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FEDERAL BUDGET2016Q&A

FPA Budget Q&A 2016

© 2016 Financial Planning Association of Australia

FPA Budget Q&A 2016 FPA Budget Q&A 2016 3

Post Budget Webinar Q&A

How will the lifetime non-concessional contribution cap impact small business retirement?from Chris Matthies

The special rules that apply to small business contributions will continue to be available and will be in addition to the $500,000 lifetime non-concessional cap. [Source: Superannuation Fact Sheet Q & A]

Will existing TTR pensions lose their tax free benefit for earnings?from Chris Matthies

The change will apply regardless of the when the TTR pension commenced. [Source: Budget 2016 Superannuation Fact Sheet 12]

The limit for pension balances of $1.6mil, does this include any death benefit pensions that a client may have in place?from Chris Matthies

On a strict reading of the Budget documents, the limit applies to any transfer an individual makes to retirement phase. Based on the ATO’s view as to when a superannuation income stream begins and ends (see Taxation Ruling TR 2013/5), it’s possible that death benefit income streams will count toward the cap in some circumstances. Specifically, it would seem that where a beneficiary is not automatically entitled to their reversionary income stream, that death benefit would count towards the beneficiary’s cap too. However, it’s unclear whether the Government intends that an amount that has already been counted towards an individual’s transfer balance cap could be counted again, towards the same or another individual’s transfer balance cap.

Clients already in super and have a $500K balance - what happens about future earnings/market movements. Will this penalise the client?from Kerrie Ray

Earnings and market movements aren’t contributions. Therefore, they aren’t counted toward the cap.

If a client has used their $500,000 non-concessional lifetime cap and is awaiting a UK pension rollover can the fund accept the rollover? If not what is the best strategy?from Tom Harris

Technically, yes (subject to contribution limits for superannuation rather than tax purposes; and to the particular fund’s rules). However, the tax implications of breaching the non-concessional contribution (NCC) cap need to be considered.

The proposal is intended to be effective from 3 May 2016 (Budget night). From a tax perspective, if the

FPA Budget Q&A 20164

proposal is legislated, excess non-concessional contributions would need to be withdrawn (along with associated earnings) or would be subject to penalty tax. In the latter case, the penalty tax amount would need to be released from super.

In the case of a recognised overseas pension scheme with membership restricted to those who are age 55 or over, release of benefits for the purpose of refunding excess non-concessional contributions (NCCs) and notional earnings on the excess (or releasing an amount to pay excess NCC tax) would not trigger UK penalty tax.

However, under the refund option, which is generally preferred, associated earnings are calculated based on the general interest charge (currently over 9% p.a.) for a period of around 18 months and are included in the client’s assessable income for the income year of the contribution. This could represent a significantly higher tax liability than if, for example, the client had withdrawn benefits from their UK pension and retained the investment in their own name.

It may be prudent not to transfer the UK pension until we know whether the lifetime cap will be legislated. Alternatively, if clients want to optimize the timing and amount of their transfers under the current rules and they are confident the existing rules will stay or there will be a grace period, they may wish to transfer now. For example, they may wish to transfer $180,000 now, up to $540,000 next income year and further amounts in later income years (subject to age restrictions). However, given the significant tax consequences if the proposed changes are implemented with effect from Budget night, it would be dangerous for advisers to recommend this strategy.

It is possible (though in our view, unlikely) that the Government would also make changes to the maximum amount (‘fund-capped limit’) that can be contributed in one go, retrospective too. Based on the current approach, this would mean that the excess on, presumably, $500,000 needs to be returned once the superannuation fund’s trustee becomes aware of the breach. If the lifetime NCC cap is legislated as proposed, clients who transfer a UK pension amount of say $540,000 in one transaction, after the Budget announcement might end up having $40,000 returned and not assessed as an excess NCC.

Note: as the proportioning rule as to tax components does not apply to amounts released under the release authority, specialist tax advice should be sought as to whether exceeding the NCC caps could breach Part IVA (the general anti-avoidance provisions) of ITAA 1936.

