Below we explore some of the most common questions our team has been asked about the upcoming changes. Part one hones in on concerns around the Transfer Balance Caps.
Part Two examines other key areas.
Part 1: The Transfer Balance Cap – seven areas you need to understand
1. I have more than $1.6m in my pension, do I need to take the amount above $1.6m out of superannuation?
No. The maximum pension account from 1 July 2017 will be $1.6m. However, any amounts over this cap can remain in an accumulation account within the superannuation environment.
2. I receive superannuation pensions from my SMSF and another super fund, is the limit $1.6m per pension?
All pension accounts will be counted to the $1.6m cap. Should you have multiple pension accounts and be over the $1.6m the ATO will issue a notice that sufficient benefits need to be removed from the pension account.
3. I receive a lifetime pension from previous employment. Does this impact the $1.6m cap?
Yes. Special valuation rules apply to lifetime pensions, typically from previous government employment. The valuation of this pension will impact on the $1.6m cap.
4. If the investments in my pension account increase in value to be more than $1.6m does the excess need to be withdrawn from superannuation?
No, the $1.6m cap is tested at the point where the pension is commenced, not annually. As such, any capital growth can remain in the pension account. Conversely, if a pension account is depleted due to capital losses, an individual still cannot commence a new pension if they have used up their $1.6m cap.
5. I have more than $1.6m in my SMSF, can I pick which assets support the pension in my SMSF?
No, for taxation purposes all assets and the income from the assets will be pooled and tax calculated based on the proportion of the fund that is in pension phase.
6. If my pension balance is $1.6m on 1 July 2017 are there any circumstances in which I could commence a new pension at a later date?
There are very limited circumstances for when a person who has already used their $1.6m cap can start a new pension. These include where a payment split occurs with a spouse as a result of a relationship breakdown or where a person has contributed to superannuation as a result of a structured settlement or personal injury payment.
7. I have a Transition to Retirement Income Stream, how am I impacted?
The values of Transitions to Retirement Income Streams are not counted towards the $1.6m cap but, from 1 July 2017, the SMSF’s earnings on those income streams will be taxed at 15% instead of the current tax free rate.