The New Contribution Provisions Manoj Abichandani

Transcription

1 The New Contribution Provisions Manoj Abichandani

2 The New Contribution Provisions Effective from 1 st July 2017 The new superannuation contribution provisions will have a substantial impact on anyone who wishes to build up their superannuation assets to provide for their retirement. The most substantial changes to superannuation contributions since 1st July 2007

3 New Contribution Provisions 1. New concessional and non-concessional contribution caps 2. New concessional catch-up provisions 3. Total super balance - new limit on non-concessional and some other contributions 4. Transitional non-concessional rules 5. Removal of 10% test 6. Contributions to constitutionally protected funds 7. Fund capped contributions 8. Key issues, actions and strategies pre 30 June 2017

4 1.1 New concessional contribution caps (Target tax concessions to ensure the super system is equitable and sustainable) From 1 July 2017, the concessional contributions cap is $25,000 for everyone $35,000 for people 49 years and older (on 30 th June 2016) $30,000 for everyone else. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), rounded down to the nearest $2,500.

5 1.2 New non-concessional contribution caps From 1 st July annual non-concessional contribution cap reduced from $180,000 to $100,000 per year - 4 times the concessional contribution cap $25,000 - Nil - If total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in ) at the end of 30 June of the previous financial year. - your total superannuation balance will determine how much non-concessional contributions you can make and 74 years old if they meet the work test - Gainfully employed: you must work at least 40 hours during a consecutive 30-day period each financial year in which the contributions are made

6 2. New concessional catch-up provisions From 1 July 2018 ( Year), you will be able to 'carry-forward' any unused concessional contributions cap Access unused concessional contributions is Access your unused concessional contributions cap on a rolling basis for five years Amounts carried forward that have not been used after five years will expire Carry-forward your unused concessional contributions cap if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.

7 2. 1 New concessional catch-up provisions Example: Harry (46 Year old working) has $400,000 balance in his Super as on 1 st July 2016, below is the maximum Concessional Contributions he makes Year Actual Contribution Carry Forward Amount ,000 Nil 25, ,000 Nil 25, ,000 15,000 40, ,000 15,000 55, ,000 12,500 (assuming index Limit $27,500) Max Contributions which can be made in the following Year 70,000 (assuming index) 27, , ,500 10,000 80, Carry Forward of expires Check balance is below $500K

8 3. Total super balance - new limit on non-concessional and some other contributions

9 4. Bring Forward Rule Transitional non-concessional rules Rules from 1 st July 2017: Bring forward amount will depend on your total superannuation balance at 30 th June of the previous financial year you must be under 65 years of age for one day during the triggering year (the first year) you must have a total superannuation balance of less than $1.5 million (Annual cap has to be breached to trigger bring forward rule) The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for a financial year if your total superannuation balance is greater than or equal to the general transfer cap at the end of 30 June of the previous financial year.

10 4.1 Bring Forward Rule Transitional Period (Bring forward rule already triggered) Bring forward rule not triggered in or Maximum bring forward for is $540,000

11 4.21 Bring Forward Rules Example 1 John (63 Years on 5 th July 2015) works in his son s Pizza Shop for 8 hours in a week has contributed the below non-concessional amounts to his SMSF $170, $150,000 His balance is $1.8 M on 30 th June He receives a $1 M inheritance from his father s estate. What is the Maximum amount he can contribute non-concessional in year to his SMSF without breaching the cap amount? a) Nil b) $380,000 c) $ 300,000 d) $540,000

12 4.22 Bring Forward Rules Example 2 John (63 Years on 5 th July 2015) works in his son s Pizza Shop for 16 hours in a week (two days a week) His balance is $1.8M on 30 th June He receives a $1 M inheritance from his father s estate, John contributes $500,000 non-concessional on 1 st August 2016 (after his 65 th Birthday). What is the Maximum amount he can contribute in year (assume there is no income or loss in the fund) without breaching the cap amount? a) Nil b) $40,000 c) $ 100,000 d) $300,000

13 5. Removal of 10% test Changes from 1 st July 2017 Self Employed can claim a deduction for Super contributions only if less than 10% of their income is from Salary and Wages - From 1 July 2017, this condition will be removed 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction 75 years or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75 Contributions cannot be made to :- Commonwealth public sector superannuation scheme in which you have a defined benefit interest Constitutionally Protected fund or other untaxed fund that would not include your contribution in its assessable income super fund that notified the Commissioner before the start of the income year that they elected to either treat all member contributions to the: super fund as non-deductible, or the defined benefit interest within the fund as non-deductible.

