With the new changes to superannuation coming into effect as at July 1st 2017 we have provided you with some information and explanations on terms and changes that will be coming into effect.
In addition, this Hot Topics has provided you with some updates on the reporting of companies most clients would be holding either directly or via a managed fund.
Superannuation Changes 1 July 2017
What is a transfer balance cap?
It is the cap on the amount of capital an individual can transfer to the retirement phase. This in turn, limits the amount of super fund earnings that are exempt from tax. The current transfer cap is $1.6m for 2017/18 and will be subject to indexation in increments of $100k.
What is your general transfer cap v personal transfer balance cap
Your personal transfer cap starts out equal to the general transfer cap ($1.6 million) Thereafter your personal transfer cap is subject to proportionate indexation in line with increases in the general transfer cap but only if your transfer balance has never equalled or exceeded your transfer balance cap. Exceeding your transfer balance cap causes you to permanently lose your entitlement to indexation in future years.
Death benefit pensions counted for the transfer balance cap
A death benefit pension (other than a child pension) counts for the recipient’s transfer balance account. However, a death benefit pension can only be paid to the extent that it would not cause a recipient to exceed their transfer balance cap. If the death benefit does cause the recipient to exceed their cap, the recipient will have an excess transfer balance. Any death benefits which are over and above the recipient’s transfer balance cap would have to be paid as lump sum death benefit (ie those excess amounts would have to be paid out of the super).
If the recipient already has their own pension account, that existing pension could be commuted to an accumulation account to allow the death benefit pension to be used for the transfer balance account.
Any Insurance benefits received as a result of a death benefit do not count towards the transfer balance cap and can also come across into the superannuation environment.
SMSF tax in respect of a Transition to Retirement Pension / TRIS
For those attaining preservation age but having not retired you may have commenced a TRIS to either supplement your income whilst you are working or as part of a transition to retirement income swap strategy.
Currently these funds are exempt from the usual 15% income tax in respect of the earnings on assets supporting the pension.
However, from 1 July 2017 earnings on assets supporting a TRIS will no longer be eligible for the exempt current pension income (‘ECPI’) exemption. Only retirement phase pensions, such as account-based pensions, will be eligible for the ECPI exemption. A TRIS is expressly excluded from being in the ‘retirement phase’.
The reform measures impacting TRIS strategies are much more far reaching than initially thought. A major rethink is needed on the appropriateness of each TRIS strategy moving forward. We will be reviewing each member with a TRIS.
Eligible spouse tax offset
The income threshold for the recipient spouse (whether married or de facto) for the low income eligible spouse contribution tax offset will increase from $10,800 to $37,000 on 1 July 2017. The contributing spouse may be entitled to a maximum tax offset up to $540 each FY for NCCs made on behalf of the recipient spouse.
This rebate is reduced by 18% for each $1.00 above the income threshold and phases out entirely when the spouse’s adjusted taxable income exceeds the maximum income threshold of $40,000. This offset is also subject to:
- the member’s spouse’s NCCs for the FY not exceeding the NCC cap for that FY; and
- immediately before the start of that FY, the member’s TSB being less than $1.6 million.
Another standout from Bunnings and a solid performance from K-Mart led Wesfarmers to a beat. Coles, however, disappointed. Brokers are split on whether the strength of the conglomerate can offset a weaker Coles or whether a push to invest in pricing is going to spark another destructive supermarket war. Broker recommendations changed Two Buys, four Holds, two Sells.
Telstra’s result disappointed all and sundry, as mobile competition impacted and broadband margins tightened. For a stock that’s all about the yield, Telstra needs to come up with viable growth options to support a dividend not fully cash covered, before the NBN payments expire. One downgrade to Hold makes five, with three Sells.
CBA’s result beat most brokers and was in line with others. Retail banking was the standout performer while a jump in fees and commissions surprised. Capital is strong, and brokers can find nothing negative to say other than the stock, as always, is overvalued compared to peers.
CSL had pre-announced headline numbers so no surprises there. Brokers nevertheless highlight the company’s success in rapidly opening collection centres ahead of expected growth in US plasma demand, while the troubled flu vaccine achieved welcome improvement.
BHP Billiton shareholders will receive a better than expected interim dividend of US40¢ per share after the miner revealed a $US3.24 billion underlying half year profit that more than doubled the full year profit generated in fiscal 2016. BHP reported solid profits on the back of rising commodity prices particularly in iron ore and coking coal. Dividend was lifted in line with BHP’s new dividend policy of distributing at least 50% of profits back to shareholders. Revenue was also used to reduce debt levels further.