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NCC opportunity playbook January 2017

Strategies to help your clients maximise their super. How to take advantage of the non-concessional cap (NCC) changes before 1 July 2017.

Adviser use only

Talk to your clients about maximizing the changes to super before 1 July 2017.We’re here to help you educate clients today around how they can adapt their plan for retirement for a better financial outcome.

1. What is the NCC opportunity? 1

2. Why it matters to you 4

3. Core NCC advice strategies: funding sources 5

4. Advice support and tools 6

5. How to engage your clients 7

6. Want to know more about NCC? 8

7. Concessional contributions 9

8. What other opportunities can I leverage through AMP? 11

9. NCC case studies 13

Contents

1

Depending on individual client circumstances, the lead up to 1 July 2017 could be the last opportunity to take advantage of some of the ‘concessions’ given to superannuation contributions currently.

The legislated changes to super provides an opportunity to speak to your clients about how they can make the most of their super.

From 1 July 2017: – The NCC cap will be lowered to $100,000, and the bring forward

amount to $300,000.

– Individuals whose total super balance is above $1.6 million will no longer be eligible to make non-concessional contributions.

What this means: – Clients will still be able make non-concessional contributions

under the higher cap before 1 July 2017 – regardless of their existing super balance.

What you can do: – Speak to your clients about what they can do to accumulate

more super before 1 July 2017.

Talk to your clients about the NCC opportunity today.

What is the NCC opportunity?

2

What is the NCC opportunity? (continued)

Couple

Non-concessional contributions

or

Now From 1 July 2017

$300k4

$600k4

or

Annual after-tax contribution caps

Maximise the 540k bring forward rule before 1 July 2017

Couple

$360k 1Couple

$200k 3

Individual

$180k 1Individual

$100k 3$540k2

$1.08m2

IndividualIndividual

Couple

1 Amount per year regardless of client’s super account balance. 2 Amount over three years if certain conditions are met.3 Amount per year provided client’s ‘total superannuation balance’ (including income streams) is less than $1.6m as at 30 June 2017.4 Amount over three years provided client’s ‘total superannuation balance’ (including income streams) is less than $1.6m as at 30 June 2017.

3

What is the NCC opportunity? (continued)

Non-concessional contributions

Last chance to make NCC contributions to super before 1 July 2017 1

$1.6 million2

Now From 1 July 2017

Superannuation balance threshold for NCC contributions

total superannuation balance

no limit2

1 For clients with total superannuation balances greater than $1.6m.2 Contribution cap rules still apply.

4

Benefits for your clients

Benefits for your practice

Benefits of partnering with AMP

✓ Greater accumulated superannuation balance to enjoy in retirement tax free

✓ One off opportunity to restructure existing assets to take advantage of the upcoming changes in legislation

✓ Help clients understand what the changes to superannuation mean

✓ Demonstration of value of advice

✓ Retention of HNW clients

✓ Business growth

✓ Enhance client engagement to help them make the most of the changes to non-concessional caps

✓ Being relevant to your clients during these significant changes

✓ Technical expertise offered to you to assist with clients maximising the opportunity

✓ Support for you in driving business growth

✓ Client engagement support

✓ Range of products to meet the needs of clients during this time

✓ Marketing support to engage clients effectively during this period

✓ Leverage AMP’s data analytics to help identify clients that may benefit from your advice

✓ Support to provide quality advice and services to your clients

Why it matters to you

5

Advice strategy New/existing money1 Funding sources

Contribute maximum of $540k if none previously used New – Cash

– Term deposit

– Direct equity/managed fund sale or in specie transfer

– Property sale

– Inheritance

– Downsizing

Contribute the balance of $540k if previously triggered New

Triggering a bring forward in current FY to lock in for the next year (if turning 65 during 2016/17)

New

Triggering a bring forward in current FY to lock in $380K over three years New

Contribute up to $180K in 2016/17 and then $300K in 2017/18 (if under 65 on 1 July 2017)

New

If client super assets over $1.6m, the current FY is the last opportunity to make any more NCC

New

Seek to equalise account balances for a couple, particularly if one member is approaching $1.6m via directing new money to the lower account balance holder

New

Contributing to a younger spouse for sheltering purposes (Centrelink) New/existing

Contribute to older spouse for earlier access to tax-free benefits New

Recontribution strategies for estate planning purposes Existing

Recontributing to a spouse’s super account to equalise super balances (eg with respect to $1.6m pension transfer cap)

Existing

Core NCC advice strategies: funding sources

1 New money refers to money not in super. Existing money refers to money already in super.

6

To help you make the most of the non-concessional contribution (NCC) and transition to retirement (TTR) opportunity before 30 June 2017, we know that helping make the advice process as easy and efficient as possible is really important to you.

You will have access to guidance tools and information to support advice delivery to your clients including:

– Guidance on the SOA/ROA requirements, including examples. Refer to the Further advice QAF for detailed information.

– Guidance on how to limit the scope of the SOA, where the advice is time sensitive. If the client agrees, you can address any other client goals at a later stage if they are not urgent. Refer to the Fact finding and information gathering QAF for detailed information.

– Advice document strategy text that can be used in either a SOA or ROA.

– A transition to retirement income swap comparison table, which can be added to the advice document to explain the impact of the budget changes on the client’s existing income swap strategy.

– Client engagement letters to alert clients to the need for an urgent review.

Access advice tools at Portal > Services > Advice > Advice areas > Federal budget 2016/17. Available 23 January 2017

Advice support and tools

7

Marketing elements will be provided to assist you in having meaningful conversations with clients around the NCC opportunity.

Tools to attract new clients Tools to use with existing clients

– Direct mail letter – Email banner – Email content – Email signature – Web tile

– Business partner client letter – Seminar presentation – Case studies – Social media content

– Direct mail letter – Email banner – Email content – Email signature – Web tile

– Seminar presentation – Case studies – Social media content – Newsletter content

(provided via Advant Plus)

Access marketing materials on Marketing HQ at Portal > Services > Marketing or contact [email protected]. Available January 2017

Note: Sample collateral pictured only.

How to engage your clients

The clock is tickingMore changes to super contributions are just around the corner.

Speak to us today to find out how these changes might affect you before 30 June 2017.

DRAFT ONLY

The clock is tickingMore changes to super contributions are just around the corner.


DRAFT ONLY

tickingThe clock

is

More changes to super contributions are just around the corner.


LR positionalDRAFT ONLY

THE CLOCK IS TICKINGMore changes to super contributions are just around the corner.


DRAFT ONLY

8

There will be opportunities to learn more including Advice Summit workshops, adviser education workshops, and TAPIN technical workshops and webinars. Keep an eye out for regular articles in your weekly licensee newsletter.

If you have any questions speak to your business development manager or partnership manager.

Super Reforms Masterclass – not to be missed Experts believe that the 1 July 2017 changes to superannuation are the most significant ones in the last decade, with changes to contribution caps and rules, transition to retirement, the pension transfer cap and many more.

Presented by AMP’s TapIn team and a panel of AMP experts the masterclass will provide you with technical knowledge as well as equip you with advice support and tools plus practical campaign resources to assist you in capturing these critical time bound opportunities.

Keep an eye out for an invitation to these interactive 3 hour sessions held nationally in a location near you.

Want to know more about NCC?

9

The forthcoming changes to super mean you can also assist clients with the changes to concessional contributions.

If you have low touch clients or clients with small account balances in your practice, AMP can also help you assist them to make the most of their concessional contributions.

What is changing from 1 July 2017? – The before-tax (concessional) contributions cap will decrease

from $30,000 (or $35,000 if turning 49 years of age or older this financial year) to $25,000 per year for everyone.

– In addition, the income threshold above which individuals will be required to pay an additional 15% tax on their concessional contributions, is reducing, from $300,000 to $250,000.

What is the opportunity? – Clients turning 50 and over: could contribute an extra $10,000

before-tax this financial year, before the cap is reduced to $25,000 from 1 July 2017.

– Clients turning 49 or under: could contribute an extra $5,000 before-tax this financial year, before the cap is reduced to $25,000 from 1 July 2017.

– Clients earning between $250,000 and $300,000 pa (inclusive of super contributions): could seek to make the most of their concessional contributions this financial year (up to $30,000 or $35,000 depending on their age, without paying the additional 15% tax that will be imposed from 1 July 2017).

Concessional contributions

10

How can I help my clients with concessional contributions? – Remember that all employer contributions, including SG, are

included in the concessional cap

– Additional concessional contributions can be made:

– On an on-going basis via salary sacrifice, or

– As a one-off lump sum, and will need to be arranged via the client’s payroll/HR department

– Self-employed individuals will need to ensure that tax-deductible concessional contributions are made before 1 July 2017 (assuming eligibility criteria is met). They will also be required to lodge a valid Notice of Intent (NOI) in accordance with the existing time frame

– Certain unemployed/retired individuals may be eligible to claim a tax deduction for personal super contributions eg where the less than 10% test can be satisfied

– Don’t forget to let your clients know that the funds are not accessible in super until they reach a condition of release such as retirement, and they may pay penalties if they breach their contribution caps

– Don’t forget to adjust salary sacrifice contributions before the $25,000 cap comes in on 1 July 2017.

To find out more about this opportunity and how you can assist your clients to make the most of these super changes go to: Portal > Services > Advice > Advice areas > Federal Budget 2016/17.

Concessional contributions

11

EOFY campaignAMP will be running an End of Financial Year (EOFY) direct-to-customer campaign from March – June, encouraging customers to consider making additional pre-tax and post-tax contributions.

You will be able to take advantage of this campaign activity when it is extended to practices in February.

What are the benefits? – No work required from you – just say yes.

– AMP can reach out to your clients directly in the lead up to the end of financial year, so that they can make the most of the opportunity for themselves.

– Any client leads will be referred back to you.

To find out more about this opportunity please visit Portal > Services > Marketing > Campaigns > Direct Campaigns > EOFY. Information will be available from February 2017.

What other opportunities can I leverage through AMP?

