From 1 July 2017, superannuation fund members are subject to a $1.6 million transfer balance cap (TBC) which limits the tax exemption for assets funding superannuation pensions.

The TBC encompasses a significant amount of monitoring for an individual. This monitoring is to be facilitated by the ATO’s event-based reporting framework.

Event-based reporting is a significant shift in SMSF administration processes. Therefore, it is essential SMSF trustees understand the event-based reporting framework and get it right.

What needs to be reported?

An SMSF is only required to report if one of its members has an event that impacts their transfer balance account, such as:

• income streams that will continue to be paid after 1 July 2017 and are in retirement phase.

• new retirement phase income streams• some limited recourse borrowing arrangement payments• withdrawals to comply with Commissioner issued commutation authority • personal injury (structured settlement) contributions• commutation of a retirement phase income stream.

What does not need to be reported?

Excluded events that do not need to be reported include:

• normal pension payments• investment earnings and losses• when an income stream ceases because the balance has been

reduced to NIL• the death of a member• information that individuals report to the ATO directly using a Transfer

balance event notification form (NAT 74919).

Phillipsons updated software in September last year to ensure we were ready to provide efficient SMSF administration and assist our clients to comply with the new TBAR reporting obligations. Below is a flowchart depicting the TBAR requirements.

TBAR adds to the responsibilities and time commitment required by trustees and members. Whether your SMSF receives portfolio administration via Phillipsons, uses a different service or does not have any portfolio administration, we will work with you to ensure that your TBAR obligations are met.

SuperSceneyour self-managed super industry experts bringing you the latest DIY super news

Issue 12 June 2018

Brent Butcher*Transfer Balance Account Report (TBAR)

Tracey Gordijn *

Closing the Cap...

The ability to make non-concessional contributions is now linked to a member’s total super balance at the preceding 30 June. This change in landscape does expose SMSF members to the possibility of exceeding the non-concessional contribution cap. Before considering making any non-concessional contributions, it is important to understand how the rules apply, and not just the new rules.

Non-concessional cap

At 1 July 2017, the non-concessional contribution limit was reset to $100,000.

The non-concessional contributions cap will generally apply to:

• all personal member contributions for which no tax deduction is claimed,

• any spouse contributions, and• any non-taxable portion of a benefit transferred from an

overseas superannuation fund.

Amounts that are specifically excluded from the non-concessional contributions cap include:

• government co-contributions,• capital gains tax (CGT) small business concession

contributions (that is, eligible proceeds using the 15-year exemption and $500,000 of gains under the retirement exemption) up to a lifetime limit

• structured settlement contributions.

The new rules also include a provision to allow the opportunity to bring forward three years of non-concessional contributions – making it possible to contribute $300,000 in one year.

This bring-forward rule is only available for use where a member is under age 65. A member who is aged between 65 and 74 on 1 July can only use the standard non-concessional cap of $100,000, subject to meeting the work test.

Simple…isn’t it!?

Although the rules seem simple in themselves, the interaction between the transfer balance cap, total superannuation balance, member’s age, and bring forward provisions, add layers of complexity.

NCC interaction with Transfer Balance Cap, Total Superannuation Balance and bring-forward rules

Since 1 July 2017, a member’s ability to contribute non-concessional contributions is subject to their total superannuation balance being less than the general transfer balance cap, which is currently $1.6 million. Essentially total superannuation balance is considered to be the sum of the member’s accumulation and pension interests in ALL superannuation funds (special rules apply to defined benefit schemes).

Further to this, a member’s ability to use the bring-forward provisions will be subject to how much their total superannuation balance is below the general transfer balance cap.

This means that an assessment must be made of the member’s total superannuation balance at the preceding 30 June. The bring forward limits will then be determined as follows:

Total super balance on 30 June 2017

Maximum non-concessional contributions cap for the first year

Bring-forward period

Less than $1.4 million $300,000 3 years

$1.4 million to less than $1.5 million $200,000 2 years

$1.5 million to less than $1.6 million $100,000

No bring-forward period, general non-concessional contributions cap applies

$1.6 million Nil N/A

The legislated rise in the superannuation preservation age continues with the minimum preservation age rising again from 1 July this year to age 58 for those born after 30th June 1962 (this is up from age 57 for those born before that date).

The preservation age will continue to rise in incremental steps over coming years, until it reaches 60. The preservation age will be 60 for those born after 30 June 1964 and a TRIS can start from the 2024-25 year and onwards.

This is a significant change and it is important for SMSF trustees to be aware of the age at which super can be accessed so they don’t pay benefits to a member who is not eligible.

In Australia, all contributions made by or on behalf of a member, and all earnings since 30 June 1999, are preserved benefits. Access to these preserved super benefits is generally restricted to members who have reached preservation age and met a condition of release.

Trustees face penalties if the payment rules are breached. If you are unsure of your ability to access your superannuation, please contact our Super Centre on 0351444566.

Preservation on the move

Franking credits and your SMSF

You may have noticed significant media coverage recently regarding the Australian Labor Party’s proposed policy to stop SMSFs from receiving tax refunds for the franking credits they receive in conjunction with the dividends paid from Australian companies they own.

First of all, what are franking credits and how do they benefit SMSFs?

Under the Australian tax system companies pay 30 per cent tax on their profits. When these profits are then passed on to their shareholders in the form of dividends, the company also hands the shareholders a credit for the tax the company has already paid (the “franking credit”). The individual shareholder then pays tax on the profit they received from the company less the credit for the tax the company has already paid. The franking credit ensures that the company profits are taxed at a shareholder’s marginal tax rate.

