Super reform changes
On the 9th of November 2016 the Government released legislation regarding its new superannuation reform package. Some of these changes will affect people with investments in superannuation, in particular the implications of the $1.6 Million Transfer Balance Cap and the Capital Gain Tax Relief on Asset Transfers. Each of these changes to the legislation are summarised below.
$1.6 million Transfer Balance Cap
Below is a list of the key features of the transfer balance cap:
- The $1.6 million transfer balance cap is designed to limit the total amount of superannuation savings that can be transferred from an accumulation phase into a tax-free retirement account, also known as pension phase. In essence this limits the amount allocated to a members pension phase balance to $1.6 million.
- The transfer balance cap of $1.6 million applies to each individual personally across all superfunds (i.e. across all funds you can only have $1.6m).
- This $1.6 million superannuation transfer balance cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation).
- As at 1 July 2017, each individual will have a personal transfer balance cap reflecting the total amount they can transfer to the retirement phase. The transfer balance account is created when an individual first commences a superannuation pension or other type of superannuation income stream.
- Australians who already have superannuation assets in pension phase as at 1 July 2017 with a balance greater than $1.6 million, will be forced to take action. This will be required to avoid excess transfer balance tax on earnings and to avoid further tax on continued breaches of the $1.6 million cap.
- Defined benefit fund members are affected and require specialist advice and calculations regarding the cap.
Capital Gains Tax Relief on Asset Transfers
Capital gains tax relief may be available when a client restructures their superannuation income stream arrangements prior to 1 July 2017 to comply with the proposed $1.6 million transfer balance cap. In addition, assets which will become taxable because of the proposed taxation of transition to retirement income streams may also attract the capital gains tax relief.
The transitional capital gains tax relief provisions have the following characteristics:
- They only apply to assets held at 30 June 2017, where those assets were first owned by the fund on or before 9 November 2016;
- Will allow the cost base for capital gains tax purpose of each asset to be reset to its market value as at 30 June 2017;
- The cost base reset will not occur automatically. The fund trustee must make an irrevocable election to reset the cost base of an asset;
- The election must be made on or prior to the lodgement due date of the fund's 2016-17 annual tax return
- The capital gains tax relief is optional and may be applied on an asset-by-asset basis (for segregated current pension assets).
- Applying the CGT relief would reset the 12-month eligibility period for the CGT discount.
The capital gains tax relief has been made available to avoid the unintended consequences of tax applying to capital gains which have accrued on assets held or attributable to the tax exempt retirement phase.
Application of the capital gains tax relief needs to be considered in the case of both large capital gains and large capital losses, as the capital gains tax relief will cement gains or losses in either case which could be detrimental to the total tax position.
The implications of the new legislation are many and varied and depend upon each individual's specific circumstances. As such, there is no simple 'Rule of Thumb' application.
If you would like to discuss your personal situation, please contact your Goodwin Chivas & Co. Partner.
The information in this article is purely factual in nature and does not take into account your personal objectives, situation or needs. The information is objectively ascertainable and, therefore, does not constitute financial product advice.