If you have more than $1.6 million of superannuation in pension phase, or you expect to have more than $1.6 million in pension phase by July 2017, then you need to start planning for some serious decision-making. Anyone with more than $1.6 million of super in pension phase as at 1 July 2017, will be forced to withdraw the excess over that amount from pension phase.
If your super pension balance (from all pension accounts) exceeds $1.6 million, you have two options when reducing your super pension balance to below $1.6 million before July 2017. You can move the excess into accumulation phase within the super system (where earnings will be taxed at 15%), or you can withdraw the excess from the superannuation system. For the general rules applicable to the $1.6 million transfer balance account, see SuperGuide article Burden for retirees: Monitoring $1.6 million transfer balance cap.
If you move the excess funds (above $1.6 million) into the accumulation phase of a super fund, and you accumulate capital gains before 1 July 2017 on that transfer, you may be eligible for capital gains tax relief for that gain.
According to the explanatory memorandum accompanying the legislation, “Where individuals need to commute superannuation income streams to transfer amounts from the retirement phase to the accumulation phase to comply with the transfer balance cap, earnings on assets supporting these commuted balances will become taxable. Similarly, where individuals have a TRIS [TRIP], earnings on assets supporting these superannuation income streams will become taxable from 1 July 2017 as they will no longer be in the retirement phase.
“The object of the provisions is to provide relief for complying superannuation funds from the tax consequences for capital gains accumulated before 1 July 2017, where these gains would have been exempt income if realised prior to a commutation being made to comply with the transfer balance cap, or the change to the treatment of TRIS [TRIP].”
What is the capital gains tax relief available?
According to the explanatory memorandum, the CGT relief allows complying super funds that CHOOSE TO APPLY the relief to reset the cost base on assets that are reallocated or re-proportioned from the retirement phase to the accumulation phase before 1 July 2017.
The relief allows the super fund to deem the transferred asset has been sold and repurchased at current market value as at 30 June 2017. The deemed sale triggers a capital gains tax event, which means the cost base for the asset is reset at current market value. The implications of this deemed transaction is that when the asset is sold some time in the future, after 1 July 2017, only capital gains arising from 1 July 2017, will be taxable.
Note also that since the asset is deemed as a new purchase, the eligibility for the 33% CGT discount restarts, and would not be available until the super fund holds the asset for a further 12 months.
Important: Eligibility for CGT relief on transferred pension assets, only applies to assets held during pre-commencement period (of the legislation, that is, 9 November 2016) and up to 30 June 2017, at least. A super fund must actively apply for the CGT relief using an approved form, and submit it to the ATO by the lodgement due date for the super fund’s 2016/2017 income tax return. A super fund can choose not to apply for CGT relief, but if a super fund does apply, the application cannot be revoked.
Warning: We are an information site rather than advisory site, and the rules explained above are complex and may have significant implications for those affected. The text above, like all information on SuperGuide, is for information purposes only.
For more specific information on how the CGT relief is applied to either segregated current pension assets, or unsegregated current pension assets, and also the potential to defer a capital gain (deferred notional gain) on the unsegregrated non-current assets beyond the 2016/2017 year, meet with an adviser who is top of these super rules and/or see the following government documents:
- The Explanatory Memorandum accompanying the legislation (Chapter 3), and/or meet with an adviser who is on top of these superannuation rules
- July 2017 super changes: ATO Guidance Notes and Law Companion Guidelines
- LCG 2016/8 Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds
For general information about transition-to-retirement pensions, see the following SuperGuide articles:
- Less tax, more super? A transition-to-retirement pension is no longer the answer
- Super pensions: Reviewing the merits of keeping a TRIP
- TRIPs: 10 interesting facts about transition-to-retirement pensions
For general information about the $1.6 million transfer balance cap, see the following SuperGuide articles: