News Archives - Page 4 of 9 - Practical Systems Super

Super contribution and pension caps set to increase

May 4,2021 Comments Off

For the first time in five years, the super contribution and pension caps are set to increase. Thanks to inflation and indexation, the cap on concessional contributions will increase from $25,000 a year to $27,500 for the 21/22 financial year.

Concessional contributions include the compulsory 9.5% super guarantee amount that your employer pays on your wages, plus any additional salary sacrifice contributions, plus any amount you contribute and claim a tax deduction for. In 20/21, they are capped at $25,000 a year (you will pay tax at your marginal tax rate on any excess contributions).

The employer’s contribution rate of 9.5% is also set to increase, to 10.0% from 1 July, and then to 10.5% from 1/7/22, 11.0% from 1/7/23, 11.5% from 1/7/24 and finally to 12.0% from 1/7/25. The Government says that it is “reviewing its position” on the changes, but as they are already legislated and are LAW, it would need to introduce amending legislation into the parliament to stop the increases. With the ALP, Greens and some independent Senators vowing to oppose any Government action to stop the increases, there is considerable doubt it could get its amending legislation through the Senate. The most likely outcome is that it will decide that there are “better battles to fight” and the contribution rate will increase to 10% on 1 July.

The cap on non-concessional contributions will also increase, from $100,000 to $110,000 a year. Non-concessional contributions are amounts that you contribute to super from your own resources and for which you do not claim a tax deduction for. Unlike concessional contributions (which are taxed at 15% when they hit your super fund), there is no tax deducted on non-concessional contributions.

Persons who have high superannuation balances (currently defined as balances over $1.6m) are not entitled to make non-concessional contributions. With indexation, the ‘total superannuation balance’ limit, which governs this, will increase on July 1 from $1.6m to $1.7m.

This increase will also impact the ‘bring-forward’ rule. Under the ‘bring-forward rule’, if you are under 65 years of age (legislation has been introduced but not passed to increase this to 67 years) and your total superannuation balance is less than $1.7m, you can potentially make 3 years’ worth of non-concessional contributions in one year. With the non-concessional gap increasing to $110,000 from July 1, this means that you could contribute up to $330,000 into super in one hit. A couple could get $660,000 into super.

The increase in the ‘total superannuation balance’ limit from $1.6m to $1.7m will also increase eligibility for the government co-contribution and spouse tax offset.

On the pension side, the limit that controls how much of your super monies can be transferred to the “tax free” pension phase of super, the transfer balance cap, will be increased by $100,000 to $1.7m from 1 July. Persons who have already accessed their full cap of $1.6m won’t be eligible to contribute any more monies into the pension phase. Those who haven’t accessed any part of their cap (in other words, have never commenced a pension) will automatically get access to the higher limit of $1.7m. If you have started a pension but haven’t accessed the full amount of the cap, you will get a proportional increase. For example, if you started a pension of $800,000 under the old cap of $1.6m and had cap space of $800,000, post indexation, your cap space will increase proportionally to $850,000 (meaning that your transfer balance cap will now be $1,650,000).

For defined benefit pensioners, the income cap of $100,000 will increase to $106,250. As a result, some pensioners may see a small increase in their pension as the amount of tax being withheld by their super fund is reduced.

Unrelated to the indexation of monetary caps and limits is the end of a special Covid-19 relief measure. This saw the halving of the minimum annual pension payment that account based pension holders were required to take. From July 1, these will revert back to the pre-Covid levels: a minimum of 4% of your account balance if under 65 (for example, if the account based pension has a balance of $1,000,000, the minimum annual pension payment is $40,000); 5% of the balance if aged from 65 to 74; 6% if aged from 75 to 79; 7% if aged from 80 to 84; 9% if aged from 85 to 89; 11% if aged from 90 to 94; and 14% if 95 years or older.

Source: Switzer Daily

Downsizer contribution conditions clarified

Apr 23,2021 Comments Off

SMSF members planning to make a downsizer contribution from the sale of their home will not be restricted as to the source of those funds and may instead transfer other assets of equal value into the superannuation, according to the SMSF Association.

In an update on the industry body’s website, SMSF Association technical manager Mary Simmons said the view that downsizer contributions could only be made from the proceeds of the sale of a home was incorrect and the organisation had sought clarity from the ATO on the issue of in-specie downsizer contributions.

Simmons said the association took that step after members expressed concerns about the regulator’s position on the matter stemming from statements in Law Companion Ruling 2018/9, which relates to contributing the proceeds of downsizing into superannuation.

“In particular, paragraph 62 suggests that if an individual is eligible to make a downsizer contribution, they can only make it as an in-specie contribution if they use the proceeds of downsizing to buy the asset they are contributing. This suggestion is incorrect,” Simmons said.

“The ATO recently confirmed to the SMSF Association that provided the downsizer eligibility criteria is met, there is no need to analyse how the contribution is funded, provided it does not exceed $300,000 or the total capital proceeds from the sale of the qualifying dwelling.

“This means that an individual can make a downsizer contribution as an in-specie contribution, provided the value of the asset is equal to all or part of the proceeds from the disposal of the qualifying dwelling.”

She gave the example of a couple in their 70s selling a home for $1.35 million and, having met the eligibility requirements to each make downsizer superannuation contributions of $300,000, they do so by transferring a portfolio of listed shares, which they already own individually, into their SMSF.

For the contribution to take place, the market value of the in-specie contribution of listed shares would be equal to $600,000 and an off-market share transfer form would be executed and given to the SMSF trustee within 90 days of receiving the proceeds from the sale of their home, she added.

“With the existing strict eligibility criteria that an individual must satisfy to be eligible to make a downsizer contribution, we are pleased that the ATO’s interpretation supports the intent of the law and does not see any mischief if the contribution is funded via an in-specie transfer of any asset(s) provided it is at arm’s length and permitted by section 66 of the Superannuation Industry (Supervision) Act.”

Source: smsmagazine.com.au

SMSFs looking to ride the crypto wave

Apr 8,2021 Comments Off

Growing interest in cryptocurrency investment in Australia has spread to the SMSF sector, with funds drawn to the appeal of capital gains and the opportunity to add new asset classes to their portfolios, says a cryptocurrency investment provider.

Cointree CEO Shane Stevenson said there’s no doubt that bitcoin is now being seen as an alternative to gold as a store of value, reflected recently by the rising price of bitcoin — currently hovering around the $75,000 mark.

He noted additionally the fact that cash, term deposits and bonds have less appeal because of the historically low interest rates, causing cryptocurrencies to become more attractive to SMSFs.

“How they invest, however, depends on whether they are in the accumulation or retirement phase, the fund’s risk profile and where fund members are at in their superannuation journey,” Mr Stevenson said.

“For those in the accumulation phase, we are finding investors and SMSFs are more prepared to take a bigger risk, as their focus is on growing their funds under management, while for those in the retirement phase, it’s a far more cautious approach, with cryptocurrencies typically a smaller percentage of their portfolios.

“Either way, when investing in the accumulation or retirement phase, the key theme we’re seeing is that the investment dovetails with the goals of the fund and aligns with their investment strategy.”

Under ATO guidelines, SMSFs can invest in crypto but should consider it good practice to ensure it is under the fund’s trust deed, is in accordance with the fund’s investment strategy and complies with the Superannuation Industry (Supervision) Act (SISA) and the Superannuation Industry (Supervision) Regulations (SISR).

Previously, it was flagged that with super funds now identifying on their tax return whether they are investing in these assets, it could be an indication that the ATO is aware that it is a challenging asset to hold in a super fund and that it is concerned that some funds may be getting it wrong.

Speaking on the requirements and challenges to choosing crypto as an SMSF option, Mr Stevenson said there are still hurdles limiting SMSFs from investing in cryptocurrency.

“It’s a relatively new asset class and many financial advisers lack experience with this type of investing,” he said.

“But this is changing. Cryptocurrency is proving to be an attractive option for many SMSFs that have done their research and are comfortable with the risk.

“We are also finding a growing number of advisers are coming to Cointree’s account managers wanting to learn more about this asset and how it can be part of an SMSF portfolio. Consequently, we’ve seen 53 per cent more SMSF applications in the last three months than we did in the whole of last year, a trend we expect to continue as SMSFs look to diversify their portfolios.”

