SMSF ASSOCIATION ASF AUDITS TECHNICAL UPDATE

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1 ASF AUDITS 1

2 About the SMSF Association The SMSF Association is an independent organisation focussed on informing, educating, empowering and advocating for all Australians who self manage their superannuation. We believe that every Australian has the right to control their own destiny, and to create a good quality of life in retirement. Further to that, we believe better outcomes arise when professional advisors and trustees are armed with the best and latest information, especially in the growing and sometimes complex world of SMSFs. Disclaimer This presentation is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional advice. Actions, reactions and interpretations cannot be relied upon. The presentation is purely the opinion of the presenter on the day and this presentation is record of that opinion. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author SMSF Association Pty Ltd 2

3 Total Superannuation Balance (TSB) Total superannuation balance is generally calculated at 30 June of the financial year TSB is relevant for eligibility for: Non-concessional caps and bring forward period Carry forward of unused concessional contributions Segregated assets method for ECPI Government co-contribution and tax offset for spouse contributions. Contributions eligibility based on value of TSB at 30 June in prior year Timing of contribution is important TR 2010/1 3

4 Total Superannuation Balance (TSB) ACCUMULATION PHASE VALUE TRANSFER BALANCE or MODIFIED TRANSFER BALANCE (not less than zero) ROLLOVER SUPER BENEFITS STRUCTURED SETTLEMENT CONTRIBUTIONS TOTAL SUPER BALANCE

5 Concessional Contributions Reduced concessional contribution cap to $25,000 from 1 July 2017 Personal contribution deductions 10% rule repealed All members under 75 can claim a tax deduction for personal super contributions they make provided they meet the work test. Notice of intention to deduct rules still apply 5

6 CCs Carry forward of unused concessional contributions Commences 1 July 2018 The first year for access is Total superannuation balance less than $500,000 as at 30 June of the previous financial year Unused concessional contributions cap space can be carried forward for five years Earliest unused cap space is used up first Current year s cap space is used before any prior year s unused cap can be utilised 6

7 Non concessional contributions Non-concessional contributions cap is $100,000 for The NCC cap however is modified by the total super balance as follows: 7

8 Non concessional contributions 8

9 General Transfer Balance Cap (TBC) TBC limits the amount of capital an individual can have in retirement phase from 1 July 2017 This in turn limits a fund s tax exempt earnings derived by assets supporting income streams $1.6 million for 2017/18 and will be subject to indexation (CPI) in increments of $100K Personal TBC is subject to proportional indexation Only applies to retirement phase income streams. Excludes: Transition to retirement income streams (TRIS) not in retirement phase Age pension Overseas pensions 9

10 General Transfer Balance Cap (TBC) Personal TBC managed through a transfer balance account: Credits amounts counting towards the cap Debits amounts removing value from the cap 10

11 General Transfer Balance Cap (TBC) Estate Planning Death is a compulsory cashing event. SIS Reg 6.21 require trustee to cash benefits as soon as practicable following death of member. Benefits can be cashed as an income stream or as a lump sum. From 1 July, death benefit period removed and: Death benefit pensions can now be rolled over to new funds Commuted death benefits can no longer stay in accumulation in any fund, even if within one s TBC (LCG 2017/3) Commuted death benefits must be taken as a lump sum or pension PCG 2017/6 cannot apply 11

12 General Transfer Balance Cap (TBC) Estate Planning Death benefit pensions assessed against beneficiary's TBC Where deceased member was in accumulation TBC Credit is the value of pension on date of commencement Where deceased member had a reversionary pension TBC Credit is the value of the pension at time of death TBC Credit arises 12 months after death Where deceased member had a non reversionary pension TBC Credit is the value of pension on date of commencement Death benefits > beneficiary s TBC must be paid as lump sum Seeking clarity of treatment of insurance 12

13 General Transfer Balance Cap (TBC) Estate Planning Child pensions paid on death of parent are permissible Basic conditions continue to apply re eligibility, taxation & requirement to commute no later than age 25 Child s modified TBC is impacted by: Whether or not parent had a TBA on death and The number of beneficiaries Child s modified TBC ceases at age 25 Child pension does not impact: on other super income streams child may have in own right on later income streams and TBC later in life 13

14 Technical amendments Transition to Retirement Income Streams (TRISs) TRIS amendments allow a TRIS, in certain circumstances, to be treated as a retirement phase income stream. From 1 July 2017, a TRIS will be in retirement phase where: Member has turned 65 or Member notifies fund a condition of release with a nil cashing restriction was met: Retirement, terminal medical condition, permanent incapacity A fund paying a TRIS in retirement phase will be eligible for the earnings tax exemption Amendments confirm a TRIS permanently retains its character. i.e. creates a new retirement phase income stream category 14

15 Technical amendments Transition to Retirement Income Streams (TRISs) SMSFs paying a TRIS post 1 July 2017: Where eligible, can claim CGT relief in 2016/17 return Continue to withhold PAYG from pensions to < 60 year olds Must continue to meet the priority of cashing rules SMSFs paying a TRIS post 1 July 2017 can no longer: Exempt earnings on assets supporting a TRIS not in retirement phase Accept an election from a member to convert a pension payment to a lump sum which in turn limits the ability to: Make in-specie pension payments Access preserved benefits above the 10% limit 15

16 CGT Relief Transitional CGT relief provisions Requires trustee to take action to comply with TBC or TRIS reform Locks in tax-free treatment of unrealised capital gains accrued on pension assets no longer able to support retirement phase income streams from 1 July 2017 Two methods that can apply based on SMSF Segregated CGT relief method Unsegregated CGT relief method 16

