Super 2013 The next 12 months

Transcription

1 Super 2013 The next 12 months

2 Content Super July 2012 Confirmed changes... 4 Minimum pension payments... 4 Reduction to concessional contributions cap... 5 Low income superannuation contribution (LISC)... 5 Director penalty regime unpaid superannuation guarantee... 6 Excess concessional contributions one off refund... 7 Requirement to regularly review the fund s investment strategy... 8 Separation of fund assets... 8 Valuation of SMSF assets... 9 July 2012 Proposals or delays Reduction to the Government co-contribution (proposal) % contributions tax for income over $300,000 (proposal) Increasing the concessional contributions cap (delayed) Taxation of amounts accessed illegally from the superannuation system (delayed) Additional ATO powers (delayed) Ban on off market asset transfers (delayed) January 2013 changes SMSF auditor registration Transitional rules Ongoing obligations Fees July 2013 Confirmed changes Increase in Superannuation Guarantee Removal of age limit for Superannuation Guarantee SMSF levy arrangements The information contained herein is provided on the understanding that it neither represents nor is intended to be advice or that the authors or distributor is engaged in rendering legal or professional advice. Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If expert assistance is required, professional advice should be obtained. The material contained in the Super The Next 12 Months should be used as a guide in conjunction with professional expertise and judgement. All responsibility for applications of the Super The Next 12 Months and for the direct or indirect consequences of decisions based on the Super The Next 12 Months rests with the user. Knowledge Shop Pty Ltd, directors and authors or any other person involved in the preparation and distribution of this guide, expressly disclaim all and any contractual, tortious or other form of liability to any person in respect of the Super The Next 12 Months and any consequences arising from its use by any person in reliance upon the whole or any part of the contents of this guide. Copyright Knowledge Shop Pty Ltd November All rights reserved. No part of the Super The Next 12 Months should be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by information storage or retrieval system, other than specified without written permission from Knowledge Shop Pty Ltd. Please direct any questions regarding the Super The Next 12 Months to: Knowledge Shop Pty Ltd, Level 2, 115 Pitt St, Sydney 2000 Tel: The next 12 months Knowledge Shop Pty Ltd

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4 Super 2013 The next 12 months The rate of change in superannuation continues unabated. This update brings you up to speed with the changes for the 2013 financial year and provides a practical walk through of the implications now and across the year. 1 July 2012 Confirmed changes Minimum pension payments The reduction to the standard minimum annual pension payments will continue for the 2012/13 financial year and will again be reduced by 25% (as per the 2011/12 financial year). The minimum payments required are: Age Minimum payment required Under 65 3% % % % % % % Also keep in mind the following: 1. The minimum pension payment is pro-rated where the pension commences part way through the year. 2. The maximum 10% for a transition to retirement pension is not pro-rated where the commencement date is other than 1 July. 3. A minimum pension payment is not required in a financial year when the pension commences after 1 June. Pension payments by cheque A question that is often asked is when is a pension payment via cheque deemed to be paid? Although there has been little change to this in recent times it is still a topical discussion and the answer is contained within SMSFD 2011/1. This ATO determination sets out that the payment by cheque (or promissory note) can be seen to be cashed when the cheque is received by the member, so long as: at that time, money is payable immediately and available for payment; the trustee takes all reasonable steps to ensure that the money is paid promptly; the money is paid; and the requirements of the SIS regulations are otherwise satisfied. 4 Super 2013 The next 12 months Knowledge Shop Pty Ltd

5 The ATO also set out: What constitutes prompt payment in this context is a question of fact, to be determined in the circumstances of each case. A benefit will be regarded as having been cashed upon the receipt of an unconditional right to receive money if the actual payment of money is made within a time which is reasonable, having regard to ordinary commercial practice; generally within a few business days. Reduction to concessional contributions cap From 1 July 2012, the concessional contribution cap is $25,000 for all members of superannuation funds therefore reducing the cap for members who are already 50 years of age from the previous $50,000 limit. It is important that you discuss this with your clients who may be affected, particularly those clients who have entered into, or are going to enter into, an effective salary sacrifice arrangement with their employer. Changes to current or proposed salary sacrifice arrangements should be addressed to ensure that excess contribution issues do not arise. The concessional cap will likely increase to $30,000 from 1 July These changes have paused the proposed indexation of the concessional contribution cap (and by default, the non-concessional contribution cap). Low income superannuation contribution (LISC) This measure effectively results in lower income earners being excluded from contributions tax. Note that this measure is not the same as the Governments co-contribution; it is a separate measure and does not depend on the member being in receipt of the co-contribution. The maximum amount payable is $500 and to be eligible, the following is required: 1. Concessional contributions for the member are made for that year; 2. The members adjustable taxable income does not exceed $37,000; 3. The member is not a temporary resident; 4. At least 10% of the members income is derived from business or employment income; 5. The amount payable must be $20 or more. For the purposes of the LISC, adjusted taxable income includes: Taxable income; Adjusted fringe benefits; Total net investment losses; Some tax free social security pensions; Reportable employer superannuation contributions; Less any deductible child maintenance. Knowledge Shop Pty Ltd Super 2013 The next 12 months 5

