SMSF Rule Change Extension – Account Based Pensions
By · CommentsThe concession halving the minimum amount an account-based pension has to pay has been extended to financial year 2010-11.
The annual minimum is set as a percentage of the pension account balance at the start of the financial year.
What this concession means is that those under 65 once again only have to draw out 2% of their pension balance, not the regular 4%.
The other minimums (under the concession) are…
- 2.5% for those age 65-74
- 3% for those age 75-79
- 3.5% for those age 80-84
- 4.5% for those age 85-89
- 5.5% for those age 90-94
- 7% for those aged 95 or over
The extension of the concession is good news for those who have no immediate need for income and prefer to continue to strengthen their financial position.
Cooper Review Of Superannuation – Implications For SMSFs
By · CommentsThe final report of the Cooper Review into the governance, efficiency, structure and operation of Australia’s superannuation system was released on Monday, 5 July 2010.
The Cooper Review found that the Self Managed Super Fund (SMSF) sector is largely successful and well-functioning and should form an integral part of the choice architecture. However, while not seeing the need for significant changes, the report did make a number of recommendations in relation to service providers and the regulatory framework applying to SMSFs.
Following are the key recommendations:
Regulation
- ATO to have power to issue administrative penalties on a sliding scale to reflect the seriousness of the breach
- ATO to have power to issue enforceable undertakings to require trustees to rectify breaches in reasonable time
- The ATO to have power to enforce mandatory education for trustees who have contravened SIS legislation
- ATO to have power to issue binding rulings on SMSFs
Service providers
- Develop an SMSF specialist component of RG 146
- Legislate to require advisers to hold an AFSL where they provide advice in relation to the establishment of an SMSF. The accountants’ licence exemption should be removed and not be replaced
- Approved auditors should be required to be registered by ASIC, and meet minimum competency, knowledge and independence standards developed by ASIC
Investments
- The Government should review the borrowing rules within SMSFs within two years to ensure borrowing is not becoming a major focus of SMSFs
- SMSFs should be banned from acquiring any in-house assets or collectible or personal use assets. Funds currently holding in-house, collectible or personal use assets should be required to dispose of them within 5 years
- All transactions between an SMSF and a related party to be conducted through an underlying market, or where that does not exist, require that all transactions must be supported by a valuation from a suitably qualified independent valuer
Asset valuation
- SMSFs to value all assets at market value with the ATO to publish valuation guidelines
Improving integrity
- Proof of identity checks should be required for all people joining an SMSF
- SMSF registration process should capture details of relevant service providers
- Similar naming rules applicable to bodies corporate should be applied to SMSFs
- Government to provide information to large APRA funds to enable them to verify the details of SMSF membership before processing rollover requests to SMSFs
- Criminal and civil sanctions to enable the ATO to penalise and discourage illegal early release scheme promoters
- Amounts illegally withdrawn from super taxed at 45%
Other
- Amend the SIS Act to automatically deem anything permitted by the SIS Act or a tax act to be permitted by SMSF trust deeds
- Amend the rules relating to investment strategies so that SMSF trustees are required to consider life and TPD insurance for members as part of their investment strategy
Future posts will consider the recommendations in more detail.
For advice on any matters concerning your superannuation, contact us at Peter H. Hunt & Associates here.