How do you determine the client’s non-concessional contributions for SMSF? Records are only retained for 5 yearsfrom Nicole Burgess

We understand that the ATO has reliable records dating back to 1 July 2007. However, there is a lag between when contributions are made and when the ATO receives the data. It may be possible to access information from the members’ funds (including previous funds) directly. We would also recommend records are maintained for longer, particularly contributions going forward.

Does the new $500K NCC [cap] apply to superannuation only or accounts that have also moved into pension phase? Also does this affect any death benefit pensions?from Simon Raines

The cap is a limit on NCCs. A movement within the Australian superannuation system, such as from accumulation


to pension phase, is not a NCC. This is the case even for movements to death benefit pensions.

Will there be any restrictions to taxable amounts transferred from an overseas pension fund under the latest changes announced?from Clive Herrald

There’s no indication that the tax treatment of transfers from overseas pension schemes will change. However, as the lifetime NCC cap may prevent or reduce the amount a client can transfer from their overseas pension scheme, the option to elect to have the growth component of the pension included in the taxable income of the fund may not apply as it only applies where the whole pension interest is transferred.

However, it may be possible to create sub-funds to ensure the whole pension interest in a sub-fund is transferred, which in turn allows the option to elect to have the taxable component included in the assessable income of the fund retained. Still, the lifetime NCC cap may still mean that the client can’t transfer as much of the foreign pension as they would have been able to under the current rules. This may in turn mean that the growth component of their transfer is reduced.

Currently I have a client who has accepted my advice to use the $540,000 non-concessional limit and have received a cheque today for $540,000. With the new lifetime non concessional cap of $500,000 what do I do? Can I bank the cheque and implement my advice or can I only accept $500,000?from Justin Sadler

Given the tax consequences of exceeding the lifetime cap, it may be prudent for the client to stay within their cap under both the current and proposed rules. It is important to first contact the client to discuss the Budget proposal with them and explain how it might affect the outcome of your original recommendations.

If your client has a ‘bring-forward’ cap amount of $540,000 under the current rules, contributing only $500,000 would ensure they don’t exceed the cap under the current or proposed rules. Under the proposed rules, they could be subject to tax on the notional earnings on the excess of $40,000. The notional earnings are calculated based on the general interest charge, which is currently over 9% p.a., over an extended period (in normal circumstances, around 18 months).

How can/will the non-concessional lifetime cap and the rolling 5 year concessional use be tracked?from Michael Frewin

We expect that the ATO will track this information. However, under current arrangements there is a lag between when contributions are made and when they’re recorded by the ATO.


Is there any further detail of the penalty tax for excess NCC and how it will be applied or paid?from Simon Raines

The current penalty arrangements will apply. This would mean that the excess portion of excess NCCs retained in the fund would be subject to tax at the top marginal tax rate (currently 49%).

However, the excess portion could instead be withdrawn from superannuation; under current arrangements, the notional earnings associated with the excess portion are included in the client’s assessable income for the income year of the excess NCC. The earnings are calculated based on the general interest charge (currently over 9%) for an extended period (normally around 18 months).

Will the ATO have a dedicated contact / process to check for all prior NCCs for a member going back to 2007? from Casey Kropman

At this stage, we don’t know. However, given the increased reliance advisers and consumers would place on ATO contribution data if the Budget’s superannuation measures are legislated, it would seem that a dedicated team at the ATO would be needed, along with online access for advisers and consumers.

Will existing TTR’s have 15% tax on earnings, or just new TTR funds?from John Holios

The change will apply regardless of the when the TTR pension commenced. [Source: Budget 2016 Superannuation Fact Sheet 12]

With respect $500K NCC Cap, as the budget has not yet received royal assent, can [superannuation funds] still accept >$500K ?? I know that papers say that ‘as of 7.30 pm 3/5/16’, but that assumes royal assent...from Hari Maragos

Technically, yes (subject to contribution limits for superannuation rather than tax purposes; and to the particular fund’s rules). However, the proposal is intended to be effective from 3 May 2016 (Budget night). From a tax perspective, if the proposal is legislated, excess non-concessional contributions would need to be withdrawn (along with associated earnings) or would be subject to penalty tax. In the latter case, the penalty tax amount would need to be released from super.

