How Will Downsizer Contributions Work for SMSFs?
As of July 1, 2018, downsizer contributions for super funds will come into effect.
The following steps are required for an SMSF member to be eligible:
Transfer Balance Cap Explained
A transfer balance account is how the ATO track super transactions and amounts during a person’s retirement phase. The amount in your clients transfer balance account will determine whether or not they have exceeded their transfer balance cap. The limit on the amount someone can hold in retirement phase is currently (in 2017-2018) is $1.6 million.
It’s important to note that clients will begin to have a transfer balance account from the 1st of July 2017 if they are already receiving a retirement phase income stream at the end of June 2017. Otherwise, it will be on the day they first commence receiving a retirement phase income stream.
There have been a number of important legislative changes regarding personal super contributions that have come into effect from July 1st, 2017. As an advisor or administrator, keeping up to date with these changes allows you to provide the best services possible to your clients and ensure they are getting the most from their self-managed funds.
As per the ATO website “From 1 July 2017, funds won't be able to claim ECPI for the earnings from assets supporting a Transition to Retirement Income Stream (TRIS). These earnings will be taxed at 15%. This will apply to all TRIS regardless of the date the TRIS commenced.
You can claim the tax exemption in your SMSF annual return once your SMSF begins paying 'super income stream benefits' (commonly referred to as pensions). However, your SMSF is not automatically entitled to the exemption. To claim the exemption in the SMSF annual return, there are steps you must take prior to starting payment of the super income stream benefit, such as ensuring all the SMSF’s assets are re-valued to their current market value.”
The purpose of the CGT relief provisions is to provide SMSF’s temporary relief from some capital gains that can arise simply by complying with the transfer balance cap, or the TRIS reforms. It allows trustees of SMSF’s to reset an asset’s cost base to its market value prior to the 1st July 2017.
Advisors are also encouraged to review SMSF’s that were in pension made during the 2017 financial year, especially self managed funds worth more than $1.6 million in super, but keep in mind, some funds with member balances below $1.6 million may also be entitled to CGT relief.