Do not be confused between the $1.6 million transfer balance and total super balance cap
On 1 July 2017, a superannuation fund’s member’s balance in pension phase cannot exceed $1.6 million. Any income on that member balance used to fund a pension is tax free.
This $1.6million transfer balance cap is not influenced by pension drawdowns or accrued growth or losses on assets (i.e. the assets can grow in value without affecting the $1.6million cap.) Let’s say that the $1.6 million grows to $2 million, the income derived by the super fund on the $2 million balance in pension phase is exempt from tax.
In the case of a super fund member who has exceeded the $1.6 million cap, possibly due to having a balance in another super fund for the year ending 30 June 2017, excess transfer balance tax is payable on the income derived from the investment of the excess over $1.6 million. The tax payable on that income is 15% on the first breach and higher rates of tax for subsequent breaches.
However, super fund members who only exceed the $1.6 million transfer balance cap by $100,000 or less have until 31 December 2017 to ensure that their transfer balance cap is only $1.6 million (i.e. they have an extra 6 months from 1 July 2017 to transfer the excess balance either to accumulation phase or draw the excess from the super fund).
Conversely, the $1.6 million total superannuation balance cap comprises the sum of the values of retirement and accumulation phase balances (therefore, unlike the transfer balance cap, fluctuations in asset values and pension drawdowns are taken into account).
The balance of the total superannuation cap is determined at 30 June each year to be applied to the next income year. If a super fund member exceeds the $1.6 million cap, the member cannot make any more non-concessional contributions in the next income year.
With the changed superannuation landscape that now exists from 1 July 2017, obtaining accurate and appropriate advice to your circumstances from our Nexia authorised representatives.
Tax consequences when selling your home
Generally, an individual taxpayer selling a home that was used as the individual’s main residence, will not pay any tax on the capital gain on the sale. Conversely, if the individual were to sell a holiday house or hobby farm that was never wholly used as their main residence, the capital gain on such a sale will be subject to tax.
For properties that are subject to the capital gains tax regime, accurate records must be kept of the purchase and sale of the property, of any improvement costs and the dates that the property was used as your main residence or for income producing purposes such as deriving rent. The ATO is not amenable to accepting estimates or guesses of such information.
Please see our Taxation Update on how the main residence exemption will be apportioned if a home is also rented out.
If you would like to know more about how tax can affect your unique property transactions, please contact us.