Under the refund option, which is generally preferred, associated earnings are calculated based on the general interest charge (currently over 9% p.a.) for a period of around 18 months and are included in the client’s assessable income for the income year of the contribution. This could represent a significantly higher tax liability than if, for example, the client had invested the benefits in their own name or another structure.

It may be prudent not to exceed the lifetime cap even though the measure is not legislated. Alternatively, if clients want to optimize the timing and amount of their NCCs under the current rules and they are confident the existing rules will stay or there will be a grace period, they may wish to contribute now. For example, they may wish to contribute $180,000 now, up to $540,000 next income year and further amounts in later income


years (subject to age restrictions). However, given the significant tax consequences if the proposed changes are implemented with effect from Budget night, it would be dangerous for advisers to recommend this strategy.

It is possible (though in our view, unlikely) that the Government would also make changes to the maximum amount (‘fund-capped limit’) that can be contributed in one go, retrospective too. Based on the current approach, this would mean that the excess on, presumably, $500,000 needs to be returned once the superannuation fund’s trustee becomes aware of the breach. If the lifetime NCC cap is legislated as proposed, clients who contribute NCCs of say $540,000 in one transaction might end up having $40,000 returned and not assessed as an excess NCC.

Note: as the proportioning rule as to tax components does not apply to amounts released under the release authority, specialist tax advice should be sought as to whether exceeding the NCC caps could breach Part IVA (the general anti-avoidance provisions) of ITAA 1936.

How will the TTR changes and preservations interact? If someone over [preservation age] runs a pension using non-preserved money is this a TTR? If running a pension from age 65 but still working is this now a TTR etc.?from Chris McGlinn

The following discussion is based on the current superannuation definition of TTR income streams. Potentially, the proposed removal of the tax exemption for earnings on assets supporting TTR pensions might mean different definitions are used for tax purposes.

It is possible that where an income stream is started with at least some of the benefits being accessed under the TTR condition of release, the income stream is and remains a TTR income stream until the income stream ends (e.g. due to commutation). However, the TTR income stream could be commuted back to accumulation phase and used to start a regular income stream upon the member meeting say the retirement condition of release (including reaching age 65).

An alternative view is that, subject to appropriately drafted documentation, a TTR income stream converts to a regular income stream upon the member satisfying a condition of release such as retirement. Specialist legal advice should be sought.

If using only unrestricted non-preserved benefits, the client could instead start an income stream under a condition of release other than TTR, which would not be a TTR income stream. For example, the member could use benefits that became unrestricted non-preserved when they met the retirement condition of release, to start a regular account-based pension.

If a member is still working but also has non-preserved benefits, a preferred option might be to use only preserved benefits to start a TTR income stream (assuming the fund doesn’t allocate the different preservation components to the TTR income stream). This would allow the member to use the non-preserved benefits for income streams the earnings of which are tax-free.

Further, as restricted non-preserved benefits are taken to be paid from TTR income streams before preserved benefit are released, excluding restricted non-preserved benefits from the TTR income stream gives the member under age 60 more scope to move more benefits to income streams with tax-exempt earnings, earlier.


Will excess concessional contributions continue to be applied towards the non-concessional lifetime cap?from Michael Frewin

Presumably, yes.

Notes from the budget outlined that existing pension accounts over $1.6mil need to be reduced to below this amount by 1 July 2017. What is the best option for clients to do this? How would this play out practically for a SMSF who has property owned in excess of $1.6M ?from Chris Matthies and Andrew Tambyrajah

Based on current options, if an SMSF is using the segregated method and the assets supporting benefits in retirement phase are small assets (for example, units in a managed investment), the fund could, presumably, simply reallocate some units back to accumulation phase. However, if, for example, the fund is entirely in retirement phase and only has a single lumpy asset (e.g. property), the only option apart from selling the property is to move to the unsegregated method – which would mean actuarial certification is required each year. By contrast, actuarial certification isn’t required under the segregated method, except where income streams other than account-based, allocated and market-linked are being paid.

