A poll of SMSF and superannuation professionals has revealed the most important issues facing clients in the face of recent reforms. The super issues that matter most
From the second week of January until the end of February, Tax & Super Australia ran a poll on this website that asked the question: “Which of the following super issues will affect your clients most?” The results are shown in the graph below.
As can be seen, the $1.6 million transfer balance cap is the stand-out issue to be most likely to keep practitioners and their clients awake at night. A significant block of 30% of respondents nominated this one issue as being of most concern.
The transfer balance cap was introduced with a suite of other superannuation changes announced in the Federal Budget 2016-17, and is aimed at limiting the amount of funds that an individual can transfer into, or have in, pension phase. An initial limit is set at $1.6 million.
Many individuals are concerned with the way the appreciation of investments and investment losses are going to be reflected in this transfer balance cap. The short answer is that investment performance is not taken into account for the transfer balance cap. If a pension account grows due to an appreciation of investments, this is well and truly good for the pensioner. However the reverse is true in the case of investment losses – there is no way to replenish the limit imposed by the cap on the account of poorly performing investments.
The next troublesome super issue concerns transition to retirement income stream (TRIS) arrangements, with 19% of respondents flagging the proposed loss of the income tax exemption for investment earnings from assets supporting a TRIS as being the reform that will have a big impact on their clients.
Superannuation reforms spelled out changes that would see TRIS losing the exemption from income tax of 15% on assets supporting this pension. The stated rationale for removing the exemption was to encourage taxpayers to use TRIS as supplemental income for workers who have reduced their hours or responsibilities, rather than for tax minimisation.
Other significant issues that are seen as being most likely to affect clients are concerned with contributions — with 15% taking a dim view of reducing concessional contributions, and a further 13% cool on the idea of limitations placed on non-concessional contributions.
The proposed changes will reduce an individual taxpayer’s ability to accumulate funds in the superannuation system. Particularly, the reduction in the concessional contributions cap will limit the extent of tax-effective saving into superannuation.
The other issues of concern — deductions for personal contributions as well as transitional CGT relief — each earned roughly a 9% score for the effect these will have on super clients.
The removal of anti-detriment provisions and the new ability from July 1, 2018 to carry forward any unused concessional cap are both still a challenge, but less so than the above reforms.