Super in 2007: An eventful year in review- opportunities for you and your clients

Superannuation becomes 'Simpler Super' becomes 'Better Super'

New legislation

On 1 July 2007, a swarm of new superannuation legislation took effect. ClearLaw gave a "change by change" description as the law evolved before that date. You can access the articles summarised below here.

Some of the major changes were:

Changes to the big ticket items: no tax and no RBLs. Taxes on super benefits to people who satisfied a post age 60 condition of release were abolished — along with the whole concept of Reasonable Benefits Limits.

Changes to contribution rules:

• limits on deductible contributions changed;
• limits on non-deductible contributions were introduced;
• changes to the rules for self-employed persons making contributions were effected; and
• simplified aged-based scales on the limits were introduced.

Changes to cashing rules: the compulsory cashing rules were removed — allowing people to leave their super in their funds as long as they want.

Changes to death benefits: new rules regarding how a member's super benefits were to be paid on death, to whom and the appropriate tax treatment. These changes:

• highlighted the need for self-managed superannuation funds (SMSFs) to plan for retired, or retiring, members, or for whom death may be close; and
• confirmed the important role of advisors of clients who lose the capacity to control their affairs. Those advisors can advise and revisit tax issues with clients and review arrangements for powers of attorney.

Changes to pensions: a new 'simple' or 'accounts-based' pension was introduced. This new type of pension was phased in throughout 2007. Generally, from 20 September 2007, SMSFs may only commence this type of pension.

Changes to TFN requirements: fund members who fail to provide a superannuation trustee with a tax file number will be:

• liable for additional tax;
• unable to make certain contributions; and
• ineligible to receive the superannuation co-contribution.

Changes as 'ETPs' become 'ETPs': the concept of 'eligible termination payments' was replaced with 'employment termination payments'. This reflected the fact that a new super contributions regime had been introduced.

Changes to Super and Bankruptcy rules: all superannuation amounts were provided with protection from creditors — with the exception of superannuation contributions made after 28 June 2006 for the purpose of defeating creditors, which may be recovered by a trustee in bankruptcy.

Changes to the rest: the list of material changes goes on — each of them marking important planning opportunities and compliance obligations for advisors and clients.

The ATO's approach to Better Super

The new Better Super landscape also focused on improved regulatory and compliance measures.

In response to the first of two reports released by the Australian National Audit Office (ANAO) in early 2007, the Australian Tax Office (ATO) focused its priorities for the more intensive regulation of SMSFs. For a more detailed summary of the ANAO report, see our full article here.

For this purpose, Better Super saw the ATO's surveillance budget increased by $112m and the following measures launched — all with the aim of improving SMSF compliance:

• a simplified annual return document amalgamating the previous regulatory return, income tax return and member contribution statement;
• a declaration signed by trustees acknowledging their trustee and regulatory obligations;
• a shift in the ATO from an educational approach to a more active, audit-based approach; and
• more intensive supervision of SMSF auditors.

In-house assets

In October, the ATO released a Draft Self-Managed Superannuation Fund Determination, dealing with in-house asset rules. Importantly, the Draft Determination confirmed that an investment made by an SMSF in a related company or a unit trust can be deemed not to be an in-house asset. This is despite the occurrence of a regulation 13.22D event, which would ordinarily deem an asset to be an in-house asset.

Trustees should be mindful of the ATO's proposal that the Draft Determination, once finalised, will apply retrospectively to years of income before and after the date it is issued. This is likely to occur in 2008.

For further detail regarding the Draft Determination, see our full article here.

Investments in instalment warrants

In September 2007, superannuation legislation changed to allow trustees of super funds to borrow money to buy assets via 'instalment warrant arrangements' — if the assets are held on trust for a beneficiary and certain requirements are met. This marked a significant shift in the regulation of super funds and is sure to be the big issue for 2008, particularly in the SMSF sphere.

You can find further discussion of the instalment warrants exception in our full article here.