End of Year Superannuation Fund Circular To all Super Fund Trustees

Transcription

1 21 June 2013 End of Year Superannuation Fund Circular To all Super Fund Trustees Maximise year end opportunities and minimise risks The end of the financial year will be here before you know it. In this end of financial year update, we have summarised the key superannuation issues you need to be aware of now and in the new financial year. Superannuation is an area that is constantly changing and keeping up can be difficult. We want to help you achieve the best result for your SMSF and yourself. If there is any additional information we can assist you with or help you in any other way, please contact us today. You can reach me by phone on or by to Kind regards, Nelson Thomas FOCUS ACCOUNTING & FINANCIAL GROUP Page 1 of 5

2 Housekeeping Deductibility of superannuation To claim a tax deduction for super contributions as an employer or as an individual, the payment needs to be received by the fund before 30 June. Merely incurring a liability will not work. If you are making a personal superannuation contribution that you want to claim as a tax deduction, you need to write to your fund in their approved form and advise them of the amount you intend to claim as a deduction. The superannuation fund then needs to acknowledge your notice of intent and agree to the amount you intend to claim as a deduction. This will normally be in the form of a notice or certificate from the fund and this should be provided to us to confirm the tax deductibility of the contribution. Review and rectify any outstanding compliance issues If your auditor has highlighted any breaches or issues in previous year fund audits, you should review and rectify these issues by 30 June. SMSF compliance is coming under increased ATO scrutiny and all trustees should ensure that their funds are compliant. What s changing? Superannuation guarantee changes From 1 July 2013, the minimum rate for superannuation guarantee contributions increases from 9% to 9.25%. The rate will continue to increase steadily until it reaches 12% from 1 July 2019 onwards. Also from 1 July 2013, the age limit for superannuation contributions has been removed. This means that those 70 and over will have contributions made on their behalf if they meet the eligibility criteria for superannuation guarantee payments. Superannuation contribution caps A proposed higher contributions cap of $35,000 applies from 1 July 2013 for those 60 and over, and 1 July 2014 for those 50 and over. For everyone else, the contributions cap will remain at $25,000 (with indexing returning to the cap from 1 July 2014). Concessional cap limit and over* $25,000 $35,000 $35, and over* $25,000 $25,000 $35,000 Below 50 $25,000 $25,000 $25,000** * at the start of the financial year. ** will be indexed from 1 July These higher contribution caps are currently before Parliament and are not yet law Page 2 of 5

3 Minimum pension payments As you would be aware, minimum pension draw down amounts apply to account based pensions. It is important that at least the minimum pension amount be paid each financial year for all pension members or the superannuation fund can miss out on certain tax benefits. Age Minimum % withdrawal 2011/2012 & 2012/2013 Minimum % withdrawal All other years Under 65 3% 4% % 5% % 6% % 7% % 9% % 11% 95 or more 10.5% 14% Excess contributions tax reform At present, concessional contributions you make that exceed the annual cap are taxed at the top marginal tax rate of 46.5%. While excess contributions up to $10,000 can be refunded (once only), most people caught by excess contributions tax (ECT) have excesses well beyond this level. From 1 July 2013, proposed reforms will allow individuals to withdraw any excess concessional contributions made from their super fund. It is intended that these excess concessional contributions will then be taxed at the individual s marginal tax rate plus an interest charge. These reforms are not currently law. It is very easy to be inadvertently caught by ECT if you are unaware of contributions that may be paid to your fund on your behalf, get the timing of payments wrong (the contribution is made on the date the payment is received by the fund), are unaware of the implications of salary sacrifice agreements on your super, or simply lose track. The definition of a contribution is wide. For example, if your life insurance premiums held within your fund are paid by your employer, then the premium paid would count as a contribution. Personally meeting your fund expenses could also be counted as a contribution. For example, if you pay for the fund s accounting fees (rather than the fund) it s considered to be a contribution. It is important to ensure that you know what your concessional and non-concessional contribution limits are and take care to assess what was contributed during the year and allow a buffer for unexpected contributions or miscalculations. Higher tax for high income earners From 1 July 2012, a proposed increased tax rate applies to contributions made by high income earners with a total income in excess of $300, Page 3 of 5

4 Total income includes the taxable income, concessional contributions, adjusted fringe benefits, total net investment losses, targeted foreign income, tax-free Government benefits less child support. Where the individual exceeds the total income level of $300,000, the super contributions above this level are taxed at 30% instead of the normal 15%. Any contributions subject to excess contributions tax will not be subject to this extra rate of taxation. This change is currently before Parliament. Higher tax on earnings from assets supporting income streams At present, all new earnings (such as dividends, rent and interest) on assets supporting income streams (superannuation pensions and annuities) are tax-free. Whereas earnings in accumulation phase (that is when you are building not taking super) are taxed at 15%. From 1 July 2014, it is proposed that the tax exemption for earnings on superannuation assets supporting income streams be capped at the first $100,000 of future earnings per individual. Earnings above $100,000 will be taxed at 15% (the same concessional rate that applies to earnings in accumulation phase). So, earnings on superannuation assets supporting income streams will be tax free up until $100,000 and then taxed at 15%. Special arrangements will apply for capital gains on assets purchased before 1 July 2014: For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2014; For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2024; and For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain. The proposed change will more than likely effect: Those with fund balance exceeds $2 million (assuming a 5% cash rate return); Where your fund assets produce a higher level of income return than usual; or Where a CGT event occurs pushing the fund income above the threshold (albeit there are transitional measures for CGT). While this change is not yet law and does not come into effect until 1 July 2014, it is a good time to look at strategies to manage the change. There are a number of strategies that we can implement for you now, and moving forward, that will help reduce the effect of this reform measure. Please contact us if you would like assistance in this area. Ban on off market transfers not going ahead One of the recommendations of the Super System Review was to ban SMSFs making off market transfers. That is, SMSFs would not be able to dispose of or acquire shares from a related party unless that Page 4 of 5

5 transaction was through an underlying market or at a price determined by an independent valuer where no underlying market existed. For example, at present if you personally own BHP shares and want to transfer them into your SMSF you could simply complete an off market share transfer to transfer them into the fund. This reform was announced, delayed and now dropped from legislation Page 5 of 5