NCC case studies

13

NCC case studies

Contents

Part 1: Exploring core strategies 151. Clients unaffected by the $1.6 million limit 16

a. Client has not triggered the current $540,000 bring-forward limit 17b. Not triggered the current $540,000 bring-forward limit, was aged 64 at 1 July 2016, 18

and will have access to additional funds from 1 July 2017c. Has triggered current $540,000 bring-forward limit but has not used it all up 21d. Has already utilised the current $540,000 bring-forward limit 23

2. Client will be in excess of $1.6 million limit on 1 July 2017 24

Part 2: Maximising NCC opportunities – Strategies for couples 27Managing the $1.6 Million Pension Transfer cap – New money 28Managing the $1.6 Million Pension Transfer cap – Existing money 29Managing the $500,000 limit for catch-up concessional contributions (from 1 July 2018) 30

Part 3: Maximising Centrelink opportunities 35

Part 4: Maximising Estate Planning opportunities 37

Part 5: Beyond 1 July 2017 41

Part 1: Exploring core strategies

Case studies

15


In light of the changes to the NCC caps, to take effect from 1 July 2017, there are a number of key advice opportunities available in the lead-up to this date.

Given the introduction of a $1.6 million limit on an individual’s ability to make NCCs, the opportunities available will vary broadly based on an individual’s:

– Total superannuation assets,

– Amount of remaining NCC cap for 2016/17, and

– Age at 1 July 2016.

A discussion of these key opportunities now follows.

Case studies

16


Clients unaffected by the $1.6 million limitBased on their level of total superannuation assets, many individuals will not be impacted by the introduction of a $1.6 million limit on the ability to make NCCs from 1 July 2017.

However, notwithstanding the fact that they will not be impacted by this limit, meaning they will continue to be eligible to make NCCs after 30 June 2017, the lead-up to 1 July 2017 presents an opportunity to maximise the existing NCC cap(s) for these individuals, and the associated bring-forward limit, before these limits are reduced.

The way in which these opportunities are applied will depend on how much (if any) of the current NCC cap(s) the individual has utilised, the level of assets they have available to contribute into superannuation, and their age.

The likely scenarios to be encountered will be those where the individual has:

a. Not triggered the current $540,000 bring-forward limit,

b. Not triggered the current $540,000 bring-forward limit, was aged 64 at 1 July 2016, and will have access to additional funds from 1 July 2017,

c. Triggered the current $540,000 bring-forward limit but has not used it all up, or

d. Already utilised the current $540,000 bring-forward limit.

An outline of the opportunities available under each of these scenarios is provided over the following pages.

Case studies

17


a. Client has not triggered the current $540,000 bring-forward limit

Client characteristics:

✓ Age: Under age 65 at 1 July 2016

✓ Contribution history: Annual NCC of < $180,000 in each of 2014/15 and 2015/16

✓ Assets position: Up to $540,000 available for contribution to superannuation

Key points:

✓ Individuals aged 64 (or less) on 1 July 2016, and who had not triggered the bring-forward NCC cap in the preceding two financial years, are eligible to trigger the 3-year NCC bring-forward limit of $540,000 during the 2016/17 year.

✓ An individual who triggers the bring-forward rule on or after 1 July 2017, will be restricted to a maximum NCC amount of $300,000.

✓ Given this pending reduction to the NCC limit, and where sufficient assets are currently available, the 2016/17 financial year represents an opportunity to contribute significantly more money into superannuation as NCCs.

✓ By triggering and fully utilising the bring-forward limit in 2016/17, an individual will benefit from locking in $540,000, based on the existing annual cap of $180,000, even though the annual cap in future years will reduce to $100,000.

Case study:

Facts

Claire is 63 and is planning to retire at age 65.

She currently has total superannuation assets of $500,000 and has $540,000 of non-superannuation assets that she is prepared to contribute to superannuation.

She has not previously made NCCs.

Analysis

Claire maximises the current NCC cap available for 2016/17 by contributing $540,000 as an NCC by 30 June 2017.

If she had delayed her contribution until on or after 1 July 2017, the amount that she could have contributed to superannuation as an NCC would be limited to a maximum of $300,000.

As a result she has been able to get $240,000 more into superannuation.

Note: Had Claire triggered the $540,000 during 2016/17, but not fully utilised the amount before 1 July 2017, the amount available to be carried forward into future years would be subject to transitional rules – refer to case study on next page.

Case studies

18


b. Not triggered the current $540,000 bring-forward limit, was aged 64 at 1 July 2016, and will have access to additional funds from 1 July 2017


✓ Age: 64 at 1 July 2016

✓ Contribution history: Annual NCC of < $180,000 in each of 2014/15 and 2015/16

✓ Assets position: > $180,000 available for contribution to superannuation in 2016/17. Anticipating additional funds in 2017/18 (eg inheritance, property sale).

Key points:

✓ For individuals who were 64 years of age on 1 July 2016, the 2016/17 financial year represents their final opportunity to trigger and lock in the three year bring-forward – that’s because they will be aged 65 (or older) on 1 July 2017 and future years, making them ineligible to trigger the bring-forward rules in these future years.

✓ Individuals with the available means to make a $540,000 NCC should consider doing so before 1 July 2017 to maximise the current cap – refer to earlier client scenario.

✓ However, triggering the 3 year bring-forward in 2016/17, where an individual has the available means to do so, can be advantageous – particular where an individual is expecting additional funding

to become available in 2017/18 or 2018/19 (where they would no longer be eligible to trigger a bring-forward).

