• Super changes – frequently asked questions

    These frequently asked questions relate to the superannuation changes, most of which started on 1 July 2017. It’s important to work out if you may be affected by these changes, or if they might impact you in the future.

    Here you'll find general information and examples only. Important details specific to your individual circumstances may not be included.

    Select a topic:

    Transfer balance cap

    What is the transfer balance cap?

    This is a new limit on the amount of your super you can transfer and hold in tax-free ‘retirement phase accounts’.

    The cap applies from 1 July 2017 and is initially set at $1.6 million.

    If, on 30 June 2017, you were already receiving a pension or annuity you were required to ensure that the value of those pensions and annuities was under $1.6 million before 1 July 2017. If you didn't, you may have to pay excess transfer balance tax and will be required to reduce your balance.

    What counts towards my cap?

    The cap limits the total amount that you can transfer into retirement phase to start a pension or annuity over the course of your lifetime, no matter how many accounts you hold or how many times you transfer money into retirement phase.

    The cap also includes the value of pensions or annuities you may start to receive for some other reason, for example:

    • your spouse has died and you are, or start to receive a pension from their super
    • your former spouse has been ordered to pay you a portion of their pension income stream as part of a family court settlement.

    The cap does not apply to any subsequent growth or losses. This means:

    • if you start a pension with $1.6 million in the 2017–18 financial year and the value of that pension grows to $1.64 million, you can roll that money into a new fund without breaching your cap
    • if you start a pension with $1.6 million in the 2017–18 financial year and the value of that pension goes down over time as you use it to live on, you can’t top up your pension accounts. You will still be able to access other super amounts by taking these as a lump sum.

    Special rules apply to child death benefit beneficiaries.

    How are my pensions and annuities valued for transfer balance cap purposes?

    You need to contact your fund about the value of your pensions and annuities.

    The value of your pension or annuity will generally be the value of your pension account for an account-based pension.

    Special rules apply to calculate the value of:

    • lifetime pensions
    • lifetime annuities that existed on 30 June 2017
    • life expectancy and market-linked pensions and annuities where the income stream existed on 30 June 2017.

    I don't currently receive any retirement income streams and don't plan to commence any in the near future. What do I need to do in relation to the transfer balance cap?

    You are not required to do anything. When you are thinking about starting a retirement phase income stream, you need to consider the restrictions and relevant caps that apply at that time.

    I am planning on starting a retirement phase income stream after 1 July 2017. What should I be aware of?

    You need to make sure that you don’t exceed your transfer balance cap. You'll exceed your transfer balance cap if the total value of all pensions or annuities you receive is more than $1.6 million in the 2017–18 financial year.

    These include:

    • life expectancy pensions and annuities
    • account-based pensions
    • lifetime pensions and annuities
    • market-linked pensions and annuities
    • death benefit pensions, including reversionary death benefit pensions
    • any part of a pension or annuity you are currently receiving because it was split as part of a family law settlement.

    These do not include transition to retirement income streams (TRIS), unless:

    • you are over 65, or
    • have notified your fund that you have met another nil cashing restriction condition of release.

    In these cases, a TRIS will move into the retirement phase and be counted towards your transfer balance

    I was receiving a retirement phase income stream before 1 July 2017 and continued to receive it after 1 July 2017. What do I need to be aware of?

    You need to work out the total value of all of the retirement phase income streams that you are currently entitled to as at 1 July 2017 and after. These include:

    • life expectancy pensions and annuities
    • account-based pensions
    • lifetime pensions and annuities
    • market-linked pensions and annuities
    • death benefit pensions, including reversionary death benefit pensions
    • any part of a pension or annuity you are currently receiving because it was split as part of a family law settlement.

    Where the value of your income streams is below $1.6 million

    If the total value of all of your retirement phase income streams does not exceed the $1.6 million cap, you do not need to do anything.

    If you were receiving an account-based income stream on 1 July 2017 and you'll become entitled to a capped defined benefit income stream in the future, you may need to reduce the value of your account-based income stream to ensure that you do not exceed the cap, when you start receiving your capped defined benefit income.

    What do I need to do if the value of my income streams is above $1.6 million?

    If the total value of all of your retirement phase income streams was going to exceed $1.6 million on 1 July 2017, you needed to reduce the value of any account-based income streams. Before 1 July 2017, you could have done this by:

    • removing the necessary amount from retirement phase and transferring it back to your accumulation account or paying a lump sum out of the super system; this is known as 'commuting'
    • making additional pension payments to reduce your income stream capital by the necessary amount.

    If you didn't reduce your retirement phase interests to, or below, the cap level prior to 1 July 2017, you are required to do so and may have to pay excess transfer balance tax. You are also restricted in how you can reduce your retirement phase interests (that is, a large pension payment will not count towards reducing your excess).

    If you have a capped defined benefit income stream you may not have been able to commute these. Where the total amount of your income stream payments per year exceeds $100,000, you may be required to pay more tax. Your fund will withhold PAYG amounts from your income stream payments and amounts may need to be included in your assessable income.

    What happens if I was over my transfer balance cap on 1 July 2017?

    If the total value of your retirement phase income streams was between $1.6 million and $1.7 million you have six months, from 1 July, to remove the excess capital without penalty. This concession only applies to income streams you were receiving just before 1 July 2017.

    If the total value of your retirement phase income streams is more than $1.7 million (or you do not rectify a small breach of $100,000 or less within the six months), you'll be required to remove excess amounts. Where you exceed your cap, we will issue you with an excess transfer balance determination, outlining the amount in excess of your cap and the excess transfer balance earnings that must be removed from retirement phase. You'll also be liable to pay excess transfer balance tax on excess transfer balance earnings. The excess transfer balance tax rate is set at 15% for breaches in the 2017–18 financial year. From the 2018–19 financial year, the tax rate is also 15% for a first breach, and increases to 30% for second and subsequent breaches.

    We will not know whether you have exceeded your transfer balance cap until all your super funds have reported to us. If you are a member of a self-managed superannuation fund (SMSF) this may not occur until close to the end of the 2017–18 financial year. Therefore, you may not receive a determination for 12 months after 1 July 2017 (including excess transfer balance earnings for the entire period from the date the excess occurred). If you were in excess on 1 July 2017 you may benefit from seeking independent advice from a financial advisor or tax agent as soon as possible.

    Does the age pension or a foreign pension count towards the calculation of the transfer balance cap?

    No. For an income stream to count toward your transfer balance, it has to be a superannuation income stream.

    The age pension (or other types of government assistance payments) or a pension received from a foreign superannuation fund are not included in your transfer balance account because these pensions are not superannuation income streams.

    Can the transfer balance cap be shared between a couple?

    No. The transfer balance cap of $1.6 million applies to each member of a couple and can’t be shared or aggregated between members of a couple.

    For example, one person in the couple can't have $3 million and the other person have $200,000 in a retirement phase account.

    How does indexation apply to the transfer balance cap?

    The transfer balance cap is $1.6 million for the 2017–18 financial year and is subject to indexation on an annual basis in $100,000 increments in line with the consumer price index (CPI).

    Where an individual starts to have a transfer balance account and has not used the full amount of their cap, their personal transfer balance cap is subject to proportional indexation in line with increases in the general transfer balance cap.

    Indexation is only applied to an individual’s unused cap percentage. This is based on the highest balance that has ever been in the individuals transfer balance account at the end of a day. This is compared to their personal transfer balance cap on that day to calculate the unused cap space as a percentage.

    This means that once a proportion of cap space is filled, even if the account is later debited (for example by a commutation), it is not subject to indexation.

    For example, Amy’s transfer balance is credited $800,000 on 18 November 2017. As Amy has not made any other transfers to her retirement phase account, her highest transfer balance is $800,000. This equates to 50% of the $1.6 million cap at that time.

    In 2020–21, the transfer balance cap is indexed to $1.7 million, equating to an increase of $100,000. Amy’s personal transfer balance cap is increased proportionally to $1.65 million, which is an increase of $50,000 (50% × $100,000).

    If I direct my fund to make regular commutations on top of minimum pension payments, will those regular commutations count as transfer balance account debits?

