The draft law on the changes
The first parts of the draft law are available, and will be followed later by more detailed regulations. The federal opposition has announced it will support the plan. The key changes are analysed below.
Salvation for certain existing excess After-Tax Contributions - all super funds and members
If a member of a superannuation fund has exceeded their undeducted contribution cap before 7 December 2006, then they may withdraw money from the SMSF so as to bring themselves below the cap. The member must do this before 30 June 2007.
The contribution cap is that between 10 May 2006 and 30 June 2007, an SMSF member who is under 75 may contribute a total of up to $1 million of undeducted contributions.
After 30 June 2007, each person may make undeducted contributions of up to only $150,000 a year, but persons under 65 have the added flexibility to average $450,000 of undeducted contributions over a 3 year period. Certain refinements apply for anyone aged 63-65.
The press release also indicates that a member will be able to seek the ATO Commissioner's discretion to disregard or reallocate excess after-tax contributions made since 10 May 2006 to a different income year in special circumstances.
Reporting Arrangements - SMSFs
|Trustees lodge 2 returns or statements on different dates.||All SMSF trustees will lodge a single annual return.|
|Supervisory levy is paid separately from any tax liability.||Single payment for both the supervisory levy and the fund's income tax liability.|
|Single payment for both the supervisory levy and the fund's income tax liability.||These penalties apply to SMSFs|
Trustee and Auditor Requirements - SMSFs
Trustee is unable:
However, it seems, that prohibitions do not apply to directors of a corporate trustee of an SMSF.
|Same restrictions will apply to directors of a corporate trustee of a SMSF.|
|Currently, auditors and actuaries of SMSFs are obliged to report matters that may affect the interests of fund members or beneficiaries.||Approved auditors and actuaries of SMSFs are required to report to the Regulator on matters specified in an approved form. It seems that the matters able to be specified will be limited to contraventions of SIS and the SIS regulations and to matters relating to the annual audit of the fund's accounts.|
Other Regulatory Changes - SMSFs
|SIS provisions with which an SMSF must comply for concessional tax status do not include relevant or associated taxation laws.|| |
The various provisions of the Taxation Administration Act 1953, which relate to false or misleading statements and reporting requirements, are to be included as SIS regulatory provisions.
The Commissioner of Taxation's powers will be extended to the regulation of SMSFs.
Anti-Avoidance‚?? all super funds and members
The press release which accompanied the new rules also indicates that the Government is considering amendments to Part IVA of the Income Tax Assessment Act 1936 to 'ensure that superannuation-related avoidance is dealt with appropriately'. The effective date of any new anti-avoidance measures will be the date of the announcement (7 December 2006).
Fringe Benefits Tax (FBT) - SMSFs
|Fringe benefits tax is payable on any in specie contribution an employer makes to an SMSF for the benefit of an employee. This is because the current definition is focussed on 'payment of money' and 'payment'.||In specie contributions will not be subject to FBT.|
However, trustees need to ensure that in accepting in specie employer contributions they do not contravene the general SIS rule prohibiting the intentional acquisition of an asset from a related party of the fund. Exceptions to the rule allow the transfer for an SMSF:
- If the asset is a listed security acquired at market value; and
- if the asset is business real property and it is acquired at market value (section 66 SIS).
Defined Benefit Arrangements‚?? Defined Benefit Funds
New modified rules determine contributions to defined benefit funds — particularly how to calculate concessional contributions for members with a defined benefit interest. In the government's earlier announcements, it indicated that concessional arrangements would cease to apply if the defined benefit fund amended its rules to increase a member's benefits. However, the main Bill may allow the concessional contributions cap to be increased in certain circumstances — for example if a defined benefit fund amends its rules to meet requirements in other legislation.
SMSF payments departing Australia
Departing Australia superannuation payments will be taxed as follows:
- the tax-free component of the payment is exempt from tax;
- the taxed element of the payment is taxed at 30% and
- the untaxed element being taxed at 40%.
This law is in the Superannuation (Departing Australia Superannuation Payments Tax) Bill, which replaces the Income Tax (Superannuation Payments Withholding Tax) Act 2002. The new Bill imposes tax at the same rates as the previous law.
Further legislation and new pension rules
There is more to come in the reform process and more draft legislation to review, including the law on:
- unclaimed money,
- anti-avoidance and
- excess contributions.
Regulations in support of the framework of the Bills are yet to be introduced. These will be made after the package receives Royal Assent. The press release indicates that key draft regulations such as the new pension rules, will be released earlier for public comment if this is possible.
The Treasurer introduced a package of 6 Bills to the House of Representatives on 6 December 2006. The Bills implement superannuation simplification announced by the Treasurer in the 2006-2007 Budget (and as modified by an Outcomes of Consultation paper issued on 5 September 2006).
The Federal Opposition in a media statement dated 6 December 2006 announced that it would support the simplification proposals (and indicated that it would introduce other reform measures if elected).
The Bills will be debated when Parliament resumes sittings in February 2007.
For more information about this or other superannuation related issues please contact Paul Callaghan (02) 8223 4100 or Julian Smith (03) 9288 0555.