Nabtrade Webinar: EOFY and Post-30 June StrategiesMonday, 6th June 2017
nabtrade Webinar: EOFY and Post-30 June Strategies
Tuesday, 6th June 2017
nabtrade Webinar: EOFY and Post-30 June Strategies
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Operator: Ladies and gentlemen, thank you for standing by and welcome to the Nabtrade Webinar: EOFY and Post-30 June Strategies. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session. We'll be taking questions via web panel. Please be advised that this webinar is being recorded. I would now like to hand the webinar over to your first speaker today. Vishal, thank you. Please go ahead.
Vishal Teckchandani:Hello, and good morning, everyone. Welcome to Nabtrade's End of Financial Year and Post-30 June Strategies Webinar. I'm Vishal Teckchandani, Nabtrade's Content Editor, and I'll be your MC for this event. Before we proceed, I need to provide you with a general advice warning. Any advice in this presentation has been prepared without taking into account your goals and needs, and I'd like to particularly emphasise that any tax information in this presentation is provided as a guide only and is based on our general understanding of tax laws, be they legislated or proposed. We do encourage you to seek specialist tax advice to have a plan tailored to your particular objective. Now, let's get to the exciting part.
I'm delighted to introduce you to two of the best in the business. We have the lovely, fantabulous Gemma Dale, who will walk you through strategies to maximise your Super and the changes that are going to take place. Then we'll have the wonderful Paul Rickard from the Switzer Super Report, who will discuss strategies to optimise your end-of-financial-year capital gains and tax position, and he will also talk about proposals from the Budget, some key investment strategies that you may want to think about, and then we'll go straight into Q&A. Now, please feel free to submit your questions at any time, and remember, this webinar is not just about Super contributions. So if you've got specific questions about running an SMSF for Gemma or what Paul thinks of the market or a certain stock, do submit it, and we'll do our best to try and cover it at the end. Without further ado, I'll hand over to Gemma.
Gemma Dale: Thanks, Vish. It's the first time I've ever been introduced as fantabulous, so that was a brilliant introduction. Thank you very much.
Vishal Teckchandani:You're welcome.
Gemma Dale: Here's our disclaimer. Vish has already mentioned that we always tell people to get tax advice. We always tell people to take personal advice. This year, we really, really, really mean it. It's quite a complex array of strategies that present themselves to people. With this amount of legislative change, though, if you're in a scenario where this is interesting to you, but you're not quite sure what to do, please go and talk to a professional about your personal circumstances. We're going talk about some of the changes occurring prior to 1stJuly and some strategies you can undertake. I'm not going to spend too much time on those things that are occurring after 1st July, simply because there's only a couple of weeks left. There's a lot for people to do and we've received a number of questions prior to the session which have made it pretty clear which areas are of most interest to you and which are perhaps not quite so relevant. So we won't spend quite so much time on transition to retirement and a lot more time on pension balance considerations. If you have any additional questions for Vishal, please hand those through.
First, the opportunities that present themselves in this very interesting time that we are in. The first is that you should, if you are able, consider maximising your concessional contributions [inaudible]. The concessional contributions are those you make on a pre-tax basis. They are your superannuation guarantee, your 9.5% from your employer. They are salary sacrifice contributions, so those that you instruct to your employer to make on your behalf, and they're any contributions that you can claim a deduction for in your personal name. The reason that we are suggesting people consider maximisingthose is that the cap that will limit how much you can put in on a pre-tax basis will be lowering on 1st July.
So currently if you are–I'm going to say under 50, because it's just easier. If you're under 50 you can contribute $30,000 this financial year. If you are over 50, you can contribute $65,000 this financial year, and you can claim a deduction for that amount, whether you're doing it by salary sacrifice, including your [inaudible] or whether you're claiming a deduction in your own personal name. For everyone, that limit will be 25 grand from 1st July. So it's quite a sizable drop. That $10,000 drop for those who are over 50 is pretty substantial, and to many people who are planning to increase their contributions as they get closer to retirement, really were thinking about just taking advantage of that little bit more this year while you can.
Key issues to consider, for those who are employed, they're probably at a point where your opportunity to make additional concessional contributions is pretty limited. If you are employed, you are not generally eligible to claim a deduction for contributions made in your own name. You usually need to have a salary sacrifice arrangement in place, and you can only claim a deductionvia salary sacrifice for salary you haven't earned yet. Now, in this financial year, that is sort of three weeks left of annual salary. The one scenario where this might be beneficial to you is when you're anticipating a bonus before the end of the financial year that will be paid and allocated to your account before the end of the financial year. If that's the case, have a chat to your employer to see if there's something you can do.
Vishal Teckchandani:Right after this webinar.
Gemma Dale: Right after this webinar.
If you self-employed, you can make personal contributions any time up until the 30th June deadline and claim a deduction for those, although timing is absolutely imperative. But if the contribution doesn't reach your account until after 1st July, it will be allocated to next year’s account, and you will therefore be hit with next year's cap, not this year's cap. So for those – particularly those without an SMSF, who get a little more time, obviously, make sure that you know what your fund's timing dates are and that you get your money in on time.
Next, we're going to talk about maximising your non-concessional contributions. So these are those that you make on an after-tax basis. So you make them from after-tax payroll savings or you make contributions on behalf of your staff,or they make it on your behalf. These ones are changing pretty substantially from 1st July. About 10 years ago, or exactly 10 years ago, we had the first introduction of a cap on what was previously known as undeducted contributions. That has been, frankly, reduced several times since then, in terms of how it can be utilised, and the current cap at $180,000 per annum is going to be reduced to $100,000 on 1st July.
