SUPERCentral News
Wealthy clients often hold assets in a family trust. This may be because of the trust having been set up to help save tax through splitting the income of the trust between family members on lower tax rates than the client, or perhaps the trust was set up in order to shield investment assets from the possibility of exposure to litigious claims against the client due to their profession or business. Often both reasons apply.
In relation to a current pension (ie a pension which commenced before 1 July 2017 and remains on foot after 30 June 2017), the paying fund will have to notify the ATO of the pension account balance at 30 June 2017 and the ATO will open a transfer balance account for the taxpayer and credit the 30 June 2017 balance to the transfer account.
From 1 July 2017 these pensions will no longer be entitled to the earnings tax exemption. Consequently, while these pensions remain in the "transition" phase the pension transfer cap is not relevant.
If you require advice on a particular SMSF strategy, or if perhaps you have identified a mistake and need help to consider the alternatives to correct it, we've got your back!
The personal transfer cap of a taxpayer is the transfer cap which applies to the financial year in which the taxpayer first commences a pension to which the earnings tax exemption applies.
If a pension commences on or after 1 July 2017, the super fund paying the pension will notify the ATO that the pension has commenced and the initial balance of the pension.
The Pension Transfer Balance Cap will be set out in Division 294 of the Income Tax Assessment Act. The comments below are based upon the application of the draft legislation (as released on Wednesday 28 September 2016).
The general pension transfer balance cap will limit, to an amount of $1.6m, the amount of super which can be converted to pension phase and thereby enjoy the earnings tax exemption which currently applies in pension phase.
This tranche covers the pension transfer balance cap, concessional contribution changes and catch up concessional contributions.
I mean - if you have a client who already has a Will which includes a testamentary trust, and that client (hopefully many years afterwards!) dies - then, how do you actually set up that testamentary trust?
The interaction between the "bring forward" of contributions and the excess non-concessional contribution threshold is illustrated in an example which has been taken from the factsheet issued as part of the Press Release for the super changes.
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The ability to bring forward up to 3 years' worth of non-concessional contributions will be retained. The current requirement that taxpayers be less than age 65 at any time during the first year of the 3 year bring forward period will be maintained.
It seems special transitional rules will apply where a "bring forward" period straddles 1 July 2017. The first special rule is that if the bring forward can be completed by 30 June 2017, then the $540,000 cap will apply.
This cap will now be $100,000. CGT non-concessional contributions and personal injury non-concessional contributions will not be subject to this cap and they remain unaffected by the Budget proposals.
From 1 July 2017, it seems that the precondition for making non-concessional contributions is that the taxpayer's superannuation balance must be less than $1.6m.
On Thursday 15 September 2016, the Government announced further changes to the Super Changes announced as part of the May 2016 Budget.
As advisers we are well aware that it is best for a client's private trust (be it a family trust or a self managed superannuation fund) to have a corporate trustee, for a whole host of reasons.
Our Special Counsel Superannuation, Michael Hallinan, is busily preparing the next update of our Governing Rules scheduled for October 2016 in order to ensure they contain everything necessary to support the compliance of the fund.