In September, the government announced its final version to the 2016 proposed super reform, with changes to be imposed in July 2017. Yannick Ieko, CEO of SMSF (Self-Managed Super Fund) Loan Experts, explains these changes and how they’ll affect SMSF property investors.
- Existing Annual Cap On After-Tax Super Contributions To Be Reduced From $180k To $100k Per Member
This change will have little impact for SMSF property investors. The “three year in advance rule” means a typical two-member SMSF can receive up to $600k of non-concessional contributions at once. (Non-concessional refers to after-tax super contributions for which an individual hasn’t claimed a tax deduction).
- Pension Account Balances To Be Limited To $1.6m
As this limit applies to individual members, SMSFs with two members can have up to $3.2m worth of assets before they are affected by this change. Investors with account balances in excess of the $1.6m will need to plan carefully to avoid paying tax on future earnings. One option could be to increase pension payments now so you fall under the $1.6m limit by July next year.
- Concessional Contribution Cap Limit Reduced From $30k to $25k For Everyone
This means the previous $30k cap and the over 50’s cap of $35k will be abolished. Essentially, such a cut will reduce the purchasing power of SMSFs. This may complicate things for members planning to build multi property portfolios through their SMSFs and for investing in SMSF property in general.
Investors will need to look for high yielding properties earning higher rents to replace the reduced tax incentives.
- Allowing Catch-Up Concessional Super Contributions
In slashing the concessional contribution caps, the government has offered one concession. Members with super balances of less than $500k will be able to roll over their unused concessional contributions for up to five years. Amounts carried forward that have not been used after five years will expire and only unused amounts accrued after 1 July 2017 can be carried forward. This is a huge benefit for people with interrupted work patterns, such as stay-at-home parents or carers as it enables them to make up for missed contributions.
With the proposed changes in mind, there’s one thing you need to remember. Between now and July 2017, they’ll be an election and it’s not unusual for budgetary changes to be adjusted, amended or dumped altogether before being finalised. My advice? Stay calm and don’t panic. The proposed changes will have little impact to your SMSF investment in general. If you do want to explore your options, make sure you get professional advice.