Pittwater Life February 2017 Issue

Business Life: Money
Business Life
Stay up to date through
New Year housekeeping
This month we look at
a range of financial
housekeeping matters
to address in the first half of
2017.
Hot on the heels
of changes to age
pension thresholds
on 1 January 2017,
we now have a raft
of changes that will
impact operation of
the superannuation
system from 1 July
2017. The ones listed
below are just the
main changes and
illustrate why retirees
will need undertake
adequate research or
obtain advice to ensure their
interests are protected under
these new rules.
n The introduction of a lifetime
$1.6 million pension transfer
balance cap
Those lucky enough to be
over the transfer balance cap
on 1 July 2017 will be looking
to balance up account holdings
with their spouses so that
each pensioner remains as
much as possible under the
threshold. This may require
the sale of assets to create
liquidity, checking eligibility
of the member with the lower
balance against the work test,
checking tax-free thresholds
of the member with the higher
balance and checking previous
contribution caps to ensure
that funds can actually be
transferred between members.
If you do find yourself over
the cap with no other options,
the question will be, do you
simply withdraw the excess out
of super or do you transfer the
excess back to accumulation
phase. The legislation contains
capital gains tax relief but
there is thinking required
around what and how assets
are held given that tax is being
reintroduced as an issue for
some retirees. One law firm
has identified a trap with the
CGT relief contained in the
legislation; they argue that
opting for the CGT
election has the
effect of resetting
the ownership
timeclock and that
assets sold inside a
12-month window of
making the election
will not be eligible
for the one third
discount allowable
to superannuation
funds.
For some larger
funds that hold
lumpy assets such
as property, there may be an
argument to create two funds
– a tax-free pension fund and
another taxed fund as the
option of asset segregation has
been limited by the legislation.
The transfer balance cap also
makes it necessary to look at
beneficiary death nominations
from 1 July as death benefit
pensions will be counted
against the recipient’s pension
transfer cap at commencement.
The government have provided
a 12-month window following
the date of death of the original
with Brian Hrnjak
pensioner for the beneficiary
of a reversionary pension
to consider options without
potentially having to pay
penalty tax.
Changes of this magnitude
also mean that trustees of
self-managed superannuation
funds should ensure that their
deeds have been updated
as none of these provisions
are likely to have been
contemplated in deeds issued
before 2017.
n Changes to transition to
retirement income stream
Australia’s most popular
retirement strategy is about to
become a little less attractive,
particularly for those under 60
who pay tax on the pension
income they draw from
superannuation. The strategy
will still work for those who are
using it for the originally stated
purpose which was to replace
cash flow while reducing their
working hours but for those
who were mainly employing
it as a tax strategy it is time
to have another look at the
benefits to see if it still stacks
up.
n A reduction in the
concessional contribution
(CC) cap
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FEBRUARY 2017