Make no mistake, these changes are momentous. In my time in the industry, I can only recall one other time when such sweeping changes were introduced, and that was in Peter Costello’s 2006 budget. Those changes were welcomed. This time, of course, Canberra is taking something back from SMSF trustees.

Many in the superannuation industry, especially the SMSF sector, were opposed to the changes when they were first announced by Treasurer Scott Morrison in last year’s budget speech. Quite simply, if the goal of superannuation is to allow people to be self-sufficient in retirement, then for the government to introduce measures to make this goal that much harder seems to me to be self-defeating.

That said, at least the legislation has given the industry a degree of certainty – or at least until the next set of changes. After all the speculation of last year, trustees now know where the goal posts are.

From my perspective, there are four critical changes that SMSF practitioners should ensure their trustees understand to see whether they need to take any action. They are the reduction in concessional caps, reduction in non-concessional caps, pension transfer balance cap and transition to retirement pension. Let me now look at these four changes in some detail.

Concessional contributions cap reduction

Tax deductible super contributions have been cut significantly. Trustees only have to 30 June 2017 to claim the existing higher amounts.

From 1 July 2017, all concessional contributions will be reduced to $25,000 a year. Under the current regime, the concession caps are $30,000 for people aged under 49, and $35,000 for people aged 49 and over. It means either an extra $5000 or $10,000, depending on your age, that can be put into super this financial year. 

Reserving strategies will be subject to the new annual maximum cap of $25,000 when amounts are allocated from the reserve to the member’s account after 30 June 2017.

Non-concessional contribution reduction

In its initial proposal, the government opted for a $500,000 post-2007 lifetime cap on non-concessional or non-tax-deductible contributions to super funds. But the industry outcry, especially around the issue of retrospectivity, sent the government back to the drawing board. What has emerged is that all non-concessional contributions made on or after 1 July 2017 will be subject to a limit of $100,000 for any member with a total superannuation balance of less than $1.6 million. For those who exceed this $1.6 million balance, they will not be eligible to make further non-concessional contributions after 1 July 2017.

Transition to retirement pension (TRIS)

If the client has a TRIS, the tax-free environment they currently enjoy in their super fund will end on 30 June 2017. From that date, the earnings on assets supporting a TRIS will be taxed at 15 per cent. In addition, individuals will no longer be able to treat payments from TRIS as lump sums for tax purposes. And a TRIS will not count towards the $1.6 million transfer balance cap because it will not be in a tax-exempt environment. It’s a whole new ball game for those in the TRIS world.

Pension transfer balance cap

There will be a limit of $1.6 million for each SMSF members’ total superannuation pension balance that will be entitled to tax-free earnings. Taxpayers exceeding $1.6 million in the pension phase of their SMSF will have to transfer any surplus to an accumulation fund where they will be liable to a 15 per cent tax as compared to being tax-free in the pension phase.

It means for your typical husband-wife SMSF, they will have $3.2 million limit where investment income derived from these assets will be exempt from tax in the fund. The actual pension received by members will continue to be tax-free for those 60 and over. There has been no change to these arrangements.

There has been a lot of criticism of the introduction of this measure, much if which I concur with. But it is worth pointing out that the tax rate in the accumulation phases is still only 15 per cent, and that is still a very attractive tax environment compared with how those funds would be treated outside superannuation.

So for SMSF practitioners and their clients, the months running up to 30 June could be busy. To help clients with their planning, here are some key dates:

• 15 May 2017 – SMSFs using tax agent must lodge annual return and pay any tax due.
• 15 June 2017 – SMSFs using a tax agent and not paying any tax must lodge annual return.
• 30 June 2017 – ensure assets supporting member pension does not exceed $1.6 million.
• 30 June 2017 – if possible, take advantage of current concessional limit caps to maximise payments.

Olivia Long, CEO, SuperGuardian/Xpress Super