Superannuation fund members should make sure they are on top of the most recent changes to the superannuation system, and taking advantage of some of the new rules introduced since 1 July 2013, says Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney.
“Some of the changes relate to all superannuation fund members, while other specifically affect SMSF members and trustees. Other proposed amendments appear to have been abandoned, at least for the time being.
“Whether the outcome of the Federal election brings any further changes is yet to be seen, although both parties have signalled that they don’t intend to make significant changes to the system for a while.
“Fortunately, a number of the recent changes that have been enacted are very positive, and fund members should make sure they are taking advantage of them,” Mr Philpot said.
The main changes for the 2014 financial year include:
Concessional contribution cap
The concessional contribution cap for those over age 60 has increased from 1 July 2013.
Mr Philpot said this is the first increase in concessional contribution caps after years of reductions to the cap, and is very welcome.
For those aged over 60, the cap has increased from $25,000 to $35,000 per annum. Those that are turning 60 during the financial year will have access to the $35,000 cap.
It is anticipated that the concessional contribution cap will also rise to $35,000 from 1 July 2014 for those over age 50.
Mr Philpot said anyone in salary sacrifice arrangements with an employer should review their current arrangements to factor in the $10,000 increase.
“Also, those who make personal deductible super contributions should consider maximising the $35,000 deduction if their gross income is $80,000 or more.”
Super guarantee increase
The superannuation guarantee (SG) rate has increased from 9% to 9.25% for most people.
“While only a small increase, this is an important step in increasing Australia’s compulsory level of super to better reflect retirement needs,” Mr Philpot said.
“In addition, the age cap of 70 for SG contributions has been removed. So now, those aged 70 and over earning a salary, can have super contributions, and in fact must have super contributions, made by their employer.”
Excess contributions tax
The harsh penalties for exceeding concessional (deductible) contributions have been reduced.
Before 1 July 2013, excess contributions were hit with a penalty tax of 31.5% on top of the 15% contributions tax, effectively taxing the excess sum at 46.5%.
Now, excess contributions can be withdrawn from a super fund and the tax rate will be at the personal marginal tax rate, plus an interest charge (for late payment of tax).
However, it is important to note that the prohibitive tax of up to 93% on excess non-concessional contributions still applies.
Mr Philpot said that, although the government was careful not to use the word ‘surcharge’, there has been a reboot of the surcharge tax for those earning over $300,000.
They will pay an additional 15% tax on top of the 15% contributions tax for concessional contributions into super. This will apply to contributions from 1 July 2012, however the levy will not commence until 1 July 2014.
“While the 30% tax rate on the concessional contributions is lower than the marginal tax rate for individuals earning $300,000 of 46.5%, the tax saving from making additional contributions up to the concessional cap has been reduced,” he said.
Mr Philpot said several changes will specifically impact those in self-managed superannuation funds (SMSFs). These include:
SMSF registered auditors
From 1 July 2013, SMSF trustees must use an approved SMSF auditor registered with the Australian Securities & Investments Commission (ASIC) to audit their fund.
“This is an important change as many current auditors are not registered with ASIC, so trustees should check this.”
Assets at market value
SMSF assets must now be re-valued at market value in the fund’s financial accounts and statements, starting for the year ended 30 June 2013.
Previously, assessing market value for SMSF assets was only required when a pension started, or if the fund had invested in related party assets.
SMSF supervisory levy
The SMSF annual levy to the ATO has increased from $200 to $321. The new amount of $321 is made up of a $191 levy for the 2013 financial year plus an advance payment of 50% of the levy for the 2014 financial year (i.e. $130).
Separation of assets
The government has introduced rules requiring SMSF trustees to keep SMSF assets separate from other assets held by the trustees, members or their associates.
This rule has always been embedded in the general SMSF investment rules, but the government has made it a specific requirement in order to make it easier for the ATO to apply penalties on trustees that breach this requirement.
Mr Philpot said that, while the rules have always required SMSFs to have an investment strategy, trustees must now review it regularly.
“The term ‘regularly’ would mean at least annually, as well as when there is a change in trusteeship or membership of the fund.
“Furthermore, the new investment strategy rules require SMSF trustees to consider whether the trust should also hold insurance policies for the members.”
Other changes not passed
Mr Philpot added that as well as the changes outlined above which have now been introduced, there were a few changes announced previously, including in the last Federal budget, that did not get passed by parliament in its final sitting.
“Some of these now appear off the radar, until at least next financial year, so fund members don’t need to worry about them just yet,” Mr Philpot said.
Tax on pension earnings
The government proposal to tax pension funds with over $100,000 taxable earnings in a financial year at the 15% tax rate was not well received by many, Mr Philpot said.
“Fortunately, this now appears to have been sidelined, at least for the time being.
“While the government argued that it would only affect people who had over $2 million in pension accounts and who were earning 5%, the reality is that many retirees have assets that provide a capital gain such as shares and property.
“When sold, this could very easily push taxable earnings above $100,000 on a pension balance much less than $2 million,” he said.
Off market transfers
“The proposed changes to the SMSF rules restricting or banning the acquisition and disposal of certain assets (e.g. listed shares) between an SMSF and a related party from 1 July 2013 appears to have been abandoned by the Government,” said Mr Philpot.
“Therefore trustees and members can still execute an off-market transfer of listed shares to an SMSF as an in-specie contribution or receive cash proceeds from the fund.”
The abandoned measures had also proposed that transfers of unlisted assets, such as business real property or collectables, were required to be made at a market value as determined by a qualified independent valuer.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.
For more information please contact:
Jonathan Philpot – Phone: 02 9020 4196
21 August 2013