Superannuation, the ultimate government cash cow?

[sptrawler]

As requested:



Seriously, most unfortunate for you being on the wrong side of the ledger on this one.

It will only be curiosity on my part but I will watch with interest those who purchased property through the superannuation structure. A very lumpy product for an account-based pension in my view. In a private capacity I recently acted on behalf of an estate to sell a property to an SMSF and I think the purchaser may well be having second thoughts. Fortunately for the sellers, settlement is this week.

That's a very good point Smokey, it will probably require the house to be valued every year. Also if it is valued at say $1.2m and not rented, it could well cause some stress.

 

[Junior]

What about all those geared property in SMSFs, relying on contribution caps to service/pay down debt? It will get interesting for some. All those property spruikers gearing up folks' super with off-the-plan property might find themselves in some trouble.

 

[McLovin]

That's a very good point Smokey, it will probably require the house to be valued every year. Also if it is valued at say $1.2m and not rented, it could well cause some stress.

AFAIK, the $1.6m cap is enforced at the time the account is switched to pension phase. There will be no need for the house to be revalued subsequently and the value of assets in the pension account can rise above the $1.6m threshold with no penalty.

The changes are a step in the right direction, and, imo, reflect that the tide on super has shifted. I expect more tightening over the next decade.

 

[craft]

the lifetime limit of $500,000 will take into account all non-concessional contributions paid into super funds since 1 July 2007

Just a coincidence I guess that the Costello 1 Million Dollar non-concessional contribution window in the 2006 Budget closed 30 June 2007 so won't be counted. That generation really got it super sweet.

 

[sptrawler]

AFAIK, the $1.6m cap is enforced at the time the account is switched to pension phase. There will be no need for the house to be revalued subsequently and the value of assets in the pension account can rise above the $1.6m threshold with no penalty.
.

That's interesting, so why have a $1.6m cap, that is increased by average wage increases annually?
If the value of the assets grow faster than that, I would have thought the excess would have to removed be annually, or why have a cap at all?
Ah I understand, thick me, yes it is only the balance on transfer as at 1/July /2017

 

[McLovin]

Just a coincidence I guess that the Costello 1 Million Dollar non-concessional contribution window in the 2006 Budget closed 30 June 2007 so won't be counted. That generation really got it super sweet.

Gee wiz, talk about the golden generation!

 

[McLovin]

If the value of the assets grow faster than that, I would have thought the excess would have to removed be annually, or why have a cap at all?

To stop large super balances switching to tax free status.

 

[craft]

That's interesting, so why have a $1.6m cap, that is increased by average wage increases annually?
If the value of the assets grow faster than that, I would have thought the excess would have to removed annually, or why have a cap at all?

To stop you moving more than 1.6M into the tax free environment. Interesting question that I guess will be covered in the detail is whether there will be a minimum drawdown requirement each year from the tax free environment or can you maxamise the accumulation there whilst meeting the minimum withdrawal requirements from the 15% taxed environment.

 

[McLovin]

To stop you moving more than 1.6M into the tax free environment. Interesting question that I guess will be covered in the detail is whether there will be a minimum drawdown each year from the tax free environment or can you maxamise the accumulation whilst meeting the minimum withdrawal requirements from the 15% taxed environment.

In my reading this morning I've seen somewhere that pension drawdowns will remain but accumulation accounts will not be subject to drawdown. Sorry, I can't find the link, and I may be misquoting. Helpful, I know!

 

[sptrawler]

Anyone have any idea how the non concessional cap will be managed? Will there be annual limits? a bring forward option etc?

 

[sptrawler]

In my reading this morning I've seen somewhere that pension drawdowns will remain but accumulation accounts will not be subject to drawdown. Sorry, I can't find the link, and I may be misquoting. Helpful, I know!

That begs the question, what happens when you want to convert your second account , that is formed by your excess over the $1.6m cap?

Jeez it will take a while, for the dust to settle, on these changes.lol

 

[Junior]

Anyone have any idea how the non concessional cap will be managed? Will there be annual limits? a bring forward option etc?

If it's a $500,000 Lifetime limit, I would think no need to have annual limits. Up to the individual whether they use it in one lump sum or spread out over time.

Ideally you'd get the money in there as soon as possible, to try and accumulate up to the $1.6mill pension limit.

 

[craft]

In my reading this morning I've seen somewhere that pension drawdowns will remain but accumulation accounts will not be subject to drawdown. Sorry, I can't find the link, and I may be misquoting. Helpful, I know!

Thanks - that would have been my guess, I'll pencil that in for now unless I see different.

Cheers

 

[Junior]

That begs the question, what happens when you want to convert your second account , that is formed by your excess over the $1.6m cap?

Jeez it will take a while, for the dust to settle, on these changes.lol

I would think you are forced to wait until you've drawn down your existing pension below $1.6mill, then 'recast' a new pension of $1.6mill.

 

[SmokeyGhost]

I'm guessing they will be using the data from income tax returns and match personal data with the super accounts either industry or SMSF.

