SMSF Technical
Extension of draw down relief for account based pensions
With the continued volatility and depressed price levels in equities markets, the Government have announced yesterday that the 25% reduction in the minimum payments for account based pensions will be extended to the 2012-13 year.
They believe that around 125,000 self-funded retirees will benefit from this extension, and reduce the need for them to sell assets at a loss in order to meet the minimum payment requirement.
ATO ID – SMSFs acquiring an asset with a charge over the asset
The ATO have recently released an interpretative decision (ATO ID 2011/81) around the issue of a SMSF trustee giving a “charge over assets” of the fund and specifically the meaning of “give a charge”.
And we have to say, this is a very interesting one.
Why is it important?
There has generally been a view in the past that a SMSF cannot have an asset in the fund that has a “charge over it”. A “charge” is basically like a mortgage or lien over an asset. Specifically, Reg 13.14 of the SISR states that “the trustee of a fund must not give a charge over, or in relation to, an asset of the fund.”
However, the question has been raised – Does the trustee of a SMSF ‘give a charge’ for the purposes of regulation 13.14 if the trustee purchases an asset subject to a charge that was established before the trustee purchased the asset?
ATO ID – can former step children be dependants for death benefits
The ATO have recently released an interpretative decision (ATO ID 2011/77) dealing with the issue of “former” step children, and the meaning of child and dependants for the purpose of paying out SMSF death benefits.
The Question
Consider the following example:
Jack and Jill were married. Little Bill is Jill’s son from a former marriage.
Hence Little Bill was Jack’s step son.
However, Jack and Jill’s marriage ended a few years ago in divorce.
Now, Jack has died, and did not formally adopt Little Bill under any state or territory law.
So the question is – can Little Bill be classed as a dependant of Jack’s (under the SIS Act, and hence be eligible for a death benefits payout from Jack’s super fund) because Little Bill has previously been a ‘stepchild’ of Jack’s ?
ATO ID – is a former spouse from a same sex couple a death benefits dependent?
The ATO have recently released an Interpretative Decision (ATO ID 2011/83) dealing with the issue of whether or not a former spouse of a same sex couple qualifies as a superannuation death benefits dependent – even though the relationship ended prior to same sex couples being included as “spouses”.
Why is this important?
As you may be aware, if a superannuation death benefit payment is made to someone who qualifies as a ‘death benefits dependent’ of the person who has died, the payment attracts very favorable tax treatment (lump sums are tax free).
Hence, to be treated as a death benefits dependent can mean the difference of many thousands of dollars in the final payout.
Government’s Stronger Super decisions for SMSFs
Way back on the 29th May 2009, the Government commissioned the Super System Review, chaired by Jeremy Cooper. The final report was handed to the Government on 30 June 2010, and the Government responded to the recommendations in December 2010 with a document which outlined which recommendations it supported, which it didn’t, and which required more industry consultation.
Now in September 2011, the Government have come out with its “Stronger Super Info pack”, which outlines the details of the Governments decisions on key design aspects of the reforms.
For SMSFs, this new document outlines the Government’s decisions on a couple of key issues that they were still to decide on, which we outline below:
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:
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.
