Q: My husband and I have significant balances within our Self-Managed Superannuation Fund and both of us will exceed the proposed $1.6 million retirement cap for individuals. All of our balances are contained in our Account Based Pensions, and we are concerned about the possible capital gains tax impact on the sale of an investment property within the fund. What options can we consider and how much time do we have to make a decision?
A: The proposed changes from 1 July 2017 will impact those superannuation members who have in excess of $1.6 million of superannuation assets.
From 1 July 2017, the Government proposes to introduce a $1.6 million limit on the amount of an individuals’ superannuation balance that can be “transferred” from accumulation phase to retirement phase.
This proposed limit will only apply to amounts transferred to a retirement account. Subsequent earnings on retirement balances will not be restricted. Individuals that have amounts in excess of $1.6 million will be able to maintain those amounts in accumulation phase where the earnings will be taxed under the current 15% treatment.
Superannuation fund members already in the retirement phase that have balances in excess of $1.6 million will be required to reduce their retirement balances to $1.6 million by 1 July 2017. They will either be able to retain excess amounts in accumulation phase or withdraw them from superannuation.
As all of your balances are in account-based pensions, you could consider realising any large unrealised capital gains in the 2016-17 financial year when no limits apply to the tax-exemption for earnings to your Account Based Pension. This may be especially relevant as your significant capital gain has arisen from a property.
However, the decision to sell the asset will depend upon your personal circumstances, whether you want to sell the property and your taxation advice. Undertaking this step may make it easier to transition into the proposed changes from 1 July 2017. So please don’t leave it too long to make a decision before the 1 July 2017 deadline.
The planning opportunities prior to 1 July 2017 are varied from considering investing funds outside of superannuation to segregating high income earning assets to pension accounts to minimise taxable income within your fund.
All eyes will be on Canberra as we await the draft legislation outlining the changes in greater detail. As trustees of the fund, it is essential that you take into consideration your entire circumstances and avoid any costly mistakes which can generate adverse tax outcomes. Seek advice prior to the 1 July 2017 changes coming into effect and ensure you can take advantage of the planning opportunities on offer.