As many of you will be aware, if you make a single non-concessional contribution that is in excess on the cap limit, you can have the excess amount refunded to you without any excess contributions tax issues. In fact, the trustee must not accept the excess contribution. This is known as “fund capped” contributions.
However, what if you make in-specie contributions on the same day of 3 parcels of shares in 3 different companies. Is this treated as one aggregated contribution for the purpose of “fund capped contributions”, or is it treated as 3 separate contributions ?
In ATO ID 2012/79, the ATO provide us with the answer.
The ATO have recently released an Interpretative Decision (ATO ID 2012/84) which deals with a situation where concessional contributions can be counted when a Complying lifetime pension has been rolled over and there are reserves involved.
The situation specifically addressed is where a Complying lifetime pension has been commuted and:
- The amount standing to the credit of the ‘pension account’ was rolled over and a ‘market linked pension’ (also known as a term allocated pension) was commenced, and;
- The amount that was in the ‘reserve account’ in relation to the complying lifetime pension was rolled over to an ‘account based pension’ which was commenced for the member.
Regulations have now been enacted to enable super fund members to receive a refund of certain excess concessional contributions.
It involves the ability for individuals who breach their concessional contributions caps by up to $10,000 for the first time to have the excess concessional contributions refunded to them.
Basically, those excess concessional contributions would be taken out of your SMSF and would then be assessed as normal income at your marginal tax rate, rather than incurring a potentially higher rate of excess contributions tax. This applies to contributions made since 1 July 2011 (announced in the 2011‑12 Budget).
The ATO have recently released an interpretative decision (ATO ID 2012/27) around the issue of taxation of transfers of foreign pension plans (like our super funds) to an Australian super fund.
To be more specific, they have ruled on the ability to change your mind as to which entity can pay the tax that applies on the rollover where it has happened 6 months after becoming a resident here.
To understand this one, we need to just summarise some background information, and we’ll do it in the form of an example to make it a bit easier to understand.
The ATO have recently released a new ATO ID (2012/16) which deals with the timing of concessional contributions.
Specifically, it deals with the situation where a concessional contribution is made to a super fund in one year, but is actually allocated to a member’s account in the next financial year, and what this means for the timing of deductions and when is it counted as a contribution for the contribution caps?
The Government announced yesterday the abolition of the age limit on Super Guarantee contributions, with the passage of legislation through the parliament.
Basically, eligible employees aged 70 and over will for the first time be able to receive the superannuation guarantee from 1st July 2013. The Government state that this will increase the coverage of the superannuation guarantee scheme to an additional 51,000 Australians aged 70 and over who continue working. These changes also mean that employers will be able to claim income tax deductions for superannuation guarantee contributions made these employees, and hence ensures employers will not bear a higher cost in employing workers 70 and over compared with other workers.
The commencement date of 1st july 2013 was chosen to allow time for employers and older Australians to adjust to these new arrangements.
Amendments to the Superannuation Guarantee (Administration) Amendment Bill 2011 and the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011 were made to give effect to these reforms and these passed the House of Representatives last week.
The Government have recently opened the consultation process for a change to the contribution caps.
This potential change has been mentioned before, and involves the ability for individuals who breach their concessional contributions caps by up to $10,000 for the first time to have the excess concessional contributions refunded to them.
Basically, those excess concessional contributions would be taken out of your SMSF and would then be assessed as normal income at your marginal tax rate, rather than incurring a potentially higher rate of excess contributions tax.
The May 2011 Federal Budget has come and gone, and whilst it’s a relief that there are not any big changes to the Super rules, there are still a number of items impacting Self Managed Super Funds and a few confirmations of previous announcements:
Some relief for Excess Contributions Tax
Probably the best thing to come out of the budget for SMSFs was that we get at least some relief in terms of excess contribution tax. Basically, individuals who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them, where they will be assessed at their marginal tax rate instead of the excess contributions tax rate. However it would only apply to first time breaches, so it seems you’ll only get one chance and then that’s it. It applies from 2011/12 onwards. Of course, this morning there are already a number of questions being raised on various aspects not explained thus far, and so we’ll have to see the finer detail in terms of how it will all evolve.
SISFA Welcomes Urgent Review of Excess Contribution Penalties and Seeks Clarity by 30 June
Three Actions for SMSF Practitioners to Take After Review
The announcement by Assistant Treasurer Bill Shorten that an urgent review of excess contribution penalties is under way is welcome news according to SISFA which represents SMSF practitioners and trustees.
SISFA (Small Independent Super Funds Association) believes that practitioners can take three immediate actions to prepare for a positive outcome from this review:
1. Keep a record of clients that have inadvertently gone over their excess contribution limits discuss with the ATO when it is anticipated that more sensible/lenient rules apply, post the Review
2. Contact vulnerable SMSF clients who have been very proactive in chasing maximum contribution levels and review their contribution levels in April/May to find any excess contributions and, where allowed by law, unwind any excess contributions before 30 June.
3. Inform SISFA, who regularly liaises with Canberra/ATO on SMSF issues, of any special issues that should be covered in this urgent review.
“SISFA has campaigned like many other associations for some sensible rules around accidental excess contributions and we welcome the Minister’s response in the form of this urgent review. A quick response by the regulators to this urgent review should mean that practitioners and their SMSF trustee clients should have clarity over this contribution issue before 30 June to allow people to safely contribute for their retirement,” said Andrew Cullinan, a Director of SISFA.
by Darren Kingdon
Director – SISFA (Small Independent Superannuation Funds Association)
(Editors note: you may need to refer to the Government’s paper in regard to the sections referenced in this article. You can click here to get it. Feel free to leave comments on this submission at the bottom of the page).
SISFA SUBMISSION IN RELATION TO THE CONSULTATION PAPER “CONCESSIONAL CONTRIBUTIONS CAPS FOR INDIVIDUALS AGED 50 AND OVER” RELEASED FEBRUARY 2011 (THE CONSULTATION PAPER)
SISFA is an association that has represented the interests of the self managed superannuation fund (SMSF) sector for over 12 years and is currently the only SMSF industry body solely representing all service providers in the sector including administrators, accountants, auditors, lawyers, actuaries and advisers. SISFA welcomes the opportunity to make this submission in response to some of the issues raised in The Consultation Paper.