    Yes. Your transfer balance account is debited when you fully or partially commute a retirement phase income stream. The commuted lump sum can be paid out of super or transferred to an accumulation account.

    You should keep in mind however, that the partial commutation does not count towards your minimum annual pension payment requirement, so you still need to ensure sufficient payments are made in an income year.

    For the purposes of the transfer balance account, how do we treat structured settlement contributions received prior to 1 July 2017 which have increased in value?

    The Treasury Laws Amendment (2017 Measures No.2) Act 2017 allows for an increase in the debit amount associated with structured settlement contributions made before 1 July 2017 under certain circumstances.

    Where the total credits to the individuals transfer balance account on 1 July 2017 are greater than the amount of the structured settlement contribution, the debit will instead be equal to the total of these credits.

    This ensures that individuals who have received a structured settlement which has increased in value will, in effect, not take up any cap space for the total amount.

    Capped defined benefit income streams

    How do I prepare for the transfer balance cap if I have a lifetime pension?

    After 1 July 2017, only a new lifetime pension is treated as a capped defined benefit income stream. If you are commencing one of these income streams, you may not be able to commute them if they exceed your transfer balance cap. Where the amount of your payments exceeds $100,000 (2017–18 financial year) per year, you may be required to pay more tax.

    If the value of your capped defined benefit income stream is greater than your transfer balance cap, you should not commence an account-based pension as this will cause you to exceed your transfer balance cap. Likewise, if you already have an account-based pension and you are about to commence a capped defined benefit income stream that will cause you to exceed the transfer balance cap, you need to reduce your account-based income stream before starting a capped defined benefit income stream.

    How do I value lifetime pensions and annuities for transfer balance cap purposes?

    These are valued by multiplying the annual entitlement by a factor of 16 to give the income stream's 'special value'. This provides a simple valuation rule based on general actuarial considerations. Your annual entitlement to a superannuation income stream is worked out by reference to the first payment entitlement for the year. The first payment is annualised based on the number of days in the period to which the payment refers (that is, the first payment divided by the number of days the payment relates to multiplied by 365).

    This means that a lifetime pension that pays $100,000 per annum will have a special value of $1.6 million which counts towards your transfer balance cap in the 2017–18 financial year.

    For a lifetime pension or annuity already being paid on 1 July 2017, the special value is based on annualising the first payment in the 2017–18 financial year. This may include indexation, so may be slightly higher than your annual lifetime pension payments for 2016–17.

    For example, if the first payment of the 2017-18 financial year is $2,000 and these relate to fortnightly periods, the calculation is expressed as:

    ($2,000/14) x 365 = $52,142.86 = Annual entitlement.

    Special value = Annual entitlement x 16 = $834,285.71

    Life expectancy and market-linked pensions and annuities that were being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by the number of years remaining on the term of the product (rounded up to the nearest year).

    Do I need to remove excess amounts if I only have a capped defined benefit income stream?

    A capped defined benefit income stream on its own can’t result in you having an excess transfer balance, or a resulting excess transfer balance tax. This is even where the special value of the capped defined benefit income stream is more than the transfer balance caps ($1.6 million for 2017–18).

    However, if you are 60 years old or over, and have a capped defined benefit income stream with annual benefits greater than $100,000 (for 2017–18), there are new rules for the tax treatment of the excess amounts above the $100,000.

    If I start a market-linked pension after 1 July 2017, how will it be treated under the transfer balance cap rules?

    A market-linked pension or annuity commencing after 1 July 2017 will not meet the definition of a capped defined benefit income stream. It will therefore not be treated under the capped defined benefit income stream modifications and the general transfer balance cap rules will apply.

    It’s important to note that this could create additional tax consequences if you commence a new non-commutable market-linked product which is in excess of the $1.6 million transfer balance cap.

    This could create an excess transfer balance which could not be commuted. Excess transfer balance tax would continue to accrue until a resolution was reached.

    It is therefore particularly important that you ensure that any income streams subject to commutation restrictions you start after 1 July 2017 will not exceed your transfer balance cap.

    Death benefits and reversionary income streams

    Can a member in receipt of two death benefit income streams commute both income streams and start a new, consolidated, death benefit income stream?

    Yes, providing the new income stream is a death benefit income stream.

    This could occur when the two income streams are being rolled over from two separate funds into a new fund to allow the individual to consolidate their superannuation interest, or by commuting two or more death benefit income streams within a fund.

    However, the death benefit income streams can't be commuted and retained in an accumulation account.

    Can a member with a death benefit income stream, that is a market-linked pension, commute it, and combine it, with another death benefit income stream to start a new death benefit income stream that is an account-based pension?

    No, because superannuation law does not allow a market-linked pension to be commuted in order to start an account-based pension. A market-linked pension can only be commuted to start certain kinds of pensions, such as starting another market-linked pension.

    If a member has multiple death benefit income streams that are market-linked pensions, they may commute those income streams in order to start a new, consolidated, death benefit income stream that is also a market-linked pension. If this new market-linked pension is commenced after 1 July 2017, it will not be a capped defined benefit income stream.

    If a member received, or was entitled to, a reversionary income stream prior to 1 July and after 1 July 2017 rolls that interest over to start an income stream in another fund, is the new income stream still considered to be a reversionary income stream?

    No. The dependant beneficiary has voluntarily ceased the reversionary income stream and commenced a new death benefit income stream.

    Can trustees rely on a binding death benefit nomination to make a pension reversionary?

    Our view is that a binding death benefit nomination by itself would not suffice to make a death benefit income stream reversionary. For a reversionary pension to be in place, the governing rules of the fund must expressly imply that the pension is reversionary upon a member’s death to the nominated beneficiary. If the governing rules of the fund do not state this, a binding death benefit nomination by itself does not make a pension reversionary.

    If both parents die, what is the sole surviving child’s modified transfer balance cap?

    There are special rules that apply for death benefits paid to children. Where the amount is paid as a lump sum death benefit to the child, there are no transfer balance cap implications.

    If a child was receiving death benefit income streams prior to 1 July 2017, their transfer balance cap would be $1.6 million.

    If death benefit income streams are paid to a child recipient commencing after 1 July 2017, then the child will receive an amount towards their child transfer balance cap from each parent. In essence, the child will have a larger cap to accommodate both death benefits. For example, if both parents died and they each had $1.8 million in accumulation benefits, then their child could receive a $1.6 million pension from each parent. The remaining $400,000 would need to be taken as a lump sum death benefit.

    Can a child recipient of a death benefit income stream partially commute that income stream to avoid exceeding their modified transfer balance cap?

    Yes. There is nothing preventing a child recipient from partially commuting a death benefit income stream. Like with other death benefits, the commuted amount needs to be taken out of super as a lump sum – it cannot be retained in the accumulation phase.

    If a beneficiary elects to roll over their death benefit to another fund as soon as the claim is finalised, do they need to start an income stream straight away?

    Yes. From 1 July 2017, death benefits can be rolled into another fund. However, the new fund must either pay the amount out as a lump sum or commence a death benefit income stream as soon as practicable. The death benefit cannot be retained in accumulation phase.

    If a reversionary death benefit amount gets credited to a transfer balance account during the transitional period (between 1 July 2017 and 31 December 2017) do the transitional rules for a temporary breach of the transfer balance cap of $100,000 or less apply?

    Reversionary death beneficiaries who are receiving a death benefit income stream from a member who died less than 12 months before 1 July 2017 will have their account credited 12 months after the date of the member’s death. The amount of the credit will be equal to the value of the income stream at the end of 30 June 2017.

    The transitional rules will apply if the:

    • date in which the account is credited is during the transitional period, and
    • balance is between $1.6 and $1.7 million.

    This means that if the excess of $100,000 or less is commuted by 31 December the individual will not have to pay excess transfer balance tax or account for notional earnings on the excess.

    Transitional capital gains tax (CGT) relief

    What is transitional CGT relief?

    Transitional CGT relief is temporary relief available to super funds for certain CGT assets that will lose their tax exemption in complying with the new transfer balance cap and transition to retirement income streams (TRIS).