It seems the $500k life-time non-concessional limit in conjunction with the $25k pa concessional may well have the impact of limiting, over time, the amount which can be placed into superannuation.

The concept of multiple properties in super appears to be now dead from my inexpert reading.

Gonna be fun for some.

 

[craft]

I would think you are forced to wait until you've drawn down your existing pension below $1.6mill, then 'recast' a new pension of $1.6mill.

The 1.6M is a lifetime cap of conversion to the tax free environment - you can't keep toping it up when you spend it or invest it poorly.

 

[SmokeyGhost]

Well, I assume the Guv'ment expects superannuation to be consumed for retirement as it was originally intended until very clever people got in and distorted that intent.

From Budget Paper No 2 2016

From 1 July 2017, the Government will introduce a $1.6 million transfer balance cap on
the total amount of accumulated superannuation an individual can
transfer into the retirement phase. Subsequent earnings on these balances will not be restricted. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.

Introducing a transfer balance cap will improve sustainability and fairness in the
superannuation system. Where an individual accumulates amounts in excess of
$1.6 million, they will be able to maintain this excess amount in an accumulation phase
account (where earnings will be taxed at the concessional rate of 15 per cent).
Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.

A tax on amounts that are transferred in excess of the $1.6 million cap (including
earnings on these excess transferred amounts) will be applied, similar to the tax
treatment that applies to excess non-concessional contributions.

The amount of cap space remaining for a member seeking to make more than one
transfer into a retirement phase account will be determined by apportionment.

 

[SmokeyGhost]

Budget Paper No 2 2016 - Page 28

From  1  July  2017,  the  Government  will  lower  the  Division  293  threshold  (the  point  at  
which high income earners pay addition contributions tax) from $300,000 to $250,000. 
The  Government  will  also  reduce  the  annual  cap  on  concessional  superannuation  
contributions to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).

Budget Paper No 2 2016 - Page 24

From  1  July  2017,  the  Government  will  improve  the  flexibility  of  the  superannuation  
system  by  removing  the  current  restrictions  on  people  aged  65  to  74  from  making  
superannuation  contributions  for  their  retirement.  People  under  the  age  of  75  will  no  
longer  have  to  satisfy  a  work  test  and  will  be  able  to  receive  contributions  from  their  
spouse.

Budget Paper No 2 2016 - Page 27

The Government will introduce a $500,000 lifetime non-concessional contributions cap 
to  improve  the  sustainability  of  the  superannuation  system.  To  ensure  maximum  
effectiveness  the  lifetime  cap  will  take  into  account  all  non-concessional  contributions  
made  on  or  after  1  July  2007,  from  which  time  the  Australian  Taxation  Office  has  
reliable  contributions  records,  and  will  commence  at  7.30 pm  (AEST)  on  3 May  2016.  
Contributions  made  before  commencement  cannot  result  in  an  excess.  However,  
excess contributions made after commencement will need to be removed or subject to 
penalty tax. The cap  will  be  indexed  to  average  weekly  ordinary  time  earnings  and  is  
estimated  to  have  a  gain  to  revenue  of  $550.0 million  over  the  forward  estimates  
period. 
The  lifetime  non-concessional  cap  will  replace  the  existing  annual  caps  which  allow  
annual  non-concessional  contributions  of  up  to  $180,000  per  year  (or  $540,000  every  
three years for individuals aged under 65).

Budget Paper No 2 2016 - Page 29

From 1 July 2017, the Government will improve the integrity and fairness of the system 
by removing the outdated anti-detriment provision. 
The  anti-detriment  provision  can  effectively  result  in  a  refund  of  a  member
’s  lifetime  superannuation contributions tax payments into an estate, where the beneficiary is the 
dependant of the member (spouse, former spouse or child). Currently, this provision is 
inconsistently applied by superannuation funds.

Removing  the  anti-detriment  provision  will  better  align  the  treatment  of  lump  sum  death  benefits  across  all  superannuation  funds  and  the  treatment  of  bequests  outside  of superannuation. Lump sum death benefits to dependants remain tax free.

 

[SmokeyGhost]

Budget Paper No 2 - Page 30

The Government will improve integrity in the superannuation system by removing the 
tax  exemption  on  earnings  of  assets  supporting  Transition  to  Retirement  Income  
Streams from 1 July 2017 (income streams of individuals over preservation age but not 
retired).

It   will   also   remove   a   rule   that   allows   individuals   to   treat   certain   
superannuation income stream payments as lump sums for tax purposes.

 

[Bill M]

Perhaps there should be a higher lifetime cap for those over 50 and with a low balance, to account for those who were planning on stuffing money into super just in time for retirement.

Good points Junior, as Bill says getting a reasonable amount in will now be the issue for older Australians, for example if they sell an property.

And this is the problem. I'm getting close to my 500K limit. I have no chance of getting concessional contributions as I stopped working a long time ago. Then I sold our investment property just over a year ago. The funds from that was earmarked for Super. Now I can't put it in because someone overnight had a brain fart and made it effective immediately, talk about going backwards. They really don't think these things through do they?