Superannuation – Pre 30 June Considerations

As 30 June 2017 approaches, it is important to attend to the usual requirements before 30 June, plus ensuring the relevant documentation is in place with regard to the new superannuation rules.

The areas for consideration include:

  1. Change in contribution caps from 1 July 2017;
  2. Ensuring minimum pension payments are made;
  3. Restructure of pension accounts;
  4. Tax exemption for transition to retirement income streams;
  5. CGT transitional provisions;
  6. Asset Valuations – Property and Unlisted Assets;
  7. Limited Recourse Borrowing Arrangements – Loan Repayments; and
  8. In-House Assets.

1. Change in contribution caps from 1 July 2017

Pursuant to the new superannuation legislation, there have been changes to the superannuation contribution limits.

Concessional Contributions

Concessional contributions include employer contributions, salary sacrifice contributions, and personal deductible contributions:

  • The current limit for concessional contributions for the 2016/2017 year is $30,000, and $35,000 for members over 49;
  • From 1 July 2017, the concessional contribution limit will be reduced to $25,000 for all taxpayers, regardless of their age. This will be indexed in line with wages growth.

Non-Concessional Contributions

Non-concessional contributions include any after-tax voluntary contributions made by members:

  • The non-concessional contributions cap for the 2016/2017 year is $180,000. Where a member was 64 or younger on 1 July 2016, they are able to bring forward up to two future years’ contributions. This “bring-forward” provision allows members to make a one-off non-concessional contribution of up to $540,000 in the 2016/2017 year. It is important to note that where a member has previously triggered the bring-forward provision in the either the 2014/2015 or 2015/2016 year, this will limit the contributions that can be made in the 2016/2017 year. Accordingly, prior to making any contributions the contribution history should be reviewed to ensure the non-concessional contributions cap is not exceeded.
  • From 1 July 2017, the non-concessional contribution limit will be reduced to $100,000 per annum. Where an individual’s total superannuation balance is above $1.6 million on 30 June of the previous financial year, the individual is no longer eligible to make further non-concessional contributions to superannuation. The $1.6 million threshold is indexed in $100,000 increments. As a result, the bring-forward provision has also reduced to $300,000 from 1 July 2017.

Pre 30 June 2017 considerations:

In order to maximise your contributions to superannuation prior to 30 June 2017, consider the following:

  • Are you able to make concessional contributions up to your cap? This might include the ability to salary sacrifice an amount from your employer, or perhaps make a personal contribution and claim a deduction (please note, eligibility criteria apply to personal deductible contributions);
  • Do you have the capacity and available funds to make non-concessional contributions into superannuation before the new rules come in from 1 July 2017? This is the last chance to make non-concessional contributions up to $540,000;
  • Where you intend to make contributions electronically, ensure that you have left sufficient time for the contribution to be cleared into the fund’s bank account.  It is the time that the fund receives the contribution that is the relevant date for the fund, not the time that it leaves your bank account.

2. Ensuring minimum pension payments are made

To satisfy the 2016/2017 annual pension requirements, all pension payments must be withdrawn from the fund and transferred to your personal bank account by 30 June 2017.

Failing to the meet the minimum pension requirements could lead to your fund losing the tax exemption with respect to the income and realised capital gains generated by the assets supporting the pension, and as a result the fund’s income will be subject to tax.

30 June 2017 considerations:

  • Ensure you have paid the minimum pension amount prior to 30 June 2017.  In this regard, where you intend to pay electronically, ensure that you leave plenty of time to provide instructions to your bank or investment adviser if required to realise assets in order to pay out the pension in cash;
  • Individuals that have Transition to Retirement Pensions in place are subject to a 10% maximum drawdown of the pension balance at 30 June 2017 or the date the pension commenced.

3. Restructure of pension accounts – Transfer Balance Cap;

The Transfer Balance Cap (TBC) is the limit from 1 July 2017 on the amount of superannuation which can be transferred to the “retirement phase”.  The retirement phase includes income streams where the individual has met a full condition of release, that is, it is not a transition to retirement pension.

