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How to spend the next nine months

Research shows it takes around nine months to travel from Earth to Mars, history tells us it’s the equivalent time of an average gestation period, and financial planning nous tells us that’s how much time there is to maximise the benefits from the federal government’s super changes, which will take effect from 1 July 2017.

The government’s announcement last week of changes to its budget proposals has created an opportunity for current and prospective SMSF members to rethink their superannuation savings. But some of the opportunities may only be available for a limited time.

What are the new rules?

From 1 July 2017, clients will be allowed to make a non-concessional contribution to super in a particular financial year, provided their total amount in superannuation savings at the preceding 30 June hasn’t exceeded $1.6 million.

This $1.6 million threshold will be indexed in future years in line with movements in the consumer price index, but only in increments of $100,000.

If your clients are eligible to make a non-concessional contribution, from 1 July 2017 the annual cap on non-concessional contributions that can be made without penalty will be reset to $100,000 (currently set at $180,000 this financial year).

The ability to invoke a bring-forward rule that allows clients to contribute an amount equal to the current financial year and the following two will be retained. As an example, we know female clients generally have lower retirement savings balances than males. So female clients can exercise this as a catch-up and can make a non-concessional contribution of up to $300,000 in 2017/18. This would of course limit any non-concessional contributions in 2018/19 and 2019/20.

What does this mean for the current financial year?

It’s important to note the proposed changes apply to all members of a superannuation fund, not just SMSF members. However, the potential opportunities from these recent announcements may be greater for SMSF members.

As the new rules don’t apply until 1 July 2017, the $1.6 million balance cut-off level doesn’t apply this year. Even if your clients have more than $1.6 million in their SMSF (or other super funds) today, they may still be able to contribute more before 1 July 2017.

In addition to the simple opportunity to contribute more to the superannuation environment, some of the additional opportunities created for SMSF members are as follows:

• Were your clients considering acquiring a property within your SMSF, but abandoned those plans when the $500,000 lifetime cap for non-concessional contributions was announced on budget night? If they have the ability to contribute those funds now, they can top up their super balance to provide the deposit (or outright payment) towards that property purchase.

• If your SMSF clients have a loan over a property today (or were thinking of gearing in the future) and are concerned about ensuring the fund meets its principal and interest payments in the future, clients may be able to make regular after-tax contributions to help manage this important liquidity requirement.

• For small business operators who own their business premises outside super, there may be opportunities to explore different methods of transferring ownership of those premises to their SMSF.

• If your clients own shares and managed funds in their own name, you can explore the opportunity to transfer those assets to their fund as an in-specie contribution.

• And with the new non-concessional cap rules applying from 1 July 2017, if clients are ineligible to contribute at some future point, another member of the fund may be able to contribute – meaning the SMSF can still meet its overall objectives of helping its members towards their retirement goals.

Other changes that take effect from 1 July 2017

There are a number of other changes that impact on super from 1 July 2017 that were either announced on budget night or amended in the government’s recent announcement. Legislation to give effect to all these changes is expected to be introduced into parliament by the end of 2016.

Now is the time to check in with clients to make them aware of the changes and explore any opportunities that can maximise their outcomes between now and 1 July next year.

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