Is the $1.6 million the maximum transfer for TTRs?? or anybody who is retiring? from John Holios

The Budget documents imply that the lifetime transfer cap does not apply to TTR income streams as the cap applies to transfers to a tax-free retirement account, whereas the Budget proposes that the assets supporting a TTR income stream will not be tax free.

Does the small business company tax rate apply to investment holding companies ([e.g.] holding ASX listed stock) or to corporate beneficiaries of a family trust?from Robert Clarke

The language of the Budget documents is unclear on this point. For 2016-17 income year, the Budget refers to ‘businesses’, whereas for later income years ‘companies’ is used. It would appear that the intention is that all companies (regardless of whether they’re operating a business or not) will have a tax rate of 25% for the 2026-27 income years and later.

Is the $1.6m the net value after allowing for a LRBA in a SMSFfrom Martin Hunter

Yes.


Can pensions be topped back up to $1.6 mil through a refresh if they spend a lot or markets have a bad year?from Bridget Lester

Top-up arrangements for market movements or withdrawals will not be allowed. [Source: Budget 2016, Superannuation Fact Sheet 2] Indeed, if you use 100% of your cap amount as at a current income year, you won’t even be able to utilise indexation increases to the cap in later income years.

Is the $1.6mil cap for pensions inclusive of all accounts, including any annuity that may be purchased? Or would the annuity be separate under their broadening of the retirement products?from Chris Matthies

Yes, the cap applies to transfers to all retirement accounts for which the earnings on the assets supporting the account are tax-free.

Please confirm how the $250,000 income is determined..is this salary plus SGC?from John Holios

Based on current rules, the relevant income is generally:• taxable income (assessable income less deductions)• plus the net amount on which family trust distribution tax has been paid• plus reportable fringe benefits • plus total net investment loss (includes both net financial investment loss and net rental property loss), • less the taxed element of the taxable component of a superannuation lump sum benefit (other than a

death benefit) up to the low rate cap• plus, broadly, concessional contributions (e.g. Superannuation Guarantee and salary sacrifice)• less, excess concessional contributions

Can you please confirm whether the higher contributions tax of 30% is applicable to the entire contribution or the excess contribution for individuals earning more than $250,000?from David Isaacs

The additional 15% tax applies only to the lesser of the:• the amount by which the relevant income (see above) exceeds the threshold; and• broadly, the amount of concessional contributions less any excess concessional contributions


How likely is it that the 500k non concessional cap will be passed? Given the lack of consultation is there a chance of some amendments? Is the FPA comfortable with a $500k lifetime cap? from Michael Frewin and Verena Kuchenmeister

There’s always a chance of amendments, but the Government has shown no sign of backing down. The FPA is concerned about the challenges of administering a lifetime cap, particularly given there is no real-time central source of contributions data. We are also concerned about clients’ retirement outcomes, especially clients nearing retirement who didn’t have the capacity or opportunity to contribute as much, earlier in life, as they needed to achieve a comfortable standard of living in retirement.

Granted TTR earnings will be taxed in super fund, will INCOME from TTR after age 60 still be received tax free?from James Paterson

There is no suggestion that the tax treatment of TTR income stream benefits will change.

Are assets backing a TTR taxable even after age 60?from Peter Handberg

Yes.

Will abolition of Anti-Detriment payment also effect [future liability to pay benefits]? And what - if any - measures are retail, industry and corporate funds going to do as many of these funds are sitting on war chests of both anti-detriment AND [future liability to pay benefits]? Will these benefits be distributed to existing member accounts? How will this create equity to accounts of members that have since left (or died)?from Hari Maragos

There’s no indication that provisions for the deduction for future liability to pay benefits will change. Reserves may be able to be used for a variety of purposes. There seems to be a dearth of guidance about what is a ‘fair and reasonable’ allocation of investment earnings to members; or what is a ‘fair and reasonable’ allocation of reserves to members’ accounts.