Following are some suggested strategies for businesses to take PRIOR to the end of the current tax year at midnight on Wednesday 30 June 2010…
- Write off bad debts
- Attend to year end stock take, cash counts, etc
- Review asset register & consider a) scrapping obsolete or badly damaged stock and b) reassessing effective lives of assets on hand
- Consider bringing forward any necessary repairs
- Ensure superannuation guarantee obligations have been met and that contributions have been received by the fund;
- Pay donations, if any
- Where year end bonuses, directors fees etc are to be paid consider making appropriate resolutions committing to pay specific amounts to ensure deductibility in 2009/10, even where payment is made after year end
- Consider the timing of invoices for work in progress
- Consider pre-paying deductible expenses (small business taxpayers only)
- Consider bringing forward purchases of depreciable assets costing $1,000 or less for an outright deduction (small business taxpayers only)
- Consider transferring any unearned revenue from the profit and loss account to the balance sheet to highlight its non-taxable status. The unearned revenue must be refundable if the business does not provide the services paid for
- Ensure any shareholder loan repayments required under loan agreements are made
- In relation to loans by shareholders to companies with turnover of more than $20M, ensure that loan agreements are in place so that the loans are not treated as equity
With the end of the 2010 tax year (midnight Wednesday 30 June 2010) fast approaching, here are some strategies to consider if you’re an individual tax payer…
1. Income
- Delay receiving income to July 2010, as individuals are assessed on a cash basis
2. Deductions
- Consider pre-paying deductible expenses
- Consider bringing forward purchases of employment related depreciable assets that cost $300 or less for an outright deduction
3. Capital Gains
- Realising capital losses (unless the intention is to repurchase the investment shortly thereafter)
- Defer capital gains to the new financial year
Australian Federal Budget 2010 – Superannuation Changes
By · CommentsMain points…
- Compulsory super will rise from 9% to 12% of salary in increments from July 2013 to July 2019
- People over 50 will be able to make annual tax concessional super contributions of $50,000 if their fund balance is under $500,000. Those with a higher balance will be limited to annual contributions of $25,000
- Temporary cuts to the super contribution announced previously will be permanent BUT people with income under $37,000 will receive an annual super contribution from government of up to $500
In more detail…
Australian Federal Budget 2010 – Business Tax Changes
By · CommentsSummary of business tax changes in the Australian Federal Budget 2010…
- Tax rate for “small” business to be reduced to 28% from 1 July 2012 and the rate for all business also reduced to 28% from 1 July 2014
- New, more favourable, depreciation treatment for small business from 1 July 2012
- A number of capital gains tax reliefs for business have been broadened
Main details…
Australian Federal Budget 2010 – Personal Tax Changes
By · CommentsNo real surprises for personal income tax payers in the federal budget. Highlights…
- Income Tax rates reduced as expected (only affecting incomes greater than $35,000 per annum)
- “Simple” tax returns proposed from 2012-13 will let people claim a standard $500 ($1,000 from 2013-2014) deduction for work-related expenses and the cost of tax affairs
- A 50% tax discount on the first $1,000 of income generated by products such as cash accounts, fixed interest and annuities to apply from 1 July 2011
In more detail…
In a previous post (“SMSFs – 5 Big Benefits To Having Your Own Fund”) we looked at some of the benefits of having your own superannuation fund. But there are more than just 5 benefits. Here are another 5 to consider…
6. Flexibility In The Payment Of Death Benefits
The trust deed can give the trustees the power to pay any death benefit as a lump sum, a pension or into a testamentary trust. This means the best course of action can be decided on at the time of death, which can save significant amounts of tax. Death benefits can be paid in any or all of the following ways:
- As a lump sum or pension to someone who is financially dependent on the member
- As a lump sum or pension to someone who has an interdependency relationship with the member
- As a lump sum or pension to the members spouse or dependent children (to age 24)
- As a lump sum to the non dependent beneficiaries or the members estate
If the death benefit is payable to a non dependent, the taxable component would normally be subject to tax between 16.5% and 31.5%.
For a death benefit to be paid to a testamentary trust, it must first be paid to the member’s estate. When paid to the member’s estate the death benefit will be tax free to the extent that a defined dependant is expected to benefit from it.
If the testamentary trust is a discretionary trust and it is possible to distribute to a non dependant, the death benefit inherited by the testamentary trust will be subject to tax.
For the death benefit to be inherited tax free by the testamentary trust, the testamentary trust’s beneficiaries must all be tax dependants of the deceased.
SMSFs – 5 Big Benefits To Having Your Own Fund
By · Comments“It may be that the SMSF is the absolute way of the future”
Jeremy Cooper – Head Of The Cooper Review Into The Superannuation System
A SMSF (“Self Managed Super Fund”) has a number of big advantages compared to other forms of superannuation. Here are 5 of them…
1. Control
The members, who must also be the trustees, decide on the fund’s investment strategy and choose the fund’s investments. A SMSF can bank with any bank, insure with any insurer and, subject to the sole purpose test, invest in practically most investments.
The trustees also select which professionals they want to help them administer the SMSF, including the financial planner, tax accountant and auditor.
2. Flexibility
The fund’s investments can be tailored to suit the members’ specific needs before and after retirement. This flexibility allows for more specialised investment selections and can produce significant taxation advantages over public offer funds.
Also, in retirement the trustees have greater flexibility in paying tailored income streams to suit the member’s income and taxation needs subject to superannuation legislation.
For example, the SMSF can pay an account based pension.