The wins and losses for super as big year looms
THE 2019 year promises to be another big one for superannuation and retirees, and that's not even factoring what may come out of the Royal Commission, the early federal budget, and the federal election.
Thanks to the series of major changes which have already been implemented over the last six months, those saving for or in retirement have a range of measures in place to supercharge their nest eggs.
The introduction of the five-year catch-up provisions now allows members to put in more than the $25,000, if they don't use their full $25,000 in previous years. It only started on July 1, 2018, so it won't be until next financial year (FY20) that people will first be able to make contributions to play catch-up for previous years.
The provisions won't be fully operational until FY23, when you will potentially be able to make contributions to cover unused concessional contribution caps for FY19, 20, 21 and 22.
Important note: you can only use the catch-up rules if you have less than $500,000 in your total super balance (TSB).
The new downsizer contribution rules allows the over-65s who are selling a home to put in up to $300,000 into superannuation. If it's a couple selling the home, that's up to $600,000.
This opportunity came into force on July 1, 2018, and there are plenty of qualification rules around it. The main ones include that you need to be older than 65, that you have lived in the house for at least 10 years and that the sale occurred after July 1, 2018.
You also can't contribute more than the value of your home - that is, if you sold a jointly owned home for $500,000, you would limited to making $500,000 of contributions between the two of you.
Spouse super splitting rules have continued to rise in prominence, for any couple where it's likely, or possible, that one member might go above the Transfer Balance Cap (TBC), which is currently $1.6 million.
These rules allow a spouse to transfer up to 85 per cent of the concessional contributions they have made the previous year across to their spouse's super fund account. If one spouse is making the full $25,000 of CCs available each year, then they could transfer up to $21,250 across to their spouse's account.
Done over many years, this is potentially a powerful way to help slow the growth of the higher earner's super fund, to try to minimise the chances of going over the $1.6m TBC.
Any couples with even reasonable super balances, but particularly those who believe one of them is likely to bust the $1.6m TBC, needs to start seeking advice in this area to save, potentially, tens of thousands of dollars in tax in retirement.
SMSFs will be allowed to have up to six members in the future. Similarly, the government intends to allow those SMSFs with a good record of compliance to only have to have their funds audited every three years. Both of these measures were announced in the May 2018 Federal Budget, but have not yet been legislated.
For those with more than $1 million in a super pension, the new Transfer Balance Account Reporting rules have come into force.
That is, if you are going to make a decision to take out more than the minimum pension, and you are going to take that as a commutation, then the ATO wants to know about it, essentially in real time, so the rules can't be fiddled with.
As banks came under pressure at the Royal Commission, one action they took was to make themselves smaller targets. They did this by pulling out of the lending market for SMSFs, under what is known as limited recourse borrowing arrangements (LRBAs). While the ANZ had never entered the space, CBA, NAB and Westpac, and all of their subsidiaries, all pulled out and AMP followed.
There are, however, still plenty of smaller lenders in this space. Despite what some commentators are suggesting, it is still possible to buy a property in your SMSF via an LRBA.
Tony Kaye is the Editor of InvestSMART www.investsmart.com.au.