Does the TTR tax extend to capital gains?from Michael Fong

Presumably, yes. There is no indication of a carve-out for capital gains.


How far back can you go with catching up on CC?from John Holios

5 years.

If a person is over 65 now and has passed the work test could he contribute $500,000 as non-conessional into super before 30/6/16 while the old current rule states only $180,000?from Kim Joyce

This strategy is risky as the lifetime cap hasn’t been legislated – especially considering the tax consequences of exceeding the NCC cap.

With respect [to the] unused portion of [previous years CC caps], and those of us that are actively using contributions reserves, can we combine this strategy and effectively make six (6) years catch up CC’s - five (5) years catchup CC’s + one (1) year as a contribution reserve?from Hari Maragos

Presumably, but we’ll need to see the legislation to know what strategies are available.

Can you give an example for catch up concessional contributions?from Pascal Fux

From Budget 2016, Superannuation Fact Sheet 8: ‘Cassandra is a 46-year-old earning $100,000 per year. She has a superannuation balance of $400,000. In 2017-18, Cassandra has total concessional superannuation contributions of $10,000.

In 2018-19, Cassandra has the ability to contribute $40,000 into superannuation of which $25,000 is the amount allowed under the annual concessional cap and $15,000 is her unused amount from 2017-18 which has been carried forward.

The full $40,000 will be taxed at 15 per cent in the superannuation fund. Prior to the changes, her amounts in excess of the annual cap would have been subject to tax at her marginal rate, resulting in a $3,600 tax liability.’

Your paper states “From 1 July 2017, the Government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded and constitutionally protected funds”. These contributions currently don’t get included with the CC cap, but a lifetime limit (currently $1.395M untaxed component). I just want to confirm that these changes are on the radar rather than a potential consideration.from Robert Rocca

Yes, the measure is proposed. However, the Government intends to consult on implementation of reforms to the taxation of defined benefit interests.


Will the contributions to super from a small business sale still not count towards the NC limit up to $ ...?from Therese Stanton

Yes, subject to the conditions for the relevant small business concession being met.

Does [the] personal super contribution deductibility change mean not having to meet the 10% rule?from John Holios

Correct.

Deductible personal contributions, is this up to the $25K CC limit?from Robert Chiswell

All concessional contributions (e.g. SG, salary sacrifice, personal deductible) count towards the cap.

Is there any detail around the Lifetime Lump Sum Cap for Super withdrawal of up to $195,000 to continue to be exempt from tax?from Alex Hont

There’s no suggestion that the low-rate cap arrangements for people who have reached preservation age but are under age 60, will change.

Will the change in the definition of a small business (from $2M turnover to $10M turnover) be applied to the Small Business CGT test or is this only for determining the tax rate in a company.from Kearsten James

The change does not apply for the purposes of the small business CGT concessions.

What happens to accumulated franking balances still on a [company’s] books from undistributed profits? Can shareholders ever get the benefit of these?from Greg Meyers

We’ll need to wait for the legislation supporting these measures.


A client who has a combination of [defined benefit] income stream (Life time capital projection) plus accumulation account based pension, how will this be calculated for the $1.6m cap in retirement phase?from Yvonne Gillam

We understand that there will be two separate cap arrangements for accumulation and defined benefit schemes, and that these arrangements will not interact. For unfunded defined benefit schemes and constitutionally protected schemes, pension payments will continue to be included in the member’s assessable income. However, the 10% tax offset – which applies to those who have reached age 60 - will be capped at $10,000 p.a. from 1 July 2017 (i.e. for payments over $100,000 p.a., the excess is not subject to a tax offset).

For members who have reached age 60, of funded defined benefit schemes, 50% of the amount by which total payments for the year exceed $100,000 is included in the member’s assessable income.