✓ In order to trigger a bring-forward, an individual simply needs to contribute above the standard cap of $180,000 during 2016/17. That is, contributing $181,000 this financial year will be sufficient to lock in a bring-forward amount of $540,000 for 2016/17. But more importantly, will also enable them to carry forward unused amounts in order to make additional contributions (above the standard $100,000 NCC cap) in 2017/18 or 2018/19.

✓ However, where a bring-forward amount is triggered during 2016/17, but some of the $540,000 remains unused at 30 June 2017, the amount available to be carried forward into future years will be subject to transitional rules from 1 July 2017 – outlined below.

✓ Note: If an individual is aged 65 or older at the time of making a contribution, the individual will need to satisfy the work test requirements.

Case studies

19


Transitional rules:

Where a bring-forward is triggered in the 2016/17 year (but the full $540,000 is not utilised by 30 June 2017) the individual’s NCC cap bring-forward amount for that triggered 3 year bring-forward period will be recalculated on 1 July 2017. In this scenario, the maximum available will be $380,000.

This reduced amount is based on the annual cap of $180,000 in 2016/17 and the $100,000 cap in each of the 2017/18 and 2018/19 years.

As a result this means that, for a person who has not fully utilised the $540,000 triggered bring-forward amount by 30 June 2017:

a. The NCC bring-forward cap is recalculated down to $380,000 on 1 July 2017,

b. No further NCCs can be made in 2017/18 or 2018/19 if in the first year of the bring-forward period (that is 2016/17) NCCs of at least $380,000 had already been made, and

c. Unless the person already has a total superannuation balance of at least $1.6m at the start of the relevant contribution year, further NCCs can be made in 2017/18 and/or 2018/19 to bring the total NCCs contributed from 1 July 2016 to 30 June 2019 up to the $380,000 transitional bring-forward amount.

Case studies

20


Case study:

Facts

Molly is 64 and has a superannuation balance of $200,000. She will be 65 in February 2017.

In September 2016 she received an inheritance of $200,000 which she is planning to contribute to super as an NCC.

Analysis

By contributing this amount during the 2016/17 year, she is able to trigger the 3 year bring-forward.

However, if we assume that she makes no further contributions in 2016/17, she will not fully utilise the entire triggered $540,000 NCC cap amount by 30 June 2017, and as such, her remaining bring-forward NCC cap from 1 July 2017 will be lowered using the transitional rules.

Accordingly, from 1 July 2017, the $540,000 NCC amount is lowered to $380,000.

As a result, any future NCCs made before 1 July 2019 will be limited to $180,000 ($380,000 less $200,000).

Subject to her available resources in future years, for example if she were to downsize her home, Molly could make additional NCCs of up to $180,000.

The benefits of triggering the 3 year bring-forward in 2016/17 is that Molly has:

1. Been able to contribute the entire inheritance amount,

2. Locked in the ability to contribute an additional $80,000, and

3. Flexibility as to when to make the further $180,000 up to 30 June 2019.

Note: If she had not triggered the bring-forward in 2016/17, she would not be eligible to trigger the bring-forward in any future year. As a result, she would only be able to contribute a maximum of $100,000 from the inheritance in 2017/18 and the remaining $100,000 in 2018/19.

However, she would be unable to contribute any future proceeds, say from the downsizing of her home, until 2019/20.

Case studies

21


c. Has triggered current $540,000 bring-forward limit but has not used it all up


✓ Client is age < 65, or otherwise meets the work test

✓ NCC bring-forward was triggered during 2015/16 or 2016/17

✓ NCC bring forward limit (ie $540,000) not fully utilised

✓ Assets position: Up to balance of unused $540,000 available for contribution to superannuation

Key points:

✓ Individuals who are currently in a previously triggered bring-forward period and who have not yet utilised the maximum $540,000 limit available, will continue to have the ability to utilise the remaining balance (ie up to $540,000) by making additional NCCs before the bring-forward period expires – that is, 3 years from the date it was first triggered.

✓ However, where an individual does not fully utilise the $540,000 NCC cap amount by 30 June 2017, a recalculation of the bring-forward cap amount will be required. This will determine the amount of bring-forward they have available in the 2017/18 and/or 2018/19 years.

✓ The recalculation (or transitional) rules will broadly be as follows:

a. If the NCC bring-forward was triggered in the 2015/16 year (and the full $540,000 is not utilised by 30 June 2017), that individual’s NCC bring-forward cap amount for that triggered 3 year bring-forward period is recalculated on 1 July 2017 to reflect the proposed lower annual $100,000 NCC cap from that date.

So instead of $540,000 applying to the already triggered 3 year period, the bring-forward cap amount is on 1 July 2017 recalculated down to $460,000 for that triggered 3 year period.

This reduced amount is based on the annual cap of $180,000 for both 2015/16 and 2016/17, and the proposed $100,000 cap in 2017/18.

b. If the NCC bring-forward was triggered in the 2016/17 year (and the full $540,000 is not utilised by 30 June 2017), that individual’s NCC bring-forward cap amount for that triggered 3 year bring-forward period is recalculated on 1 July 2017 to reflect the proposed lower annual $100,000 NCC cap from that date.

Case studies

22


So instead of $540,000 applying to the already triggered 3 year period, the bring-forward cap amount is on 1 July 2017 recalculated down to $380,000 for that triggered 3 year period.

