The superannuation and SMSF landscape if often evolving. Keep up to date with a brief overview of some of the current issues relevant to Self-Managed Superannuation Funds.
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While the 2014 Federal Budget contained a number of measures impacting the financial situation of many, the changes impacting superannuation and SMSFs were relatively few in number.

The key announcements relevant to self-managed superannuation are outlined below. Please note that many of these measures are Budget announcements only and haven’t been passed into law.

Super Guarantee Slowdown
The Federal Government announced it will slowdown the rate of increase in the Superannuation Guarantee (SG) which was proposed by the previous government. The Super Guarantee will increase from 9.25% to 9.5% on 1 July 2014, but will then be frozen at 9.5% for three years before increasing to 10% in the 2018.19 financial year. The SG rate will then increase by 0.5% each year until it reaches 12% in the 2022/23 financial year.

Refund of Excess Non-Concessional Contributions
From 1 July 2013 individuals who make after tax superannuation contributions above the non-concessional contributions cap will be able to withdraw the excess contributions (including any associated earnings) from their superannuation. Any withdrawn earnings will be taxed at the individual’s top marginal tax rate. If the excess contributions remain within superannuation they will be taxed at the top marginal tax rate.

The details around how this measure will be implemented in practice are still to be determined.

Commonwealth Seniors Health Card Income Test
The income test for the Commonwealth Seniors Health Card will include superannuation pension income from 1 January 2015. This measure is for new applicants for the health card, and will bring assessment of superannuation income for the Commonwealth Seniors Health Card into line with the age pension. Existing card holders will not be impacted.

Increase in the Age Pension
While not strictly a superannuation measure itself, one Budget announcement which will have a significant impact on those in retirement in the future is the Government’s announcement that the age pension age will increase to 70 from 2035.

From 1 July 2025 the age pension age will increase by 6 months every two years. This will result in the age pension age gradually increasing from 67 years of age in 2025 to 70 years of age by 1 July 2035. People born prior to 1 July 1958 are not impacted by this change. The superannuation preservation age currently remains unchanged.

SuperStream is a Government initiative aimed to standardise the way in which contribution payments and data are transferred from employers to superannuation funds. While developed with employers and large superannuation funds in mind, it also applies to SMSFs that receive superannuation contributions from an employer.

SuperStream is being implemented in phases depending on the size of the employer making contributions to the fund:

  • Employers with 20 or more employees must starting using the SuperStream standards from 1 July 2015;
  • All other employers have until 1 July 2016 to comply with the SuperStream standards.
SuperStream does not apply to SMSFs that do not receive employer contributions, or where members of an SMSF only receive employer contributions from a related party.

SMSFs that do receive employer contributions from non-related parties must be able to accept these contributions in accordance with the SuperStream standards.

In order to receive SuperStream data and payments from employers, SMSFs need to provide employers with an ‘electronic service address’, as well as their bank account details and Australian Business Number (ABN). An electronic service address directs employers where to send contribution data and payments relating to a fund. There are a number of companies now offering electronic messaging services to SMSFs.

Employers with 20 or more employees will commence implementing SuperStream over the course of the 2014/15 financial year. SMSFs which receive superannuation contributions from these larger employers must be able to receive SuperStream data and payments from 3 November 2014.

Smaller employers will have their own deadlines for the implementation of SuperStream from 1 July 2015 until 1 July 2016.

Failure to meet the above deadlines will result in SMSFs being unable to accept employer contributions, including Superannuation Guarantee (SG) and salary sacrifice contributions. Instead employers will be required to pay any SG payments into the company’s default superannuation fund rather than the employee’s SMSF.

If you have any queries regarding the impact of SuperStream upon your SMSF, please don’t hesitate to contact us.

From 1 July 2014 the Australian Taxation Office (ATO) will have a broader range of powers at its disposal to deal with contraventions of the law by SMSF Trustees.

Until now the main penalty mechanism that the ATO has had available has been to make a fund non-complying, resulting in the assets of the fund being taxed at the top marginal tax rate; a very harsh penalty. The new powers have been brought in to provide the ATO with a range of orders and penalty options to cater for various circumstances.

The new powers available to the ATO from the 2014/15 financial year are:

  • Rectification direction – provides the ATO with the power to require SMSF Trustees to take specific actions to rectify a contravention by a specified timeframe;
  • Education direction – the ATO may direct an SMSF Trustee(s) to undertake a specified trustee education course within in a specified timeframe;
  • Financial penalties – the ATO will be able to apply financial penalties directly on SMSF Trustees. These penalties will vary from $850 to $10,200 depending on the contravention and must be paid by the Trustee(s) personally and must not be reimbursed from the fund. The ATO has the power to impose penalties on individual trustees, as well as individual directors of a corporate trustee. Directors of a corporate trustee are jointly and severally liable for any penalty imposed upon the corporate trustee.
These new powers are designed to allow the ATO to impose appropriate penalties on SMSF Trustees rather than disqualifying them as trustees, taxing half the assets of the fund, or going to the courts. However, it is expected that this more granular regime will result in the ATO being more prepared to exercise its powers.
Following a freeze to the contribution caps over the past few years, the contribution cap limits are being progressively raised for different age groups.

