Archive for the ‘Superannuation’ Category

Illegal SMSF early access scheme leads to $6,000 fine

Tuesday, May 16th, 2017

ASIC reports that a man from South Melbourne has pleaded guilty in the Melbourne Magistrates Court and been fined $6,000 for operating a financial services business without an Australian financial services (AFS) licence. ASIC’s investigation arose from ATO intelligence that raised concerns about the promoter’s conduct. The offence related to a scheme the man promoted and operated to facilitate illegal early release of his clients’ superannuation benefits through the creation of self managed superannuation funds (SMSFs).

Between 2010 and 2012, the man placed newspaper advertisements in Victoria and South Australia offering loans dependent upon future superannuation entitlements. A round-robin scheme was operated whereby the promoter’s clients transferred their superannuation funds into newly created SMSFs. The SMSFs lent funds to a company the promoter operated, and then an amount, less a fee, was loaned by either the company or personally back to the trustees of the SMSF in their personal capacity. The promoter has never been granted an AFS licence or a credit licence and has never been an authorised representative of a licensee. ASIC said the promoter exploited his clients’ trust through an illegal scheme that exposed them to potential legal and financial risk.

ASIC urges consumers to deal only with licensed representatives of the financial services and credit industries.

Super guarantee non-compliance: Senate Committee report

Tuesday, May 16th, 2017

On 2 May 2017, the Senate Economics References Committee released its report into Superannuation Guarantee (SG) non-payment, calling for the ATO to take a more proactive stance in identifying and addressing SG non-compliance.
As part of its inquiry, the committee heard that employers failed to pay $5.6 billion in SG contributions in 2013–2014, affecting 2.76 million employees who lost over $2,000 on average in a single year.

Other key recommendations include:
• requiring monthly contributions (instead of quarterly);
• removing the current $450 monthly threshold for SG eligibility;
• ensuring salary sacrificed contributions cannot count towards the employer’s compulsory SG obligation, and do not reduce the earnings base upon which SG is calculated;
• strengthening the ATO’s ability to recover SG liabilities through the director penalty notice (DPN) framework to stop directors undertaking fraudulent phoenix activity; and
• amending the Fair Work Regulations 2009 to require payslips to display further details about super contributions.

Super reforms: $1.6 million transfer balance cap and death benefit pensions

Tuesday, March 21st, 2017

Where a taxpayer has amounts remaining in superannuation when they die, their death creates a compulsory cashing requirement for the superannuation provider. This means the superannuation provider must cash the superannuation interests to the deceased person’s beneficiaries as soon as possible. The ATO has released a Draft Law Companion Guideline to explain the treatment of superannuation death benefit income streams under the $1.6 million pension transfer balance cap that will apply from 1 July 2017.

The Draft Guideline provides that where a deceased member’s superannuation interest is cashed to a dependant beneficiary in the form of a death benefit income stream, a credit will arise in the dependant beneficiary’s transfer balance account. The amount and timing of the transfer balance credit will depend on whether the recipient is a reversionary or non-reversionary beneficiary.

TIP: To reduce an excess transfer balance, you may be able to fully or partially convert a death benefit or super income stream into a super lump sum. Contact us if you would like to know more.

Tax offset for spouse super contributions: changes from 1 July 2017

Tuesday, March 21st, 2017

The ATO has reminded taxpayers that that the assessable income threshold for claiming a tax offset for contributions made to a spouse’s eligible superannuation fund will increase to $40,000 from 1 July 2017 (the current threshold is $13,800). The current 18% tax offset of up to $540 will remain in place. However, a taxpayer will not be entitled to the tax offset when their spouse who receives the contribution has exceeded the non-concessional contributions cap for the relevant year or has a total superannuation balance equal to or more than the general transfer balance cap immediately before the start of the financial year when the contribution was made. The general transfer balance cap is $1.6 million for the 2017–2018 year.

The offset will still reduce for spouse incomes above $37,000 and completely phase out at incomes above $40,000.

TIP: Contact us for more information about making the most of super contributions for you and your spouse.

