Australia: New Tax changes to Super laws - 10 tips for SMSFs before 30 June 2017

Last Updated: 11 June 2017
Article by Lisa To

Commencing on 1 July 2017 are the most significant changes to superannuation since the simpler super reforms introduced over a decade ago. With less than 4 weeks to go, there is still an opportunity for your clients to take advantage of the transitional Capital Gains Tax (CGT) relief and make contributions to their super funds before the lower caps and limits apply. It is essential that you discuss these changes with your clients and review their estate planning in light of the changes taking effect in the post 1 July world.

Here are our top 10 tips:

  1. Verify superannuation account balances including super held outside of Self-Managed Super Funds (SMSFs)

Members with Total Superannuation Balances (TSB)1 of $1.6 million or more on 1 July 2017 can no longer make non-concessional contributions into super. Members who suspect their balances are close to $1.6 million should check them to ensure that they are eligible to make further non-concessional contributions.

Until real time super balance reporting is available2, members and trustees should take additional care before making and accepting contributions into super. Members should check with the Australian Taxation Office (ATO) for any lost or unclaimed super, ensure contributions made into super are accompanied with relevant elections confirming the contribution is concessional, non-concessional or made under a CGT cap election and have appropriate minutes recorded. Members or trustees with concerns should seek advice or approach the ATO before making contributions.

  1. Commute account based income streams including allocated pensions and existing death benefit pensions (income streams) over the $1.6 million Transfer Balance Cap

From 1 July 2017, the assets supporting a member's income stream accounts will be limited to a cap of $1.6 million known as the Transfer Balance Cap (TBC)3. The TBC does not apply to members with total income streams under $1.6 million or members who have not started an income stream.

Breaches of the TBC on or after 1 July will require the excess amounts to be removed from the retirement phase. Failure to comply with the ATO's determination to remove the excess will give rise to excess balance tax of 15% to 30% on the notional earnings to neutralise the benefit the member received from the tax-free earnings. SMSFs should commute the excess before 1 July 2017 to avoid the excess balance tax applying. Excess amounts less than $100,000 are disregarded where the income streams existed on 30 June 2017 and the excess is rectified by no later than 31 December 2017.

There is no need to withdraw the amount from the super environment. There are no changes to the payments of benefits. An income stream that was tax-free in the member's hands will remain tax-free4.

Commutation is the process of converting the income stream(s) into a lump sum by rolling back all or part of the income stream to accumulation phase. The process involves reviewing the SMSF trust deed to ensure the trustee has the power to commute all or part of the income stream, reviewing the pension documents and documenting the commutation by way of minute or resolution in accordance with the ATO's Practical Compliance Guideline PCG 2017/5. The ATO have recognised that members may not be in a position to know the market value of the assets supporting the income stream on 30 June 2017. The guidelines set out the requirements for a valid commutation minute or resolution and explain that commutation requests made before 1 July 2017 can set out the methodology of how the amount commuted will be calculated instead of having to specify the exact amount to be commuted.

  1. Legacy pensions (non-commutable income streams) do not need to be commuted to comply with super changes

Special rules apply to non-commutable defined benefit income streams such as market linked pensions (MLP). These income streams do not need to be commuted to comply with the super changes.5 Assets supporting MLPs will stay in retirement phase with half of the pension payments above the TBC taxed in the member's hand at their marginal tax rate.

  1. Review Transition to Retirement Streams (TRISs)

TRISs are not counted against the $1.6 million TBC as the income earned on assets that support a TRIS will no longer be exempt from tax after 30 June 2017. Members should consider whether to continue or cease the TRIS and the implications for CGT relief. Income of a TRIS in existence on or after 1 July 2017 will be taxed in the super fund at 15% until the member attains a condition of release, such as retirement or attaining age 65. At such time, it will automatically be treated as an account based income stream and counted against TBC. Members should seek advice before the condition of release occurs to consider any adverse tax consequence on the automatic conversion to account based income stream.