This reduced amount is based on the annual cap of $180,000 for 2016/17, and the proposed $100,000 cap in 2017/18 and 2018/19.

✓ Individuals should consider fully utilising any unused/remaining amounts of previously triggered bring-forward NCC cap before 1 July 2017 in order to maximise the amount that is able to be contributed to superannuation as NCC.

✓ Note: If an individual is aged 65 or older at the time of making a contribution, the individual will need to satisfy the work test requirements.

Case study:

Facts

Jill is 55 and has a superannuation balance of $700,000.

In September 2015 (2015/16 financial year), she contributed $250,000 as NCCs into her super.

She has not made any further NCCs.

Analysis

Jill’s $250,000 NCC triggered the 3 year bring-forward using the existing ($540,000 3 year bring-forward) cap, with the first year being 2015/16.

As such, she is able to make additional NCCs of $290,000 before 1 July 2017.

However, if she doesn’t utilise the entire triggered $540,000 NCC cap amount by 1 July 2017, from 1 July 2017 her remaining bring-forward NCC cap will be lowered using the transitional rules outlined above.

Accordingly, Jill’s remaining bring-forward cap amount will reduce to $460,000 as follows:

– $180,000 for 2015/16

– $180,000 for 2016/17

– $100,000 for 2017/18.

So, Jill will only be able to make further NCCs of up to $210,000 in 2017/18.

Note: Jill could later access the lower NCC annual cap from 2018/19 and contribute up to $100,000 NCCs per financial year (or $300,000 using the bring-forward rule).

Case studies

23


d. Has already utilised the current $540,000 bring-forward limit



✓ NCC bring-forward was triggered during 2014/15, 2015/16 or 2016/17

✓ NCC bring forward limit (ie $540,000) has been fully utilised

Key points:

✓ Unfortunately, individuals who are currently in a previously triggered bring-forward period and who have fully utilised the maximum $540,000 limit available, are unable to make additional NCCs prior to 1 July 2017.

✓ Their next opportunity to make NCCs and to potentially trigger a new 3 year bring-forward limit will be when the existing bring-forward period expires.

Current bring-forward limit triggered during…

Next potential bring-forward trigger opportunity…

2014/15 2017/18

2015/16 2018/19

2016/17 2019/20

Note: An individual’s ability to trigger a future bring-forward limit will also depend on that individuals age and total superannuation assets at that time.

✓ Where that individual is subsequently able to trigger a new 3 year bring-forward limit, the maximum limit(s) will be based on the new (reduced) NCC limit(s). That is, $100,000 annually (or $300,000 under the 3 year bring-forward).

Case studies

24


Client will be in excess of $1.6 million limit on 1 July 2017Client characteristics:


✓ Client will have total superannuation assets of > $1.6 million on 1 July 2017

✓ NCC bring forward limit (ie $540,000) has not been triggered or, if triggered, has not been fully utilised.

✓ Asset position: Sufficient assets available to make NCC prior to 1 July 2017 up to the individual’s current NCC cap(s)

Key points:

✓ With the introduction of a $1.6 million limit on an individual’s ability to make NCCs from 1 July 2017, an individual with superannuation assets that exceed this new limit will unfortunately, lose the ability to make NCCs.

✓ As this limit will only apply to contributions made on or after 1 July 2017, contributions made prior to 1 July 2017 will not be affected – even where the result of contribution(s) made prior to 1 July 2017 is to take that individual’s superannuation assets above the limit.

✓ If an NCC bring-forward is (or was) triggered under the existing $180,000/$540,000 rules, the full $540,000 can be contributed by 30 June 2017 even if the person already has a superannuation balance of more than $1.6 million.

✓ If an NCC bring-forward period has not currently been triggered, a full $540,000 can be contributed by 30 June 2017 to trigger the 3 year bring-forward (where eligible) even if the person already has a superannuation balance of more than $1.6 million or the contribution would otherwise take them above $1.6 million.

✓ Where a $540,000 bring-forward amount under the existing rules is fully contributed/utilised by 30 June 2017, no further NCCs can be made until the relevant bring-forward period has expired. After that time, the proposed annual $100,000 NCC cap (or $300,000 using the bring-forward) will apply as long as the person’s total superannuation balance at the start of the financial (contribution) year is under the $1.6m superannuation balance restriction.

✓ Note: The $1.6 million limit will apply based on an individual’s total superannuation assets as at 30 June of the previous year. As such, an individual’s ability to make NCCs in future years will be re-assessed on an annual basis (refer to Post 1 July 2017 discussion later).

Case studies

25


Case study 1:

Facts

Donald, age 60, currently has a superannuation balance of $2.6 million.

He has not recently triggered a 3 year bring-forward period.

He has $540,000 available to contribute to superannuation as a NCC.

Analysis

As Donald is under age 65, and has not recently triggered the 3 year bring-forward, he is able to make a $540,000 NCC before 1 July 2017 by triggering the 3 year bring-forward during the current financial year.

If Donald instead chooses to delay making this contribution, he will be unable to contribute this amount into superannuation from 1 July 2017 as he will be in excess of the $1.6 million limit that will apply from that time.

As such, the current financial year represents the last opportunity for Donald to make NCC superannuation contributions.

