or employer) is $25,000 which is down from this years $30,000 or $35,000.

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