Session overview - Amazon S3 · Session overview • Federal Budget 2016 • Legislative & regulatory changes • Announcements & rulings • Case law • Other matters Federal Budget

Copyright © The Institute of Chartered Accountants in

Australia 2014. All rights reserved. 1

Ken Mansell

Tax Trainer

Chartered Accountants Australia & New Zealand

S12 SMSF Update

Session overview

• Federal Budget 2016

• Legislative & regulatory changes

• Announcements & rulings

• Case law

• Other matters

Federal Budget 2016

Changes

• Pension account cap

• Transition to retirement pensions

• Contributions

• Extend Division 293

• Low income earners

• Retirement products

• Anti-detriment

• Purpose of super



Federal Budget 2016

Non-concessional contributions wound-back

• Lifetime $500k cap on NCCs

• Include all post 1 July 2007 NCCs in cap

• Cap to be indexed to AWOTE

• Started from 7.30pm 3 May 2016

• Re-contributions strategies hit

Federal Budget 2016




Example 1

• Member has made $2m in NCCs since 1 July 2007

• No excess contributions tax

Federal Budget 2016




Example 2

• Member has made $2m in NCCs since 1 July 2007

• Member makes further $540k NCCs 10 July 2016

• Excess contributions tax on the $540k



Federal Budget 2016


• Defined benefit funds

• After-tax contributions included in lifetime $500k cap

• If exceed lifetime cap, must remove equivalent balance plus earnings

Federal Budget 2016

Pension account cap

Limit pension benefits

• Amount moved to pension phase capped at $1.6m

• Indexed in $100k increments, CPI

• Defined benefit funds max = $100k pa

• Starts 1 July 2017

Federal Budget 2016

Pension account cap


• Amount moved to pension phase capped at $1.6 million

• Indexed in $100k increments, CPI

Example 1

• 1 July 2017: Start 1st pension with $1.2m ($1.6m x 75%)

• 1 July 2018: Cap goes to $1.7m



Federal Budget 2016

Pension account cap


• Multiple pensions below cap

• Apportion current cap

Example 2



Member starts 2nd pension with $425k (25% of $1.7m)

Federal Budget 2016Pension account cap


• Fluctuations in fund balances have no impact

• Measured at ‘transfer’ to pension

Example 3



Member starts 2nd pension with $425k (25% of $1.7m)

Balance up to $1.3m, earnings less pension

• Growth on 1st pension of $1.2m ignored

• 2nd pension takes balance to $1.725m, but it is ok

Federal Budget 2016

Pension account cap


• If you don’t comply….

• Individual tax on excess and earnings on excess

Example 4

• Member 100% pension, $5m in pension account

• Cap goes to $1.6m on 1 July 2017

• Member ignores changes, leaves $5m pension account

• Penalty tax 49% on excess $3.4m plus earnings

• Same as excess non-concessional; i.e. personal tax



Federal Budget 2016

Pension account cap


• Existing super caught

• Must move excess back to accumulation by 1 July 2017

Example 5

• Member 100% pension, $5m in pension account

• Cap goes to $1.6m on 1 July 2017

• From 1 July 2017, member can either:

Move $3.4m back to accumulation account; or

Take lump sum of $3.4m from super

Federal Budget 2016

Pension account cap


• If defined benefit schemes….

• Commensurate treatment: $100k pa

• From 1 July 2017

• Consultation to be undertaken

Federal Budget 2016

Concessional contributions wound-back

• Concessional contribution cap of $25k for all

• Down from $30k/$35k

• Starts 1 July 2017

• Indexed with real wages growth

• Excess CC dealt with under current rules



Federal Budget 2016


• If under $500k in super, carry forward unused CC caps

• Carry-forward unused CC cap of that year for 5 years

• Only for unused caps from 1 July 2017

• Tax-planning area, track client’s CCs

Federal Budget 2016


• If under $500k in super, carry forward unused CC caps

• Carry-forward unused CC cap of that year for 5 years

• Only for unused caps from 1 July 2017

Example

• Member earning $100k pa has balance of $400k

• CC in 2018 of $10k

• In 2019 can make CC of $40k, tax at 15% in fund

Federal Budget 2016

Expansion of Division 293

• Extra 15% tax on CC where earnings for surcharge purposes are $250,001+


• Same as current $300k threshold

• Watch for salary/wages over $225k

• No extra 15% on excess CCs



Federal Budget 2016

Expansion of Division 293

• Also applies to defined benefit funds and CPFs


Federal Budget 2016

Deductions for concessional contributions

• Deduction for personal contributions up to age 75

• Removal of the 10% test


• Notice requirements maintained

Federal Budget 2016

Deductions for concessional contributions

• Deductions for personal contributions up to age 75

• Removal of the 10% test

Example

• Chris, 31, starts business, still works $10k pa

• Business earnings 2018 of $80k

• Wants to contribute $15k into super

• CAN’T do this in 2016 or 2017

• CAN do this from 1 July 2017



Federal Budget 2016

Removal of the ‘work test’