    As trustee of a super fund, you have access to temporary CGT relief if one or more of your members need to take action to prepare for the changes:

    • Under the new transfer balance cap rules which commenced on 1 July 2017, a member may have needed to reduce amounts supporting their retirement phase super income streams. They may have done this by transferring amounts back to the accumulation phase or withdrawing amounts from super.
    • Under the changes that remove the tax-exempt status of assets that support a TRIS, from 1 July 2017 you will lose the exemption for earnings from assets supporting TRIS and the earnings will be taxable. This is because TRIS will no longer be considered super income streams in retirement phase where the recipient is under 65 and has not notified their fund that they have met another nil cashing restriction condition of release.

    When I apply CGT relief, when does the cost base reset?

    The date of the cost base reset is dependent upon the circumstances in which you are applying the relief.

    If you were using the segregated method on 9 November 2016 and continued to use this method, the date of the reset is the date that you transferred the asset out of the pool of segregated current pension assets.

    If you were using the segregated method on 9 November 2016 and switched to the proportionate method before 1 July 2017, the date of the reset is the date you made and recorded an election to switch to the proportionate method.

    If you were using the proportionate method on 9 November 2016 and continued to use the proportionate method to calculate your ECPI, the cost base reset occurs at the end of 30 June 2017.

    The SMSF has carried forward capital losses from assets within the accumulation phase. Are these capital losses available to offset capital gains within the retirement phase as well as the accumulation phase?

    Where an SMSF uses the proportionate (unsegregated) method to calculate ECPI, carried-forward capital losses can still be applied against any future capital gains.

    Any capital gain during the income year will be offset by any capital losses (and carried-forward losses) in calculating the net capital gain. Any available CGT discounts are then applied. Any net capital gain is added to the SMSF's assessable income before working out the proportion of income that is tax exempt, as per the actuarial calculation.

    If the SMSF uses the segregated method, capital gains are disregarded so capital losses do not need to be applied.

    How will reporting of the CGT relief election work?

    The reporting of the CGT relief election into the CGT schedule will be incorporated through two new data fields: the election to apply for CGT relief and any deferred amount. It is important to note that this means that many funds who would not currently expect to complete the CGT schedule will need to do so if they wish to make an election to defer the CGT.

    The updated CGT schedule will be available alongside the 2016–17 SMSF annual return as part of tax time 2016–17, in advance of the lodgment due dates for funds.

    A fund will need to ensure it keeps appropriate records of all its assets which may be subject to CGT relief.

    The choice to apply CGT relief is only valid if it is made on or before the fund is ‘required to lodge’ its 2016–17 return. The relief will be valid where there is a formal extension of time for lodgment that is met. Remember though that if a fund fails to lodge on time for 2015–16 their lodgment date for 2016–17 will be brought forward to 31 October 2017. Note that the lodgment date for the 2015–16 SMSF annual return was extended to 30 June 2017.

    If 100% of a fund’s assets are supporting account-based pensions, how does the fund take advantage of CGT relief?

    You need to keep in mind our view that SMSFs in this situation are taken to be using the segregated method.

    When the members of the fund commute amounts to the accumulation phase, the fund will need to have taken action on or before 30 June to transfer pension assets across to support these accumulation interests. The fund can elect for CGT relief to apply to those assets.

    Alternatively, if the fund can't transfer any specific assets across to meet these requirements they may have chosen to adopt the proportionate method, and elect for CGT relief to apply to some or all of their assets.

    When a 100% pension fund moves to the proportionate method prior to 1 July, are there any restrictions on the value of assets the CGT relief can apply to?

    Where an SMSF switched from the segregated to proportionate method between 9 November 2016 and 30 June 2017, all of the fund’s assets ceased to be segregated current pension assets; so all assets are potentially eligible for CGT relief. The law does not restrict CGT relief to a particular value or particular asset.

    If a fund is taken to be using the segregated method as it is fully in pension phase, and received a contribution prior to 1 July 2017, how will CGT relief apply?

    If the fund's documentation makes it clear that the relevant assets were segregated current pension assets after they received the contribution, the fund can remain segregated even though it stops being fully in pension phase. The fund may still have access to CGT relief if they subsequently choose to switch to the proportionate method.

    If there is no evidence of a decision to segregate, the assets may have ceased to be segregated current pension assets when the fund stopped being 'fully in pension phase'. CGT relief may be available on that date.

    If my fund needs to switch to the proportionate method in 2017–18 due to a member’s total superannuation balance, can I access CGT relief?

    If the fund did not have members making changes because of the transfer balance cap, or members with TRIS who are affected by those changes, CGT relief is not available.

    For 2017–18, a SMSF will be unable to use the segregated method to calculate ECPI if a member had a total superannuation balance over $1.6 million at the end of 30 June 2017, and that member is receiving an income stream from any source.

    If a fund was using the segregated method in 2016–17 and they meet these criteria, they will need to switch to proportionate method in 2017–18. However, this new requirement to switch, on its own, is not enough for the fund to be eligible for CGT relief.

    Is CGT relief available where a fund has a single member with an income stream valued under $1.6 million (that is not a TRIS), but the member also has an accumulation account?

    No, CGT relief is not available because the member did not need to take action to comply with the transfer balance cap before 1 July 2017.

    Can deferred capital gains be offset against existing capital losses, or are they quarantined until the underlying asset is sold?

    They are quarantined. If a fund chooses to defer, the notional amount is calculated and set aside. Once a 'realisation event' (generally the sale of the asset) occurs, that notional amount is treated as a capital gain. It cannot be brought into effect before the realisation event.

    Can the trustee identify particular bundles or units of assets to apply CGT relief to with respect to shares or unit trusts?

    The trustee will choose which assets to apply CGT relief to, which are treated differently in order to comply with the transfer balance cap. In relation to shares, asset selection applies at the parcel-to-parcel level in respect of those assets held throughout the pre-commencement period (9 November 2016 to just before 1 July 2017). This means the fund can choose which particular shares in an overall holding can have CGT relief applied.

    Note that for unit trusts, CGT relief applies to the units, and not the underlying assets held by the unit trust or company.

    Our Valuation guidelines for self-managed super funds can provide assistance to a trustee to of a SMSF to value assets for super purposes.

    As trustee of a superannuation fund, I exchanged contracts to buy a property on 1 November 2016, with settlement happening on 2 February 2017. Can I apply CGT relief to reset the cost base of the property, since I bought it before 9 November 2016?

    No, transitional CGT relief is not available for the property. One of the conditions to apply the CGT relief is that the fund must have ‘held’ the CGT asset from 9 November 2016 to 30 June 2017 inclusive. In this context, ‘held’ refers to having legal ownership of the property.

    The contractual rights the fund held when you entered into the sale contract are quite separate and distinct from the property itself, and the property is only ‘held’ by the fund once legal ownership of the property is transferred to the fund after the settlement of the contract.

    The time at which the CGT asset is ‘held’ is not modified by the special acquisition rules in the CGT regime. In this case, the fund has ‘held’ the CGT asset (the property) from 2 February 2017, even though the fund is taken to have acquired the property on 1 November 2016. Therefore, the fund is not entitled to transitional CGT relief for the property.

    Carry-forward concessional cap

    When will I be able to carry-forward any unused contribution amounts?

    You will be able to carry-forward your unused concessional contributions cap space amounts from 1 July 2018.

    The first year in which you can increase your concessional contributions cap by the amount of unused cap is the 2019–20 financial year but only if you have a total superannuation balance of less than $500,000 at 30 June in the previous year.

    Your total superannuation balance is only relevant before the start of the year you make the contribution. You can still access unused amounts from previous years if your total superannuation balance was over $500,000 at the end of 30 June before those years.

    How much will I be able to carry forward?

    The amount you will be able to carry forward will depend on the amount you have contributed in previous years starting from 2018–19. Carry-forward amounts will expire if they remain unused after five years. You are able to increase your concessional contributions cap by the unused amounts from the previous five years if your total superannuation balance is less than $500,000 at the end of 30 June of the previous financial year.

    For example, if in the 2018–19 financial year the concessional contributions cap is $25,000 and you contribute $15,000, you will be able to carry-forward your remaining $10,000 for the next five years (if your total superannuation balance is less than $500,000 on the 30 June of the year prior to your contributions).

    What happens if I contribute more than I am allowed?