SMSFs are a significant pool of investment capital for the crypto market, according to Cointree. Total assets are about $750 billion, and they comprise about 26 per cent of the total superannuation pool of funds.

Source: SMSF Adviser

Six-member fund ideal asset holding structure

Mar 25,2021 Comments Off

The federal government has promoted six-member funds as a retirement income planning tool for families, but this overlooks the investment and borrowing opportunities they can create as asset holding structures for non-related members, an SMSF legal firm has noted.

Townsends Business and Corporate Lawyers said the creation of six-member SMSFs, which is awaiting the passing of legislation to increase the maximum number of members from four, would allow them to be used as asset holding structures as well as a family superannuation vehicle.

“The six-member fund may see more people view the SMSF as an appropriate structure for a wide range of investments, particularly those involving a group of people hoping to pool their resources,” the legal firm said in an update on its website.

“For example, an SMSF may be the structure business buddies use to purchase an asset, rather than being restricted to being a structure only for jumbo families. Provided there is no breach of the sole purpose test, such an approach could result in material benefits.”

Additionally, six-member SMSFs would also have advantages in regards to borrowing and tax that were unavailable to equivalent structures outside the superannuation environment, Townsends added.

“The limited ability to resource the SMSF due to contribution limits can be overcome by borrowing. The SMSF may enhance its capital base through limited recourse borrowing subject to appropriateness, the investment strategy and the LRBA (limited recourse borrowing arrangement) rules,” it said.

“This can provide the SMSF with greater flexibility to invest in more substantial projects or further diversify investments. Loan interest and borrowing expenses are generally tax deductible to the SMSF.

“The SMSF has immense advantages over other commercial structures when it comes to tax, both in terms of the applicable rate of tax and the use of franking credits. The lower tax rate potentially accentuates the compounding effect of earnings reinvestment in the fund.”

The firm noted that while the government first announced plans to create six-member funds in April 2018, claiming it would allow greater flexibility, it had provided little explanation as to how that would occur.

“The enthusiastic Explanatory Memorandum for the [Treasury Laws Amendment (Self-Managed Superannuation Funds)] Bill couldn’t point to any significant need or request for reform. Just 7 per cent of SMSFs in Australia have more than two members,” the legal firm noted, adding that despite the low level of government commentary, SMSF trustees should prepare for the change.

Townsends noted the benefits of a six-member fund would include reduced costs due to shared compliance and administration costs, higher contribution inflows from five or six members, and the sheltering of small super guarantee contributions for younger members from high public offer account fees.

At the same time, six-members SMSFs would have to handle the issues related to more member trustees, children knowing more about their parents’ financial affairs and vice versa, the creation and implementation of different investment strategies for different age groups, and who had control within the fund.

Source: smsmagazine.com.au

‘3 strikes and you’re out’: ATO eyes 80,000 late SMSF returns

Feb 21,2021 Comments Off

The ATO has launched a new compliance campaign aimed at driving the lodgement of SMSF annual returns as it chases 80,000 late returns.

Speaking at the SMSF Association National Conference 2021, ATO assistant commissioner, SMSF Segment, Justin Micale said that while the illegal release of super in SMSFs is a continued concern for the ATO, a stronger focus will be placed on the non-lodgement of SMSF annual returns.

Mr Micale revealed that even with the due date for lodgement of the 2019 SMSF annual return being deferred until the 30th of June 2020, the ATO is tracking around an 86 per cent lodgement rate.

“This means that there are still around 80,000 funds yet to lodge this, so we’ve still got some work to do in this area,” he said.

“We understand it’s been a difficult time and we want to help you where your clients have run into difficulties.

“Our message for this group is simple: if you are experiencing difficulties with lodging outstanding returns, contact us and we’ll help you get back on track.”

While there are many reasons for an SMSF to stop lodging, including people experiencing difficulties as a result of COVID-19, Mr Micale noted recent ATO data also showed that lapse lodgement is often an indicator of broader regulatory issues.

“We’ve found that where an SMSF has an unrectified regulatory contravention in a prior year, they often fail to meet their lodgement obligations in subsequent periods,” he said.

“In recent years, there’s also been an increase in the number of new SMSFs established that failed to lodge their first SMSF annual return.