What if a client’s ABP is >$1.6M [because] of earnings rather than [contributions], would this still need to be rolled back to accumulation?from Mario Cananzi

For existing retirement income streams with balances over $1.6 million, the balance will need to be reduced to $1.6 million as at 1 July 2017. This can be done either by withdrawing the excess from superannuation or rolling it back to accumulation phase.

What if I start a pension with $1.6mil now, will that be ok even if earnings take the value over that by 1/7/17?from Anthony Pereira

For income streams commenced before 1 July 2017, the balance must be no more than $1.6 million. If the balance (including earnings and growth) exceed the cap, the excess must be moved to accumulation phase or withdrawn from superannuation.

Clients liable for tax consequences as a result of selling down assets to reduce pension balance below 1.6mill?from Jason Reynolds

Some funds require assets to be sold to fund a commutation. If the fund uses the segregated method, a partial commutation of a pension does not trigger capital gains tax. If the fund uses the unsegregated method, only the part of the gain allocated to accumulation phase is taxable.


How will changes in pension providers be treated with the $1.6m transfer limit after 1 July 2017? In particular if the account balance has grown, will they be able to rollover the full amount to a new provider without penalty.from Kate Cramsie

The answer is not clear. However, given that the policy intent is to limit the amount an individual can transfer to a retirement income account, it would seem reasonable not to count rollovers (towards the cap) to the extent they represent: amounts that were within the cap when first used to purchase a retirement income stream; or associated earnings and growth accrued while in retirement income phase.

How are contributions limits to constitutionally protected funds changed?from Paul Garner

The Budget proposes that your notional concessional contributions will reduce your concessional contributions cap.

Have the government proposed easier access to past contribution information via TFN records?from David McCormick

No.

Will there be any exemption for people with account based pensions with balances over $1.6M which have been funded by disability proceeds (such as compensation payments)?from Evan Poole

There’s no mention of a carve-out for income streams funded with compensation payments.

When a TTR has been established and then a client reaches age 65 in the future, will the tax-free status be reinstated?from Paul Ferrante

This isn’t addressed in the Budget documents.

How will [defined benefit] pensions be assessed against various caps?from James Paterson

As discussed, where payments from a defined benefit pension exceed $100,000 p.a., the excess will be subject to special tax provisions. For unfunded schemes, the 10% offset (which applies for members aged 60 or over) will be capped at $10,000 p.a. (i.e. not offset for the excess portion of pension payments of totaling more than $100,000 p.a.). For funded schemes, 50% of the excess portion of pension payments totaling more than $100,000 p.a. will be included in the member’s assessable income where the member has reached age 60.


Notional concessional contributions will reduce the member’s concessional contributions cap. Note: this measure does not change whether and how funds are taxed on the contributions they receive.

From Budget, Superannuation Fact Sheet 5:

‘From Budget night, non-concessional contributions to defined benefit schemes made since 1 July 2007 will be included in the $500,000 lifetime cap, but will not be required to be withdrawn. If a member with a defined benefit account exceeds their lifetime non-concessional contributions cap, ongoing contributions to the defined benefit account can continue but they will be required to remove an equivalent amount from any accumulation account on an annual basis if they have one. The amount that could be removed from any accumulation account will be limited to the amount of non-concessional contributions made into those accounts after 1 July 2007.

The Government is mindful that there may be some individuals for whom no amount of post 1 July 2007 non-concessional contributions could be available to be removed. The Government will consult on options to achieve broadly commensurate treatment for these individuals in an equitable manner.’

Will a TPD claim of say $600k be able to be rolled into a client’s modest super account to provide for their future with their new Lifetime caps?from William Meehan

There’s no mention of a carve-out for TPD claims, suggesting that these too would be subject to the lifetime non-concessional contributions cap. However, there is also no mention of changes to the structured settlement provisions, suggesting that a person who meets the structured settlement requirements could still contribute an unlimited amount to super without breaching the non-concessional cap.

