Due to the election being called, the Bills which sought to introduce these measures have now lapsed. These measures will therefore not become law unless the next Government re-introduces the Bills into Parliament.
SMSF Stronger Super measures timeline
The Stronger Super changes to the superannuation system are mainly focussed on large super funds, particularly the “MySuper” and “SuperStream” changes. However, there are a number of Stronger Super changes that directly, or indirectly, affect self managed superannuation funds (SMSFs). In addition, there have been a number of other changes to super in the last few Federal budgets.
In a series of articles over the next few months, we will examine some of these changes and how they affect SMSFs. This article takes an overview of the recent super measures relevant to SMSFs and when they came into effect.
On market transfers and market value transfers – This measure, which was to commence 1 July 2013, would have required listed share transfers from members to their SMSFs to be conducted on-market. With the removal of this measure, in-specie listed share transfers can continue to be conducted by way of off-market share transfers.
Where there was no market for the transfer of assets (eg land and unlisted shares) this measure would have required the SMSF trustee to obtain a valuation from an independent professional valuer. This measure has also been dropped, although the existing obligation to transfer such assets at their market value remains.
$50K concessional contribution cap for members aged 50+ with $500K, or less, of benefits – This measure has been replaced with the $35K concessional contributions cap measure (see below).
Measures yet to pass
There are a number of measures which are yet to pass parliament. At the time of writing, it is uncertain whether they will be passed before the election or if at all. They include:
- the new penalties and rectification/education direction regime;
- rollovers from APRA super funds to SMSFs to comply with Anti-Money Laundering rules;
- 45% tax on illegally accessed super benefits; and
- early access scheme penalties;
These measures are discussed in further detail below.
Commencement from 1 July
Collectables and personal use assets - The restrictions in relation to the investment in collectables and personal use assets are now contained in section 62A of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and regulation 13.18AA of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs). All pre-1 July 2011 collectables and personal use assets must comply with the new requirements, or be disposed of, by 1 July 2016.
Refund of up to $10K of concessional contributions – This measure provides taxpayers with an optional, one off, opportunity to apply for a “refund” of excess concessional contributions, where such excess contribution(s) is $10K or less. Under the measure, 85% of the excess contributions are paid to the taxpayer where they are added to the taxpayer’s assessable income and taxed at the taxpayer’s marginal tax rate less a 15% refundable tax offset. Note: - this measure will be made redundant from the 2013/14 year if the return of excess contribution tax measure (see below) is enacted.
Commencement from 1 July 2012
30% contributions tax on individuals earning $300K+ – Individuals who earn $300K+ of “income” will receive an additional 15% tax on their concessional contributions (ie 30% in total). Like the current excess contribution tax regime, the additional 15% will be assessed against the individual (rather than the super fund) and the individual will have the option of withdrawing an equivalent amount from their super fund. The $300K threshold includes an individual’s taxable income, reportable super contributions, reportable fringe benefits and total net investment losses.
Market value reporting in financial statements (commenced 7 August 2012) – SMSF trustees must value assets in their financial accounts and statements at market value under regulation 8.02B of the SIS Regs. Market value for the purpose of this measure will be the existing definition in section 10(1) of the SIS Act. In addition, the ATO has recently released its publication “Valuation guidelines for self-managed superannuation funds” which sets out guidelines for determining the value of various assets.
Separation of SMSF assets from non-SMSF assets (commenced 7 August 2012) – SMSF trustees must keep money and other assets of the fund separate from any money or assets held by the trustee personally, or by a standard employer-sponsor, or an associate of a standard employer-sponsor, under regulation 4.09A of the SIS Regs. This obligation currently exists in the section 52 trustee covenants but is effectively unenforceable from the ATO’s perspective. By including this in the SIS Regs as a prescribed standard, a breach of this requirement can now result in direct enforcement action from the ATO.
Regularly review investment strategy (commenced 7 August 2012) – SMSF trustees must regularly review the SMSF’s investment strategy under regulation 4.09(2) of the SIS Regs. “Regularly” is not defined but it is expected that, generally, an annual review should be sufficient. The explanatory statement accompanying this amendment states that the SMSF trustee may evidence this requirement in the trustee minutes.
Consideration of insurance (commenced 7 August 2012) – SMSF trustees must consider whether they should hold a contract of insurance that provides insurance cover for one, or more, members of the fund under regulation 4.09(2)(e) of the SIS Regs. According to the explanatory statement that introduced this measure, this consideration can be recorded in trustee minutes or in the investment strategy.
Extension of “pension phase” after death of a pensioner (commenced 3 June 2013) – The tax exemption applying to earnings from assets supporting pensions will continue from the date of the pensioner’s death until the death benefits have been paid (either as a pension or a lump sum). The changes include: measures for excluding life insurance proceeds, and anti-detriment payments, from the tax exemption and the operation of the proportioning rule to such death benefits.
Low income superannuation contribution – The Government will “refund” up to $500 of tax on concessional contributions tax for individuals with adjusted taxable income of $37,000 or less. Under this measure, many low income earners will effectively pay no tax on their concessional contributions.
