Superannuation changes – 5 things to consider before 1 July 2017
The following is a brief list of 5 important issues concerning superannuation that you need to consider prior to 1 July 2017.
1. Review your account balance on your superannuation fund and the account balance of your spouse.
Generally, until now, it was best to have the oldest person in the relationship with the largest superannuation balance, primarily as they will attain age 60 first and the earnings on that portion of the superannuation assets, will be tax free, when transferred to a pension.
For example, take Joe and Janet Bloggs. Joe’s aged 54 and Janet is 49. Under the current superannuation legislation, if they have a combined superannuation balance of say $2.5million it would be best from a tax perspective for all the super to be in Joe’s name. The reason being that the earning on the $2.5million will be tax free when the fund is in pension stage. On the other hand, if the majority of the super was in Janet’s name then it will be subject to tax on the earnings at 15% for another 11 years, at least.
With the changes in the rules, it makes more sense to consider both parties having a similar balance of super as the new rules will require the excess over $1.6million per member to be taxed at the superannuation accumulation tax rates, that is 15%
2. Consider contribution splitting
Contribution splitting, assuming the superannuation deed permits this to occur, enables a portion of the superannuation to be allocated to the member’s spouse superannuation account.
This strategy will be advantageous where say the husband is an executive with a large superannuation balance and the spouse has been a non-working mother, or is on or has been on a significantly lower salary for a number of years.
3. Consider other structures
If you are likely to have a superannuation balance of greater than $1million and you are looking to continue to work for a number of years or your superannuation investments are in growth stage and likely to average over 8% return per annum, it may be prudent to consider other strategies, such as investments in a family or discretionary trust or a gearing strategy outside of superannuation.
4. Insurance in your superannuation fund
Consider whether you should retain your insurance in your superannuation fund or move the cover outside of the superannuation fund, as a result of the government introducing this new cap of $1.6million per member.
5. Transition to retirement
Consider whether a transition to retirement after 1 July 2017, provides you with the same tax benefits that you are currently deriving. Otherwise you may be subject to 15% tax on your earnings within the fund.
Should you have any queries in relation to superannuation strategies please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.