If there are multiple pensions inside a corporate trustee SMSF, is the $1.6M cap applied per pension or considered applied to the SMSF itself?from Carl Goodin

Per member.

If clients have limited recourse borrowing in their SMSF (pension) will there be any adjustment to the $1.6million cap?from Alisa Honeyman

There’s no suggestion of any adjustments. At any rate, it would be unlikely as the value of superannuation interests is net value (i.e. after debt).

Is the $1.6m super transfer cap per individual or couple?from Chris Whiteford

Individual.


So if a client is 67, and still working, can they move TTR pension to normal pension to avoid 15% earning tax?from John Holios

Based on current superannuation definitions, yes. However, as discussed, commentators disagree as to whether a TTR income stream needs to be stopped to transfer to a regular income stream or whether an existing TTR income stream can simply convert to a regular income stream upon the member retiring.

What if a client with a SMSF has $2.5m in pension phase and $1.9m of that is in direct property? How will this be dealt with from 1/7/17? Will the client be forced to sell the property / properties?from Barry Zeldenryk

No, but to meet the $1.6 million cap, the unsegregated method would need to be used to determine exempt pension income.

As the $500K lifetime NCC cap is being indexed by AWOTE I assume there will be the ability to take advantage of that indexation in future years to make extra contributions (even if you’ve previously reached/exceeded the cap). Can you confirm please?from Lana Brown

The budget papers are silent on this issue.

Will $500k account balance for accruing unused CCs apply to just accumulation accounts or include pension?from Andrew Dobson

Presumably, combined balances – given the policy intention.

I believe someone else raised this question: will the $180,000 annual limit for those over age 65 still count, in conjunction with the new lifetime cap, or have the old rules been superseded?from Cameron Blackwell

The lifetime cap will replace the annual and ‘bring forward’ caps.

Is the FPA lobbing Government to increase the new lifetime cap and as well as commencement date?from Verena Kuchenmeister

The FPA is considering making this submission as we are concerned that such a low cap makes it difficult for people to save enough for a comfortable retirement.


Will excess [concessional contributions count as non-concessional contributions] (like current rules) and if so, if [non-concessional contributions are] already more then $500k in last 5 years, will penalties apply?from John Holios

There’s no indication in the Budget papers that excess concessional contributions will stop being treated as non-concessional contribitions. So, presumably, the current treatment will continue.

How will the underlying tax components within super/pension apply to any amounts which have to be rolled back to super (if in excess of $1.6M)from Tracey Pace

Presumably, the current rules for apportioning tax components will apply. For example, where a member partially commutes their income stream, the commuted amounts bear the same proportions of tax components as the purchase price of the income stream.

If a client retires at 60 and starts an ABIS, then restarts part time work at 62, will his income stream then be taxed?from Stephanie Brackman

Presumably, no – as under current rules an existing regular income stream doesn’t become a TTR income stream if the member returns to work.

The removal of work test for 65-74, does it only apply to CC or NCC as well?from Lucy Zheng

Both.

I provided a client with a recommendation to sell an investment property in an SMSF as they have minimal liquidity and are moving to pension phase. Am I now correct in assuming that CGT will now be applicable on the sale of 10% rather than nil previously? OR will this only apply if they sell the property after 1/07/2017?from Joanne Murray

There is no indication of any change to CGT treatment within superannuation. If the asset is sold while the fund has no pensions running, CGT applies. If the asset is sold while the whole fund is in pension phase, no CGT applies.

If part of the fund is in accumulation phase and part in pension phase, the tax treatment depends on which method for calculating exempt pension income is used. If the segregated method is used and the asset sold is a pension asset, no CGT applies. If the unsegregated method is used, part of the gain is taxable and the rest is tax-free.


If a person wants to use the catch-up provisions for concessional contributions after 1/7/2017, (say to make additional contributions of $40,000 in the 2019/20 fin year), will they be able to claim a tax deduction for the entire amount, or just the $25K they are able to make in that year?from Evan Poole

Presumably, the entire amount.