    The process remains the same as previous financial years.

    If your contributions exceed your cap, the amount in excess of the cap is included in your assessable income and taxed at your marginal tax rate.

    You have to pay the excess concessional contributions charge on the increase in your tax liability. This charge is applied to recognise the tax on excess concessional contributions is collected later than normal income tax.

    You will receive a 15% tax offset to account for the contributions tax already been paid by your super fund provider.

    You may elect to withdraw up to 85% of your excess concessional contributions from your super fund to help pay your income tax assessment when you have excess concessional contributions.

    Is there a limit on how long concessional contribution amounts can be carried forward?

    Carry-forward amounts expire if they remain unused after five years.

    Reduced concessional cap

    What is the new concessional contributions cap and when does it take effect?

    From 1 July 2017, the new annual concessional contributions cap is $25,000 for all individuals regardless of age.

    From 1 July 2019, you may increase your concessional contribution cap by carrying forward your unused concessional cap space amounts if you have a total superannuation balance of less than $500,000.

    What is included in the concessional contributions cap?

    Concessional contributions are contributions you make to your super fund from before tax income.

    From 1 July 2017, concessional contributions include:

    • employer contributions, such as         
      • compulsory employer contributions
      • any additional pre-tax contributions your employer makes
      • salary sacrifice payments made to your super fund
      • other amounts paid by your employer from your pre-tax income to your super fund, such as administration fees and insurance premiums
    • contributions you are allowed to claim as an income tax deduction
    • notional taxed contributions if you are a member of a defined benefit fund (including constitutionally protected funds), which reflects the increase to your benefits for the year – it is the equivalent of an employer contribution; contributions made into defined benefit funds are not always linked to individual members
    • unfunded defined benefit contributions
    • some amounts allocated from a fund reserve.

    What happens if I exceed my concessional contributions cap?

    The process remains the same as previous financial years.

    If your contributions exceed your cap, the amount in excess of the cap is included in your assessable income and taxed at your marginal tax rate.

    You have to pay the excess concessional contributions charge on the increase in your tax liability. This charge is applied to recognise the tax on excess concessional contributions is collected later than normal income tax.

    You will receive a 15% tax offset to account for the contributions tax already been paid by your super fund provider.

    You may elect to withdraw up to 85% of your excess concessional contributions from your super fund to help pay your income tax assessment when you have excess concessional contributions.

    If my employer contributes amounts to my CPF, do these amounts count towards my concessional contributions cap?

    Contributions to constitutionally protected funds (CPFs) will be included in your concessional contributions if they would have been assessable income of the fund except for the CPF’s income tax exemption.

    Despite the contributions to a CPF (or unfunded defined benefit fund) counting towards your concessional contributions cap they cannot, on their own, result in you exceeding your concessional contributions cap. They may however limit your ability to make further concessional contributions to other funds.

    Division 293 (additional tax on concessional contributions) threshold

    What is the new Division 293 threshold and when does it take effect?

    The new threshold is $250,000, effective from 1 July 2017.

    What income is included in the $250,000 threshold?

    Division 293 tax (additional tax on concessional contributions) is paid by certain individuals whose income for surcharge purposes (other than reportable super contributions), plus their concessionally taxed super contributions (also known as low tax contributions) are greater than $250,000 from 1 July 2017.

    Low tax contributions include:

    • employer contributions (including compulsory super guarantee contributions and salary sacrificed amounts) paid to an accumulation interest
    • personal super contributions that are tax deductible
    • defined benefit contributions (for defined benefit interests).

    How do I know if I am impacted by the Division 293 changes?

    You may be impacted if your income for surcharge purposes plus your low tax contributions is greater than $250,000.

    Division 293 (additional tax on concessional contributions) – end benefit notice

    I have a deferred Division 293 tax debt and am taking an end benefit from my super fund. Do I need to let the ATO know?

    Prior to 1 July 2017, you were required to advise us on the approved form of your request to take an end benefit from your super fund. After 1 July 2017, you will not need to advise us.

    Super providers – One of our super fund members has a deferred Division 293 tax debt with the ATO. They are about to take their end benefit from us. Do we need to work out our members end benefit cap and send this to you in a notice?

    Prior to 1 July 2017, if you had been advised that we were keeping a deferred Division 293 tax debt account for the individuals super interest, you were required to provide an end benefit notice to us that states the end benefit cap amount. After 1 July 2017, you will still need to provide a notice, but if you have confirmed with us that the individual has no amount owing on their deferred Division 293 tax debt account, you will not need to work out or tell us the end benefit cap amount. Funds can send a request to us, via an approved form, asking if a member's Division 293 deferred debt account is in debt.

    See also:

    Total superannuation balance

    What is the total superannuation balance?

    The concept of 'total superannuation balance', which commenced from the end of 30 June 2017, is a way to value your total super interests on a given date

    Your total superannuation balance is relevant for determining your eligibility for:

    • unused concessional contributions cap carry-forward
    • non-concessional contributions cap and eligibility for the bring forward of your non-concessional contributions cap
    • government co-contributions
    • the tax offset for spouse contributions.

    If you are a trustee of an SMSF or a small APRA fund, your members' total superannuation balance will determine whether you can use the segregated method to determine exempt current pension income (ECPI).

    Total superannuation balance is generally calculated at the end of 30 June of each financial year. The first date it will be used to determine your eligibility for these measures is 30 June 2017.

    How is my total superannuation balance calculated?

    Your total superannuation balance is the sum of:

    • the accumulation phase value of your superannuation interests
    • if you have a transfer balance account, its current balance (but if you receive an account-based pension the balance is adjusted to reflect the current value of that pension)
    • any rolled over superannuation benefits not reflected in your accumulation phase value or balance of your transfer balance account (generally this would be a roll-over that has not yet been allocated to you by the destination fund).

    This sum is reduced by the sum of any structured settlement contributions made to your super funds.

    How do I know what my total superannuation balance is?

    To obtain this information you need to contact your funds.

    As you can only have a transfer balance on 1 July 2017, if you were already receiving an income stream prior to 1 July 2017, your transfer balance, for the purposes of working out your total superannuation balance, is the value at 30 June 2017 of the super interest that supports the income stream less the sum of any payment split (if applicable).

    What is the difference between the total superannuation balance and the transfer balance cap?

    Your total superannuation balance is effectively the sum of all you super interests, including your accumulation phase interests and your retirement phase interests, less any structured settlement contributions. It can be assessed at any given point in time (generally 30 June of each financial year).

    Your transfer balance cap limits the total amount that you can transfer into retirement phase to start a pension or annuity over the course of your lifetime. It operates irrespective of how many accounts you hold or how many times you transfer money into retirement phase.

    The cap does not apply to any subsequent growth or losses to assets that count towards the cap.

    Low income super tax offset

    What is the difference between LISC and LISTO?

    From 1 July 2017, the government has replaced the low income superannuation contribution (LISC) with the low income superannuation tax offset (LISTO). Eligibility criteria for LISTO will essentially remain unchanged. The LISTO effectively refunds the tax paid on concessional contributions by individuals with an adjusted taxable income of up to $37,000, up to a cap of $500. The amount of the LISTO that an individual is eligible for will generally be paid into the individual’s super account.

    When can I expect LISTO to be paid?

    We generally validate information to determine eligibility from October after the financial year, which means that the first lot of LISTO payments are usually made in November.

    As LISTO commenced with effect from 1 July 2017, it will apply for 2017–18 onwards. We will determine eligibility, including verifying the amounts of your adjusted taxable income and concessional contributions throughout the year.

    How do I apply for a LISTO payment?

    You don't need to apply. We determine eligibility based on information available to us, including the amounts of your adjusted taxable income and concessional contributions for the financial year. If you’re eligible, we will generally make LISTO payments directly into your super account.

    Personal super contribution deduction

    Will I be able to claim a deduction for personal (after tax) super contributions I make to my fund that I have a defined benefit interest in (CSS, PSS)?

    You need to check with your fund whether you can claim a deduction.

    Effective from 1 July 2017, you are not eligible to claim a deduction for personal super contributions that have been made to certain types of funds.