14 6. Contributions to constitutionally protected funds From 1 July 2017, you will not be eligible to claim a deduction for personal superannuation contributions made to certain types of funds. Constitutionally protected funds (CPFs) are untaxed super funds that don't pay income tax on contributions or earnings they receive. Some state governments operate CPFs for their employees. Under the Australian constitution, state government assets can't be taxed by the Commonwealth, so different arrangements apply to concessional contributions to CPFs. If you're a CPF member, concessional contributions are not counted towards your concessional contributions cap, however they will be used to assess your liability for Division 293 tax, however non-concessional contributions are counted towards your non-concessional contributions cap.

15 7. Fund capped contributions There is a limit on the amount you can accept in any single fund-capped contribution. A fund-capped contribution is generally the maximum contribution amount your fund can accept. If you receive a fund-capped contribution for your member which is more than their fund-capped contribution amount, you must return the excess amount within 30 days. The fund-capped sub regulation applies per contribution, not to the total member contributions to your fund. Financial Year Age of Member Fund Capped Contribution Limit member was 64 years or under on 1 July member was 65 years or over on 1 July member was 64 years or under on 1 July member was 65 years or over on 1 July 2017 $540,000 $180,000 $300,000 $100,000

16 7.1 Fund capped contributions Non -Concessional Exclusions intend to claim a personal super contribution deduction for the amount (concessional Contribution) received it as a result of personal injury qualifies for their super capital gains tax (CGT) cap directed termination payment government contributions such as co-contributions, low income super contributions or low income superannuation tax offset.

17 9. Key issues, actions and strategies pre 30 June Maximise Non-Concessional Contributions for members who have Superannuation Balance above $1.6M 2. Set up another SMSF for members who have more than $1.6M due to segregation of assets rule 3. Concessional Contributions made in June 2017 to be allocated in July have to be limited to $25,000

18 Guidance for SMSFs with non-arm s length limited recourse borrowing arrangements (LRBAs) 28 September 2016, Tax Determination TD 2016/16 Guidance on the application of the non-arm s length income (NALI Section (1) of ITAA) provisions to limited recourse borrowing arrangements (LRBA) Until 31 January 2017 to ensure that any LRBA s are on term s consistent with an arm s length dealing, or alternatively brought to an end Step 1 > Is LRBA as per safe harbours in PCG 2016/5 Step 2 > If Step 1 is No > Then TD 2016/16 - applies if borrowing terms of an LRBA are not at arm s length > determine if income is NALI.

19 PCG 2016/5 requirements LVR 70% on Property etc.. Term of the Loan 15 Years Security Registered Mortgage in favour of the lenders Monthly Repayments P & I Written Agreement Other issues Terms of the trust deed Acquiring an asset from a related party

20 TD 2016/16 What evidence does an auditor need Considerations to be made in determining whether or not the SMSF has derived more ordinary or statutory income under the LRBA than it might have been expected to derive if the parties had been dealing with each other at arm s length in relation to the arrangement SMSF Auditor: How do we audit such a concept as its not possible for us auditors to go out the market place and ask banks whether they would have loaned to the fund we are auditing. Please advise. ATO: How a trustee may demonstrate this is by obtaining evidence that shows their particular arrangement is established and maintained on terms that replicate the terms of a commercial loan that is available to them in the same circumstances. A printout from a bank s website of general loan terms is not sufficient to meet this requirement.

21 SMSF Auditor Question: ATO: Where an LRBA is over an asset for which the SMSF could not find a commercial third party lender to provide finance to acquire that asset and so entered into a related party loan, the trustee will be unable to demonstrate that the LRBA has been made on arm s length terms. The safe harbours provided in PCG 2016/5 only apply to LRBAs that are used to acquire real property or stock exchange listed shares or units. SMSF trustees who use an LRBA to acquire other assets such as shares in an unlisted company or units in an unlisted unit trust will need to be able to demonstrate that the arrangement was entered into and maintained on terms consistent with an arm s length dealing when considering the application of the non arm s length income (NALI) provisions. Evidence: Replicate the terms of a commercial loan that is available to them in the same circumstances

22 Self-managed super fund Limited Recourse Borrowing Arrangements (LRBA) interest rates The following interest rates charged under an LRBA would be consistent with the safe harbour terms outlined in Practical Compliance Guidelines (PCG) 2016/5 - Income tax- arm s length terms for Limited Recourse Borrowing Arrangements established by self-managed superannuation funds. Year Real Property Listed shares or units % 7.65% % 7.75%