Will tax-free contributions and taxable contributions in effect all be banded together for the purpose of $1.6m tax free pensions?from James Paterson

Yes, the lifetime transfer cap is based on the total amount transferred to retirement accounts (regardless of the tax components).

Any news on the 9.5% sgc being moved to 12.5%?from John Holios

There’s no indication of any change to the current schedule.

What happens to reversionary pensions. Will they have to move back to accumulation if reversionary has $1.6M in their own name already?from Liam Shorte

Based on the Budget documents, automatic reversionary pensions might be excluded from the lifetime cap of the reversionary. However, we’ll need to wait for more detail.

Is the 15% earnings tax to be levied upon assets backing a TTR applicable only to the taxable component or on the tax-free portion as well?from Peter Handberg

Both.

Any changes to market linked pensions given the $1.6m limit and current laws on inability to commute?from Michael Oates

The Budget papers are silent on this issue.


For clients who have pension balances in excess of $1.6m and currently receive an income on this total amount, will they going forward only be required to draw an income on the $1.6m with the remaining balance being moved back into accumulation phase?from David Isaacs

Minimum income requirements are based on the balance of the income stream (not any amounts withdrawn or rolled back to accumulation phase).

If non-concessional contributions since 010707 exceed $500k and have already been transferred to account based pensions which are either above or below $1.6m do they have to be withdrawn?from Melanie Nutbeam

No.

This has drastic ramifications regarding family law, aged care etc how are they going to sort this out?from Bob Dawson

We don’t know yet.

I was wondering how the Government sees these changes to superannuation as a means to increasing retirement savings for Australians to self-fund and be less reliant on Age Pension, given the majority of beneficiaries of previous strategies (TTR, etc.) have really been middle class workers, not the ultra-rich?from Wendy King

The FPA is concerned about this aspect of the Budget, particularly in relation to the proposed TTR measures.

Will lump sum withdrawals from superannuation for individuals who have reached preservation age and met a condition of release remain tax free on unrestricted?from David Isaacs

There’s no indication of any change to the tax treatment of these withdrawals. Tax treatment depends on age. For an individual who has reached preservation age but has not yet reached age 60, lump sum withdrawals are included in their assessable income. However, the maximum basic tax rate is effectively nil for taxed element (and 15% for untaxed element) up to the low-rate cap, and 15% thereafter for taxed element (and 30% for untaxed element). However, a 45% basic tax rate applies to the extent lump sum withdrawals of untaxed element exceed the untaxed plan cap amount.


If only $1.6m can be moved into pension, what happens to the balance in accumulation - how does this get paid out? from Sylvia Chan

As a lump sum.

Will removing the ability to treat certain superannuation income stream payments as lump sums for tax purposes apply to all income streams? Seems to be mainly just mentioned with respect to TTRs.from Lana Brown

The removal appears to refer to all income streams.

Will there be any change to paying HELP (HECS). Something about parents and spouses income being taken into account?from Joanne Prior

‘Recent public debate on HELP repayments has partly focussed on those people who have HELP debts, earn less than the current minimum repayment threshold, but who live in a high-income household. To improve repayments from this group, it has been suggested that a household income test be introduced. A further suggested option is the recovery of outstanding loan amounts from deceased estates, to ensure that people who have not repaid their loan through their lifetime but have accumulated significant assets are also required to repay their HELP debt like any other liability.’[Source: Australian Government, Driving Innovation, Fairness and Excellence in AustralianHigher Education (May 2016) https://docs.education.gov.au/system/files/doc/other/he_reform_paper_driving_innovation_fairness_and_excellence_3_may_2016.pdf, p20

Is the Low Income 15% Tax refund max of $37,000 based on taxable income or taxable plus SG & SS contributions?from William Schiralli

Adjusted Taxable Income.

For further information on the 2016 Federal Budget measures, please visit www.budget.gov.au

http://http://www.budget.gov.au/2013-14/index.htm

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federal budget 2016 - the financial planning association ... · technically, yes (subject to...

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