Case study 2:

Facts

Michelle, age 59, currently has $1.4 million in total superannuation assets.

She has not recently triggered a 3 year bring-forward period.

She has $540,000 available to contribute to superannuation as a NCC.

Analysis

Just as in Donald’s case, because Michelle is under age 65, and has not recently triggered a 3 year bring-forward, she is able to make a $540,000 NCC before 1 July 2017 by triggering the 3 year bring-forward during the current financial year.

This is the case notwithstanding the fact that her $540,000 NCC will result in her exceeding $1.6 million on 1 July 2017. That’s because the $1.6 million NCC limit does not apply to any contribution(s) made during the current financial year.

Unlike Donald’s case, should Michelle delay in making this contribution, she may still be able to contribute some of this $540,000 after 1 July 2017 (if we assume that her balance remains below $1.6 million on 1 July 2017). However, any contribution she makes after 1 July 2017 will be subject to the new reduced NCC limits (see discussion on Post 1 July 2017 later).

Part 2: Maximising NCC opportunities – Strategies for couples

Case studies

27

While the core strategies outlined so far will apply equally to clients who are single or members of a couple, when considering a couple scenario, there may be additional opportunities to be extrapolated as a result of recent superannuation reforms.

For example, in addition to determining whether an individual will be able to make Non-concessional contributions from 1 July 2017, we know that the value/size of an individual’s total superannuation assets will now be used to determine:

– how much an individual is able to transfer into a pension in retirement (ie the $1.6 million pension transfer cap) from 1 July 2017, and

– whether an individual is able to utilise the catch up concessional contribution ability from 1 July 2018 (based on superannuation assets being below $500,000).

As a result, where there are opportunities to equalise superannuation balances, doing so could prove to be very beneficial.


Case studies

28


Managing the $1.6 Million Pension Transfer cap – New moneyCase study:

Facts

Michael (age 59) and Julie (age 58) are married. Michael plans to retire at age 60 while Julie is no longer working.

Michael has total superannuation assets of $1.4 million, while Julie has

total superannuation assets of $600,000. Neither of them has recently triggered a 3 year NCC bring-forward period.

They recently received an inheritance of $400,000 following the death of Michael’s mother, which they are considering putting toward their retirement by way of a superannuation contribution.

Analysis

Both Michael and Julie are able to make an NCC superannuation contribution of up to $540,000 by triggering the 3 year bring-forward in the current financial year. As evidenced in our earlier core strategies, this is true even though a $400,000 NCC to Michael would result in his superannuation assets exceeding $1.6 million on 1 July 2017.

However, if this amount was made as a $400,000 NCC to Michael, his total superannuation balance would increase to $1.8 million. As they plan to retire shortly, Michael would not be able to transfer his entire balance into the retirement phase as he would exceed the $1.6 million pension transfer cap.

On the other hand, if this amount was used to make a $400,000 NCC (or a spouse contribution) to Julie, his total superannuation balance would remain below the $1.6 million pension transfer cap, enabling him to transfer his entire superannuation balance into the retirement phase.

At the same time, Julie’s superannuation balance would remain well below the pension transfer cap enabling her to also transfer her entire superannuation balance into the retirement phase.

Note: It is also acknowledged that the contribution amount could be shared between Michael and Julie.

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Managing the $1.6 Million Pension Transfer cap – Existing moneyCase study:

Facts

Matthew (age 65) and Alyssa (age 60) are about to retire.

Matthew has total superannuation assets of $2 million, while Alyssa has total superannuation assets of

$300,000. Neither of them has recently triggered a 3 year NCC bring-forward period.

They would like to commence account-based pensions to support their desired retirement lifestyle.

Analysis

Due to the pension transfer cap that will operate from 1 July 2017, the amount that can be transferred into a retirement pension account will be limited to $1.6 million each.

As Matthew’s total superannuation assets are currently above this limit, he will not be able to transfer the entire amount into an account-based pension. Based on his current balance, he will need to leave around $400,000 in the superannuation accumulation phase, or withdraw around $400,000 from the superannuation system completely.

Alternatively, Matthew could consider undertaking a re-contribution strategy prior to 1 July 2017, which would involve withdrawing up to $540,000 from his superannuation fund and using that amount to make a spouse contribution into Alyssa’s superannuation fund.

If we assume that Matthew undertakes a $500,000 re-contribution strategy, his account balance will fall to $1.5 million while Alyssa’s balance will increase to $800,000. The result is that all of their combined superannuation holdings can now be transferred into account-based pensions without exceeding the pension transfer cap.

If Matthew were to delay undertaking this re-contribution strategy until 1 July 2017, he would be limited to a $300,000 re-contribution under the reduced NCC limits that will apply from that time. This would mean that he is still over the $1.6 million pension transfer cap.

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Managing the $500,000 limit for catch-up concessional contributions (from 1 July 2018)A related super reform measure is set to allow catch-up concessional contributions to be made by those whose total superannuation balance does not exceed $500,000 as at 30 June in the previous financial year.

This measure is proposed to apply when a contributor does not use up all of their CC cap in a year, commencing with unused CC cap accrued from the 2018-19 year onwards.

