Happy New Year!

1 July 2007 will mark the commencement of a host of new legislation relevant to legal, accounting and financial planning practitioners. Most of the changes to superannuation announced in the 2006 Federal Budget will take effect, as will a range of tax legislation. This ClearLaw bulletin takes a brief look at some of the issues that professional advisers should be conscious of at the change of the financial year. Paul Ellis and Julian Smith

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Simpler Superannuation Changes

New 'simple/accounts-based' superannuation pension

From 1 July 2007 all superannuation funds will be able to commence the new type of pension - commonly referred to as the 'simple' or 'accounts-based' pension - where the relevant member has met a condition of release.

Funds will still be able to commence the existing 'allocated' pensions and 'market-linked' (or 'term allocated') pensions before 20 September 2007 and, generally speaking, those pensions and pensions commenced prior to 1 July 2007 will be deemed to comply with the new pension standards that apply from 1 July 2007. Note that there seems little point, however, in commencing an allocated pension in preference to a simple pension on or after 1 July 2007.

From 20 September 2007, generally speaking, SMSFs will only be able to commence 'simple' or 'accounts-based' pensions.

Tax file numbers

Failing to provide a superannuation trustee with a tax file number may become an expensive omission from 1 July 2007.

After 1 July 2007 fund members who have failed to provide their fund trustees with their TFNs will:

• have to pay additional tax;
• be unable to make certain contributions; and
• be ineligible to receive the superannuation co-contribution.

Fund members can notify their superannuation trustee of their TFN by completing and giving to them a 'Tax file number declaration form (Nat 3092)'. This form may be downloaded from the ATO's website here - New ATO TFN Declaration Form.

New SMSF return

From 1 July 2007 SMSF trustees will be required to complete a single annual return in relation to their fund. The new return merges the fund's tax return and its regulatory return.

Although the final form of the new return is yet to be released, drafts of the document (which have been circulated to industry consultation groups) suggest that the ATO's new form will not only streamline lodgements, but will also collect a much broader range of information concerning the activities of SMSFs.

In addition to the new return, the supervisory levy payable on filing the return will increase from $45 to $150.

Superannuation rollovers

From 1 July 2007 all superannuation trustees will be required, if requested by a fund member, to roll over the member's super benefit to the fund selected by the member within 30 days of the receiving the request and all relevant information.

The trustee will also have to complete a 'Rollover benefits statement (NAT 70944)'. The form clearly sets out for the trustee of the receiving fund the taxable and non-taxable components of the rollover benefit. This form may be downloaded from the ATO's website here - New ATO Rollover Benefits Statement.

SMSF trustee declarations

From 1 July 2007 SMSF trustees will have to sign a declaration stating that they are aware of their obligations as trustees and of their regulatory obligations. The form must be signed within 21 days of becoming a trustee or a director of a trustee and must be kept with the fund's records for at least 10 years.

The ATO's website warns of penalties if you are unable to produce the declaration at the time your fund is being audited.

The ATO is yet to release the form of the declaration. The ATO's website states that the form of the declaration will be available prior to 1 July 2007 - but there's no sign of it yet. When it is released, Cleardocs will incorporate the form into its SMSF Package.

'Eligible Termination Payments' become 'Employment Termination Payments'

From 1 July 2007 'eligible termination payments' will be replaced by the new 'employment termination payments' constituted by a substantially different set of rules.

The new rules significantly restrict how such payments can be paid into superannuation. However, transitional provisions apply to some payments. You can read our earlier ClearLaw bulletin on ETPs here - ClearLaw April 2007 - Simpler Super and ETPs.

Superannuation and Insolvency

Under Simpler Super all amounts in super will be protected from creditors: formerly only those amounts up to a person's 'Reasonable Benefits Limit' was protected but these have now been abolished.

The qualification is that super contributions made on or after 28 June 2006 can be recovered by a trustee in bankruptcy if they were made for the purpose of defeating creditors.

Other superannuation changes

For a full review of the 'Simpler Super' changes, refer to the various ClearLaw articles published in recent months here - ClearLaw Simpler Super Articles.

Taxation Changes

Small Business taxation concession measures

Legislation to change the small business tax concessions regime in Division 152 of the Income Tax Assessment Act 1997 has been passed and many of the changes take effect from 1 July 2007, while others apply retrospectively from 1 April 2007 or 1 July 2006.

Many of the important threshold tests relevant to the concessional tax rules for small businesses have changed, as have some of the relevant exemptions. A fuller description of the changes can be accessed here in our other June 2007 ClearLaw article - Small business tax concession changes.

New tax rates

Some new tax rates announced in the May 2007 budget take effect from 1 July 2007, namely:

• the 30 per cent threshold will increase from $25,001 to $30,001; and
• the low income tax offset (LITO) will increase from $600 to $750 and will begin to phase out from $30,000. Taxpayers eligible for the full LITO will not pay tax until their annual income exceeds $11,000 (up from $10,000).

Taxpayers will have to wait until 1 July 2008 for the remainder of the May 2007 Budget changes to take effect, namely:

• the 40 per cent threshold will increase from $75,001 to $80,001; and
• the 45 per cent threshold will increase from $150,001 to $180,001.

You can read the Treasurer's budget press release, and examples of the reduction in income tax that will be provided for Australian taxpayers in 2007-08 (compared to their tax payable in 2006- 07), here - 2007-2009 Tax Rates Press Release.

Financial Services Changes

New disclosure documents

Licensees and authorised representatives should, as always, ensure that they are providing their clients with the most current form of the relevant Product Disclosure Statements (PDS) for financial products they recommend to clients. This responsibility is even more pressing now in the wake of the 'Simpler Super' reform programme.

While the legislative process to simplify corporate and financial services regulation under the Corporations Act 2001 continues, the immediate difference from 1 July 2007 will be that most superannuation trustees will by then have issued new forms of disclosure documents - most notably PDSs. The obvious need to change these documents stemmed from the 'Simpler Super' changes taking effect from 1 July 2007.

More information

If you would like more information concerning superannuation, taxation or financial services issues, please contact Maddocks on 03 9288 0555 and ask for a member of the Cleardocs Help Desk team.