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Re-contribution strategy
Impact risk: High
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The Government has been considering within the tax white paper the re-introduction of lifetime limits on super savings as a means of curtailing the tax concessions afforded to higher income earners.
This reintroduction of ‘reasonable benefit limits’ (RBL) is likely to curtail the ability to undertake re-contribution strategies that are predominantly motivated by estate planning outcomes, rather than current day benefits.
In particular, I would be looking to this strategy to ‘even-up’ account balances between spouses, in addition to improving the tax-free component a member’s account balance.
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Start a Transition to Retirement Income Stream (TRIS)
Impact risk: High
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There has been a growing popularity in the use of transition to retirement income streams. According to the ATO, 20% of members receiving pensions from SMSFs are now TRIS payments.
There is genuine concern that this strategy has grown into a tax ‘loophole’ with many people taking advantage of the strategy, arguably beyond what its original intention was. Some argue that the Government may do away with the strategy, some believe that we will see a ‘work test’ be introduced to support a reduced level of hours from full-time to part-time work.
Whatever happens, this change will apply prospectively, meaning that existing arrangements in place will be grandfathered.
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Use contribution reserving in current year (if available to do so)
Impact risk: Medium
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High of the Government’s agenda is a change to the taxation rate of concessional contributions. Rather than applying a flat 15% contributions tax, it appears likely that individuals will be taxed on these contributions at their marginal tax rate (MTR) less a 15% (maybe 20%) tax offset.
Where you have the need (and ability) to double dip on the tax deduction, it would be worthwhile doing so this financial year as the contributions will be taxed in the current income year at 15%, not your MTR less an offset.
Whilst this change is expected on budget night, it would be likely that such significant changes in super tax reforms would need at least 12 months to implement, meaning a likely 1 July 2017 start date.
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Start an Account Based Pension
Impact risk: High
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With a ‘ceiling’ likely to be introduced on concessional tax treatment of account balances in super, it might be prudent (where possible) to start a pension prior to budget night and have the income stream ‘grandfathered’ rather than assessed against any new lifetime limit, then it would be prudent to consider this now.
Of course, you will need to consider the impact of any potential Centrelink or other related issues if heading down this path.
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Bring forward any non-concessional contributions
Impact risk: Medium
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With much of the Government’s focus on contributions into super and the taxation of these amounts, it may be an opportune time to re-think the timing of any post-tax contributions.
This may include looking at the transfer of listed shares or transfers of business real property (BRP) that are allowed to be acquired from members into your SMSF.
Any significant change to contribution reform is likely to have a ‘lead time’ as mentioned above. I bank on seeing a one-off $1m contribution opportunity again like we did in 2006-07!
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(20min delay)