The bring-forward rule, which applies to those who are under 65 – really important that you're under 65 if you want to use that – which is currently $540,000 is going to reduce to $300,000. So this matters a lot, if you were planning to make large, last-minute contributions to retirement, which many people do. It matters even more if you have a sizable superannuation balance. If you have over $1.6 million under what's known as your total Super balance – that is your accumulated Super balance across all accounts, both pension and accumulation – you cannot make any after-tax contributionsfrom 1st July.
Vishal Teckchandani:It's really your last opportunity. That is what Gemma said.
Gemma Dale: This is really your last opportunity, absolutely. So for people in that scenario, the opportunity to contribute now is significant, and we strongly recommend you take advantage of that, if you are able. There are transitional rules that apply, but if you've contributed between $180,000 and $540,000 in 2015 and '16, or '16 and '17, which means you've effectively treated your bring-forward. So get those checked if you're not aware where they are. A critical point then again, please don’t exceed your cap, excessive contributions are painful and expensive to manage, so make sure you know exactly how much you can contribute and, again, make sure you watch the timing of those – that they are allocated to your account prior to 30th June.
In terms of what strategies are available to you, there are a couple of different ways you can do this. You can use the full $540,000 before 30th June, assuming you haven't used any of your bring-forwards previously,or in the previous two years. You can cash out and re-contribute into your own Super account. For many people that's not terribly beneficial, but you can cash out and contribute into a spouse's account. We're going to talk about this. The scenario where equalising your balances between two members as a couple sort of lost its shine for a while there. It didn't have a lot of substantial benefits, except for estate planning purposes. But suddenly with the $1.6 limit on making non-concessional contributions at all, and on the amount that you can hold on the pension side, suddenly having equalised balances isterribly beneficial, so you may like to think about contributing to your spouse's account, if your spouse has a much lower balance than you have.
Vishal Teckchandani:And the thing to emphasise, Gemma, that's the $540,000 per individual right, as well as the $300,000 bring-forward next year.
Gemma Dale: That's absolutely right, but if you've used the $540,000 this year you cannot use the $300,000 next, right? You have triggered your bring-forward, so please don't do anything for the next two years. Again, please don't exceed your cap. I will say it every single time. I apologise for the repetitiveness, but it's terribly important.
Okay, so the key advice issues to consider. One is transition to retirement. I'm not going to spend too much time on this, for the simple reason that I don't think we've received a single question about it so far, and we've had well over 50 questions, and there seem to be other areas that people are little bit more interested in getting some detail. What's most important about changing with transition to retirement is that those assets that are held in the pension phase in transition to retirement no longer get the concessional tax treatment that applies to pensions. It will be treated like an accumulation save.
So you lose that benefit of moving from a 15% tax regime into a 0% tax regime. For those who already have a KPR strategy in place, frankly, there's probably a big question mark about how beneficial this is for you. There will be the removal of the earnings exemption I just mentioned. There's a reduction in the contribution caps we've just talked out, and for who are earning over $250,000 per annum, you'll have an additional 15% tax on contributions. So for you, that kind of triple whammy of reduction in benefits may well make that strategy no longer worthwhile.
It’s a scenario where you really need to do your numbers and think through whether this is still of benefit to you. Probably the best response is to determine whether or not you've actually met the condition of release. If you've met a condition of release, you can convert to an account-based pension, which is that middle option presented on screen. The condition of release that's probably most common in this scenario is when you are over 60, and you have terminated an employment contract. It doesn't have to be your primary source of income, it doesn't have to be your main employment arrangement, but say you were –the one we love always is people who are, on election day, manning the polling booths, for example. It's a single employment contract. It only lasts for 24 hours in many cases. Once it's terminated, that will allow you to say, 'I have terminated an employment contract after the age of 60,’ and that will allow you to effectively ensure that all your funds are [inaudible]. The other option is you stop your transition to retirement strategy, or you can continue it, if you think it still has benefit for you.
We'll move past that one and we're going to go on to pension balances, because we had a lot of questions about this. Paul and I are going to talk about it a little bit later some of the strategies that have been proposed. But in order to clarify some of the important questions people have been asking, so for the first time, we will have a transferred balance cap applied from 1st July 2017. This amount is set at $1.6 million for the first year. It will be indexed over time, and it applies to total pension transfers. The most important word to remember out of that is transfer. So it's not the amount that you hold in pension savings, it’sthe amount that you transfer into that – into effectively starting an income stream.
Paul Rickard: That's one of the questions people are asking, Gemma. So if you transfer that $1.6 million and some of those assets lose their value – market has a correction or whatever – you can't then plug in that gap, can you?
Gemma Dale: No, absolutely not. So it is the amounts that you’ve transferred that is [inaudible]. And it counts both ways, right? So there are both advantages and disadvantages of this. If you transfer your $1.6, or you had $1.6 in pension savings on 1st July, you've used up that cap in full. If, in year two, your balance grows to a $2 million dollars in pension phase, that $2 million, the full amount gets the concessional tax treatment. So you pay no tax on earnings for [inaudible].
Paul Rickard: So it's not like you have to transfer 400,000 back into accumulation. No, that is the market value growth, it stays in pension.
Gemma Dale: That's exactly right, because it was the amount that you transferred that mattered. On the flip side, if you lose a million dollars in your pension, unfortunately there's nothing you can do about it. It's still the $1.6 that you transferred that is assessed, and the 0% tax on earnings applies to what's left of your pension.