Due to the introduction of the new ‘transfer balance cap’ from 1st July, 2017, super fund members with pension balances (in ‘retirement phase’) exceeding $1.6 million will need to partially commute one or more of their pensions to avoid the imposition of excess transfer balance tax.
In addition, members in receipt of a transition to retirement income stream (‘TRIS’) will lose the pension exemption from 1st July, 2017.
This means that the future disposal of any assets currently supporting such pensions will potentially generate a higher taxable capital gain (eve though the disposal of the asset prior to 1st July, 2017 could be fully or partially tax-free, depending on whether the asset is a segregated or unsegregated asset).
Fortunately, to avoid funds selling off assets before 1st July, transitional provisions have been introduced to allow super funds to apply CGT relief in certain situations.
Although the choice to apply the CGT relief can be made up until the day the super fund is required to lodge its 2017 tax return, in many cases, action must be taken on or before 30th June, 2017 for the fund to even be eligible to make that choice. In particular, funds calculating exempt pension income using the segregated assets method will generally need at least a partial commutation of the pension.
Please contact our office if you need any information regarding the super reforms, including what needs to be done to obtain CGT relief (if necessary), whether a TRIS should be commuted to accumulation phase or continued into the 2018 year, and how the new contribution rules will affect contributions in both the current and future years.