Commencement from 1 July
$35K concessional contributions cap for persons aged 60+ – In this two staged increase to the concessional contributions cap, the increased cap will be available to members aged 60+ for the 2013/14 year and then to members aged 50+ for the 2014/15 year. This increased cap will not be indexed.
Return of excess contributions – Under this measure the excess concessional contributions tax will be abolished and replaced with a regime where all excess contributions will be included in the individual’s assessable income and taxed at marginal rates (less a 15% refundable tax offset). In addition,” interest” (referred to as the excess concessional contributions charge) is payable on the excess amount from the period starting at the commencement of the financial year that the excess contribution was made and ending on the due date which the individual must pay tax on the returned excess contributions. The charge will equal the shortfall interest charge (SIC) ie the 90-day bank accepted bill (as published by the Reserve Bank of Australia) plus a 3 per cent uplift factor. Individuals can elect to release an amount equal up to 85% of the excess contribution amount (but not the charge) from their super fund
Penalties and rectification/education direction regime (at the time of writing this measure
is still in Bill form in the House of Representatives and it is uncertain whether it will be passed before the election or if at all) – Under this measure, the ATO will have power to impose administrative penalties for certain contraventions of the SIS Act and SIS Regs, give rectification directions that will compel SMSF trustees to rectify contraventions and give education directions to SMSF trustee to attend approved education courses. Penalties, and the costs of education, must be borne by the trustees/directors of the corporate trustee personally and cannot be indemnified from the SMSF assets.
Super Guarantee changes – The upper age limit for super guarantee (formerly 70) has been abolished so that super contributions must be made for employees aged 70+. The super guarantee rate increases commence from 1 July 2013 (ie to 9.25% for the 2013-14 year). The legislated increases are noted in full below:
|Quarter during the income year||Charge Percentage (%)|
|2019-20 and subsequent years||12|
SMSF trustee and director covenants – There are now trustee covenants specifically for SMSFs. The SMSF trustee covenants are contained in s52B of the SIS Act, while the SMSF director covenants are contained in s52C of the SIS Act. Sections 52B and 52C are almost identical to the existing covenants in s52(2), although there is now an obligation to “review regularly” the investment strategy of the SMSF and the strategy for any reserves.
The statutory defence of trustees against losses made as a result of making an investment has been narrowed. The current s55(5) of the SIS Act only requires the investment to be made in accordance with the investment strategy, whereas the new defence only applies if the SMSF trustee has complied with all of the s52B covenants.
Super contributions on payslips – This measure will require employers to report the amount of contributions they will pay on behalf of an employee and when they expect to pay them. The details of the requirements are to be contained in the SIS Regs (at the time of writing those regulations had yet to be released).
Directors liable for a company’s unpaid super guarantee charge – In addition to PAYG debts, directors will be liable for a company’s unpaid super guarantee charge (ie unpaid super contributions plus interest and penalties). This extends to new directors for a company’s existing outstanding amounts from the period commencing 30 days after their appointment. It is therefore important that new directors do proper due diligence on the company’s compliance with its PAYG and super obligations within that time.
In addition, the ability to avoid the liability by putting the company into liquidation has been removed if the amounts have been outstanding for 3 months or more. An additional statutory defence for directors has been added for unpaid super contributions where it is reasonably arguable that the super contributions were not required to be made (for example, if the company believed the employees were contractors).
Rollovers from APRA super funds to SMSFs to comply with Anti-Money Laundering rules (at the time of writing this measure is still in Bill form in the House of Representatives and it is uncertain whether it will be passed before the election or if at all) - Under this measure rollovers from APRA super funds to SMSFs will have to comply with certain requirements in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. This is likely to result in increased burdens of proof for SMSF trustees.
45% tax on illegally accessed super benefits (at the time of writing this measure is still in Bill form in the House of Representatives and it is uncertain whether it will be passed before the election or if at all) - Super benefits received in breach of legislative requirements are to be taxed at 45%.
Early access scheme penalties (at the time of writing this measure is still in Bill form in the House of Representatives and it is uncertain whether it will be passed before the election or if at all) - Civil and criminal penalties are to be introduced for promoters of early access schemes – this measure is due to commence when the act receives Royal Assent.
Commencement from 1 July 2014
$35K concessional contributions cap for persons aged 50+ - In the second part of this two staged increase to the concessional contributions cap, the increased cap will be available to members aged 50+. This increased cap will not be indexed.
Superstream standards for SMSFs receiving contributions – SMSF trustees must receive employer contributions (other than contributions from related party employers) in accordance with the regulated payment standards.
Superstream standards for medium to large employers making contributions – medium to large employers (20+ employees) must make employer contributions (other than contributions to related party SMSF) in accordance with the regulated payment standards (including that relevant employers must pay contributions and send information about the contributions electronically).
Commencement from 1 July 2015
Superstream standards for small employers making contributions – small employers (less than 20 employees) must make employer contributions (other than contributions to related party SMSF) in accordance with the regulated payment standards (including that relevant employers must pay contributions and send information about the contributions electronically).
Download a PDF copy of this article: Strong Super and SMSFs - Issue 1