“This is particularly concerning where we can see a subsequent rollover into this SMSF, as this is a strong indicator that an illegal early release may have occurred.

“Non-lodgement and illegal early release go hand in hand, so you can see why we have a strong focus in these two areas.”

Mr Micale said the ATO will ramp up its messaging about the importance of lodging on time and will be starting a communication campaign where a series of letters with escalating warnings will be issued.

“I suppose you could call it a three strikes and you’re out campaign,” he said.

“Our new approach is to firstly help and support trustees. Our initial blue letter will let them know they are required to take action and lodge their return.

“If we don’t get a response to this letter, we’ll issue an orange letter warning of the potential consequences of not lodging their return.

“This includes imposing failure to lodge penalties for all overdue years, raising default assessments for each year of non-lodgement with penalties of up to 75 per cent, issuing a notice of non-compliance and/or disqualifying the trustee.”

Mr Micale said if the ATO still doesn’t get a response, then it will issue the final red letter which is basically a show cause letter instructing the client to tell them why they shouldn’t be subject to any of the consequences as outlined in the previous letter.

“We’ll be reasonable in our approach to this. For instance, if trustees respond to the issuing of a notice of non-compliance by promptly lodging all over SARs and committing to lodging future SARs on time, we’ll consider a vote revoking this notice,” he said.

“It’s important for us to protect SMSFs that are doing the right thing, so we are very serious about getting on top of this lodgement issue.”

Source: SMSF Adviser

ATO outlines guidance on reporting obligation impacts from COVID-19

Feb 18,2021 Comments Off

The ATO has outlined the impacts from COVID-19 on reporting obligations for SMSFs and guidance on the changes ahead for the 2020–21 financial year.

Previously, the ATO drafted additional instructions for SMSF auditors which provide guidance and examples on what types of COVID-19 relief may give rise to contraventions and which ones to report to the commissioner.

Speaking at the SMSF Association National Conference 2021, ATO director Kellie Grant outlined a comprehensive guide on the requirements for the independent auditor’s report (IAR) and auditor contravention report (ACR) across the different measures that were impacted by COVID-19.

For rental relief measures and confusions around section 65 breaches, Ms Grant said, obviously, if the trustee applies that on arm’s length terms then there could still be a section 65 breach, but there obviously won’t be an in-house asset breach if it’s provided to a related party on arm’s length terms but there could still be a section 65 breach because it is indirect financial assistance.

“We wouldn’t expect that, of course, to be qualified in the independent audit report because it’s not really considered material and we’ve also said in our ACR agenda we wouldn’t expect that to be reported,” Ms Grant said.

“We have had a number of auditors ask us about the question around section 65 contraventions and we do have a ruling though in place that says in situations like this, even outside the COVID situation, there would be this indirect financial assistance, so I think it is important here for us to continue with that view, but we’ve tried to make it easier reporting-wise saying it’s not reportable.

“Obviously, if that rental relief is provided on non-arm’s length terms then the auditor will be looking at section 62, 65, 84 and 109 breaches and then qualifying the audit report if it’s material and then lodging an ACR if it meets that reporting criteria.”

Addressing the contraventions around the in-house asset relief, Ms Grant said this is a situation where you know the fund might get to the end of the 2020 or even the 2019 year and has an in-house asset above that 5 per cent threshold but due to COVID can’t dispose of it by the end of the following income year.

“In that situation, we’ve said if you can’t dispose of it because of COVID, we won’t look to take compliance action, but we do expect you to still prepare a written plan, and in that situation, there’s probably likely to be an in-house asset breach and if it is material you need to qualify the audit report, but we have said in that situation you don’t need to report it to us in an ACR,” Ms Grant said.

Ms Grant said that with the early release on compassionate grounds, in that situation if the auditor can see that the trustee has a copy of the termination and has released it in one lump sum after the determination date, there shouldn’t be any contravention.

“However, in a situation where they’ve released that amount before receiving a determination, then, of course, you are looking at your section 62, 65 regulation and SASR 508 regulation contraventions qualifying the IAR if the material and an ACR is required if the reporting criteria are met,” she continued.

“Of course, with that measure, funds do need to release that amount once they get the determination as it says as soon as practicable and they need to release it in one lump sum.