Unused CC cap amounts can be carried forward for five years. As such, a client could potentially contribute up to $150,000 in a year as concessional contributions (comprising the previous five years of unused CC cap plus the current years’ cap).

This may present opportunities for eligible clients who, for example, may realise significant capital gains during a financial year as it will enable them to make tax deductible super contributions in excess of the yearly CC cap which would otherwise apply.

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Managing the $500,000 limit for catch-up concessional contributions (from 1 July 2018)Case study:

Facts

Jarryd and Hannah are both age 49.

Jarryd has a total superannuation balance of $450,000, while Hannah’s total superannuation balance is $150,000.

They have recently had a sea change, leaving the big city behind them. And, they have been left with available cash of around $400,000 after selling their apartment.

Unlike Jarryd, Hannah’s employment pattern is likely to be relatively unstable for a number of years.

They also own an investment property (positively geared) which is held in Hannah’s name.

Analysis

Based on their current situation, there is the real possibility of realising a taxable capital gain in years to come. In that circumstance it could be beneficial for Hannah to be able to make concessional contributions, potentially in excess of the yearly cap, in order to be able to manage the potential tax liability associated with such a gain. To enable this to occur however, Hannah’s total superannuation balance would have to be below $500,000 for her to be eligible to use catch-up concessional contributions.

As such, should they choose to contribute all of the available cash to Hannah, the result would be an inability to use the catch-up concessional contributions measure from 1 July 2018.

A solution here may be to share the available cash and contribute to both partners. In this way Hannah’s total superannuation balance should remain below $500,000, allowing catch-up concessional contributions to be made when the investment property is sold.

Part 3: Maximising Centrelink opportunities

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Using superannuation to shelter assets from means testingAmounts held in superannuation (accumulation), by those who are below Centrelink age pension age or DVA (age) service pension age, are exempt from means testing – under both the income and assets tests.

Therefore, opportunities to transfer assets into the superannuation accumulation balance of certain members may enable them and/or their partners to receive a larger Centrelink/DVA entitlement.

Further, with the age pension eligibility age increasing to the currently legislated age of 67, such sheltering strategies will have a prolonged lifespan.


✓ Single clients: Below age pension age and eligible for income support payments such as Newstart Allowance, Carer Payment, Disability Support Pension.

✓ Couple clients: Where one (or both) is below age pension age.

✓ Client who will receive contribution is age < 65 or otherwise eligible to contribute to super.


✓ Asset position: Sufficient assets available to make NCC prior to 1 July 2017 up to the individual’s current NCC cap(s)

– May include transferring existing superannuation assets from an older spouse, where that spouse has access to their superannuation benefits. See re-contribution strategy discussion below.

Key points:

✓ Centrelink age pension age is currently age 65. However, this is increasing to age 65.5 from 1 July 2017. As such, someone who turns age 65 on 1 July 2017 will not be eligible for the age pension until 1 January 2018.

✓ Note: DVA (age) pension age remains age 60.

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Maximising Centrelink benefits (Single person)Case study:

Facts

Joey is single, unemployed, aged 60.

Joey’s position was made redundant by his previous employer some time ago and as such, any Centrelink waiting periods have since expired.

Joey, who is a homeowner, has $300,000 in cash and some other lifestyle assets.

However, he will not be eligible for the age pension for approximately six years.

Analysis

Joey may qualify for Newstart Allowance, however his assessable assets exceed the 1 January 2017 lower assets test threshold of $250,000 which is the cut-off point for Newstart eligibility.

Fortunately, as he is under 65, Joey is eligible to contribute to super.

Joey could make a NCC of approximately $70,000 (allowing for other assets) to reduce his assessable assets below the $250,000 asset test threshold, which will make him eligible for Newstart Allowance of approximately $460 per fortnight.

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Maximising Centrelink benefits (Couples)Case study:

Facts

Jerry (age 65) is married to Elaine (age 60) and they are homeowners. Jerry would like to qualify for at least a part age pension entitlement when he retires.

When Jerry retires in January 2017 they will have assessable assets as follows:

Superannuation – Jerry $850,000Superannuation – Elaine $200,000Cash $100,000Car and contents $50,000

Of these assets, only $1,000,000 will be assessable (Elaine’s super is excluded). However, this means that Jerry will not be eligible for the age pension as the couple homeowner assets test cut-off threshold will be $816,000 from 1 January 2017.

Analysis

Jerry’s superannuation will be assessable under the assets test. However, Elaine’s superannuation balance will not be assessed by Centrelink until she reaches age 66 and a half (approximately six years away).

As such, if they were to move some of their assessable assets into Elaine’s superannuation, Jerry may qualify for at least a part age pension (and the concession card) on retirement.

Elaine is still eligible to contribute up to $540,000 as an NCC into her superannuation before 30 June 2017. This contribution can be funded through a combination of Jerry withdrawing part of his super and contributing it as a spouse contribution and in part by contributing some of their cash to Elaine’s super.

Overall, this will reduce their assessable assets to $460,000 and provide Jerry with an age pension entitlement of approximately $534 per fortnight ($13,876 p.a.).

On the flip side, there is additional tax to pay because assets are being held in Elaine’s taxable accumulation super.

In addition, Elaine may be eligible for income support. While their assessable assets still exceed the cut-off threshold for Newstart Allowance, Elaine could potentially receive a part payment of Disability Support Pension if she had an eligible disability.

