Technical Corner – Opportunities for 2017

This month will be critical for advisers especially those with a high net worth clientele. For clients who have already accumulated over $1.6m in superannuation, 2016/17 financial year is the last financial year that they would be able to make Non Concessional contributions.

With the lowering of the Non Concessional cap to $100,000 from 1 July 2017, 2016/17 provides the last window of opportunity to make a Non Concessional contribution of $540,000 for clients who have not triggered the bring forward provisions were not triggered in the past 2 years. From 1 July 2017, the maximum non concessional contribution will be $300,000 when the bring forward provision is triggered.

Clients who have over $1.6 m in account based pensions will need to roll back the excess balance in accumulation phase by 1 July 2017. For retail clients, this will require a review of the following:

  1. What to do with funds over the $1.6m – should they be retained in superannuation or invested in the clients’ own names. There are potential tax savings in retaining the funds in the superannuation environment with a 15% tax on earnings and a 10% capital gains tax for investments held over a year. However consideration must also be given to estate planning, once the funds are in accumulation phase, the taxable component will grow as the earnings are added to the taxable component. For clients with non dependents it may be more beneficial to have funds outside superannuation. Factors such as the clients’ age, family history of longevity and whether the clients’ family situation warrants isolating assets from the Will should be taken into account.
  2. Which investments are to be rolled back to accumulation – As a rule of thumb low growth assets are better kept outside the pension fund. However it may be advantageous to move the assets with capital losses to superannuation and then to sell them to build up capital losses. Note that some platforms will not provide the clients with the ability to rollover back investments from pension to super and the assets will need to be cashed in pension phase.
  3. When the product providers provide the ability to do in specie assets transfer from pension to super, it may still be beneficial to realise some assets in pension phase prior to rolling back to accumulation to provide sufficient liquidity in the superannuation fund to meet the clients’ cashflow requirement.
  4. The clients will also have the option of applying for capital gains tax relief when their product provider allows for in specie transfer of assets. The CGT relief ensures that there is no unintended consequences of tax applying to capital gains which have accrued on assets held in the tax free pension phase, and the impact of the transaction costs of selling down and repurchasing assets to avoid capital gains tax. A decision will need to be made on this.
  5. Meeting the clients’ cashflow requirements – restructuring how the clients meet their cashflow requirement is critical. As a general rule, only the minimum pension should be drawn from the zero tax pension environment. Any income which is required over the minimum pension requirement should be drawn in the following sequence: income from assets outside the superannuation environment, lump sum withdrawal from superannuation and finally commutation from the pension fund as a last resort option.

In addition to the above issues directly related to the super reform, this article from Macquarie Bank provides a quick snapshot of the end of the year financial planning opportunities to be considered in the following areas:

  1. Superannuation Accumulation
  2. Benefit payments
  3. Personal Taxation
  4. SMSF