“Now we realise though that there’s going to be some trustees that might get that determination and hopefully their financial situation has changed, they might decide they don’t need to no longer release it.

“In that situation, we wouldn’t expect the auditor to report a contravention and also if it’s released in a couple of withdrawals (although it shouldn’t be), we’re not too concerned about you reporting that sort of contravention to us as well.”

Ms Grant said the ATO is also looking at modifying the independent audit report to line up with the ACR addendum to say that where you don’t need to report in the ACR, you also don’t need to qualify in the IAR.

“But we did receive a bit of feedback from our auditor group saying they weren’t comfortable though with that even though we’d put it in the instruction,” she said.

“They mentioned they were still signing off though on an unqualified opinion in the audit report to say that all those sections have been complied with, so unless you’re going to change that opinion clause in the IAR, we’re not comfortable with it.

“So, in the end, we did do a U-turn on that to say, ‘Look back to just reporting as per normal in the IAR’.”

Source: SMSF Adviser

ATO issues reminder on January deadline for TBAR

Jan 13,2021 Comments Off

For SMSFs that report transfer balance account events on a quarterly basis, the next report will be due on 28 January for events that occurred during the December quarter.

In an online update, the ATO stated that SMSF trustees are required to lodge a TBAR by 28 January if a TBAR event occurred in their fund between 1 October and 31 December 2020 and any member of the SMSF has a total super balance greater than $1 million.

“Different reporting deadlines will apply if any of your members have exceeded their transfer balance cap, and we’ve sent them an excess transfer balance determination or a commutation authority,” the ATO said.

“If no TBA event occurred, you do not need to report.”

It reminded trustees that the TBA is a record of all the amounts transferred that count towards their personal transfer balance cap (TBC).

“The most common events you need to report are when a member starts a retirement income stream or commutes that income stream into a lump sum, including when they commute that pension before rolling it over to a new fund,” it explained.

“There is a lifetime limit on the total amount of super that can be transferred into the retirement phase income streams, including most pensions and annuities. This is called the TBC.”

It also stressed that the TBAR is separate from the SMSF annual return (SAR).

“This is one of your trustee reporting obligations and it enables us to record and track an individual’s transfer balance,” the ATO said.

“This is an important aspect of your fund administration because there can be negative tax consequences if a member exceeds their TBC.”

Source: SMSF Adviser

Deadline to amend discretionary trusts fast approaching

Dec 4,2020 Comments Off

lients with discretionary trusts that hold residential land in NSW will need to amend their trust deed to exclude foreign persons as beneficiaries by the end of this month to avoid paying the NSW foreign duty and land tax surcharge.

With 31 December now only a few weeks away, SuperCentral has reminded professionals and clients about the changes in NSW to the Land Tax Act 1956 (NSW), Land Tax Management Act 1956 (NSW) and the Duties Act 1997 (NSW).

The amendments mean that a discretionary trust will be deemed as foreign for the purposes of surcharge land tax and surcharge duty, unless the trust prevents any foreign person from being a potential beneficiary of the trust, which may require amendments to the trust deed, SuperCentral explained.

SuperCentral also warned that while the changes apply to NSW, it is important to note that Victorian and Queensland discretionary trust deeds may be in a similar position as NSW.

Earlier this year, Cooper Grace Ward Lawyers (CGW) warned that in order to avoid foreign land tax and duty surcharges, the trust deed needs to be amended before midnight on 31 December 2020 to exclude all foreign persons as eligible beneficiaries, and prevent any amendment to the exclusion of foreign persons as beneficiaries, so that the exclusion is permanent and irrevocable.

“This is the case even if none of the eligible beneficiaries of a discretionary trust are foreign persons,” the law firm stated in an online article.

The trust deed and all the variations should then be submitted to Revenue NSW for confirmation that the trust is not a foreign person, it said.

If a discretionary trust is deemed a “foreign person”, CGW warned that surcharge duty of 8 per cent and surcharge land tax of 2 per cent will be payable on any residential land in NSW acquired or owned by the trust since the surcharges were introduced in 2016.

“This can also be the case where the discretionary trust is a shareholder or unitholder in a company or unit trust that owns the residential land,” it said.