  1. Elect transitional CGT relief for eligible funds

Members should consider this one-off CGT exemption which will not be available after 30 June 2017. A super fund trustee may elect for the CGT relief to apply on an asset by asset basis. The CGT relief allows to reset the cost base of certain assets to market value. Super funds are eligible if they are a complying super fund throughout the period from 9 November 2016 to 30 June 2017 (pre-commencement period) and held the assets during the pre-commencement period.6

A segregated fund7 that is 100% pension phase will benefit significantly from the CGT relief as all the assets will have the benefit of an uplift of the cost base without any tax becoming payable. A SMSF with a TRIS or account based pension and no accumulation interest is a segregated fund for tax purposes. All segregated super funds with TSB over $1.6 million and at least one retirement income stream must be unsegregated by 1 July 2017. Segregated funds with TSB under $1.6 million can remain segregated provided the circumstances to choose the CGT relief was not contrived.

Assets held during the pre-commencement period in a segregated fund may qualify for CGT relief if the trustee takes at least one action before 30 June 2017 to become an unsegregated super fund. Such action includes commuting an income stream (see tip 2 above), make an in specie transfer of asset, make a super contribution, or cease a TRIS (see tip 4 above). Trustees should keep a record of the assets identified for the CGT relief including the date (which must be on or before 30 June 2017) that the cessation of the segregated fund occurred.

Unsegregated funds have all of its investments pooled so that no particular assets are specifically allocated to those supporting accumulation and retirement phase.8 If an election for CGT relief is made in respect of some or all of the assets of an unsegregated fund held during the pre-commencement period, a proportionate capital gain may arise.9 The CGT relief under the proportionate method does not require any action prior to 30 June 2017 because CGT relief made up to the due date of the SMSF annual return.

Unsegregated funds with a TRIS are not required to commute the TRIS and move it to accumulation phase10. Unsegregated funds on 9 November 2016 that become segregated by 30 June 2017 are ineligible for the CGT relief. The ATO will scrutinise and apply the general anti-avoidance provisions to arrangements that go further than necessary to provide the CGT relief for members to comply with the super reforms. Examples are set out in paragraphs 48 to 50C in LCG 2016/8.

Clients with assets with unrealised losses or who are planning to sell assets within the next 12 months may be better off to not elect CGT relief as the 1/3 CGT discount will also be reset. The election is irrevocable and must be made on the approved form by the due date of the SMSF's 2017 annual return.11 The election is not required by 30 June 2017 as the due date of SMSF return is generally 21 October 2017 or 15 May 2017.

There is limited time to manage the effect of the CGT transitional relief and you should seek advice to implement these complex changes.

  1. Make maximum superannuation contributions

Members eligible to contribute $540,000 using the bring forward rule should maximise contributions before 1 July 2017. From 1 July 2017, the non-concessional contribution will reduce from $180,000 a year ($540,000 bring forward) to $100,000 a year ($300,000 bring forward). This will be the last financial year for members with over $1.6 million TSB to make non-concessional contributions (see tip 1) and those close to $1.6 million will only be able to bring forward non-concessional contributions that would take their TSB to $1.6 million.

Members with higher super balances could consider withdrawing the unrestricted component of their balance to maximise non-concessional contributions12 and making non-concessional contributions for members or children with lower balances. Spouses with unequal super balances should equalise the balances using contribution splitting to achieve more parity in relation their super account balance to provide greater planning flexibility to manage their TBC.

  1. Death Benefits cannot be commuted to accumulation phase

Death benefit income streams will always be treated as death benefits for tax and super payment purposes from 1 July 2017. The prescribed period13 will be abolished and death benefits may be rolled over to purchase a new death benefit income stream, but cannot revert to accumulation phase. The ATO will be releasing a PCG clarifying position on death benefits.

Benefits payable on the death of a member can be paid as lump sums, death benefit pensions or reversionary pensions. It is necessary to review the governing rules of the super fund, pension documents and nominations to decide the available options to pay the death benefit. With the careful drafting of the death benefit nomination and Will, the death benefit can be paid to the dependants through a testamentary trust with the same tax outcome as leaving the super death benefit directly to the dependants. The use of appropriately structured testamentary trusts can achieve asset protection and other tax and estate planning objectives.Review estate planning, governing rules, pension documents and flexible binding death nominations

Reversionary pensions do not increase a reversionary beneficiary's TBA until 12 months after the death of the original pensioner (or 30 June 2018 if death was before 1 July 2017). This gives time for the trustee to deal with any TBC issues such as whether to commute the survivor's income stream (which will decrease the survivor's TBA) in order to receive the death benefit pension (which will increase the survivor's TBA). Alternatively, the member may commute the death benefit into a lump sum with the proceeds held outside the super environment.

