On 28 February 2017, Sladen Legal’s Phil Broderick, Melissa Colaluca and Rob Jeremiah gave presentations on the new super laws.
The transfer balance cap is the new limit on how much a member can have in their pension account and accordingly is a limit on how much a super fund can have in “pension phase”. Income and capital gains are tax free to the extent they are in pension phase. To the extent that a super fund is in “accumulation phase” its income is taxed at 15% and capital gains, on assets held for more than 12 months, are taxed at 10%.
The headline items to this measure is that the non-concessional contributions cap will be reduced from $180K to $100K, the “bring forward rule” will be reduced from $540K to $300K and that members with account balances over $1.6 million will not be able to make non-concessional contributions. But like most of the new measures there are additional complexities to the new non-concessional cap measures.
The transfer balance cap measure includes a transitional CCT relief via a cost base reset. This relief is designed to ensure that only capital growth post the introduction of all of transfer balance cap (ie from 1 July 2017) is taxed. However, like all of the new measures the relief is complicated and requires careful consideration prior to 1 July 2017.
The Victorian Government has passed legislation to increase the duty surcharge on purchasers of residential property by foreign persons to 7% for contracts entered into from 1 July 2016. The changes contain a number of other changes to the foreign purchaser duty regime.
In in an unheralded move, the Victorian government has extended the land tax exemption for primary production land in an urban zone (contained in section 67 of the Land Tax Act 2005) to include land owned by a trustee of a super fund of which all the members or beneficiaries are relatives and at least one of those members or beneficiaries is normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land.
It’s hard to know what to do with a budget handed down by a Government that will not have enough time to pass any measures before it goes into an election. Do you follow the current laws or the laws as they are proposed to be changed in the future (if the Government is re-elected and if it can pass the measures in the newly constituted parliament)? That is the situation we currently find ourselves in with the proposed super changes and in particular the lifetime non-concessional contributions cap.
We have previously noted in our Snippets in September and December 2015 that, under the legislation to introduce the new managed investment trust rules, it was proposed that self managed superannuation fund(s) (SMSFs) (and other exempt entities that are entitled to a refund of excess imputation credits) be excluded from the 20% tracing rule for the public trading trust rules. This would have resulted, from 1 July 2016, in the public trading trust rules not applying to unit trusts merely because a SMSF held more than 20% of the units in the trust.
Practical Compliance Guidelines PCG 2016/5 Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self managed superannuation funds (Guideline) sets out further guidance as to how existing non-commercial limited recourse borrowing arrangement (LRBA) loans from related parties to self managed superannuation funds (SMSFs) can be put on commercial terms by 30 June 2016. If such loans are on commercial terms by that date and with effect for the 2015/16 year then the ATO will accept that such loans are on commercial terms and that they will not trigger the application of the non-arm’s length income (NALI) rules. The ATO has said that it will not select an SMSF for a review purely on the basis that it had a loan on a non-commercial basis for previous years.
The ATO has released Practical Compliance Guidelines PCG 2016/5 Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self managed superannuation funds (Guideline) which sets out 2 safe harbours for limited recourse borrowing arrangement (LRBA) loans from related parties to self managed superannuation funds (SMSFs). If such loans comply with the terms of the safe harbours then the ATO will accept that such loans are on commercial terms and that they will not trigger the application of the non-arm’s length income (NALI) rules.
This article addresses the need for directors of corporate trustees to beware, as breaches of their fiduciary duties can result in amounts taken out of the trust, including super contributions, being clawed back.