Super Reforms 2016-2017

The Super Reforms announced in the 2016-17 Budget are being hailed as the most significant in a decade. To help you navigate through the changes and access relevant education and information updates, we’ve put together this online resource.

A series of Insight articles can be found below on a range of individual Super Reform changes, outlining the software updates Class has made to support the changes, plus details of how you can subscribe to content and education from Heffron SMSF Solutions around relevant strategies.

You can also take advantage of our practical Super Reforms Timeline and share it with your clients.

Content here is revised regularly – we suggest you bookmark this page and check back regularly for updates.


Insight 1

Insight 1 – $1.6m Transfer Balance Cap

Overview of this Super Reform change

The purpose of the pension transfer balance cap (the ‘cap’) is to limit the extent to which an individual can generate tax exempt investment income within the superannuation environment. The legislation:

  • prescribes the actual personal transfer balance cap that will apply to anyone who: currently has a pension (other than a transition to retirement pension) in their super fund
    moves money in and out of pension phase
  • sets a general transfer balance cap of $1.6m for 2017/18, and indexes this general cap in future years in line with movements in the CPI in increments of $100,000;
  • prescribes the amounts that will be ‘credited to’ that individual’s cap (ie, count towards, or use up, the cap), and what amounts will be ‘debited from’ it (ie, reversed from, or no longer use up, the cap);
  • prescribes how much (if any) indexation will apply to the individual’s personal transfer balance cap; and
  • prescribes the treatment of amounts in excess of an individual’s personal transfer balance cap.

You can read more details on the Transfer Balance Cap in this edition of Heffron SuperNews.

What software updates has Class made to accommodate this change?

In January 2017, Class introduced new data filters in the Class Member Console. These filters mean you can easily identify clients that have a pension or super balance greater than, or equal to, $1.6m.

The filters also allow you to identify clients that have a TRIS, have reached preservation age, are 65 or above, have balances less than or equal to $500k, and those that have funds with assets segregated for pensions. More recently we have also added new filters which show current contribution levels as well as members who have currently triggered the bring forward rule for non-concessional contributions.
How can you use the data filters to help manage the Transfer Balance Cap?

Details on how to use the handy one-click data filters outlined above can be found in the Class User Guide.

Some sample strategies highlighted by Heffron relevant to the Transfer Balance Cap

  • Make partial commutations for any amounts above the minimum pension. If you have accumulation account, should draw that first, prior to commuting pension.
  • When rolling back some of an existing pension balance to $1.6m at 30 June 2017, it is generally desirable to roll back the taxable component where possible.

Note: These are just a couple of the many strategies that relate to the Transfer Balance Cap. To subscribe to Heffron Technical & Strategy Guides, including ‘Strategies for 2016/17 and beyond’ which outlines dozens of strategies you might consider with your clients across all the Super Reforms, simply click here.

Insight 2

Insight 2 – CGT Relief

Overview of this Super Reform change

The transitional Capital Gains Tax (CGT) relief has been introduced to provide relief to individuals who have to reduce the assets currently supporting retirement pension income streams in order to comply with:

  • the $1.6m transfer balance cap; or
  • the Transition to Retirement Income Stream reforms commencing from 1 July 2017.

The method used to obtain the CGT relief is to reset the cost base of a CGT asset to its market value through a deemed sale, followed by an immediate repurchase of the asset. The gains or losses will be entirely disregarded for funds using the segregated method, or partly disregarded using the proportionate method and may be deferred until the CGT assets are sold.

Heffron have prepared a series of Ebooks. Class users can access a free copy of the Ebook – CGT Relief Segregated & Proportionate Method. To access the other Ebooks available, please click here.

You can also find out more in the Law Companion Guide 2016/8: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds.

What software updates has Class made to accommodate this change?

Class has built two reports to allow you to identify a list of investments at parcel level which may potentially take advantage of this transitional CGT relief. This will allow you to start a discussion with your clients about any CGT relief they may choose to take advantage of:

  • Capital Gains Relief Analysis – Segregated
  • Capital Gains Relief Analysis – Proportionate

Class will also release additional functionality to:

  • Allow you to make elections to the list of investments to undertake this CGT relief;
  • A minute/resolution template will be provided;
  • Reset the CGT date and cost base to market value to 30 June 2017 or earlier (cession time);
  • Calculate amount of deferred capital gains to be reported in the 2016/17 CGT Schedule.
  • Record the deferred capital gains at parcel level so that the correct deferred capital gains can be reported when the CGT assets are eventually sold.

Some sample strategies highlighted by Heffron relevant to the CGT Relief:

  • Ensure there is a segregation cessation event
  • In relation to the proportionate method – avoid taking advantage of the CGT relief if it is not beneficial

Note: These are just a couple of the many strategies that relate to the CGT Relief. To subscribe to Heffron Technical & Strategy Guides, including ‘Strategies for 2016/17 and beyond’ which outlines dozens of strategies you might consider with your clients across all the Super Reforms, simply click here.

Insight 3

Insight 3 – $1.6m Transfer Balance Cap – Commutation Requests

Overview of this Super Reform change

To avoid exceeding the $1.6 million transfer balance cap the ATO has issued a Practical Compliance Guideline (PCG) for commutation requests made by SMSF members to SMSF trustees before 1 July 2017.