    These funds include:

    • constitutionally protected funds or other untaxed funds that would not include your contribution in its assessable income
    • commonwealth public sector superannuation funds in which you had a defined benefit interest
    • super funds that notified the ATO before the start of the income year that they elected to treat all member contributions to the  
      • super fund as non-deductible, or
      • defined benefit interest within the fund as non-deductible.

    If you are a member of one of these funds, they will not acknowledge a notice of intent for any personal contributions you make to them.

    I currently salary sacrifice to my super fund. Can I stop my salary sacrifice and just claim my personal (after tax) super contributions as a deduction?

    Yes. You can claim a personal super contributions deduction, but not for the sacrificed amounts already made and only if you meet the eligibility conditions. Before 1 July 2017, you were only able to claim a deduction if you met a number of conditions, including the 10% maximum earnings test. From 1 July 2017 you will not be required to meet the 10% maximum earnings test, however you'll still need to ensure you meet all other conditions to be eligible to claim a personal super contributions deduction.

    Members who cease salary-sacrificing may want to remind their employer to ensure their SG is paid as per their super obligations.

    If I make a personal (after tax) super contribution and intend to claim a deduction, will I have to pay fees to my super fund on those contributions?

    You will need to talk to your super fund about any fees they charge.

    Do my personal (after tax) super contributions count towards my concessional contributions cap?

    Yes, if you claim a deduction for personal super contributions those contributions count towards your concessional contributions cap. The annual concessional contributions cap is $25,000 from 1 July 2017.

    Can I now claim a deduction for contributions I salary sacrifice?

    No, salary sacrifice amounts are paid by your employer to your super fund out of your before-tax income and are not tax deductible

    I only earn salary and wages, am I able to claim a deduction for personal (after tax) super contributions I make?

    Yes. If you make personal super contributions after 1 July 2017 you will not be required to meet the 10% maximum earnings test to be eligible to claim a deduction, however you must meet all other eligibility criteria.

    Do I still need to complete a Notice of intent to claim a deduction for personal superannuation contributions?

    Yes, you need to complete a Notice of intent and send it to your super fund before you lodge your tax return. Once you receive an acknowledgment from your fund, you can then claim the deduction.

    Can I claim a deduction for personal (after tax) super contributions that I make to my spouse's super account?

    No, you can only claim deductions for contributions that you make to your own super account. However, you may be eligible to claim the spouse tax offset depending on your spouse's income.

    Can I claim a deduction for personal superannuation contributions in 2017–18 for contributions I make into my constitutionally protected fund (CPF)?

    No. Starting on 1 July 2017 you are not eligible for a deduction for personal contributions made to a CPF or other untaxed fund that would not include your contribution in its assessable income.

    Reduced non-concessional contribution cap

    What is the new non-concessional contributions cap and when does it take effect?

    From 1 July 2017 the annual non-concessional contributions cap is $100,000 and will increase in line with the indexation of the concessional contributions cap.

    If your total superannuation balance was greater than or equal to $1.6 million (at 30 June 2017) you will no longer be eligible to make non-concessional contributions in the 2017–18 financial year. The law does not prevent further contributions. It will however trigger excess non-concessional amounts as the non-concessional contributions cap will be nil.

    As was the case in previous years, if you are under 65 years old you may be able to bring forward three years of non-concessional contributions. The amount you can bring forward and the number of years you can use is dependent on your total superannuation balance.

    How do I know if I am eligible to make non-concessional contributions?

    You must have a total superannuation balance of less than the general transfer balance cap ($1.6 million for the 2017–18 financial year) on 30 June of the previous financial year (this amount may be indexed in future years) and have available cap space based on your prior years contributions.

    How do I know if I am eligible to access the non-concessional contributions bring-forward?

    You are eligible if you are under 65 years old at any time in the first year of your bring-forward and your total superannuation balance was less than $1.5 million at 30 June 2017. (Based on $1.6 million TBC for the 2017–18 financial year).

    How do I trigger the bring-forward rules in 2017–18?

    If you were 64 years old or under on 1 July 2017 and make an excess non-concessional contribution, the bring-forward rules will be automatically triggered under certain conditions (provided you have not already triggered the bring-forward rules in the previous two years).

    From 1 July 2017, the three year bring-forward cap is automatically triggered when your non-concessional contributions are over $100,000 and your total superannuation balance is less than $1.4 million.

    From 1 July 2017, the two year bring-forward cap is automatically triggered when your non-concessional contributions are over $100,000 and your total superannuation balance is equal or greater than $1.4 million and less than $1.5 million.

    If you had a total superannuation balance equal to or exceeding the general transfer balance cap ($1.6 million in the 2017–18 financial year) on 30 June 2017 you don't have access to the bring-forward and will no longer be eligible to make non-concessional contributions in that financial year.

    How many years of non-concessional contributions can I bring -forward in 2017–18?

    The amount available to bring -forward will depend on your total superannuation balance at 30 June 2017.

    Contribution and bring-forward available:

    • less than $1.4 million: three years ($300,000)
    • $1.4 million to less than $1.5 million: two years ($200,000)
    • $1.5 to less than $1.6 million: one year ($100,000)
    • $1.6 million: nil.

    You can only access the bring-forward if your total superannuation balance is not in excess of the general transfer balance cap before the start of the later financial years or you have not used up your entire non-concessional contributions cap in an earlier year. However, once the bring-forward period has expired you can access the annual cap or a further bring- forward if eligible.

    Transitional period

    If you have made a non-concessional contribution in the 2015–16 or 2016–17 financial years that triggered the bring- forward, but had not fully used your bring- forward before 1 July 2017, transitional arrangements will apply so that the amount of bring- forward available will reduce.

    Where the non-concessional contribution bring-forward was triggered in the:

    • 2015–16 financial year, the transitional cap in the 2017–18 financial year will be $460,000 (the annual cap of $180,000 from the 2015–16 and 2016–17 financial years and the $100,000 cap in 2017–18)
    • 2016–17 financial year, the transitional cap will be $380,000 in the 2017–18 financial year (the annual cap of $180,000 in 2016–17 and $100,000 cap in 2017–18 and 2018–19).

    Could I still have contributed $540,000 before 1 July 2017?

    Yes. You could have contributed up to $540,000 if you were under 65 and had not previously triggered a bring-forward in the previous two years.

    If you made contributions of $540,000 in 2016–17 you won't be able to make any more contributions until 1 July 2019 without triggering excess non-concessional contributions.

    If I triggered a non-concessional contributions bring-forward prior to 1 July 2017, can I still make contributions after 1 July 2017?

    Yes, if you have capacity still available.

    If you have made a non-concessional contribution in the 2015–16 or 2016–17 financial years that triggered the bring-forward, but had not fully used your bring- forward before 1 July 2017, transitional arrangements will apply so the amount of bring-forward available will reduce.

    Where the non-concessional contribution bring-forward was triggered in the 2015–16 financial year, the transitional cap will be $460,000 (instead of $540,000) and if the bring-forward was triggered in the 2016–17 financial year, the transitional cap will be $380,000.

    What if I am in a non-concessional contributions bring-forward and my total superannuation balance is $1.6 million or above?

    If your total superannuation balance was $1.6 million or above on 30 June of the previous financial year you will not be able to make any further non-concessional contributions in the relevant year without triggering excess non-concessional contributions.

    What happens if I exceed my non-concessional contributions cap?

    If you go over the non-concessional cap in a financial year the existing process will apply. You will receive an excess non-concessional contributions determination and can choose to withdraw the excess non-concessional contributions and any earnings or pay excess non-concessional contributions tax.

    Spouse tax offset

    Can I claim a deduction for personal (after tax) super contributions that I make to my spouse's super account?

    No, you can only claim deductions for contributions that you make in an accumulation fund to your own super account. However, you may be eligible to claim the spouse tax offset depending on your spouse's income.

    Am I better off to claim a personal super contribution deduction or spouse tax offset?

    As individual circumstances differ we can't determine which option is better for you. You will need to work out your eligibility for each item. If you are eligible for both you will then need to work out which will give you the most benefit giving consideration to your contribution caps and your superannuation balance at retirement age as well.

    Can I claim a tax offset for contributions that I make to my spouse's super account?

    Yes, if you meet the eligibility criteria, including your spouse’s income does not exceed $40,000 and either they have not exceeded their non-concessional contributions cap for the relevant year, or their total superannuation balance is below the general transfer balance cap ($1.6 million for the 2017–18 financial year) just before the start of the relevant financial year.

    Anti-detriment payment

    A member had died prior to 1 July 2017, can my fund claim an anti-detriment deduction?

    Before 1 July 2017, funds could include an anti-detriment payment as part of a death benefit if a member dies and then claim a deduction for that payment.

    If a member died on or before 30 June 2017 the fund only has until 30 June 2019 to pay the benefit to be able to claim the deduction. The deduction will no longer be available for lump sum benefits paid on member deaths that occur on or after 1 July 2017.

    From 1 July 2019, no anti-detriment payment deduction is available, regardless of when the member dies.

    Transition to retirement income streams

    Can I commence or continue a transition to retirement income stream (TRIS) after 1 July 2017?

    Yes, if you have met your preservation age, you can continue or commence a transition to retirement income stream (TRIS) after 1 July 2017.

    From 1 July 2017 your fund will have to pay tax on the earnings from assets supporting the transition to retirement income stream and this may have an impact on your account balance. If, however, you have reached age 65 or have met another nil cashing restriction condition of release and notified your fund, these earnings will continue to be exempt. You need to speak to your fund about the impact of the changes on your TRIS.

    If I commenced a transition to retirement income stream (TRIS) before 1 July 2017, will the super changes apply to me?

    Yes. Earnings from assets supporting a TRIS that haven't met these conditions will be taxed at 15% from 1 July 2017, unless you are aged 65 or over or have notified your fund that you have met another nil cashing restriction condition of release. This applies regardless of the date the TRIS commenced.

    What happens to the status of a TRIS when a recipient, aged under 65, retires? If the individual then returns to work, how will this affect their transfer balance account?

    If an individual under the age of 65 is the recipient of a TRIS and notifies their fund that they have retired, the TRIS will, on the day of notification of this condition of release, move into the retirement phase.

    If the individual subsequently returns to work, any new contributions from their job are made to an accumulation account and can only be accessed when a new condition of release is met.

    The individual’s existing TRIS will remain in the retirement phase even if they return to work.

    They may commence a new TRIS with the new contributions, however the new TRIS will not be in the retirement phase until they reach age 65, or notify their fund that they have satisfied one of the following conditions of release:

    • retirement
    • permanent incapacity, or
    • terminal medical condition.

    Does a ‘TRIS’ cease to be a TRIS once a member permanently retires or turns 65? Does the TRIS ‘auto convert’ to an account based pension in which the TRIS restrictions do not apply?

    Our view is that the current law does not facilitate an ‘auto conversion’ of a TRIS to a different or new pension or income stream. The same TRIS continues on and remains a TRIS until such time as it ‘ceases’.

    The law provides that once a nil cashing restriction condition of release is met, the limitations of a 10% annual maximum payment and commutation restrictions are no longer applied. The conditions of release are:

    • age 65
    • retirement
    • permanent incapacity, or
    • terminal medical condition

    Where a member receiving a TRIS meets one of these conditions of release, that TRIS can be in retirement phase.

    This means if an individual has met a condition of release, the fund will receive the earning tax exemption. This applies to both existing and new TRIS.

    Where a condition or release hasn't been met, the TRIS will not be recognised to be in the retirement phase.

    A TRIS will move automatically into the retirement phase as soon as the member reaches age 65. For the other conditions of release, the member needs to notify their super provider for the TRIS to move into retirement phase.

    Co-contributions

    Will my eligibility for the government co-contribution change?

    For the 2016–17 financial year, your eligibility for co-contributions did not change.

    From 1 July 2017, in addition to the existing eligibility requirements, there are two new criteria:

    1. Your non-concessional contributions cannot exceed your non-concessional contributions cap for that year.
    2. Your total superannuation balance cannot exceed the general transfer balance cap ($1.6 million for the 2017–18 financial year) on 30 June of the previous financial year.

    Self-managed super fund trustees

    What do I need to do to be ready for the introduction of the transfer balance cap?

    • You need to be aware of each member’s total superannuation balance across all of their super interests. If a member has a total superannuation balance of more than $1.6 million you will have to use the proportionate method to calculate exempt pension income across all members.
    • You need to be aware of the new capital gains tax relief provisions. Under the super changes, complying super funds were able to reset the cost base of assets to their market value where those assets are reallocated or re-apportioned from the retirement phase to the accumulation phase prior to 1 July 2017 in order to comply with the transfer balance cap or new transition to retirement income stream arrangements.
    • Under the transitional law provisions a breach of the transfer balance cap by $100,000 or less is to be disregarded if it is rectified within six months. This concession only applies to income streams the member was receiving just before 1 July 2017.
    • Be aware of the value of any current or impending retirement income streams that may arise for your members and be ready to assist them in reducing the amounts if necessary. If your SMSF usually doesn’t complete valuations and other financial discussions until close to the end of the next financial year, you may need to consider ways to bring forward valuing your member’s interests. This is particularly important where your members may need to take advantage of the six months transitional period to rectify small excesses without penalty.

    How do I calculate ECPI where the fund switches to the proportionate method prior to 30 June 2017?

    In this case, for a period of the year, the fund will have been segregated, and for the remainder of the year it will be unsegregated.

    The fund can exempt income under the segregated method for the first period and under the proportionate method for the remainder of the financial year (when the fund was unsegregated).

    Please note that to calculate ECPI under the proportionate method, an actuarial certificate is required. This may influence the decision of a fund to choose to claim ECPI for that period.

    I am the trustee of a fund which has switched from the segregated method to the proportionate method for calculating exempt current pension income (ECPI) before 1 July 2017. Do I need to obtain an actuarial certificate for 2016–17 if I am only using the proportionate method for a short period?

    An SMSF trustee does not have a regulatory obligation to obtain an actuarial certificate. An actuarial certificate is an income tax requirement to support a claim for ECPI for the period in question.

    Many funds will have switched from the segregated to proportionate method in preparation for the super changes and for some funds this means that they will have only been using the proportionate method for a very short period of time in this financial year.

    You should determine if your fund has any income in that period. If it does you should consider whether the cost of obtaining a certificate outweighs the benefit of exempting part of that period’s income. You may decide not to claim ECPI on that income, in which case you will not be required to obtain an actuarial certificate.

    My SMSF is currently 'fully in pension phase' and deemed to be using the segregated method. My SMSF ceased to be segregated for only one or two days at the end of 2016–17 when I commuted amounts to comply with the transfer balance cap. I intend to obtain an actuarial certificate to claim ECPI for income on those days. Can I rely on an actuarial certificate that is provided for the entire income year, from 1 July 2016 to 30 June 2017?

    Where an SMSF that is ‘fully in pension phase’ moves from being deemed to be segregated to unsegregated for part of the 2017 income year as a result of a member (or members) commuting amounts back to accumulation phase to comply with the transfer balance cap before 1 July 2017, we will not seek to apply compliance resources to reviewing the actuarial calculation where the actuarial certificate obtained by an SMSF is for the entire income year, instead of the shorter period within that income year that the SMSF was unsegregated. That is, provided the relevant actuarial certificate includes the relevant period that the SMSF is unsegregated the SMSF can rely on an actuarial certificate.

    Note that this approach does not remove the need for an SMSF trustee to obtain an actuarial certificate if they wish to claim ECPI in relation to the period that the SMSF was unsegregated.

    For the purposes of claiming CGT relief, the fund will still be considered to have switched from the segregated method to the proportionate method when the commutation is made before 1 July 2017.

    As a trustee, what do I do if the fund receives a commutation authority which requires the fund to commute an amount which, in doing so, would mean that the fund would be unable to meet the minimum pension payment standards?

    The pension standards are derived from the Superannuation Industry (Supervision) Regulations 1994 and take supremacy over a commutation authority.

    A fund should first make any payments needed to meet the standards and then give effect to the commutation authority. This may mean that the authority will not be able to be met in full.

    When valuing a property in an SMSF, does a formal valuation need to be conducted, or does a market appraisal from a real estate valuer suffice?

    The rules regarding valuation of property have not changed. Our Valuation guidelines for self-managed superannuation funds confirm that the valuation needs to be based on objective and supportable data.

    A valuation undertaken by a property valuer, online service or real estate agent would be acceptable.

    Will an SMSF be required to use the proportionate method for calculating ECPI in 2017–18 if a member has a total superannuation balance over $1.6 million?

    An SMSF will not be able to use the segregated method for determining ECPI in a financial year if:

    • the fund has at least one member, that has an interest in the fund in retirement phase at any time during the financial year
    • a member of the fund has a total superannuation balance that is greater than $1.6 million at the end of 30 June of the previous financial year and that member is a retirement phase recipient of a superannuation income stream from either the fund or another super provider.

    If these conditions are met the SMSF will need to use the proportionate method to calculate its ECPI for the entire year.

    I’ve heard that I can get around the new restriction on using the segregated method to calculate my SMSF’s exempt current pension income by setting up a second SMSF. Can I do this?

    If you are considering strategies like this we strongly encourage you to seek independent professional advice or approach us for advice beforehand.

    Whilst the establishment of a second SMSF by itself does not give rise to compliance issues, we will further examine the circumstances of those cases where it appears that the establishment of a second SMSF has been a pre-cursor to subsequent behaviour intended to manipulate tax outcomes. This behaviour could include, for example, switching each of the respective funds between accumulation and retirement phase.

    Where my SMSF cannot use the segregated method to claim ECPI (exempt current pension income), can I still segregate assets for investment returns?

    The change which limits an SMSF from using the segregated method only relates to the ability for that SMSF segregate for the purposes of claiming ECPI. So in these cases, even though the SMSF may be required to use the proportionate method to calculating its ECPI, the trustee can still decide which assets will support pension accounts. In essence, the returns on the segregated assets would continue to be allocated to the respective pension account(s) and the allocation of any tax would be done proportionately.

    Does a partial commutation of an account-based pension count towards the minimum pension payment?

    No. New regulations ensure that partial commutations do not count towards the minimum pension payment. This reflects changes to treat these payments as lump sums for tax purposes from 1 July 2017.

    Could I have made a request to my SMSF to commute excess amounts above my transfer balance cap where the value of that excess amount was not known? If this was done, what is the effective date of the commutation?

    Practical Compliance Guideline PCG 2017/5  – Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap explains how we will review commutations made in circumstances where a commutation was requested before the commutation amount was known by a member of a SMSF, and includes requirements for these commutations.

    One key requirement under this guideline is that the commutation amount is required to be calculated, and reflected in the SMSF’s financial accounts for 2016–17, by a date no later than the due date for the SMSF’s annual return. If the requirements of the commutation request are met, the effective date of the commutation is generally the requested date (which would have been on or before 30 June 2017).

    It is important to note that if a fund was previously segregated because it was ‘fully in pension phase’, then the effective date of the commutation will also be the date the fund stops being fully in pension phase.  If this means that the fund switches to the proportionate method for calculating ECPI, an actuarial certificate will be required to claim ECPI for any income from this date onward.

    Note that PCG 2017/5 may not need to be applied in some circumstances as individuals are able to rely on transitional law provisions. These state that if, on 1 July 2017, you were over your $1.6 million cap by $100,000 or less and you remove this excess by 31 December 2017, you won’t have to pay excess transfer balance tax or account for notional earnings on the excess.

    What if I want to roll over or cash out the amount once it is commuted?

    If you choose to roll over or cash out the commuted amount, you will only be able to do so once the value of the commutation amount is known. The relevant date of the event will be the date in which the roll over or cashing out occurs.

    For example, you may have made a valid commutation request, and the commutation is to occur just before 1 July 2017. Your pension value when the transfer balance account starts on 1 July is $1.6 million which is what your SMSF will report to the ATO.

    Some months later, the accounts are finalised and on 2 February 2018, it is determined that the commuted amount in excess of the cap was $239,000. A lump sum payment is made on that day.

    The SMSF accounts would reflect that the $239,000 amount was an accumulation phase interest of the member from 30 June 2017 to 2 February 2018.

    In order to calculate the value of super interests for transfer balance cap and total superannuation balance, when does an offset for franking credits become part of a member’s super interest?

    Franking credit offsets form part of a member’s super interest when the fund reconciles its accounts and determines its after-tax position.

    Whilst the fund’s accounts might not be reconciled until sometime after the final day of the income year (ie 30 June), the accounts are reconciled ‘as at’ that date. That is the relevant date for determining when the after-tax income forms part of a member’s superannuation interest.

    If a member of a SMSF has a 'flexi-pension':

    1. How should it be valued for transfer balance cap purposes?
    2. Can the pension be commuted to ensure a member does not breach their transfer balance cap?
    3. How is any excess amount left after the pension has been commuted in full to be treated?

    A flexi-pension is a superannuation income stream paid under regulation 1.06(6) of the Superannuation Industry Regulations 1994 (SISR) which is subject to restrictions on the amount that may be commuted.

    Valuation of the income stream for transfer balance cap purposes 

    A superannuation interest that is supporting a flexi-pension is to be valued for transfer balance tax purposes under s.307-205(1)(a) of the Income Tax Assessment Act 1997 which refers to the regulations specifying a method for determining the value of the superannuation interest. 

    The value of the superannuation interest is then worked out using the method set out in r.307-205.02(2) of the Income Tax Assessment Regulations (ITAR) 1997.  This method applies the relevant income stream valuation factors set out in Schedule 1B of the ITAR 1997.  This is different to the pension valuation factors set out in Schedule 1B of the SISR which are used to determine the maximum amount that may be commuted from the flexi-pension.

    Commutation rules 

    A flexi-pension can be commuted. If this occurs, trustees should use the pension valuation factors in Schedule 1B of the SISR to determine the maximum allowable commutation amount.

    There is no regulatory restriction on a member only partially commuting a flexi-pension, however trustees would need to confirm that the rules of the pension allow a partial commutation to occur.

    Where an individual’s flexi-pension is commuted, assets held in a reserve that supported the flexi-pension may be allocated to the member (noting that the amount commuted including amounts allocated from the reserve cannot exceed the maximum allowable commutation amount) to commence another superannuation income stream as soon as practicable without counting towards the member’s concessional contributions cap.

    Transitional CGT relief may be available (subject to other requirements) where the purpose of the partial commutation was to reduce the superannuation interests supporting superannuation income streams below the $1.6 million transfer balance cap prior to 1 July 2017.

    Treatment of any excess once an amount has been commuted in full.

    A trustee of a superannuation fund may hold assets in a reserve that supports a flexi-pension which exceed the maximum amount that may be commuted under regulation 1.06(6) of the SISR. 

    Where the flexi-pension has been commuted in full, the trustee may (subject to the applicable trust deed) allocate the excess amounts from the reserve to all of the members of the fund in a fair and reasonable manner.  Any allocation that is 5% or more of a member’s total interest in the superannuation fund will be a concessional contribution and count towards the member’s concessional contributions cap.

    Some people have suggested I can set up a reserve to ensure I do not exceed my transfer balance cap or to keep my total super balance down so I can still make contributions and access the new carry forward arrangements. Can I do this?

    We are currently monitoring the use of reserves by SMSFs following the introduction of the new limits and restrictions including the transfer balance cap and total super balance. While the establishment of a reserve is not specifically prohibited, we consider that there are very limited circumstances when it is appropriate for a reserve to be established and maintained in an SMSF. The use of reserves beyond these circumstances may suggest they are used as part of broader strategy to circumvent the new limits and restrictions. Any unexplained increases in the creation of new reserves or in the balances of existing reserves maintained by SMSFs is likely to attract close scrutiny from us.

    We will issue further guidance on when it may be appropriate for an SMSF to establish and maintain a reserve. In the meantime, if you are considering using reserves in your SMSF, we strongly encourage you to seek independent professional advice or approach us for advice before doing so.

    Superannuation providers

    What will happen if a member has an account-based retirement phase income stream in excess of $1.6 million after 1 July 2017?

    You will need to discuss with your member reducing the value of the income stream to below $1.6 million by commuting the excess amount as well as any excess transfer balance earnings that have accrued.

    Where a member has not provided direction to you to reduce their income stream by the necessary amount, we will issue you with a commutation authority, directing you to commute the necessary amount out of retirement phase.

    What are the consequences of not complying with a commutation authority?

    Where you do not comply with a commutation authority within the required timeframe, you will lose your entitlement to exempt current pension income (ECPI) in relation that particular income stream from the start of the financial year in which you failed to comply with the commutation authority and all later financial years.

    If your member wishes to have an income stream that is eligible for ECPI in the future, they will need to commute the existing income stream and start a new one.

    The requirement to comply with a commutation authority is also an obligation for trustees under law. Failure to comply with a commutation authority could also lead to regulatory action under that law.

    What are my reporting obligations for the transfer balance cap and the total superannuation balance?

    Transfer balance account report

    Super providers will have new reporting requirements associated with the transfer balance cap and total super balance. Super providers will need to report directly to us a number of member account events.

    Most APRA regulated funds will commence reporting electronically from 1 October 2017 on a monthly basis, within 10 working days of the end of the month. Life Insurance companies who provide certain superannuation income streams will also be required to report.

    We are continuing to work with the SMSFs on transitional reporting arrangements to assist with on-boarding this sector.

    A superannuation provider will be required to report all:

    • superannuation income streams in existence just before 1 July 2017
    • superannuation income streams that commence on or after 1 July 2017, including if a transition to retirement income stream starts to be in retirement phase
    • the anticipated credits expected to arise where a fund has an income stream supported by a limited recourse borrowing arrangement payments
    • member commutations (including transfers to accumulation and withdrawals from super system and commutations that occur prior to rolling over an pension interest to another fund)
    • compliance with a commutation authority
    • personal injury (structured settlement) contributions after 1 July 2017
    • superannuation income streams that stop being in the retirement phase.

    When a fund first reports to us after 1 July 2017, they will need to report each event that has occurred from 1 July 2017 until they started reporting.

    In addition, where a superannuation provider has reported an amount on a member contributions statement or SMSF annual return, but more information is required to calculate a member’s total superannuation balance or concessional contributions amount to meet legislative requirements, the provider is required to report:

    • 30 June accumulation phase value
    • 30 June retirement phase value
    • Partially unfunded notional taxed contributions.

    The timeliness of this reporting cycle acts in the best interest of members by ensuring any excess incurred can be remedied as soon as possible.

    More information on reporting obligations for super providers will continue to be provided as specifications are built.

    PAYG withholding obligations

    Defined benefit income streams are subject to concessional tax treatments where the recipient is 60 years old or over, or death benefits a dependant receives from a deceased person 60 years old or over. Superannuation providers who pay capped defined benefit income streams are required to withhold appropriate PAYG amounts and provide payment summaries to these income stream recipients and report to us. Note that payment summaries will be required whether a member’s income stream exceeds the defined benefit cap of $100,000 or not.

    What do I do if I am having difficulty meeting the withholding changes by 1 July?

    If a super provider is having difficulty implementing the withholding changes in relation to capped defined benefit income streams by 1 July 2017, they can write to us requesting an extension of time to comply. Requests should include the period of time you are seeking, the reasons why, and how you plan to manage the experience for your members. We encourage super providers to seek support as soon as possible, rather than making a voluntary disclosure that they are unable to comply. Send your request by email to withholding@ato.gov.au.

    How do I calculate the accumulation phase value for total superannuation balance purposes, for defined benefit members who have not retired?

    For defined benefit products, the way accumulation phase value is calculated depends on how the member is entitled to receive their super interests upon their voluntary retirement, under the rules of the fund.

    • Where the member, upon their voluntary retirement, must be either paid a non-commutable pension from the fund or forfeit their benefits (or a combination of the two), they will be assessed as having a nil accumulation phase value.
    • Where the member can choose, upon their voluntary retirement, to either roll-over some or all of their interest, or take it as a lump sum, the calculation differs. The member in these circumstances will be assessed as having an accumulation phase value equal to the maximum amount that may be rolled over or taken as a lump sum in accordance with the rules of the fund.

    For example, where the rules of the fund provide that upon reaching preservation age a member is entitled upon their retirement to:

    • an indexed non-commutable lifetime pension from the unfunded component of their super interest
    • either a non-commutable lifetime pension (not indexed) or a super lump sum from their funded component. 

    The member’s accumulation phase value if they were to voluntarily retire would be the sum of the super lump sum they could choose to take under the fund rules – as this is the maximum amount the member would be able to roll-over to another super fund or take as a lump sum payment.

    Provided the conditions for applying CGT relief to segregated funds are satisfied, what is an acceptable method for determining the market value of a relevant fund asset for the purposes of the cost base reset?

    It is expected that a market value for the relevant asset be set using a fair and reasonable methodology.

    The ATO guidelines for determining market value can be found at Market valuation for tax purposes

    In circumstances where the asset was supporting an account based pension the value of which would exceed $1.6 million at 1 July or a transition to retirement pension that was commuted before 1 July, the market value should reflect the asset’s value at the end of 30 June 2017. For transition to retirement pensions continuing past 1 July 2017, the relevant value is determined at the start of 1 July 2017.

    There are a number of factors that contribute to the calculation of the asset’s market value. What is considered a fair and reasonable methodology must be supportable by the facts in the particular circumstances.

    It requires a determination of the price that a 'hypothetical buyer' would pay for the asset having regard to rights and entitlements attached to the asset. Generally, where an amount of income has been derived from the particular asset held by the fund on or prior to 30 June 2017, we would expect the value set for that asset to reflect that fact.

    We note that funds may be entitled to income distributions from investment trust holdings on a present entitlement basis as at 30 June. We further note that:

    • funds will retain that distribution entitlement
    • the income distributed in satisfaction of that 30 June entitlement would be subject to the income tax exemption applicable for the 2017 year of income.

    A fair and reasonable market value for such a trust interest in these circumstances, as at the end of 30 June 2017, or 1 July 2017, will not include an amount reflecting the entitlement to or capitalisation of that distribution.

    For example, if the fund has a present entitlement to a 30 June income distribution from units in an investment trust, then it would be expected that the market value of the units should be the ex-distribution price at the start of 1 July 2017. Similarly, where units in an investment trust cease to be segregated, it would be expected that market value of the units would reflect an ex-distribution price at the end of 30 June 2017.

    A methodology which set a market value inclusive of the 30 June income distribution is not appropriate. Such a methodology overstates the value of the relevant units at the start of 1 July 2017. This is because it is necessary for the cost base uplifts to reflect an appropriate market value given the policy intent of the provisions was to ensure only those gains accrued prior to 1 July 2017 were exempt from tax in the fund and not to generate an immediate capital loss.

    The effect that the cost base uplift may have on determining a unit price for its members exiting or entering a particular product on or after 1 July 2017 is a matter for the relevant funds. The CGT relief provisions are only intended and only operate to determine the fund’s liability to taxation.

    How should tax be withheld for a capped defined benefit income stream where the member has not provided a tax file number?

    The applicable tax rates in this instance are listed in Schedule 13 our withholding tax table for superannuation income streams. Under this table, you must withhold 47% for residents and 45% for foreign residents from the 'taxable component' if an income stream payment is made to your payee and they:

    • have not quoted their TFN
    • have not claimed an exemption from quoting their TFN, and
    • have not advised you that they have applied for a TFN or have made an enquiry with us.

    Calculating the 'taxable component'

    For income streams paid to individuals under 60, the ‘taxable component’ comprises both the taxed and untaxed elements of the income stream.

    For capped defined benefit income streams paid to individuals who are 60 or over the ‘taxable component’ will comprise:

    • 50 per cent of the total of the tax-free plus taxed element that is over the defined benefit income cap, and
    • any untaxed element.

    You don’t need to apply the no-TFN withholding rate to either tax free or taxed elements of a capped defined benefit income stream if a member is 60 or over and the total of these amounts is below the defined benefit income cap.

    The no-TFN withholding rate applies to any un-taxed element of the taxable component as this remains a part of the income stream subject to tax.

      Last modified: 27 Oct 2017QC 51875