Concessional Contributions Caps

For the 2013/14 financial year, the concessional contributions cap was raised to $35,000 for members who were aged 59 years and over on 30th June 2013 (i.e. people who were 60 years of age and older during the 2013/14 financial year). For all other members the concessional contributions cap remained at $25,000 for the 2013/14 financial year.

For the 2014/15 financial year, the concessional contributions cap for members who were aged 49 years and over on 30th June 2014 has been increased to $35,000.

The 2014/15 concessional contributions cap for those less than 50 years of age has been indexed by $5,000 to $30,000.

Contributions in excess of the concessional contributions cap are taxed at the top marginal tax rate. Members exceeding their concessional contributions cap after 1 July 2013 are able to withdraw the excess contributions from their fund. These withdrawn contributions are taxed at the member’s marginal tax rate plus an interest charge, rather than the top marginal tax rate.

Non-Concessional Contributions Caps

For the 2014/15 financial year the non-concessional (after-tax) contributions cap has been increased by $30,000 to $180,000.

Contributions in excess of the non-concessional contributions cap will be taxed at the top marginal tax rate plus the Medicare Levy. It is proposed as part of the 2014 Federal Budget that excess non-concessional contributions made after 1 July 2013 will be able to be withdrawn from superannuation without penalty.

Generally superannuation funds are not allowed to borrow money, however, since September 2007 Self-Managed Superannuation Funds have been able to borrow to fund the purchase of eligible investments provided certain strict criteria are met.

The main features of these borrowing arrangements include:

  • The loan must be limited recourse, which means that the lender only has recourse against the single investment asset in the event the fund defaults;
  • The asset must be allowable under superannuation law and must also fall within the scope of the fund’s investment strategy;
  • The asset cannot be acquired from a member or any associate unless it is business real property, e.g. a commercial building;
  • If the fund purchases a residential property, it cannot be leased to the member or any associate.
Please contact My Own Super Fund on 1300 364 597 if you would like any further information in relation to limited recourse borrowing arrangements.
Transition to Retirement Pensions have been available for many years now.

The Transition to Retirement Pension (or TTR) is designed to provide pre-retirees with greater flexibility in structuring their retirement income. The TTR allows access to superannuation in the form of a non-commutable income stream once the member has reached their preservation age, even though they have not retired.

A non-commutable income stream is one that cannot be converted into cash.

The intention of the TTR is to enable people aged between 55 and 64 to continue to work part-time while supplementing their income from superannuation. However in practice we have seen many people take up TTRs to take advantage of the tax benefits while continuing to work full-time.

If the recipient of the non-commutable income stream does decide to continue working, superannuation contributions (superannuation guarantee) will continue to be paid into the nominated superannuation fund of the recipient. Where an SMSF continues to receive these contributions in addition to paying the non-commutable income stream, two accounts will need to be established in the fund. One accumulation account for the receipt of contributions, and one pension account for payment of the non-commutable income stream.

The preservation age (the age at which you can access your super benefits) is set out in the following table:

Date of birthPreservation age
Before 1 July 196055
1 July 1960 – 30 June 196156
1 July 1961 – 30 June 196257
1 July 1962 – 30 June 196358
1 July 1963 – 30 June 196459
After 30 June 196460

Contribution splitting laws allow individuals to split superannuation contributions and redirect them to the superannuation account of their spouse. In doing so couples are able to spread their superannuation entitlements more evenly, particularly if one spouse has significantly more superannuation than the other as is often the case with single income families.

The following situations demonstrate how contribution splitting can be used:

  • where one spouse is older than the other and there is an advantage in being able to access the benefits sooner (e.g. transition to retirement strategies); or
  • to fund the cost of life insurance cover via super for a non-working or low income spouse.

Contribution Splitting applies to:

  • 85% of taxable contributions (concessional contributions);
  • 100% of undeducted contributions (including spouse contributions and government co-contributions, also known as non-concessional contributions).
The amount of contributions that can be split is based upon contributions made in the previous financial year. An application to split these contributions must be made at the end of the current financial year. If an individual intends to roll over their entire benefit to another fund, the application to split must be made before the rollover occurs.

Contributions are able to be split to a spouse account within the same fund, or to a separate superannuation fund.

Married, de facto and same sex couples are able to split their super contributions.

Not all funds provide a contribution splitting service, while other funds may charge a fee. In addition funds may impose limits on contribution splitting to ensure minimum account balances are maintained, or limit the number of funds where contributions can be redirected to.

If spouses are both members of the same SMSF, contribution splitting can be used to transfer assets between accounts without triggering any CGT liability.

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