smsfmatters
April 2016
SMSF UPDATE
END OF YEAR PLANNING FOR SELF MANAGED SUPER FUNDS
TRANSITION TO RETIREMENT
SMSF Update Australia’s Self Managed Superannuation Fund (SMSF) sector continues to grow with the Australian Taxation Office (ATO) reporting for the December quarter $594.6 billion across 566,735 funds. Of the $2 trillion superannuation system, SMSFs account for almost one-third. Whilst mainly attracting older Australians, there has been an increase in younger investors of late. ATO data shows the average age of members of newly established SMSFs fell from 54 to 49 years of age of the five years to 30 June, 2015. The government has indicated there is the potential for legislative changes that
PRE BUDGET END OF YEAR PLANNING FOR SELF MANAGED SUPER FUNDS With the May budget and the end of the financial year fast approaching, it provides an opportune time to consider a range of strategies, opportunities and requirements for your SMSF. Some of these include: Maximising concessional contributions (employer and self-employed contributions are 100% tax deductible where eligible). The maximum concessional contribution limit for the 2016 financial year is $30,000 for people under the age of 50 and $35,000 for anyone over the age of 50. The limit could potentially reduce after the May budget, however any contributions received prior should be accepted and grandfathered. Anyone over the age of 65 will be required to meet the ‘work test’ (worked at least 40 hours within a 30 day period in a financial year) to be able to contribute to superannuation. If you don’t have enough cash to contribute consider transferring other assets for
could possibly affect super’s tax benefits. This may have a larger impact on the SMSF sector, given the significantly higher member balances than pooled funds. There is speculation that the government may restrict the size of member balances by reducing contribution caps. The current contribution caps are $30,000 for people under the age of 50 or $35,000 for anyone over the age of 50. There is also conjecture that transition to retirement pensions may be revamped, with the government suggesting that wealthier Australians, working full-time, are utilising transition to retirement pensions
as a means to reduce tax liabilities. There has been recent government debate that superannuation should exist to support an adequate standard of living in retirement not to provide tax breaks. With the May budget looming now is a good time to consider maximising super contributions rather than waiting until the end of the financial year and if eligible, commencing a transition to retirement pension. This will safeguard against any changes that may occur and are grandfathered in the budget.
example ASX listed shares and commercial property (including your business property and farm land) into super.
Age
Make an after-tax contribution (nonconcessional) into super to qualify for the government co-contribution. If you are eligible, the government will pay $0.50 (50 cents) for every $1.00 of personal super contributions you contribute, up to a maximum of $500 a year. That is, if you are entitled, and can contribute up to $1,000, the government will contribute up to $500 in additional contributions.
Percentage Factor
Under 65
4%
65 to 74
5%
75 to 79
6%
80 to 84
7%
85 to 89
9%
90 to 94
11%
Age 95 +
14%
This list contains only some of the opportunities and requirements for SMSFs and is by no means exhaustive. Our dedicated team of superannuation experts can assist you with all aspects of your SMSF.
Obtain valuations for assets such as property, artwork, collectibles and other We offer a free no obligation fund assets that should be valued at their meeting to review your market value as at 30 June. situation. Call us today on 03 If you have commenced a pension in your 5330 7200 and take advantage SMSF ensure you have withdrawn the of this valuable offer. minimum pension prior to 30 June. For transition to retirement pensions, ensure you have not withdrawn more than 10% of CONTACT your member account balance. The table Thayne Turley 0409 855 876 below shows the minimum percentage to be Faye Douglass 0419 360 660 withdrawn for the 2016 financial year based Elisa Elkins 0418 533 772 on your age at 1st July, 2015.
Disclaimer: This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and therefore recommend that our formal advice be sought before acting in any of these areas. This newsletter is issued as a helpful guide and for their private information. Some content has been resourced from financialstandard.com.au and supercorp.com.au
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P 03 5330 7200 | financialplanning@mulcahy.com.au | 300B Gillies Street, Ballarat
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TRANSITION TO RETIREMENT ON THE TURNBULL CHOPPING BLOCK
2.