17 CGT Relief 17

18 CGT Relief Application of CGT relief depends on whether the fund had segregated assets supporting pension liabilities Critical time is 9 Nov 2016 (start of pre-commencement period) CGT relief provisions are mutually exclusive Segregated assets Deemed sale and reacquisition of the asset is at the time the asset ceases to be a segregated current pension asset Unsegregated (pooled) assets Deemed sale and reacquisition of asset on 30 June 2017 Proportion of deemed gain is taxable in or deferred Any deferred gain is realised upon the future sale of the asset 18

19 Technical amendments LRBAs and Transfer Balance Cap LRBA integrity changes and Transfer Balance Cap (TBC): Apply from 1 July 2017 Apply to new contracts entered into on or after 1 July 2017 Changes do not apply to: Pre 1 July 2017 LRBA contracts Pre 1 July 2017 LRBA contracts where balance of borrowings is refinanced LRBA contracts entered into prior to 1 July 2017 but that complete after that time. 19

20 Technical amendments LRBAs and Transfer Balance Cap Where LRBA repayment shifts value from an accumulation account to a retirement phase account, a credit will arise. Credit only arises where payments in respect of an LRBA supporting a pension come from accumulation. Credit arises at the time of the payment. Credit equals the increased value of the pension because of the payment. No credit where LRBA repayments are sourced from: assets supporting the retirement phase interest. investment income, including rent from LRBA asset. 20

21 Technical amendments LRBAs and Total Super Balance Proposed integrity changes to Total Superannuation Balance (TSB) to include outstanding value of LRBA loan i.e. using gross value of the underlying asset Significant departure from general approach to valuing superannuation interests Government seeking to stop people using LRBAs to manipulate TSB rules to make additional NCCs. Member withdraws a lump sum, uses a related party LRBA to acquire an asset of same value, reduces TSB and able to make more NCCs Government to consult further on TSB integrity changes 21

22 Technical amendments Non-Arm s Length Arrangements Non-arm s length arrangements reducing opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings The non-arm s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis. Anticipated to apply from 1 July Waiting on draft amendments. 22

23 First Home Super Saver Scheme (FHSSS) - Draft Legislation The FHSSS allows individuals to make up to $15,000 voluntary contributions per year with a total maximum of $30,000 from 1 July 2017 for the purchase of a first home Contributions, along with deemed earnings (currently 4.78%) can be withdrawn from 1 July Withdrawals will be taxed at marginal rates less a 30 per cent offset. Administered by ATO determine amount of contributions + earnings to be released and instruct funds accordingly. If you do not buy a home within 24 months you will have to recontribute the amount into superannuation or be liable to pay a 20% FHSSS tax 23

24 First Home Super Saver Scheme (FHSSS) - Draft Legislation Eligibility You will need to be 18 years or older Not used the FHSSS before Never owned real property in Australia You are not disqualified if your partner has owned a home You must purchase residential premises or vacant land where a residential premise was to be built You must live in the premises as soon as practicable, and for at least six month of the first 12 months after it is practicable to do so. 24

25 Reducing barriers to downsizing - Draft Legislation From 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution into their superannuation of up to $300,000 from the proceeds of selling their home Exclusive of NCC cap, TSB cap, work test, age limits Downsizer contributions must be made 90 says after your home changes ownership A superannuation fund may choose not to accept downsizer contributions so individuals must check with their fund first 25

26 Reducing barriers to downsizing - Draft Legislation Eligibility Sale of any dwelling in Australia, provided it has been owned for ten years Must have been owned by you or your spouse for ten years The dwelling only needs to be your main residence for some portion of your ownership period. There is no provision in the draft legislation relating to actually having to downsize your home. You are free to move into any living situation suitable for you. Note: The age pension test will now apply to the amounts contributed to superannuation so careful financial advice must be taken. 26

27 Professional Standards of Financial Advisers 27

28 Professional Standards of Financial Advisers 28

29 MEMBERSHIP Why join the SMSF Association? Associate Membership - Grow your SMSF career and extend your SMSF knowledge/expertise Develop your SMSF career, become a SMSF Professional and grow your SMSF skills through technical excellence, resulting in improved client outcomes and business growth. For more information visit smsfassociation.com/professionals 29

30 MEMBERSHIP Why join the SMSF Association? Specialist Membership - For more experienced SMSF Professionals Showcase your SMSF expertise and be publically profiled as an independently endorsed SMSF Association Specialist member. Retain your technical excellence with a range of professional support. Align yourself with the best in the business and promote your Specialist recognition within the sector. Advance your business further and be profiled to a market of over 1.1 million trustees, growing your reputation and business opportunities. Become part of the multidisciplinary community that shares their expertise webinars, local communities, journals, lecturing etc. For more information visit smsfassociation.com/professionals 30

31 Benefits of joining the SMSF Association MEMBERSHIP Associate Membership Extend your SMSF knowledge with dedicated SMSF education delivered in a range of forms to fulfil your annual CPD requirements. Remain confident in your SMSF expertise throughout periods of policy reform and political or economic uncertainty. Grow your business through accessing a comprehensive Resource Library with practical guides, checklists and templates to assist you in providing the best advice and service facilitating better client outcomes. Business support through white label documents citing best practice communication bulletins for use with your clients to drive increased advice/services opportunities. Stay connected with SMSF news and Regulator/Government updates with daily news bulletins collated and distributed straight to your inbox. Be part of opportunities to start to build your profile in the SMSF sector, grow your networks, and gain business referrals. Specialist Membership Showcase your SMSF expertise and be publically profiled as an independently endorsed SMSF Association Specialist member. Retain your technical excellence with a range of professional support. Align yourself with the best in the business and promote your Specialist recognition within the sector. Advance your business further and be profiled to a market of over 1.1 million trustees, growing your reputation and business opportunities. Become part of the multidisciplinary community that shares their expertise webinars, local communities, journals, lecturing etc. 31