[vc_row][vc_column][vc_column_text]On the 9th of November 2016, the Government introduced legislation into Parliament that covers many area’s of Superannuation under the auspices of fairness.
The legislation is the result of amended 2016-17 budget reforms previously announced.
Once passed by the Parliament, these measures will take affect for the 1st of July 2017.
This article focuses on one aspect of the changes that people are concerned about.
1.6 Million Pension Transfer Balance Cap
From the 1st of July 2017 the maximum amount of tax free pension balance will be $1.6 Million per member.
For members that have over $1.6 Million in pension phase on that date, they will be able to transfer the balance back into accumulation.
Any income earned on that accumulation account will be taxed @ 15%.
Example: If my current pension account is valued at $2 Million (value of my % of the funds’ assets) on the 30 June 2017, then on the 1st of July I will be required to transfer $400,000 to an accumulation account. So I would have two members account; Pension worth $1.6 Million and Accumulation worth $400,000 (2 Million Total).
Impact of Changes
To see the impact of these changes we will do a simple example over two financial years, this current financial year and next financial year.
[table id=17 /]
This simple example shows a $3,000 increase in tax payable however, the total tax effect is over dramatised as expenses in the 2017-18 year are now able to be used to offset income and tax credits will be added as a refund on the reduced tax payable figure. Of course tax credits used to eliminate tax will reduce your refund.
Effective tax rates on the example above of $100,000 income will go from 0% to 3% overall minus expenses and credits.
The 2017-18 Limit of $1.6 Million will be indexed to deal with the rising cost of living. Once your pension is locked in on the 1st of July 2017 with $1.6 million, then that pension will be able to grow in value due natural growth, but new money from outside of that pension will not be allowed to be added to this pension. If you start on the 1st of July 2017 will less than 100% of $1.6 Million, then you will be able to add the remaining percentage multiplied by the future pension limits.