Superannuation Changes

Thursday, March 16th, 2017

Some of the biggest changes to superannuation since the early 90s are coming into effect from 1 July 2017. This leaves less than five months for you to have your superannuation, investment, contribution, pension and estate planning strategies, reviewed to ensure you are positioned to receive the maximum benefits, while minimizing the negative impacts of these changes from 1 July 2017.

Prior to 30 June 2017 you may need advice with regards to the following changes:
•    The new $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017 and whether they should take up CGT relief
•    If in receipt of an Account Based Pension or Defined Benefit Pension how this is recorded against the $1.6M cap and implications post 1 July 2017
•    Removing the tax-free treatment of assets that support a transition to retirement income stream and whether to take up CGT relief
•    Review of superannuation death benefits. Under the new rules, some clients will have no option but to cash out death benefits from their spouses or tax dependents.
•    The lower contribution caps for all taxpayers applying from 1 July 2017. The new caps will be:
o    Concessional contributions (pre-tax contributions) — $25,000 per year,
o    Non-concessional contributions (after-tax contributions) — $100,000 per year.
•    This financial year will be the last year eligible clients can contribute $540,000 in non-concessional contributions (NCC) to superannuation. In addition, from 1 July 2017 any client with a total superannuation balance of over $1.6M will be unable to make any further NCCs to super.

As there is less than 4 months to go, if you wish to have your Superannuation reviewed please contact your office and we will organize a time to meet with one of our Financial Advisors to review the impact and give advice where required due to the above changes.

Personal services income diverted to SMSFs: ATO extends offer

Tuesday, February 21st, 2017

Since April 2016, the ATO has been reviewing arrangements where individuals divert personal services income (PSI) to a self managed super fund (SMSF). The arrangements, described in Taxpayer Alert TA 2016/6, involve individuals (typically SMSF members at or approaching retirement age) performing services for a client but not directly receiving consideration for the services. Instead, the client sends the consideration for the services to a company, trust or other non-individual entity.

The ATO has previously asked taxpayers to help identify and resolve these issues before 31 January 2016, offering to remit the related penalties. That offer has now been extended to 30 April 2017.

Last year available for $540,000 non-concessional contributions (NCC)

Wednesday, November 16th, 2016

Further to the Federal Governments’ welcome announcement of scrapping the $500,000 lifetime non-concessional contributions cap, the draft non-concessional contributions (NCCs) legislation is due to come into effect from 1 July 2017.

If legislated, the proposal would see the following changes occur from 1 July 2017:
The annual $180,000 NCC cap would be reduced to $100,000 for those under 75 years of age.
The current three year bring forward of $540,000 (available to eligible members under 65 years of age) would also reduce to $300,000 from 1 July 2017.
2016/17 will be the last financial year eligible members under 65 years of age will be able to make use of the three year bring forward NCC of $540,000.

Potential issues if the full $540,000 NCC is not made:

While anyone under age 65 can make $540,000 during 2016/17 in full (provided not triggered in the previous two financial years) this will be different if you don’t make the full $540,000 NCC in 2016/17.
i.e. if you are 60 years of age and contribute NCC of $200,000 in 2016/17, rather than being able to put the balance of $340,000 over 2017/18 and 2018/9, you can only put in maximum NCC of $180K.
If the annual NCC cap of $180,000 in 2016/17 is breached, but the full three year bring forward NCC of $540,000 is not utilised in 2016/17, you are limited to only making a maximum of $380,000 over the three years (NCC annual cap over the three financial years is $180,000 in 2016/17, $100,000 in 2017/18 year 2 and $100,000 in 2018/19.
Members with over $1.6M will still be able to make $180K NCC this year or the full $540,000, as the effective change is from 1 July 2017. Obvious considerations are that if proposed legislation comes through, any member balances amounts over $1.6M from 1 July 2017, earnings will be taxed at standard concessional super rates of 15% (still could be preferable tax rate for high net worth clients).

While these are currently proposed changes only, you need to be considering the last chance opportunity to make the full three year bring forward of $540,000 of NCCs.
Considering the current draft legislation, NCC advice for 2016/17 would consider:
Transferring assets or cash outside of super in
Rebalancing strategies for members with uneven balances to combat the proposed $1.6M cap from 1 July 2017
Tax exempting strategies
With only eight months to go to 30 June 2017, now is the time to inform your clients about the potential changes to legislation, so they can consider these strategies prior to any changes taking place.