6 Example 1 Alanna is an Australian resident. She has an adjusted taxable income of $30,000, which comprises of $2,000 in interest from her savings and $28,000 from working part time. Alanna s employer makes SG contributions on her behalf. These employer contributions are concessional contributions for Alanna. Alanna is entitled to receive the low income superannuation contribution with respect to the tax paid on her concessional contributions, as greater than 10%of her income is from her employment. Example 2 Alicia is a university student and will earn $18,000 as a part time medical receptionist in the income tax year and will have SG contributions of $1,620. As Alicia will earn below the tax-free threshold of $18,200 for that income year she may not be required to submit an income tax return. The ATO receives information about Alicia s income and her employer s superannuation contributions from her member contribution statement. The ATO is reasonably satisfied that Alicia is eligible for the low income superannuation contribution and makes the payment of $243 to her superannuation fund. Director penalty regime unpaid superannuation guarantee Tax Laws Amendment (2012 Measures No 2) Bill 2012 received assent in late June 2012 and aims to reduce the ability of company directors to escape their superannuation obligations to employees. As part of these changes, directors are now personally liable for their company s unpaid Superannuation Guarantee. This extends the current law that holds directors personally liable for unpaid PAYG withholding amounts. The changes also permit the ATO to estimate any unpaid and overdue SG obligations and impose a liability by the issuing of a notice. Important The Director Penalty regime may have greater implications for your employer clients where they engage contractors to carry out work. The long running controversial issue of employees vs. contractors should be addressed with these clients. Remember that where a contract is principally for labour, that person will often be treated as an employee and superannuation guarantee may be required. 6 Super 2013 The next 12 months Knowledge Shop Pty Ltd

7 Excess concessional contributions one off refund See the Superannuation help desk Q&As and join the superannuation blog at knowledgeshop.com.au counted under the non-concessional contribution cap. This measure, effective for concessional contributions made on or after 1 July 2011, will allow individuals who breach the concessional contributions cap in a financial year by $10,000 or less to make an election (once off) that the excess contribution be withdrawn from their fund and returned to them with the refunded amount being taxed at their individual marginal tax rate. This measure effectively stops excess concessional contributions tax being paid on the excess amount AND also stops the excess being Note that there is no retrospective application to prior years! Also note that this measure is a once only offer. If a client again exceeds their concessional cap in a year from 2011/12 then this measure cannot be used at that time, even if the client did not accept the offer to refund the excess in the first instance (use it or lose it forever)! The eligibility criteria includes: 1. Only applies where there is an excess concessional contribution of up to $10, No other excess concessional contributions have been made in a year commencing from 1 July The individual must lodge a tax return for that year and the return needs to be lodged within 12 months of the end of the financial year (unless further extensions are provided). Example Nicole exceeds her concessional contributions cap by $100 for the 2011/12 financial year and receives an offer for refund of the excess amount. Due to the small amount of the excess and the fact that she is already on the 46.5% tax rate and has not made large non-concessional contributions for that year, she declines the offer for refund. Then in the 2012/13 year Nicole receives notice that she has again exceeded her concessional cap, this time by $9,500. As Nicole first exceeded the concessional cap in the 2012 year, she is not eligible to apply for the refund offer for the 2013 year, even though she declined the offer in that year. The excess contributions refund process 1. Where the client is eligible, the ATO will issue the client with the refund offer. In most cases this will be sent around the same time as the ATO would send the pre-assessment letter for excess contributions. 2. The client then has 28 days from the offer date to accept. 3. If wishing to accept, the client will use the standard form provided. Knowledge Shop Pty Ltd Super 2013 The next 12 months 7

