News & Updates
Draft regs on TPD insurance premium deductions
Treasury have just put out the draft regs on how much of each type of TPD definition will be tax deductible when taken out inside a SMSF:
TPD any occupation : 100%
TPD any occupation with one or more of the 100 following inclusions: 100%
(a) activities of daily living;
(b) cognitive loss;
(c) lossoflimb
TPD own occupation : 67%
TPD own occupation with one or more of the following inclusions: 67%
(a)activities of daily living;
(b) cognitive loss;
(c) loss of limb
TPD own occupation bundled with death (life) cover : 80%
TPD own occupation bundled with death (life) cover with one or more of the following inclusions: 80%
(a) activities of daily living;
(b) cognitive loss;
(c) lossoflimb.
Note this updates our previous articles on this subject.
Consequences of new draft ruling on Pensions
The ATO have recently released a draft ruling on its view on exactly when a superannuation income stream (otherwise known as a “pension”) starts and ends, as these issues are not explicitly covered under the legislation.
Whilst most of it looks fairly straightforward on the surface, there are actually a few issues that pop up when you look through what was said, and consider some of the potentially negative implications.
In this article, we’ll firstly summarise the ATOs position, and then we’ll highlight the potential problem, and some practical planning tips.
And as always, remember this is a draft ruling – it is still subject to industry consultation, however (and we’d love to be wrong about this) we don’t believe there will be wholesale changes to the ATO view.
TPD insurance changes – now law, but waiting on final regs
Tax Laws Amendment (2011 Measures No. 4) Bill 2011 received RoyalAssent on 27th June 2011, which deals with the tax deductibility of premiums for TPD insurance in SMSF and is now law.
What the Bill did was introduce legislation which will allow regulations that specify a statutory percentage of disability insurance premiums that a SMSF will be able to claim as a tax deduction.
The idea was to streamline the process for claiming tax deductions for the cost of TPD insurance provided through a SMSF such that the fund will not need to engage an actuary and hence will not bear this additional cost. These arrangements will apply from the 2011-12 income year, on the expiration of the current transitional relief.
New rules for Collectables become law
Tax Laws Amendment (2011 Measures No. 2) Bill 2011 received Royal Assent on 27th June 2011 which deals with collectables in SMSFs and is now law.
Firstly, a new section has been added (section 62A) which states that:
The regulations may prescribe rules in relation to the trustees of regulated superannuation funds that are self managed superannuation funds making, holding and realizing investments involving:
New financial year issues for SMSFs
by David Busoli
Cavendish Superannuation
As the New Year begins it is timely to consider a number of superannuation issues.
1. The concessional contribution cap limit for over 50s does not change until next year. This means that the limit remains at $50,000 for the 2011/2012 year irrespective of Fund balance.
2. This year the required pension minimums have been increased. They are;
| Age | Percentage of Account Balance |
| Under 65 | 3% |
| 65 – 74 | 3.75% |
| 75 – 79 | 4.5% |
| 80 – 84 | 5.25% |
| 85 – 89 | 6.75% |
| 90 – 94 | 8.25% |
| 95+ | 10.5% |
The minimum is calculated on the pension account balance at commencement or 1st July 2011, whichever is the earliest. If the pension is commenced part way through the year then the minimum is prorated for the balance of the year.
3. Tax deductions for Funds paying Total & Permanent Disability Insurance premiums from 1st July 2011 will change. Though the ATO have not finalised the matter it would seem that premium deductions will depend on the definitions of disability as follows;
| Disability Definition | Premium % Deduction |
| Any Occupation | 100% |
| Any Occupation plus Loss of Limb | 90% |
| Own Occupation or Activities of Daily Living | 60% |
| Own Occupation or Activities of Daily Living with Loss of Limb | 50% |
Medicare to replace APRA for early release on compassionate grounds
by David Busoli
Cavendish Superannuation
Medicare is to replace APRA as the body responsible for the approval of early member benefit release requests on compassionate grounds. This was always an unusual matter for Self Managed Superannuation Funds which, though regulated by the ATO, were required to make applications to APRA in these cases.
Benefits may be released on compassionate grounds where a member lacks the financial capacity to meet an expense and both the Fund Deed and APRA/Medicare allow.
Such grounds include;
- medical expenses for a life threatening condition or for palliative care
- expenses to alleviate chronic physical pain or mental condition
- transport relative to the above including Medivac
- modification to accommodation relative to the above
- funeral assistance for a dependant
- making a payment to prevent a lender’s foreclosure on the member’s principal place of residence – limited to 3 monthly payments and 12 month’s interest
The Governments decision to transfer this function to Medicare is not only a recognition of Medicare’s capabilities but also a response to criticism of APRA’s resourcing and capacity.
The ATO’s SMSF compliance focus for 2011/12
The ATO have recently released details of their compliance program for 2011/12, outlining the area’s they will be focusing on.
Whilst the ATO state that they do work with trustees to try to fix problems that may occur, they also state that they will “take firm action, including making funds non-complying, if they commit serious breaches of the rules.”
Draft new rules for Collectables in SMSFs
The Government has recently released its draft regulations relating to SMSF trustees making, holding and realising investments in collectables and personal use assets. Note that submissions for this are still being taken up until 14th June 2011 so they are not yet law, nor even finalised. However, these draft regulations give us a good ida of where it is heading.
We summarise the proposed new rules below:
Impact of Federal Budget on SMSFs
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
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.
