November 23, 2016 Steve Wildes

NEW DEATH TAX: Proposed Superannuation Changes

Steve Wildes

Steve Wildes

Partner
Steve Wildes has years of small business tax experience and is adept with Estate Planning matters, bringing a practical approach to dealing with family wealth protection and succession.

In the recent Federal budget from 1 July 2017 the Government announced a new $1.6 million balance cap proposal which limits the amount that a superfund member can have in the pension phase.

What are the proposed rules?

The benefits of having a superannuation pension is that the income earned from the assets supporting a pension is tax free to the superfund and currently there is no limit on the level of assets that can be allocated to pension phase which can a significant tax saving to the superfund and making a big difference to the final retirement balance. Effectively these rules will cap the amount eligible for this tax exemption however from 1 July 2017 only earnings on up to $1.6 million of assets that support the pension will be tax-free meaning that we only have a few months to adjust your estate planning in order to avoid this new Law allowing the Government raise more tax on death!

Super balance less than $1.6m!

Unfortunately you are not safe if your superannuation balance is less than $1.6m! Potentially couples whose combined superannuation balances would exceed $1.6m are also at risk of being hit with this new death tax because upon the death of one spouse if the surviving spouse has a reversionary pension in place  (as many do) and the new combined pension balance exceeds $1.6m potentially triggering 49% tax.

Reversionary pensions have been a tax planning tool used by superfund trustees for many years to eliminate tax upon death however as a result of these new rules, a death benefit pension paid to a surviving spouse who has already utilised their $1.6 balance cap is likely to result in tax payable. This new excess balance transfer tax that applies when an amount in excess of the $1.6m balance is allocated to the pension phase is effectively a default death tax potentially being 49% of the excess amount.

Subject to the final rules this may result in a compulsory cashing for the deceased’s member benefits requiring a lump sum payment to be made to the spouse from the superfund which could very well result in significant capital gains (and capital gains tax) or it may lock in losses if assets have fallen in value leaving less available to cover a pension for the remaining spouse. If that isn’t enough the payout may have other implications such as centerlink.

If you feel you will be impacted by the proposed changes to superannuation and would like to discuss your situation further, call the office # 03 8393 1000 to speak with your accountant or advisor.

Future topics I will be coving over the coming month

  • What are the potential implications if your insurance is owned by your superfund?
  • How will your binding death benefits nomination and estate planning be impacted if you have to cash out some benefits – should you rebalance your estate plans.
  • What are the implications for limited recourse borrowing arrangements and superfunds owning real estate property?
  • Will you need pay tax personally or start lodging tax returns due to the proposed superannuation cap?

Steve Wildes, Partner, Paris Financial

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Steve Wildes

Steve Wildes

Partner
Steve Wildes has years of small business tax experience and is adept with Estate Planning matters, bringing a practical approach to dealing with family wealth protection and succession.

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