• Deductions for personal contributions up to age 75

• No need to pass work test aged 65 to 74

• Relevant for NCCs and CCs


• Can make spouse contributions

Federal Budget 2016

Re-instate the TRIS concept

• Tax on TRIS account earnings @ 15% from 1 July 2017

• Applies regardless of when TRIS commenced

• Cannot elect to treat TRIS payments as lump sum

• Can still treat standard ABP payments as lump sum

• Earnings on standard ABP still tax-free

Federal Budget 2016

Low income super tax offset

• LISTO is new non-refundable offset for super fund

• Only where:

Member has ATI < $37,000

CCs made on their behalf

• Offset paid to the super fund




Federal Budget 2016

Increase access to low income spouse offset

• Increase income threshold to $37k up from $10,800

• Phase out to nil at $40k

• Provides up to $540 pa for contributing spouse

Federal Budget 2016

Anti-detriment payment/deduction

Removed

• Allowed:

Payment above deceased member balance

Large deduction for fund


• Still consider future service period deduction

Federal Budget 2016

New products in super

Mixing ABPs with safer products

• Extend tax exemptions on earnings to:

Deferred lifetime annuities

Group self annuitisation products


• Note: 1 July 2017 $1.6m retirement/pension cap



Federal Budget 2016

Focal point of all super legislation

Purpose of super

• Stand-alone Act

“Provide income in retirement to substitute or supplement

the Aged Pension”

• Consider all super legislation in context of this purpose

• Relevant for court cases

Federal Budget 2016

Rates & thresholds

2016/17

• Concessional contributions cap unchanged at $30k ($35k age 49+)

• NCC: lifetime $500k cap from 3 May 2016 (backdated to 1 July 2007)

• CGT cap amount $1.415m

• SG maximum contribution base $51,620/qtr ($206,480 annual equivalent)

Federal Budget 2016

Compliance Guideline PCG 2016/5

Related part LRBAs

• FCT considers non-arm’s length income (NALI) derived by SMSF on related-

party LRBA unless arm’s length terms: ATO IDs 2015/27-28

• FCT has set out “safe harbour” terms to establish arm’s length basis



Federal Budget 2016


Related part LRBAs


LRBA safe harbour – listed securities

• Interest rate 7.75% for 2015-16

• Variable or fixed rate (max 3 years)

• Term of loan: 7 years max

• LVR 50% max; registered charge

• Monthly repayments

Federal Budget 2016


Related part LRBAs


LRBA safe harbour – real property

• Interest rate 5.75% for 2015-16

• Variable or fixed rate (max 5 years)

• Term of loan: 15 years max

• LVR 70% max; registered mortgage

• Monthly repayments

Federal Budget 2016

FCT cancellation of SMSF registrations

Registered from 1 January 2015

• FCT contacting new SMSFs with no assets that have not lodged annual return

• FCT will cancel SMSF registration if have not applied for RNN (or lodged)



Federal Budget 2016

Re TBCL & Anor and FCT [2016] AATA 264

Interdependency relationship?

• Superannuation death benefit

Facts

• Son dies in motorcycle accident

• Lived at home with parents

• $500k lump sum payment to parents

• Sought Private Ruling application lump-sum tax-free

• No interdependency relationship

Federal Budget 2016

Strategies post 2016 Budget

What’s left, what’s new?

• Re-contributions

Detail

• Some use, depends on NCC cap remaining

• Withdraw and re-contribute into spouse account?

• Can help to equalise below the $1.6m

Federal Budget 2016



• Intentional excess NCC

Detail

• Still seems to be available, wait for legislation

• Downside is tax on ‘associated earnings’

• Part 4A?



Federal Budget 2016



• Transition to retirement income streams

Detail

• Still have salary sacrifice benefit of MTR versus 15%

• Lose tax-free fund earnings however likely in accumulation anyway

Federal Budget 2016



• Contribute up to age 75

Detail

• More scope to access the 15-year SBCGT exemption

• Less rush to apply SBCGT concessions

Documents

Session overview - Amazon S3 · Session overview • Federal Budget 2016 • Legislative & regulatory changes • Announcements & rulings • Case law • Other matters Federal Budget