From 1 July 2017, there will be a limit to the amount a superannuation member can have in a tax-free pension account. The limit is $1.6 million from 1 July 2017.
If the member has a balance of more than $1.6 million in super, only $1.6 million of this balance can be held in a tax-free account-based pension account. The balance over $1.6 million will need to remain in accumulation (or be commuted back to accumulation for existing pensions) – the earnings on which will be taxed at 15%.
If the pension account has a balance of more than $1.6 million as at 1 July 2017, the ATO will direct the trustee of the fund to commute the excess over $1.6 million back to accumulation, together with any deemed earnings on the excess. The individual will also be liable for excess transfer balance tax on these earnings.
Once the tax-exempt pension account has been established, subsequent earnings on this balance will not be required to be withdrawn to take the balance back to $1.6 million (similarly, if the account drops below $1.6 million, a top-up contribution cannot be made to bring the account back to $1.6 million).
The cap will apply to:
All existing pensions at 1 July 2017
All new pensions started on or after 1 July 2017
Transition-to-retirement income streams converted to an account-based pension
For reversionary pensions, 6 months after the date of death
The $1.6 million cap will be indexed in $100,000 increments in line with the Consumer Price Index (CPI). However, if a member utilises the full $1.6 million transfer cap, they cannot take advantage of future $100,000 CPI increases. If the $1.6 million cap is not fully utilised, the member can take advantage of the future $100,000 cap increases.
Who does this affect?
This measure will have a direct impact on members who have a current pension balance over $1.6 million. These members will need to take immediate action to comply with the new provisions from 1 July 2017.
This measure will also have a future impact on members that have an accumulation balance of over $1.6 million that may be looking to convert this balance to an account based pension at a later date.
Call us today on 56656469 if you would like to discuss how these changes may apply to you.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent,