Radical tax changes for SMSFs from 1 July 2017

Massive changes to Superannuation tax was passed by the Senate on 7 December 2016. The ATO has released some information on the changes. https://www.ato.gov.au/Super/Self-managed-super-funds/Super-changes-for-self-managed-super-funds/  . The major changes are :

1) Removal of 10% salary and wage income test for individuals wanting to claim a deduction for personal contributions. It means a person can be working for someone/business, that person makes a personal contribution into his super and can claim a tax deduction for it (providing they signed an s290-170 Notice of Intention to Claim Deduction for Personal Super Contribution before lodging their personal tax return)

2) Removal of Low Income Super Contribution(LISC) and introduction of Low Income Superannuation Tax Offset(LISTO). Previously low income individuals receive a cash contribution amount from the government. But now, the changes meant no cash is paid, but a "tax offset" is given that will reduce the contributions tax paid by that individual's superfund assuming the fund made a profit in the first place. For example, Isaac received employer contribution of $3000 from work. The contributions tax is $3000 x 15% = $450. But because his ADJUSTED TAXABLE INCOME is under $37000 (let's assume his Gross Salary is $30000 and he has investment losses of $4000. So his Adjusted Taxable Income is $30000+ $4000 = $34000). This means he'll receive the maximum LISTO of $500. The LISTO is used to reduce his contributions tax of $450. So $450 - $500 = -$50. LISTO exceeded the contributions tax by $50. Isaac's superfund will not be able to get cash back for the $50. But his fund won't be paying contributions tax because the LISTO eliminated it.

3) TRANSFER BALANCE CAP OF $1.6 million. Basically SMSF's members with pension accounts totalling more than $1.6 million will have to commute amounts in excess of the $1.6 million threshold. The invested income generated by the commuted amount wSuper changes for SMSFill no longer be tax-free. For example, Malachi has an Accounts Base Pension of $2 million. He has to commute $400,000. The investment income generated by this $400,000 is taxable. The ATO will change the system so any commutation is recorded.

4) Reduction of non-concessional member contribution cap from $150000 per annum to $100000 and elimination of the bring-forward rule as at 1 July 2019.

5) Reduction of concessional contribution cap from $30000($35000 for individuals 50 plus years old) per annum to $25000 for everyone. The new cap is indexed to wage growth.

5) Transitional to Income Stream people for over 60 years old is no longer exempt from tax. Income generated from these accounts are taxable.

6)  Reduction of Division 293 income threshold from $300000 to $250,000.

For more details, visit the ATO webpage https://www.ato.gov.au/Super/Self-managed-super-funds/Super-changes-for-self-managed-super-funds/ 


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Chartered Accountants

Jimmy CK Chong is a Chartered Accountant & registered tax agent. Contact him via:
Tel : 08 9440 0871
Mob : 0433 117 110
Email : jchong@superfund.me

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