Australian SMSF QROPS | Transferring a Pension to Australia
In September, 2016, the Australian government has released an amended Australian superannuation package and how it pertains to transfers from UK pension to Australian SMSF QROPS compliant superannuation funds.
Once legislated, most measures will take effect from 1st July, 2017. There are still many unanswered questions around the actual operation of many of the new rules. We await the draft legislation for further details.
Note: these changes are not yet legislated and still have to be introduced to, and make it through, Parliament.
Please read here for the latest news and updates regarding QROPS Australia.
Australian QROPS SMSF Deeds Now Amended
Australian QROPS SMSF deeds have now been amended to comply with HMRC’s age test requirement, i.e. that the pension member cannot access his pension scheme before the age of 55. In order to comply, the Australian SMSF’s had to only allow pension transfers in for members who are over the age of 55 and under the age of 74.
Australian SMSF QROPS Rules
These are the new Australian SMSF QROPS compliant rules for 2016/17.
- You can transfer $540,000 into an Australian SMSF QROPS as long as you are over 55 years of age and below 74. This must be done before 30th June 2017, otherwise you can transfer in much less, only $100,000 per year
- If you are under 55 years of age, there are other options to get your UK pension out of the UK tax net and into Australian Dollars or into GBP, but with a wider choice of investments, please contact us for details
- After 30th June 2017, you can only bring in $100,000 Australian dollars per year which can be brought forward 3 years. So, if you want to transfer to an Australian SMSF QROPS, I would seek advice immediately, as it takes up to six months for a QROPS transfer and you can transfer in $540,000 or approximately 300k GBP right now, but after June 30th, 2017, you would only be able to bring in 175k GBP in one go.
- The lifetime cap is $1,600,000. This is the maximum you can contribute into an Australian Superannuation scheme
Australian SMSF QROPS Super Funds Rules in Detail
Non-concessional contributions (NCCs)
From 1 July 2017:
- the annual non-concessional contributions (NCC) cap will be reduced from $180,000 per year to $100,000 per year
- individuals under age 65 will be eligible to bring forward 3 years ($300,000) of NCCs
- individuals with a total superannuation balance of more than $1.6 million will be unable to make NCCs.
- $1.6 million eligibility threshold; this is the maximum that can be contributed to an Australian SMSF QROPS
The $1.6 million eligibility threshold will be tested from 30th June of the previous financial year.
This means if the individual’s balance at the start of the financial year is more than $1.6 million they will not be able to make any further non-concessional contributions.
Individuals with balances close to $1.6 million will only be able to bring forward the annual cap amount for the number of years that would take their balance to $1.6 million.
Under transitional arrangements, if an individual has not fully used their NCC bring-forward cap before 1 July 2017, the remaining bring forward amount will be reassessed on 1 July 2017 to reflect the new annual caps.
The $1.6 million eligibility cap will be indexed in $100,000 increments in line with the consumer price index (CPI), i.e. the same as the $1.6 million pension cap.
Broadly commensurate treatment will apply to members of defined benefit schemes.
The Work Test
As currently, the work test will continue to apply for individuals aged between 65 and 74. This was previously proposed to be removed.
Individuals aged between 65 and 74 will be eligible to make annual NCCs of $100,000 from 1 July 2017 if they meet the work test (employed for 40 hours in any 30 consecutive days), but cannot use the bring forward option.
Australian Super Examples (provided by the Australian Government)
Example 1 – bring-forward rule
Kylie’s (age 58) superannuation balance is $500,000. She sells an investment property and makes a $200,000 NCC in October 2017.
As Kylie has triggered the bring-forward option, she can make a further $100,000 NCC in 2018/19.
Kylie’s NCCs would reset in 2020/21 and she could make further contributions from then.
Example 2 – bring-forward rule
Molly (age 40) has a superannuation balance of $200,000.
In September 2016, she receives an inheritance of $250,000, which she contributes to superannuation, triggering the $540,000 3-year bring forward option.
From 1 July 2017, Molly can make a $110,000 NCC in 2017/18 and $20,000 in 2018/19. She can then access the new bring forward option from 2019/20 and contribute up to $300,000 in NCCs.
Note: This may mean an individual under age 65 in 2016/17 can trigger the current bring-forward option (subject to eligibility) and contribute an entire $540,000 in NCCs. It is unclear exactly how the remaining bring forward cap will apply from 1 July 2017 where less than $540,000 is contributed.
Example 3 – work test
Gary (age 72) a retiree, works around 40 hours in September every year and has a superannuation balance of $450,000.
As Gary meets the work test, he can make a $100,000 NCC in 2017/18.
However, as Gary is over age 65 he cannot access the 3-year bring forward option.
Example 4 – $1.6 million eligibility threshold
Eamon (52) has a total superannuation balance of $1.45 million. He can make a $200,000 NCC in 2017/18.
He cannot access the full 3-year bring forward option as this would take his balance over $1.6 million.
Eamon would also not be able to make any further NCCs.
Capital Gains Tax (CGT) Cap
Note: These are general rules for Australian Superannuations, nothing to do with Australian SMSF QROPS
Separate to the NCC cap, the current CGT cap of $1,415,000 (2016/17) continues to apply for small business owners.
Concessional contributions (CCs), contributions tax and catch up CCs
The annual concessional contributions (CCs) cap will be reduced to $25,000 (currently $30,000 and $35,000 if age 50 or over) from 1 July 2017 for all individuals.
The cap will index in line with Average Weekly Ordinary Time Earnings (AWOTE).
Individuals with adjusted taxable income of $250,000 (currently $300,000) will incur 30% tax on their concessional super contributions from 1 July 2017.
Catch-up Concessional Contributions (CC’s)
This measure has been pushed out a further 12 months.
From 1 July 2018, unused CC cap amounts can be carried forward over 5-year periods accrued from 1 July 2018 where total super balance is under $500,000.
Example 5 – catch-up CCs
Anne has a superannuation balance of $200,000 but did not make any concessional superannuation contributions in 2018/19 as she took time off work to care for her child.
In 2019/20 she has the ability to contribute $50,000 into superannuation ($25,000 under the annual concessional cap and $25,000 from her unused 2018/19 cap which has been rolled over).
Tax deduction for personal super contributions
Individuals under age 75 and not just the wholly or substantially self-employed will be able to claim a tax deduction for their personal super contributions from 1 July 2017. This means more people will be able to make concessional contributions and it provides an alternative to salary sacrifice.
Example 6 – tax deduction for personal contributions
Chris has started his own online merchandise business but continue to work part-time at an accounting firm earning
$10,000 as his business is growing.
His business earns $80,000 in his first year and he would like to contribute $15,000 of his $90,000 income to his
Chris could claim a tax deduction for his $15,000 of superannuation contributions.
$1.6 million pension cap
A $1.6 million cap will apply on the amount that can be transferred into the superannuation pension phase from 1 July 2017.
There will be no restriction on subsequent earnings.
Accumulated super in excess of $1.6 million can be retained in a member’s accumulation account (with earnings taxed at 15%) or moved outside super.
The cap will index in $100,000 increments in line with the consumer price index (CPI) and is expected to be around $1.7 million in 2020/21.
Australian SMSF QROPS List[table “” not found /]
You can see the latest up-to-date QROPS list for Australia here.
Please contact us to find the best Australian SMSF QROPS to suit your needs if you are moving to retire in Australia.Australian SMSF QROPS | UK Pension Transfers to Australia by Richard Malpass