For SMSFs in retirement phase which generally have a zero tax rate, this means they can receive a full refund of the tax already paid by the company on their behalf.

SMSFs who have members in accumulation phase benefit from franking credits reducing the tax they pay on their SMSF’s earnings and may receive partial refunds of their franking credits depending on the fund’s overall tax liability.

With all the ‘noise’ in this area, it is important to maintain perspective with these policy proposals. We would first need to see a change in government and have draft legislation in place before we can really ‘crystal ball’ about the potential impact on your SMSF portfolio and retirement income.

The Trap…

For anyone considering triggering the bring-forward provisions, but not using the entire amount in the first year…there is a trap!

The unused amount is subject to the total superannuation balance test in subsequent years, with the relevant balance determined at the preceding 30 June.

If, in the subsequent years’ the member’s total superannuation balance exceeds the general transfer balance cap amount of $1.6 million, then the remainder of the contribution is unavailable.

The 2017 transitional bring-forward trap

It is important to note that the bring-forward provision is automatically triggered in the first year a contribution exceeds the standard cap, and is then fixed for the following two financial years.

For the 2017 year however, there was a special provision that meant that if someone triggered the $540,000 in either 2015/16 or 2016/17, they only had up until 30 June 2017 to contribute up to the full amount of $540,000.

The transitional rules that apply to the bring-forward provisions state for contributions made post-1 July 2017 the following three-year limit applies:

2015/16 trigger = $460,000 ($180,000 + $180,000 + $100,000),

2016/17 trigger – $380,000 ($1

80,000 + $100,000 + $100,000).

For example, if you were aged 61 and contributed $420,000 during 2016/17, you will be unable to contribute further non-concessional contributions until the 2020 financial year.

The way forward…

In order to access your ability to contribute Non Concessional Contributions in future years, it will come down to a continual assessment of your total superannuation balance, your age and whether you have triggered the standard or transitional bring-forward provisions. Getting advice in this area has become even more important for members of SMSF’s.

Your Age Pension age, the age at which you are eligible to apply for the Age Pension, depends on your date of birth. Starting in July 2017, the eligibility age increased and will continue to rise until July 2023.

Age Pension age Affects people born65 years Born before July 1952

From 1 July 2017 65.5 years From 1 July 1953 to 31 December 1953From 1 July 2019 66 years From 1 January 1954 to 30 June 1955From 1 July 2021 66.5 years From 1 July 1955 to 31 December 1956

From 1 July 2023 67 years On or after 1 January 1957

When will you get the Age Pension?

* Ian Mein, Brent Butcher, Katrina Van Gunst and Tracey Gordijn are representatives of Phillipsons Financial Planning Pty Ltd (AFSL No: 332836). In preparing this information, Phillipsons has not taken into account any particular person’s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information, having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.

SuperScene June 2018

Contact usPhillipsons Accounting and Financial PlanningPhone: 03 5144 4566Email: superanswers@phillipsons.com.auWeb: www.phillipsons.com.au

To unsubscribeEmail: queries@phillipsons.com.au

Katrina Van Gunst*

Personal Superannuation Contributions - 10% rule repealed

With the end of the financial year fast approaching, it is time to start thinking about income tax deductions.

Under the new changes to super, effective 1 July 2017, the 10% maximum earnings condition for personal superannuation contributions was removed for the 2017-18 and future financial years.

Prior to 1 July 2017, an individual must have earned less than 10% of their income from employment related activities to be eligible to claim a deduction.

This positive change ensures individuals receiving employment income are not dependant on employers offering salary sacrifice arrangements. Self-employed or individuals earning passive income only can now also maket deductible personal contributions.

This means individuals under 65 years old can now claim a tax deduction for personal contributions into their SMSF as can those aged 65 to 74 who meet the work test.

Before the end of the financial year you need to:

• Ascertain total year-to-date concessional contributions and assess against the concessional contribution cap of $25,000 - remember this total includes employer Salary Guarantee and salary sacrifice contributions.

• Assess whether you have surplus funds available to contribute into your SMSF.

To be eligible for the deduction, you need to provide a valid notice of intention to deduct and have received acknowledgement of this notice from the fund.

Splitting amounts to your spouse If you are planning to split all or part of your personal contributions with your spouse, you must provide a notice of intent to claim a deduction first. Once the trustee has accepted your application to split your contributions, they cannot accept the notice to claim a deduction.

This change may provide a more flexible approach to the way you make contributions, likely to be the case if the previous 10% rule prohibited you from making personal deductible superannuation contributions.

How can we help?SMSF Specialist advisors can assist you to ensure you are maximising your personal superannuation contributions based on your personal circumstances. Please feel free to call me so we can discuss your needs and how to maximise potential contributions. Even if it is too late to implement changes for the current financial year, it is never too early to plan for next year.

Pre 30 June 2018 Checklist

1. Has the minimum Pension been paid?

2. Can you make additional Concessional Contribu-tions without exceeding the cap of $25,000 before the 30th June 2018?

3. Do you have an Enduring Power of Attorney in place?

4. Does your SMSF Trust Deed need to be updated?

Please get in touch with us if you have:

1. Commenced a retirement phase income stream during the 2017/18 year, or

2. Withdrawn more than your minimum pension pay-ment - we can help produce the best outcome considering new Transfer Balance debits and credits?