2017 heralds many rule changes for self-managed super fund (SMSF) members. There are a few things you must do to stay ahead of the game - and do them BEFORE the changes commence.
1. Stay within the New Super Pension Cap
If you have a large super balance, you need to ensure that from 1 July 2017 onwards, you have no more than $1.6 million in pension phase.
If your balance exceeds $1.6 million you will have to "commute" (ie; revert back to accumulation phase) part or all of your pension fund so that you fall within then new cap.
2. Take advantage of existing Contribution Caps
New concessional caps start from the 2017/2018 financial year. Currently if you are 49 and over you can now contribute $35,000 a year to your super fund tax-free. Younger people are limited to $30,000.
But a flat $25,000 a year will apply from 1 July for everyone.
Action: maximise you current contributions take advantage of the current contribution caps.
3. Review Transition to Retirement Pensions
There will be a reduction of the tax exemption available from earnings within pension funds that are in a 'transition to retirement' stage. In other words, transition to retirement pensions won’t be as tax effective as they are now.
At present it is common for members of a super fund who has reached the preservation age of 55 and are still working to take advantage of provisions that allow them to contribute up to $35,000 into their super fund and also receive a small pension. They pay no tax on the pension or a concessional rate of tax.
These transition to retirement strategies will become less tax-effective from 1 July 2017.
Action: seek professional advice to determine whether you should commute your pension back to the accumulation phase.
4. Consider reviewing the CGT cost base of your super assets
If you have unrealised capital gains in your SMSF, and your pension will be affected by the new rules, there is a one-off opportunity to 're-set' your CGT cost base. This concession has been introduced as part of the transition to the new super environment that starts on i July.
Action: seek professional advice to determine whether you should re-value your assets now and to re-set your CGT base, and pay some CGT now. In many cases, this will result in significantly less CGT when you sell assets in the future.
5. Salary Sacrifice options - review them now.
From 1 July 2017 there will be an alternative to salary sacrificing - you will be allowed to make ‘personal concessional contributions’ instead.
Under this arrangement you will be able to contribute up to $25,000 a year from your own resources, less any employer contributions the fund receives.
These new contributions will be more flexible than the former salary sacrifice arrangements.
Action: seek professional advice to determine what advantages may be available to you under the new personal concessional contributions arrangements.
Speak to your financial adviser and lawyer to familiarise yourself with the new rules to ensure your fund remains compliant from 1 July and, ensure you are maximising the advantages that remain available.