The Transition to Retirement Income Streams (TRIS) as introduced by the Howard government are looking likely to be phased out soon as a way for the Government to increase its revenue by ceasing the tax benefits associated with them. Currently if you have met your preservation age and are still working, you are able to access your super as an income stream either to supplement your income whilst working less approaching retirement or just saving more for retirement using the tax advantages of implementing a transition to retirement strategy.
HOW IT WORKS The intention with the TRIS (Account Based Pension) was to encourage people to stay in the workforce past the age they could access their superannuation, even if it was part time. This would allow them to access their super to supplement their part time income. The only rule was that you needed to withdraw from the account based pension and income stream of between the minimum 4% to the maximum of 10% of the account balance. Lump sum withdrawals were not to be made until you had completely retired or reached the age of 65. Since the implementation of TRIS, rather than supplementing income for part time workers approaching retirement, people have implemented this strategy for saving tax by aggressively salary sacrificing to super, whilst supplementing the sacrificed income by drawing an income stream from an account based pension (super balances).
TRANSITION TO RETIREMENT INCOME STREAM ARE TAX EFFECTIVE BECAUSE: 1.
Investment earnings in super are taxed at 15% (10% discounted capital gains). Investment earnings for funds held in a TRIS are taxed at 0%. The average tax saving is about 1% of the account balance, or $3,000 for a fund of $300,000.
3.
People implementing a Transition to Retirement often pair this with aggressively salary sacrificing up to concessional cap of $35,000 (super guarantee, self-employed and salary sacrifice contributions count to this cap). For some high income earners this means they have potential savings of 34% for salary amounts sacrificed to super, normally taxed at 49%, now taxed at 15% going into super TRIS are tax free from age 60, though there are still tax advantages for those aged between 55 and 60. These payments may replace money salary sacrificed to meet current living expenses.
WHAT MIGHT THE GOVERNMENT DO? There are two options available to the government to end the current Transition to Retirement Income Stream. 1. They may implement an end date where current TRIS (where people are still working) will have their TRIS converted back to Superannuation. 2. Existing TRIS may be grandfathered, whilst not allowing any new ones to start. The more likely of the two options.
Where to from here
Many people wait until they are aged 60 to commence a TRIS as the income is 100% tax free once 60, though remember there are still tax advantages for those who have met their preservation age and are under 60.
Table 1 – Superannuation Preservation Age Preservation age
Date of birth Before 1 July 1960
55
1 July 1960 - 30 June 1961
56
1 July 1961 - 30 June 1962
57
1 July 1962 - 30 June 1963
58
1 July 1963 - 30 June 1964
59
From July 1964
60
Table 2 – Example of Transition to Retirement tax advantages Assumptions Salary
$80,000
Super balance
$300,000
Taxable component - Super
80% No TTR
55 - 59
60 +
$80,000
$80,000
$80,000
Less: Salary sacrifice
0
$27,400
$27,400
Plus: TRIS
0
$21,264
$17,736
Taxable income
$80,000
$69,611
$52,600
Tax and Medicare Levy
$19,147
$15,562
$9,483
$0
$2,551
$0
Total tax payable
$19,147
$13,011
$9,483
Net income
$60,853
$60,853
$60,853
$0
$4,110
$4,110
$19,147
$17,121
$13,593
$0
$2,026
$5,554
Taxable income
Tax rebate
Overall tax benefit 15% tax - Salary sacrifice Overall tax Annual tax savings
ACCOUNTING | FINANCIAL PLANNING | LENDING | LEGAL | INFORMATION TECHNOLOGY 2 | MULCAHY.COM.AU
P 03 5330 7200 | financialplanning@mulcahy.com.au | 300B Gillies Street, Ballarat