Residential land for these purposes has a wide meaning, the law firm stated, with the surcharges applying to vacant or substantially vacant land (including farming property) that is zoned for residential purposes.

“These new changes apply retrospectively, so that if a discretionary trust paid surcharge duty or land tax but amends its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2020, the trust may apply for a refund of the surcharge,” it said.

“[However, if a discretionary trust] owns residential land in New South Wales but does not amend its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2020, the surcharge duty and land tax may apply for prior years since the surcharges were initially introduced in 2016.”

Different transitional rules apply to testamentary trusts, it said.

Source: SMSF Adviser

ATO issues reminder about October TBAR deadline

Oct 8,2020 Comments Off

The Tax Office has reminded any SMSFs that reports transfer balance account events on a quarterly basis that the report will be due on 28 October where they had an event occur in the September quarter.

In an online article, the ATO stated that where a TBA event occurred in a member’s SMSF between 1 June and 30 September 2020 and any member had a total super balance greater than $1 million, the SMSF will need to report the event.

If no TBA event occurred, they will not need to report, the ATO said.

“The TBAR is separate from the SMSF annual return and it enables us to record and track an individual’s balance for both their transfer balance cap and total super balance,” the ATO explained.

“Different reporting deadlines will apply, if any of your members has exceeded their transfer balance cap, and we’ve sent them an excess transfer balance determination or a commutation authority.”

Back in July, the ATO flagged that it was still seeing some significant errors with transfer balance account reporting, with retrospective reporting, duplicated reporting and late reporting listed as some of the ongoing concerns.

“One of the most significant issues we’re concerned about is late reporting and that’s resulting in members being in excess of the cap for longer periods, thereby needing to commute more from their pension accounts or paying more tax,” ATO assistant commissioner Steve Keating stated.

“Members are at risk of having their pension commuted twice, and this might happen if they have both APRA and SMSF pension accounts, where they commute from their SMSF due to receiving a determination from us, but they don’t report that commutation to us.”

Source: SMSF Adviser

Tax Office gears up for 6-member SMSF bill

Sep 18,2020 Comments Off

The ATO has flagged that if the bill to increase the number of members allowed in an SMSF is passed before 1 July next year, its systems may not be ready in time, but it will look to implement workaround solutions.

Earlier this month, a measure announced in the lead-up to the 2018–19 budget to increase the number of members allowed in an SMSF from four to fix was reintroduced into Parliament, after previously being scrapped prior to the federal election.

The amendments will apply from the start of the first quarter that commences after the act receives royal assent.

The bill was referred to the economics legislation committee on 3 September. The committee is due to report back on 4 November.

While the bill was introduced during the September parliamentary sittings, it is expected to be carried over to the November or December sittings, ATO director Kellie Grant told delegates at the Tax Institute National Superannuation Online Conference.

“If the measure is passed by both houses at that time and receives royal assent, we’ll be looking at a 1 January start date,” Ms Grant said.

“Now, should the law commence before 1 July 2021, our systems may not be ready by that stage, but we will have workarounds in place until those system changes are made to allow up to six members in a fund.”

SMSF trustees and professionals, she said, need to be aware that there will be a period of time where their information may not be readily accessible in the ATO’s systems.

“[They should] also be aware that state-based state law may limit the number of individual members in a certain fund, but of course, that can be overcome by appointing a corporate trustee to the fund,” she said.

Commenting on the bill in an online article, SMSF Alliance principal David Busoli noted that if the measure does become law, the effect of additional members on control and investments will need to be carefully considered.

“Also, due to the Trustee Acts in most states — NSW, Qld, Vic, WA and ACT — a corporate trustee will be required,” he added.

Source: SMSF Adviser

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Category News

Super contribution and pension caps set to increase

Downsizer contribution conditions clarified

SMSFs looking to ride the crypto wave

Six-member fund ideal asset holding structure

‘3 strikes and you’re out’: ATO eyes 80,000 late SMSF returns

ATO outlines guidance on reporting obligation impacts from COVID-19

ATO issues reminder on January deadline for TBAR

Deadline to amend discretionary trusts fast approaching

ATO issues reminder about October TBAR deadline

Tax Office gears up for 6-member SMSF bill