Even though the value of a member’s holdings and the amount of the commutation required may not be known until after 1 July 2017, this request enables members to express their intention to commute their excess retirement phase income streams to comply with the PCG.

Heffron have prepared an article in relation to the $1.6m Transfer Balance Cap which has a primary focus on implementation. You can access a free copy here.

Here are some handy links to the ATO on the Practical Compliance Guideline and the Taxation Ruling:

  • Practical Compliance Guideline PCG 2017/5
  • Income Tax Ruling TR 2013/5

What software updates has Class made to accommodate this change?

Class has provided the following document pack to specifically address this compliance requirement:

  • a Request letter from the member to commute the excess over the general transfer balance cap of $1.6 million;
  • a Minute/resolution to specify the methodology allowing the precise quantum of the commutation amount to be calculated and which pension accounts will be subject to the commutation in order of priority; and
  • an Acknowledge letter from the trustee to the member to confirm the request has been approved and next course of actions.

Class will support the following four allocation orders of superannuation income streams for commutation

  • Lowest to Highest Tax Free %
  • Highest to Lowest Tax Free %
  • Oldest to Newest (FIFO)
  • Newest to Oldest (LIFO)

Some sample strategies highlighted by Heffron relevant to the $1.6m Transfer Balance Cap – Commutation Requests:

  • When rolling back some of an existing pension balance to $1.6m at 30 June 2017, it is generally desirable to roll back the taxable component where possible.
  • Handle “roll backs” quickly without waiting for an ATO determination.

Note: These are just a couple of the many strategies that relate to the $1.6m Transfer Balance Cap – Commutation Documents. To subscribe to Heffron Technical & Strategy Guides, including ‘Strategies for 2016/17 and beyond’ which outlines dozens of strategies you might consider with your clients across all the Super Reforms, simply click here.

Education Courses

Education Courses

A number of Class business partners are developing events and content to provide insights and strategies that you can use with your clients, both before and after the 1 July 2017 deadline.

Heffron SMSF

Heffron has developed a whole host of content designed to support accountants and advisers with the Super Reforms. Not just focused on the “rules”, Heffron has content designed to guide you through identifying who is affected, practical strategies and implementing those strategies.

The next upcoming education session is the Quarterly Technical Webinar which will focus on the practical implications of:

  • Legislation changes;
  • ATO rulings, interpretative decisions and guidance;
  • Court Cases and AAT decisions; and
  • Government announcements (including the Budget) that impact on superannuation funds

Each webinar will be accredited for SMSF Association and FPA CPD and will also be eligible for CPE for the various accounting bodies. For more information about this and other upcoming education events, please click here.

ATO webinars

Click here to view recordings of past webinars for professionals from the ATO including:

  • Capped defined benefit income streams webinar – May 2017
  • Transition to retirement income streams webinar – April 2017
  • CGT relief webinar – April 2017
  • Transfer Balance Cap Introduction – March 2017 Webinar

SMSF Association

Continue to develop your SMSF expertise, especially throughout this period of extensive legislative change with the upcoming SMSF Association Technical Day. Each of the 4 sessions on the day will offer you the opportunity to tackle hands-on activities, engage with fellow SMSF professionals, feel confident about important changes and leave with practical takeaways you won’t be able to access anywhere else.

EVENT DATES:
Sydney 18 July
Brisbane 19 July
Melbourne 20 July
Adelaide 25 July
Perth 27 July

Click here to find out more.

TAG Financial Services

Keep up to date with the significant changes to superannuation and hear about the best strategies to take advantage of the changes.

EVENT DATES:
Sydney: 25 July
Brisbane: 27 July
Melbourne: 3 August
Adelaide: 7 August

Click here to find out more.

Information Sources

Information Sources

ATO

The ATO has a comprehensive online information resource on the Super Reforms, which is regularly updated. You can view the online content and subscribe for updates here.

The ATO has been publishing additional guides and information on its website for tax/SMSF professionals on specific Super Reform measures. Below are links to recently published pages, many of which include worked examples:

  • Changes to concessional (pre-tax) contributions cap — From 1 July 2017, the government will lower the annual concessional contributions cap to $25,000 for all individuals.
  • Transfer balance cap of $1.6 million for pension phase accounts — From 1 July 2017, the government will introduce a $1.6m cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions (SMSFs).
  • The finalised version of Law Companion Guideline LCG 2016/9 provides further guidance on how the transfer balance cap operates for account-based superannuation income stream products.
  • Transitional CGT relief (SMSFs) — CGT relief is available for SMSFs to provide temporary relief from certain capital gains that might arise as a result of individuals complying with the transfer balance cap, and Transition to Retirement Income Stream (TRIS) reforms, commencing on 1 July 2017.
  • The finalised Law Companion Guideline LCG 2016/8 offers further guidance on the operation of transitional CGT relief.
  • The Law Companion Guideline LCG 2016/11 clarifies how changes to concessional contributions will interact with superannuation interests in constitutionally protected funds (CPFs) and certain notional contributions to defined benefit funds.
  • The ATO has also released a recording of its Super Changes Webinar for SMSF Professionals, held on 28 Feb 2017:
    o Recording
    o Presentation
    o Q&A

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