DOWNSIZE your home and contribute to SUPER!

Older Australians specially those living in Sydney face a terrible ordeal nowadays when they want to downsize…whether they want to go travel Australia or move in with one of their children because of ill health. This MLC article outlines the rules to encourage them to downsize their home with the opportunity to contribute to super.

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MLC Guide to Discretional Trusts

This explains some of the basic concepts relating to “Discretionary Trusts” and highlights some key advice considerations when determining its appropriateness for your clients.

Click here to read the article

Super or Mortgage?

It is worthwhile revisiting the trade-off between paying off the mortgage quicker and investing more in super for clients post super reforms. While many people wait until their home loan is paid off before making voluntary super contributions, this may not always be the optimum approach. (MLC)

Click here to read the article.

Key super decisions post 1 July

The majority of the super reforms in the 2016 Federal Budget have now taken effect. This MLC article takes a high level look at some key decisions and actions that may need to be taken as from 01/07/17 to help you identify opportunities and prioritise client reviews in the next 12 months.


Read the article here

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
Technical Corner – changes and opportunities for financial advisers

There are key changes around tax and superannuation which received the Royal Assent on 29 November 2016:

  • a $1.6 million cap on the amount of capital that can be transferred to the tax-free earnings retirement phase of superannuation;
  • Additional income tax rules on recipients of certain defined benefit income streams in excess of $100 000 per annum;
  • Reduction of the threshold at which high-income earners pay Division 293 tax on their concessional taxed contribution to superannuation to $250 000;
  • Transitional capital gains tax relief for superannuation funds that adjust their asset allocations before 1 July 2017. See draft Law Companion Guideline
  • Reduction of the annual concessional contributions cap to $25 000 and the annual non-concessional contributions cap to $100 000;
  • Introduction of criteria for an individual to be eligible for the non-concessional contributions cap and make minor amendments to the non-concessional contributions rules;
  • Removal of the anti-detriment deduction;
  • Amendment on how the maximum contribution base is determined;
  • Eligible low income earners to receive the low income superannuation tax offset;
  • Remove the requirement that an individual must earn less than 10 per cent of their income to be able to claim a deduction for personal superannuation contributions;
  • Enable catch-up concessional contributions;
  • Extend the spouse superannuation tax offset; and
  • Amend the earnings tax exemption for complying superannuation funds, retirement savings account providers and life insurance companies;

These changes provide an opportunity to financial advisers to review the following clients who have the following strategies in place:

  1. Salary sacrifice arrangements
  2. Contribution strategies through West State Super
  3. Transition to Retirement strategies
  4. Pension accounts close to or over $1.6m
  5. Superannuation trustees with members close to or over $1.6m
Technical Update –Overseas Move and Implications

Advice given to the clients prior to an overseas move should address the following:

  • Tax implications – A permanent overseas move may result in the client becoming a non tax resident.  The implications of becoming a non tax resident are discussed below.
  • Social security entitlement – how will social security entitlement be impacted? Does the new country of residency have an international social security agreement with Australia? The importance of notifying Centrelink of the overseas move.
  • Estate planning – importance of obtaining estate planning advice and whether Wills are required in each jurisdiction.
  • Review of Self Managed Fund (SMSF) – is the SMSF the best superannuation vehicle? Steps to maintain the SMSF Australian residency? Review of any contribution strategies.
  • Cashflow and budgeting –funding of capital expenses on the overseas move, review of cashflow and pension payment in view of potential social security decrease and new living expenses and managing exchange rate risk.
  • Insurances – review of insurance to ensure that current providers will honour claims while overseas. Implication of cancelling private health cover.


Below are some implications when a client becomes a non-tax resident:

  • Family home will not be considered as an exempt asset for Centrelink purposes.
  • Future sale of the family home will not be exempted from CGT.
  • Any property sale will not attract 50% CGT exemption on the increased value post May 2012.
  • Crystallization of capital gains on non-property CGT assets on departure from Australia
  • Withholding tax on interest bearing accounts
  • Higher tax rates


Further information is available on the ATO website by clicking here.

Technical Update – Role of APRA Funds

Small APRA funds or SAFs are “do it yourself” funds similar to Self Managed Superannuation Funds, SMSFs.  The major difference between the two superannuation vehicles is that members of the SMSF have to be trustees of the SMSF, either in their own name or through the directorship of a corporate trustee; on the other end for SAFs, the trustee duties are delegated to a professional trustee company.  SAFs are regulated by APRA not by the ATO.   Basically SAF provide clients with the features of the SMSF but without the cumbersome duties of associated with trusteeship.  Therefore they can be a more appropriate vehicle than the SMSF in the following instances:

  • Elderly clients who may struggle with their duties as SMSF trustees either because of age or onset of dementia.
  • Clients with large account balances who are time poor or reluctant to take on trustee duties associated with a SMSF
  • Providing for Mentally disabled children through an income stream – this would not be possible within a SMSF as the mentally disabled children could not be trustees because of their impairment.
  • Protection of family members of blended families – ensuring that on the death of a beneficiary, the remaining member/trustee does not take control of the fund at the expense of other potential beneficiaries.
  • Non residents and expatriates – where there is a risk for a SMSF to be become non compliant
  • Bankrupts or other disqualified individuals

However the ongoing fees of SAFs are higher than SMSFs as they have to incur professional trustee fees and therefore SAFs are only suitable for larger account balances.