The impact of these provisions is that where a member has superannuation balances in the retirement phase above $1.6 million, the excess is required to remain in accumulation, or be removed from the superannuation system. It is important to note that the excess is not required to be removed from the superannuation fund, it can remain in the Fund in accumulation phase.

30 June 2017 considerations:

  •  Where you have a retirement phase income stream above $1.6 million, ensure the appropriate documentation is in place by 30 June 2017 to rollback any excess above $1.6 million back to accumulation phase.

4. Tax exemption for transition to retirement income streams;

From 1 July 2017, Transition to Retirement Pensions (TRPs) will be ineligible to receive a tax exemption with respect to the assets supporting such pensions.  Accordingly, earnings will be taxed at the standard accumulation rate of 15% (an effective 10% tax rate on long term capital gains).  Such a change will apply irrespective of when the TRP commenced.

30 June 2017 considerations:

  • Given that the tax exemption on TRPs within the Fund will cease from 1 July 2017, consideration should be given as to whether or not the TRP should continue post 1 July 2017.
  • This will be last opportunity prior to 30 June 2017 to make an election that a payment from a TRP is taxed as a lump-sum, rather than a pension payment.

5. CGT transitional provisions

As a result of the TBC (point 3), or where the member held a TRP (point 4), the fund may be eligible to apply CGT relief. CGT relief is available to ensure that tax does not apply to unrealised capital gains that have accrued on assets that were used to support superannuation income streams prior to 1 July 2017.

A fund will be able to make an irrevocable election to reset the cost base on assets which were held to support pensions. The Fund’s Trustee is able to elect that there is a deemed disposal of such assets, with any capital gain that arises from that deemed disposal being subject to tax in the 2016/2017 year.  Please note, this election must be made in the approved form on or before the due date for lodgement of the Fund’s income tax return for 2016/2017.

6. Asset valuations – property and unlisted assets

Where a superannuation fund has unlisted assets (such as direct property, unlisted shares, and units in unlisted trusts), the fund Trustees are required to value their investments at market value as at 30 June.

June 2017 considerations:

  • Consideration should be given to whether a market appraisal/valuation is required to be obtained for the assets and whether or not the services of an independent valuer is required. It will also be important that formal valuations are obtained where the Fund is utilising the CGT relief provisions;
  • Where the fund holds property, additional consideration should be given to ensure the required lease payments are made prior to 30 June and the lease payments are based on a market rate. Where the market rate has changed, this may need to be reflected from 1 July 2017 and in accordance with the lease agreement.

 7. Limited recourse borrowing arrangements – loan repayments

Where a superannuation fund has a limited recourse borrowing arrangement (LRBA) where the lender to the fund is a related party, the Trustee should ensure any obligations under the loan terms are complied with.  Further, in April 2016, the ATO released Practical Compliance Guideline 2016/5 (PCG 2016/5) in relation to borrowing arrangements entered into with related parties. Where an LRBA is structured in accordance with PCG 2016/5, the arrangement will be considered to be maintained on an arm’s length basis.

June 2017 considerations:

  • Ensure that all interest and principal repayments have been made, and continue to be paid monthly in accordance with the loan agreement and PCG 2016/5.

8. In-house assets

Where a superannuation fund has an investment or loan with a related party that is captured under the in-house asset rules, the Trustee needs to ensure the arrangement complies with the relevant provisions.

June 2017 considerations:

  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% at 30 June 2016, the excess over 5% may be required to be disposed of prior to 30 June 2017;
  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% from 1 July 2016, consideration should be given to reduce the IHA to less than 5% prior to 30 June 2017.

The Next Steps

If you would like further details or assistance with respect to any of the above strategies, superannuation in general, or wish to have your position reviewed in light of the new superannuation changes, please contact Jemma Sanderson at or 08 6311 6900.