8 4. The ATO will then send a release authority to the fund, which will release 85% of the excess concessional contribution. The fund will have 30 days from the date of the letter to pay the ATO the amount stated (or advise the ATO that the payment is not being made i.e. insufficient funds etc.) % of the excess concessional contribution will be included in the individual s assessable income for that financial year. 6. The ATO will then issue the individual with an income tax assessment notice that includes the relevant tax payable. The ATO will allow a refundable tax offset of 15% of the excess amount. 7. A tax credit will then be given by the ATO for the amount paid by the Super fund. Note The 85% paid to the ATO by the fund will be from the taxable component of the member s benefit. The payment will not reduce the member s tax-free component. Requirement to regularly review the fund s investment strategy In August 2012, amendments were made to the investment strategy requirements in the Superannuation Industry (Supervision) Regulations which commence from 1 July Before this amendment, the SIS regulations require trustees to formulate and give effect to an overall investment strategy applicable to the members of the fund. This included the need to consider risk vs. return, cash flow, diversification and liquidity. The amended changes now require the investment strategy to be regularly reviewed. Although no guidance has so far been provided on what regularly means, we would assume that this be at least annually or in some cases more frequent where fund investments dictate. Also, as part of formulating the investment strategy, trustees are required to consider the need for insurance coverage for members, although it is not an obligation to have cover. The trustees should assess the applicability of different types of insurance cover including: Death only cover Death and total and permanent disability cover Salary continuance (income protection) cover. The fund strategy should at least confirm that the trustees are aware and have considered the insurance obligation and why they have determined that insurance cover is or is not required. Separation of fund assets Section 52(2) (d) of the SIS Act states that SMSF trustees must keep the assets of the fund separate to the assets owned and held by the trustee personally. This section was referred to as a SIS Covenant and the ATO had limited powers to enforce this requirement. 8 Super 2013 The next 12 months Knowledge Shop Pty Ltd

9 From 7 August 2012, this requirement has become an operating standard of the SIS Regulations and one that the ATO will have powers to enforce and they will be able to issue a fine of up to $11,000. Valuation of SMSF assets The requirements for valuing SMSF assets have always been debateable and in many cases different methods have been used for different asset classes and for different clients. The ATO as the regulator has released a guidance document Valuation guidelines for self-managed superannuation funds for SMSF trustees on valuing assets. While the accounting standards provide the trustees with some flexibility in the valuation of assets, from the 2012/2013 year and later years, SMSFs must use the current market value when valuing assets for various purposes. These purposes are: Acquiring assets between SMSFs and related parties Investments made and maintained on an arm s length basis Disposing of certain collectables and personal use assets to a related party Determining the market value of an SMSF s in-house assets as a percentage of all assets in the fund Determining the value of assets that support a member s superannuation pension Determining the market value of assets for the preparation of SMSF financial accounts and statements. Knowledge Shop Pty Ltd Super 2013 The next 12 months 9

10 July 2012 Proposals or delays Reduction to the Government co-contribution (proposal) If these proposals are passed by parliament, the following will apply for contributions made from 1 July 2012: Maximum co-contribution entitlement reduced to $500 (from $1,000) The matching rate to be reduced to 50% (from 100%) The higher income threshold to be reduced to $46,920 (from $61,920) The lower income threshold will remain at $31,920 30% contributions tax for income over $300,000 (proposal) This measure was announced in the 2012/13 Federal Budget and legislation is still pending. It is meant to commence from 1 July If passed, individuals earning income in excess of $300,000 will see their superannuation contribution tax rate increased from the standard 15% to 30%. Income will include: Taxable income Concessional super contributions Adjusted fringe benefits Total net investment losses Some foreign income Tax free government pensions Less child support payments Note that where income exceeds $300,000 because of the member s concessional contributions being included in the definition of income, then the 30% rate will only apply to the excess over $300,000. Example For a taxpayer with salary or wages (excluding concessional contributions) of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), the reduced tax concession only applies to $5,000 of their contributions. How this will interact with current excess contributions tax is (as per Treasury): The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to excess contributions tax'. These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession. 10 Super 2013 The next 12 months Knowledge Shop Pty Ltd

