SUMMARY: Four strategies for SMSFs to consider immediately, now that super’s big changes have arrived.
We’ve been talking about it forever, but it has finally arrived.
Superannuation’s less-generous future is now on us. A future of lower contribution limits and of lower tax-free pensions and even taxed pensions. A time when it will be harder to get money into super than it has ever been.
And the time for moaning about it is also over. The rules aren’t going to be watered down. Deal with it. Time spent complaining is time that you’re not trying to maximise the new deal for your future.
So, what do you do from here? What needs to be on your to-do list? Here are four things that you need to start considering, as of today.
- Make changes to your super contributions
Salary sacrifice as a strategy isn’t dead. But it’s far less relevant than it used to be.
The rule used to be that if you earned more than 10% of your income from employment, you were not able to make extra contributions for yourself. The only way that you could make extra contributions was via your employer, ie, salary sacrifice.
If your employer didn’t offer it, tough luck. If you had a big capital gain late in a financial year and wanted to get extra money into super, but didn’t have enough income left in the year to do so, tough luck.
But employees (along with the self-employed, who have always been able to do this) will now be able to make contributions to super at any time during the financial year and claim a tax deduction for it.
Many people may want to continue their salary sacrifice contributions, adding a consistent amount each week/month. But they will also have the choice to put in large sums towards the start, or end, of the financial year, if it is more suitable to them.
What would suit you better? You can now make that change.
- Start working out 30 June asset values for CGT relief
If you’ve got over the $1.6m in pensions (including transition to retirement pensions), then from 1 July, you had to transfer whatever was in excess of $1.6m back to accumulation, or take it out of the super system.
The Government realised this was going to cause a monstrous capital gains tax bill for many, and the larger the balance, the bigger the likely CGT bill, if they sold assets that had been transferred back to accumulation that were previously in pension phase.
So, CGT relief is being offered, essentially so that those affected didn’t go through with a massive wave of selling in the lead-up to 30 June to try to sell assets while they were still CGT free, before they moved back to accumulation.
CGT relief will be the subject of entire columns to come, such is the complexity. But for now, it’s important to start getting asset valuations together.
For listed shares, the 30 June value is often not going to be difficult to determine. But it can be more difficult with other assets, such as property, managed funds and other assets.
If you are going to apply for CGT relief for some assets, this needs to be done via an irrevocable declaration that needs to be put in before, or with, your SMSF’s tax return for FY17. So you need to start preparing.
- Spouse super sharing
As we now know, it could be costly having a couple with massive differences in their super balances. If one member has $3m and the other has $300,000, then there is going to be a lot of tax paid on the balance of the higher-balance member, from now on.
There are strategies for evening up super balances. One of the important ones will be to transfer the concessional contributions from one spouse to another.
You are able to roll over 85% of contributions made (up to the $35,000 or $30,000 limts for FY17) in a given financial year, so long as it is done before the end of the following financial year. So, for the year just ended (30/6/17), these rollovers need to be made before 30/6/18.
And it’s important to note that they are rollovers. They are not considered contributions. If both of you have made the maximum contributions for the year, you can still roll it from one spouse to another.
- Check your total superannuation balance
The ATO has made it clear that you need to know your superannuation fund balances – all of them – if you are likely to go over the $1.6m limit, either in regards to the transfer balance cap for pensions, or for your ability to make further concessional contributions to super.
The ATO is compiling figures coming in from super funds, but it has warned that some of the data might be out of date, due to the reporting of super funds.
Particularly those who have SMSFs, but also have money in other APRA-regulated super funds, you will need to obtain balances from those funds before you make some of these important decisions.
The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: firstname.lastname@example.org . Bruce’s new book, Mortgages Made Easy, is available now.