If you require assistance with the above changes, or would like to speak to a financial advisor please contact MDB to facilitate this.

SMSF related-party borrowing arrangements

Thursday, October 27th, 2016

The ATO has issued a taxation determination (TD 2016/16) concerning whether the ordinary or statutory income of a self managed super fund (SMSF) would be non-arm’s length income (NALI) under the tax law, and therefore attract 47% tax, when the parties to a scheme have entered into a limited recourse borrowing arrangement (LRBA) on terms which are not at arm’s length.

The ATO has also updated a practical compliance guideline (PCG 2016/5) which sets out the Commissioner’s “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with the guideline, the ATO will accept that the LRBA is consistent with an arm’s length dealing and the NALI provisions (47% tax) will not apply. Trustees who do not meet the safe harbour terms will need to otherwise demonstrate that their LRBA was entered into and maintained consistent with arm’s length terms.

TIP: The ATO has allowed a grace period to 31 January 2017 for SMSFs to restructure LRBAs on terms consistent with the compliance guideline’s safe habour terms (or bring LRBAs to an end before that date). Please contact our office for further information.

Budget superannuation changes on the way

Thursday, October 27th, 2016

The Federal Government has been consulting on draft legislation to give effect to most of its 2016–2017 budget superannuation proposals. Here are some of the key changes.

Deducting personal contributions
All individuals up to age 75 will be able to deduct personal superannuation contributions, regardless of their employment circumstances. Of course, such deductible contributions would still effectively be limited by the concessional contributions cap of $25,000, proposed from 1 July 2017.

Pension $1.6 million transfer balance cap
The total amount of accumulated superannuation an individual can transfer into retirement phase (where earnings on assets are tax-exempt) will be capped at $1.6 million from 1 July 2017. Those with pension balances over $1.6 million at 1 July 2017 will be required to “roll back” the excess amount to accumulation phase by 1 July 2017 (where it will be subject to 15% tax on future earnings).

Concessional contributions cap
This cap is to be reduced to $25,000 for all individuals (regardless of age) from 1 July 2017. The concessional cap will be indexed in increments of $2,500 (down from $5,000 increments). Contributions to constitutionally protected funds and untaxed or unfunded defined benefit superannuation funds will be counted towards an individual’s concessional contributions cap. However, any excess concessional contributions in respect of such funds will not be subject to tax, but instead limit the individual’s ability to make further concessional contributions.

Note that the Government has decided to:
• dump the proposed $500,000 lifetime cap on non-concessional contributions (which would have been backdated to 1 July 2007) – instead, the lifetime cap will be replaced by a reduced non-concessional cap of $100,000 per year for individuals with superannuation balances below $1.6 million;
• not proceed with the proposal to remove the work test for making contributions between ages 65 and 74; and
• defer to 1 July 2018 the start date for catch-up concessional contributions for superannuation balances of less than $500,000.

TIP: The government says it intends to introduce the proposed changes in Parliament “before the end of the year”. It remains to be seen if the changes will pass smoothly through Parliament. In any case, it would be prudent to check in with your professional adviser to see if and how the proposed changes would affect your retirement savings strategy.

ATO eye on SMSFs and income arrangements

Monday, September 19th, 2016

The ATO is reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income (PSI) to a self managed superannuation fund (SMSF) to minimise or avoid their income tax obligations.

The ATO notes the arrangement it has described in Taxpayer Alert TA 2016/6 and is encouraging taxpayers who have entered into such and arrangement to contact the ATO so it can help resolve any issues in a timely manner.

Where individuals and trustees come forward to work with the ATO to resolve issues, it anticipates that in most cases the PSI distributed to the SMSF by the non-individual entity would be taxed to the individual at their marginal tax rate. Issues affecting SMSFs will be addressed on a case-by-case basis, but the ATO will take individuals’ cooperation with it into account when determining the final outcome.

TIP: The ATO has said that individuals and trustees who are not currently subject to ATO compliance action and who come forward before 31 January 2017 will have administrative penalties remitted in full. However, shortfall interest charges will still apply. Please contact our office for further information.