From July 1, this window closes and from then on investors will be limited to annual contributions of $150,000 or $450,000 averaged over three years.
It's also important to consider any opportunities for clients who were aged 64 or 74 between May 9 and September 5, 2006, who can still contribute up to $1 million as a result of transition relief issued on February 7, 2007.
It's also worthwhile asking clients if it's possible that they may have any lost super funds. Such accounts will typically be old and small and may have pre-1983 service dates. They can be rolled into larger current accounts before June 30 with great benefit to some clients.
There is currently no limit for ETPs being rolled into super. The post-1983 component of the ETP is taxed in the fund at 15 per cent and does not count towards the concessional contributions cap.
From July 1, clients will no longer be able to roll ETPs into super unless they were ‘transitional termination payments' – requiring an entitlement to a determinable amount under a written employment contract in place on May 9, 2006.
Whereas the MDC limits are currently levied on the entity making the contribution, from July 1 the new concessional contribution caps will be applied on a ‘per individual' basis.
~ salary sacrificing such that a client's employment income is less than 10 per cent of their total assessable income, allowing a personal deductible contribution to be made against a fresh MDC limit. The sale of an investment property is a common feature in this strategy.
When a super benefit is transferred from an overseas fund more than six months after a person becomes an Australian tax resident, a tax liability arises in respect of the growth of the overseas fund during the time of residency.
When the benefit is transferred to an Australian fund, the member can elect to have the taxable amount treated as a taxable contribution, incurring 15 per cent tax.
The taxable amount won't count towards the concessional contributions cap, however the remainder of the transfer will be regarded as a non-concessional contribution and count against the non-concessional cap. Prior to July 1, this cap is $1 million, but after that, the lower caps will make overseas transfers much harder.
Transferring an overseas super benefit to Australia ultimately benefits the client in the form of tax-free super after age 60. But this applies only to payments from Australian super funds, so if a pension is drawn from overseas it may well be taxable.
In order to elect to have the taxable part of the transfer treated as a taxable contribution to the Australian fund, as opposed to included in the client's assessable income, none of the overseas super benefit can remain in that overseas fund.
If an untaxed scheme is rolled over into a taxed scheme, the post-83 untaxed component is currently taxed at 15 per cent. The remaining amount becomes a post-83 taxed component in the new fund.
From July 1, rollovers from untaxed to taxed funds where the untaxed element exceeds $1 million will be taxed in the originating fund at 46.5 per cent. The amount up to $1 million will continue to be taxed at 15 per cent.
Clients with untaxed balances exceeding $1 million may wish to consider rolling their benefit to a taxed fund before June 30. The strategy is especially important where the untaxed fund does not offer untaxed pensions, meaning the client will at some stage be forced to roll the benefit out, or take a lump sum, at some future date.
2. From July 1, non-dependants, such as adult children, will only be able to receive a death benefit as a lump sum. Creating a higher tax-free component in super will significantly reduce ETP tax to a non-dependant on death.
From July 1, account balances will be split into a taxable and tax-free component. All lump sum withdrawals will be proportionate between these components. You will not be able to select the components for withdrawal.
The case study (please see Money Management Magazine April 5, 2007 page 40) considers the difference between using this strategy now and using it after July 1.
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