You may be aware that the latest changes to superannuation start on 1 July this year. From that date the maximum concessional contribution is $25,000 and the maximum non-concessional contribution is $100,000 with the bring forward rule of the next two years still applying.
However the other change is that there is a limit of $1.6 million that can be used to start a pension, with the remainder having to be left in the accumulation phase. The pension phase is interesting in that the tax rate on the income earned on the assets supporting the pension is 0% – yes zero! You cannot get it better than that.
For the past 10 odd years, super fund members didn’t have to worry about in which of the two spouses the family had their super. The only time it mattered was when one of the couple was in pension phase and the other was not.
Now this has changed. If you have more than $1.6 million in super then you don’t want it all in a single name.
If you have obtained a condition of release and your spouse meets the work test then you could withdraw an amount and then have your spouse recontribute it in their name within the contribution limits.
An issue also arises if you have a reversionary pension. If a person dies then a reversionary pension goes to a spouse or a dependent minor child. If the reversionary pension is added to any current pension and if the total is over $1.6 million then it must come out of the zero taxpaying super fund. The reversionary pension is notionally added to the existing pension 12 months after death. The planning procedure is to move the excess from the existing pension to accumulation phase so that when the reversionary amount is then added, the total is below $1.6 million.
After 1 July, if you are over the $1.6 million cap then you are unable to make further non-concessional contributions, so if you have the spare cash and are eligible to bring it forward, then you should doing consider this.
If you have more than $1.6 million in your super fund, don’t panic. There’s nothing that you need to do. The accountants will handle this by journal entry and you pay an extra amount of income tax.
If you are young then you may think that this isn’t relevant to you – but it is. If your contributions are only going into one name then the balance could grow in 30 year’s time to over $1.6m and then you have a problem. None of this planning should be done without an adviser – it’s too easy to get it wrong.
Peter Vickers is a Chartered Accountant in Lindfield, added insurance broking services to his business group 20 years ago to help clients protect their assets.