Amending pensions (by way of resolution with the consent of the member in accordance with governing rules of super fund or in accordance with the pension document) to become reversionary pensions will not in isolation provide an estate planning solution for your clients. Members should consider flexible death benefit nominations to give the trustee discretion to pay death benefits to the dependant or to the legal personal representative of the estate so funds with significant balances in excess of TBC pass to the testamentary trusts.

  1. Review estate planning, governing rules, pension documents and flexible binding death nominations

Reversionary pensions do not increase a reversionary beneficiary's TBA until 12 months after the death of the original pensioner (or 30 June 2018 if death was before 1 July 2017). This gives time for the trustee to deal with any TBC issues such as whether to commute the survivor's income stream (which will decrease the survivor's TBA) in order to receive the death benefit pension (which will increase the survivor's TBA). Alternatively, the member may commute the death benefit into a lump sum with the proceeds held outside the super environment.

Amending pensions (by way of resolution with the consent of the member in accordance with governing rules of super fund or in accordance with the pension document) to become reversionary pensions will not in isolation provide an estate planning solution for your clients. Members should consider flexible death benefit nominations to give the trustee discretion to pay death benefits to the dependant or to the legal personal representative of the estate so funds with significant balances in excess of TBC pass to the testamentary trusts.

  1. Upgrade SMSF deeds

Features in our SMSF deed include specific powers and provisions to:

  • keep track of TBC and TSB;
  • amend a pension document by way of resolution; and
  • provide clarity about how reversionary pensions and death benefits operate from an estate planning perspective; and
  • ensure that flexible death benefit nominations can be made.
  1. Limited Recourse Borrowing Arrangements to count towards total superannuation balance

Draft legislation released in late April 2017 proposes to extend the definition of TSB14 to include the outstanding balance of a loan held by a SMSF where the loan was used to acquire an asset under a LRBA entered into or after legislation is passed. Members with existing LRBAs or in place before the legislation receives Royal Assent will not have the outstanding balance of the loans added to their TSB. The TSB is relevant to determine non concessional cap, amount of bring forward that can be used and eligibility to catch-up unused concessional contributions from previous years. The government has proposed additional changes to LRBA's which we will cover when the draft legislation is released together with update on LRBA related party loans.


1 "Total Superannuation Balance" is the total of accumulation, defined benefit, personal pension transfer balance, personal injury or structure settlement and rollovers of all super accounts for a member.

2 ATO expects real time reporting in 2018/2019.

3 Subject to annual indexation in line with CPI in increments of $100,000 (rounded down): see: LCG 2016/9

4 For anyone 60 or over, most income streams are not taxed. However the taxable and tax-free components may be important on the death of the member if paid to a non-tax dependent.

5The Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 did not include the measure to commute certain non-commutable income streams. The draft regulations proposed expanding exceptions to commute for purposes of avoiding excess TBC but found it was contrary to broader policy objection with defined benefit scheme.

6 The CGT election is not available for assets sold prior to 1 July 2017 or purchased on or after 9 November 2016.

7 Segregated funds have its investments specifically allocated to member's accounts which are in accumulation phase and retirement phase.

SUP>8 The amount of tax exempt and taxable income is based on the proportion of the average balance in accumulation and retirement phase. Super laws require a certificate from an actuary to certify the relevant proportions.

9 Under the proportionate method, the proportion calculation must exceed zero: section 295-390(3) of the Income Tax Assessment Act 1997 and paragraph 38 of LCG 2016/8.

10 Law Companion Guideline 2016/8

11 The choice to defer any notional assessable capital gain can be in the tax schedule accompanying the annual return.

12 Non concessional contributions represent a tax free component in a super fund. Pensions consisting of 100% tax free components are tax free in the hands of the recipient.

13The 'prescribed period' is the later of 6 months from the death or 3 months after grant of probate or letters of administration and a longer period may apply, for example legal proceedings. The prescribed period is relevant in determining whether a commutation from a death benefit pension is paid as a death benefit (within the prescribed period and received tax free) or member benefit (outside prescribed period).

114 See footnote 1

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions