This week there have been a number of long awaited changes to superannuation law that have passed the parliament. This Alert outlines some of the key changes that we should be focusing on and how this may impact your future retirement planning strategy.
Off market transfers
The Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 was passed on 25 June with the significant amendment of the removal of Schedule 4 which contained the proposed changes in respect of acquisitions of assets by SMSFs from related parties and the disposals of assets by SMSFs to related parties. Importantly, this means there are no additional restrictions or requirements to trade off market in respect of related party transactions with SMSFs.
Schedule 4 of the Bill was introduced as the outcome of the Government’s announcement to ban off market transfers to and from SMSFs where a market exists, following such a recommendation from the Cooper Review . The bill was set to introduce new section 66A of the SIS Act specific to SMSFs which proposed that SMSFs must not acquire an asset from a related party (subject to a number of exemptions) and that SMSFs must not dispose of an asset to a related party (subject to a number of exemptions). The acquisitions exemptions provided for listed securities acquired in a way prescribed by the regulations, however no draft regulations had been released. Business real property and in-house assets were also proposed exemptions, provided that they were acquired at market value as determined by a qualified independent valuer. Similar exemptions were proposed in respect of disposals.
The proposed amendments contained a number of issues in respect of their interaction with Corporations law and existing wash sale rules. Together with the lack of any accompanying regulations , it seemed unlikely that the necessary package of legislative changes could have been prepared and implemented by 30 June 2013.
Whilst the back down is welcome, it is a timely reminder that requirements already exist in respect of off market transfers. The timing of valuation for the purpose of making off market contributions is the date transfer forms are ready to be lodged with the relevant registry. There are also requirements for off market disposals of certain collectables to be conducted at a price no less than that determined by a qualified independent valuer.
The removal of the proposed changes means there will be no additional brokerage and valuation costs for SMSFs to trade with related parties. There will also be no potential barriers to closing SMSFs where disposal of frozen funds or unique assets would have caused valuation difficulties.
Higher concessional contribution cap
Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Act 2013 was passed on 24 June. The measure increases the concessional contributions cap to $35,000 for individuals age 60 years and over for the 2013-14 financial year and to $35,000 for individuals aged 50 years and over for the 2014-15 financial year and later financial years. The temporary cap will cease when the indexed general cap becomes $35,000.
Lower tax concessions for those earning over $300,000
Superannuation (Sustaining the Superannuation Contribution Concession) Imposition Act 2013 was also passed on 25 June. The measure increases the tax paid on concessional contributions from 15 per cent to 30 per cent for individuals with income above $300,000. The amendments apply to contributions made on or after 1 July 2012.
An individual will pay this tax for an income year if their income for surcharge purposes (less reportable super contributions) plus their low tax contributions for a financial year exceed $300,000. Special rules apply for defined benefit funds, where the value of contributions will be determined by an Actuary. Judges who are members of a fund established under the Judges’ Pensions Act 1968 are exempt, as are some senior employee members of constitutionally protected funds.
Superannuation contributions to which the changes apply will be known as low tax contributions and include:
– employer contributions to accumulation interests
– personal contributions which are claimed as an income tax deduction
– contributions for defined benefit interests (valued by an actuary)
– salary packaged contributions to constitutionally protected funds
The Australian Taxation Office (ATO) will work out an individual’s low tax contributions based on the member contribution statements required to be lodged by super funds each year. The ATO will also work out an individual’s income for surcharge purposes from their tax return. It will then issue a notice of assessment. The tax is generally due and payable 21 days after the ATO gives the notice of assessment. The ATO will also provide a release authority so that the individual may request an amount from their super fund (other than a defined benefit fund) to make the payment to the ATO.
SMSF levy
Superannuation Legislation Amendment (Reform of Self-Managed Superannuation Funds Supervisory Levy Arrangements) Act 2013 was passed on 16 May 2013.
The measure increases the maximum amount of the annual levy from $200 to $300 from the 2013/14 financial year. The actual levy amount for a specific income year is prescribed in the relevant regulations and is $191 for the 2012/13 year and the government has announced an increase to $259 for the 2013/14 year. The Act also changes the timing of collection of the levy. Previously the levy was payable upon lodgement of the fund’s annual return whereas now the levy will be due and payable on the day specified in the regulations.
The changes are intended to ensure that the levy is collected from SMSFs in a more timely way (consistent with the collection of levies for APRA regulated funds) and that the ATO’s costs of regulating the sector are fully recovered.
Member benefit protection
On 16 May 2013, the Superannuation Industry (Supervision) Amendment Regulation 2013 (No. 2) was made to repeal the member benefit protection rules with effect from 1 July 2013. The member benefit protection rules were such that members with balances under $1,000 could not ordinarily be charged more in administration fees than the investment returns earned on their account.
The repeal of the member benefit protect rules were necessary in order to resolve the conflict between the requirement to protect the benefits of certain members and the MySuper prohibition on charging differential fees to members.
As you can see it has been a busy time in Canberra …. So much for simple super
Happy Days
Luke Eres CFP SSA
The Three Wise men 