There are a number of changes that are going to make advising high wealth/income clients to use super very hard.
Lets start with transition to retirement pensions. People have been recommending staring these TTR pensions as soon as you turn 55 but make sure you salary package the amount back to your super fund. You end up with the same income (pension replaces salary packaged super) but you pay less tax (marginal rate vs 15%). But from 1 July 2017 TTR pension income will be taxed at 15%. This means it is now marginal rates vs 15%+15%. Still a benefit, but if the client has income over $250,000 we also get the Division 293 tax – so it is marginal rates vs 15%+15%+15% or 49% vs 45%. Almost no benefit at all in this!
Many high wealth/income individuals will have already put $500k of non concessional contributions away. So the new lifetime cap will mean this is no longer an option. And if they have not done $500k of non concessional contributions yet, this will often be just a once only contribution.
Salary packaging super will also be limited with a $25,000 concessional cap limit from 1 July 2017. If the high wealth/income client has a salary of $200k, their employer will have already put away $19k in SGC. That just leaves them $6,000 to salary package into super to stay under the cap. So packaging them to the $25,000 cap will save $2k in tax, and this reduces to $1k if they are subjected to Division 293 tax (greater than $250k income).
Division 293 tax applying from $250k rather than $300k will mean (a few) more taxpayers will have an effective contribution tax of 30%. But this won’t make much of a difference.
And finally, the change that will really cause problems. From 1 July 2017 the total amount of superannuation that can be transferred into retirement phase will be capped at $1.6 million. If you build up more than that in super, you have to keep it in accumulation (taxed at 15%) or take the amount out as a lump sum (which if you invest will be taxed at marginal rates).
But maybe you can advise lower income/wealth clients.
From 1 July 2017 taxpayers with balances under $500k in super can use up any unused concessional contribution caps in the prior 5 years. This could mean you could salary package lots in a year for someone who has a low super balance.
Also, it was announced that from 1 July 2017, the current 18% tax offset of up to $540 for low income super balances will be available for any individual, whether married or defacto, contributing to the super account of a spouse whose income is up to $37,000. So you might advise spouse contributions – but for a $500 benefit only?
In the end, the current advice of salary package super (limited and less benefit), lots of non concessional contributions (very limited), use a TTR (very limited benefit) and at the end a tax free income source (limited as well) is all changed.
A brave new world for super advisors…
Leave a Reply