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Pension – Transfer Balance Cap (New in 2018)

$1.6 million transfer balance cap

A transfer balance cap was introduced as part of the 2016 Budget to limit the maximum tax-free pension balance for each superfund member. The amount of the cap will start at $1.6 million[1] effective from 1 July 2017.  Changes in account balance, due to changes in valuations or investment return, have no effect on calculating the cap.

Any excess amount over the cap as at 1 July 2017 will need to be withdrawn or revert to accumulation mode, which would then be subject to 15% tax on earnings.

It is necessary for the SMSF to report the value of all existing superannuation interests that support tax-free pension account at 30 June 2017 to the ATO on the 2017 SMSF annual return.  If your member balance in pension phase is over or close to $1.6 million, we strongly suggest you to make an appointment with us to discuss your situation.


Removal of Tax Exemption for Transition-to-Retirement Pensions

Effectively from 1 July 2017, transition-to-retirement pension will lose its tax exempt status and all earnings will be taxed at 15%.  Discuss with us if you have a transition-to-retirement account to assess the benefits of keeping the transition-to-retirement, to be reverted back to accumulation, or to satisfy a condition of release with a nil cashing restriction.


Transitional CGT Relief

As a result of the transfer balance cap commencing on 1 July 2017, a temporary relief from certain capital gains that might arise, on an asset by asset basis, will be available for superfunds to comply with the transfer balance cap by –

1)      withdrawing amounts from superannuation environment, and/or

2)      transferring value from the retirement phase to the accumulation phase.

This relief is inherently complex and only applies to certain CGT assets acquired by the superfund prior to 9 November 2016.  It is not automatic and must be elected irrevocably by the trustees when lodging the SMSF Annual Return 2017. 

Be careful – If you choose to reset the cost base of an asset to its market value at 30 June 2017, and then you sell the asset before 1 July 2018, no CGT discount will be available as the 12 month holding period has also been reset – counting from 30 June 2017.


Asset Segregation

Effectively from 1 July 2017, SMSFs with member balance more than $1.6 million in retirement phase can no longer apply the segregated method.

[1] Indexed in in line with CPI and increased in increments of $100,000.


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