Following the 2016 Federal Budget, a balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase may be introduced from 1 July 2017.  Any increases in the pension account due to net investment earnings exceeding pension withdrawals will not be restricted, but can remain in the pension account.  Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account where earnings will be taxed at the concessional rate of 15 per cent.  A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.

Members already in the retirement phase with balances above $1.6 million may wish to reduce their retirement balance to $1.6 million by 1 July 2017.  Excess balances for these members may be converted to superannuation accumulation phase accounts or the members can withdraw the excess amount from super only if they are eligible to withdraw benefits in full.

Auditor’s Emphasis: SMSF Trustees need to be mindful of their requirement to value all super fund assets at market value every year.  Assets cannot be simply artificially devalued to get under the $1.6 million cap and auditors will have a close eye on the valuation of assets.

Contributed by: Deepa Gaur