An update on QROPS

In April 2015, the UK introduced new rules that impact on the transfer of UK pensions to Australia and other jurisdictions.  Before we discuss the changes, we will investigate the reasons why individuals are keen to transfer their pension funds to Australia.

Why transfer the funds to Australia?

If an individual is planning to retire permanently to Australia and have become a tax resident with a tax file number, there are advantages in transferring the funds to Australia, namely:

  • Pensions and lump sum paid from superannuation from age 60 are tax free. In the UK there is income tax of up to 45% on pension payments.
  • The possible inheritance tax in the UK of 40% if the estate is distributed to beneficiaries other than a spouse while in Australia the tax is limited to non dependants and strategies can be put in place to reduce the tax impost.
  • If the pension fund is maintained in the UK and pension payment transferred to Australia, Australian income tax may be payable on these payments.

As discussed above it can be beneficial to transfer the pension funds to Australia, however the following must be considered:

  • When has the individual moved to Australia – for the transfer to be predominantly tax free it is important that the transfer is done within 6 months of arrival in Australia
  • Whether the individual’s intention is to retire in Australia
  • The domicile of potential beneficiaries of the individual’s estate
  • The funds transferred is subject to 15% tax on earnings in Australia, while if the funds are maintained in the UK, there is no tax in accumulation or pension phase at fund level subject to certain levels.
  • The contribution caps applicable in Australia
  • The currency risk attached to the transfer
  • Staying within the lifetime allowance limit of GBP 1m for 16/17 when funds are drawn from the UK pension fund

Under the QROPS rules, superannuation funds in Australia and other jurisdications are authorized to accept UK pension funds under the UK Finance Act.

However in April 2015, Recognised Overseas Pension Schemes are only superannuation fund/pension schemes which limit all access to superannuation fund monies for individuals under age 55 unless they meet a definition of serious ill health.  In Australia, release of superannuation monies are also allowed under hardship or compassionate grounds and therefore most Australian funds are disqualified to receive UK pension transfers.

At this point in time the Self Managed Superannuation Funds have been able to change their trust deeds to make them QROPS compliant.

It is interesting how the proposed budget proposals will impact on the UK transfers:

  • The lifetime limit of $500,000 will mean that UK transfers will be capped to this amount. As some UK pension funds do not allow for partial withdrawal, this may restrict transfers.
  • The removal of the work test for those aged between 65 to 75 may justify transfers when the individual has firmed up their retirement plans and remove the possibility of retiring in the UK.

To sum up, it is important that caution is exercised when dealing with the clients with UK pension funds. There is also a requirement for the individual to obtain advice in the UK prior to the transfer.

Technical Update – Budget Proposals

Below are the major proposed budget changes with the bulk of the changes taking effect in 1 July 2017 as follows:

  • Lowering the concessional contribution cap to $25,000pa for all ages.  It is at present $30,000, with $35,000 for those who turned age 50 in the current financial year.
  • The ability to contribute extra concessional contributions up to unused concessional caps over a rolling 5 year period for super account balances of less than $500,000.
  • Those individuals earning taxable income of $250,000 pa or more will attract a 30% tax on contributions. The current threshold is $300,000.
  • The ability for individuals to contribute to superannuation or receive a spouse contribution up to age 75 without a requirement to meet the work test.
  • There will be a $1.6M limit on transfers from superannuation into the tax free pension phase.
  • Non-concessional lifetime contribution cap of $500,000 starting on the 3 May 2016 and is retrospective in that it will take into account contributions since 1 July 2007.
  • Tax deductions for personal contributions for anyone under the age of 75.
  • Low Income Spouse contribution threshold to increase from $10,400 to $37,000 to access to $540 rebate.
  • Tax free pensions for deferred lifetime annuities and group self-annuitisation products.
  • Transition to Retirement Pensions to lose tax exemption on pension income and tax on earnings and now will receive the same treatment as accounts in accumulation phase.
  • Removal of anti-detriment provisions


The proposed changes to superannuation are substantial and creates uncertainty. On the other end, it also highlights the need for clients to obtain ongoing advice. Measures as such as changes to the low income spouse contribution threshold and the removal of the work test for those over age 65 to 75 present opportunities to financial advisers. Others changes will require a review of clients’ situation to ensure that the strategies are still in their best interests. All contributions strategies will require a review either to ensure that the concessional cap is not breached or to ensure that superannuation remains an appropriate strategy when compared to gearing or structuring into a Family Trust.

Of particular interest is the proposed lifetime cap of $500,000 on non concessional cap which captures contributions made after 1 July 2007. There will be  need to put on hold any further non concessional strategies for clients who have already contributed to the lifetime cap since 1 July 2007.

Transition to Retirement strategies as a rule will need to be revisited in light of the changes to the tax on pension income and earnings.  Financial modelling will become more important as it is now imperative to see how clients’ superannuation balance is tracking against the $1.6m limit.

The government has put together some fact sheets which clarify the measures. Click here to read more.