Part 4: Maximising Estate Planning opportunities

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Re-contribution strategyThe re-contribution strategy involves making a withdrawal from superannuation and re-contributing these monies as a non-concessional contribution.

This strategy is usually performed for estate planning purposes because the result is to essentially convert taxable superannuation benefits into tax-free superannuation benefits.

The taxable component of a lump sum superannuation death benefit generally attracts 17% tax when paid directly from a super fund to a non-tax dependant, such as an adult child. Therefore, the benefit of converting taxable component to tax-free component before death will reduce the tax payable under these circumstances.

Currently a significant portion of the death benefits tax payable by non-dependent adult children is neutralised where a super fund pays an anti-detriment payment to the eligible beneficiaries. However, anti-detriment payments will no longer be available where a member dies on or after 1 July 2017 (albeit with transitional rules applying under certain circumstances) – further increasing the merits of considering re-contribution strategies for clients.




✓ Have taxable superannuation benefits, which upon death will be paid to non-tax dependants (eg adult children, siblings, nieces or nephews, grandchildren) – even if the first recipient of the death benefit is their spouse

✓ Have unrestricted non-preserved super benefits ie have met a condition of release such as retirement

✓ Can withdraw their superannuation benefits tax-effectively.

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Key points:

✓ The proportioning rules apply to superannuation withdrawals. Tax-free and taxable components must be taken in proportion to the overall account balance – the taxable component cannot be withdrawn on its own.

✓ Superannuation withdrawals for clients aged 60 and over are tax free (where paid from a taxed superannuation fund) regardless of the components. For clients aged 56 to 59, the first $195,000 of taxable component withdrawn is included in assessable income but incurs no tax. Any amount over this threshold is taxed at a maximum of 17%. Therefore, it makes sense for clients under age 60 to limit the taxable component of amounts withdrawn to $195,000.

✓ If the client is under age 60, the taxable component withdrawn must be included in their assessable (and therefore taxable) income. The inclusion of this amount in their assessable income can impact on their eligibility to receive certain tax offsets and concessions such as the low income tax offset, family assistance benefits, spouse contributions tax offset and government co-contribution.

✓ All superannuation contributions (including re-contributed amounts) are subject to the usual preservation rules.

✓ The Australian Tax Office (ATO) has stated that the anti-avoidance provisions are unlikely to apply to the re-contribution strategy, even where the person is aged 60 or over.

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Re-contribution strategyCase study:

Facts

Elaine (age 60) has recently retired with $500,000 in her superannuation fund, consisting entirely of taxable component. There is no life insurance within the fund.

Upon her death, under a binding death benefit nomination, Elaine’s superannuation balance will pass to her husband Keith tax-free.

However, if Keith predeceases Elaine, the benefits will be passed to her daughter Nicole (age 30). Based on a death benefit of $500,000, Nicole will incur 17% tax totalling $85,000, leaving a net death benefit of $415,000.

Analysis

If Elaine were to consider undertaking a re-contribution strategy, this would involve her withdrawing her entire $500,000 balance tax-free (as she is over age 60) and re-contributing it as a non-concessional contribution prior to 1 July 2017, converting her entire superannuation balance into tax-free component.

Note: As she has retired, she has met a suitable condition of release enabling the lump sum to be taken.

If we now assume that she passes away shortly after 1 July 2017 (ie ignoring any growth on her superannuation benefits), the entire death benefit when paid to either Keith or Nicole would be completely tax-free.

Clearly, a re-contribution strategy has the potential to save Nicole significant death benefits tax.

Part 5: Beyond 1 July 2017

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Client is approaching the $1.6 million limitWith the introduction of a new $1.6m superannuation balance restriction on an individual’s ability to make NCCs, as previously explained, certain individuals (ie those with a total superannuation balance of $1.6m at the start of a financial year commencing with the 2017/18 year) will no longer be eligible to make NCCs in that financial year.

However, it should also be noted that there will be individuals who are approaching this $1.6 million limit who (from 1 July 2017) will only be able to make NCCs in a year and trigger a full $300,000 NCC cap bring-forward of future year’s contributions to the extent that their total superannuation balance as at 30 June in the previous year does not exceed $1.4 million.

As a result of this restriction, from 1 July 2017, individuals who are close to the $1.6 million limit can only make NCCs as per the table below:

Total Superannuation Balance at 30 June of previous financial year

Contribution and bring-forward available

Less than $1.3 million 3 years ($300,000)

$1.3 – <$1.4 million 3 years ($300,000)

$1.4 – <$1.5 million 2 years ($200,000)

$1.5 – <$1.6 million $100,000

$1.6 million Nil

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Case study:

On 30 June 2017, James has a total superannuation balance of $1,390,000. James is not in a previously triggered bring-forward period.

As James’ total superannuation balance is below $1.4 million as at 30 June 2017, he is able to use the $300,000 bring-forward rules to make NCCs of up to $300,000 in 2017/18.

However, had James’ total superannuation balance been $1,490,000 on 30 June 2017, James would only be able to make NCCs of up to $200,000 in 2017/18 (ie he would only be allowed to bring-forward 1 year).

What you need to know

Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. January 2017 27

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