11 Also note that the current tax exemption on earnings in pension phase will continue to apply. The additional tax is only applicable to the concessional contributions made to the fund. Increasing the concessional contributions cap (delayed) Initially to commence from 1 July 2012, the amended start date for this measure is now 1 July In the Federal Budget, the government announced that they will set the higher concessional contributions cap (for individuals 50 years old or over with total super balances of less than $500,000) to $25,000 more than the general concessional cap (currently $25,000). Taxation of amounts accessed illegally from the superannuation system (delayed) Initially to commence from 1 July 2012, the amended start date for this measure is now 1 July Currently, superannuation amounts accessed prior to a condition of release being met are included in the member s assessable income and taxed at marginal tax rates. The proposal is for these amounts to be taxed at the rate of 45%. Further penalties may also be imposed for illegal access. Additional ATO powers (delayed) There were a number of proposals to add to the ATO s powers in regards to SMSFs. Some of which included: Directions to Trustees to rectify specific contraventions within a specified reasonable time frame The powers to enforce mandatory education for trustees who contravene the SIS legislation The power to issue administrative penalties against SMSF trustees A combination if Trustees breach superannuation law. These measures and proposals have now been delayed until 1 July Ban on off market asset transfers (delayed) The proposed ban on the off market transfer of assets to and from self-managed super funds has been delayed to at least 1 July Further information on this and how any new rules will work will be released by the Government in due course. Knowledge Shop Pty Ltd Super 2013 The next 12 months 11

12 31 January 2013 changes SMSF auditor registration The new auditor regime will commence on 31 January Registering as an auditor To be registered by ASIC as an approved auditor, you will need: To hold qualifications - A tertiary accounting qualification that includes an audit component or have completed study in audit as part of a professional body program. Practical experience hours of SMSF audit experience in the 3 years prior to registration (subject to transitional arrangements) To pass a competency exam in the 12 months prior to applying for registration (two attempts are allowed in 12 months) subject to transitional rules Satisfy ASIC that you are a fit and proper person capable of performing the role To hold appropriate professional indemnity insurance Be an Australian resident Pay the prescribed fees Once qualified, the auditor will continue to hold their registration unless ASIC degregisters them. Interestingly, ASIC is able to deregister you if you have not performed any significant audit work during a continuous 5 year period (1.43). Transitional rules Transitional rules are in place to manage the change over period. Auditors who sign off 20 or more audits in the 12 month period prior to registration will be exempt from the competency exam. Auditors below this level will need to sit the exam. Auditors who sign off at least one SMSF audit in the 12 month period prior to registration will be exempt from the 300 hours based experience requirements. Approved auditors who are registered company auditors before 1 July 2013 will be exempt from the 300 hours based experience requirements and will not need to sit the competency exam in applying for registration. To manage the change over, an auditor who is an approved auditor under current law (immediately prior to 31 January 2013) will be treated as an approved auditor until they are registered under the new system or until 30 June Ongoing obligations The Bill prescribes a series of ongoing obligations for SMSF auditors including: Minimum level of continuing professional development hours of CPD training every 3 years 12 Super 2013 The next 12 months Knowledge Shop Pty Ltd

13 Maintaining adequate professional indemnity cover Compliance with the auditing standards applicable to SMSFs and guidance standards prescribed by GS 009 Compliance with ASIC s competency standards Comply with independence requirements. Also, all SMSF auditors will be required to comply with APES 110 Code of Ethics for Professional Accountants which amongst other things covers independence. The new regime will apply from 31 January Registrations open on 31 January and all auditors are required to be registered by 1 July 2013 (1.151). Trustees of SMSFs must appoint a registered auditor under the new definition from 31 January, to manage all audits regardless of their year. Fees Fees apply to most aspects of the registration: $100 registration fee $50 annual renewal of registration $100 for undertaking the competency exam While ASIC will manage the registration of auditors, the ATO will manage SIS Act compliance (includng monitoring). Knowledge Shop Pty Ltd Super 2013 The next 12 months 13

14 1 July 2013 Confirmed changes Increase in Superannuation Guarantee The superannuation guarantee (SG) rate will gradually increase from the current 9% to the increased level of 12% between 1 July 2013 and 1 July 2019: Financial year commencing Super guarantee rate 1 July % 1 July % 1 July % 1 July % 1 July % 1 July % 1 July % 1 July 2019 & beyond 12% Removal of age limit for Superannuation Guarantee The Superannuation Guarantee age limit, which is currently 70, will be removed from 1 July 2013, and employers will be required to contribute to complying super funds of eligible mature age employees aged 70 and older. SMSF levy arrangements The government has announced that due to the current shortfall of SMSF levy revenue compared to the costs of regulating the sector, an increase in the annual SMSF levy from $191 (in ) to $259 from will be implemented. The government has also announced that they will reform the collection of the SMSF levy on SMSFs by changing when the levy is collected. The payment of the SMSF levy will be brought forward so it is paid in the relevant financial year, rather than the following financial year as is currently the case. This change will be phased in over the two financial years and to give SMSFs time to adjust. 14 Super 2013 The next 12 months Knowledge Shop Pty Ltd