Super changes passed as legislation
Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016,Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 and Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016
The bills introducing the 1 July 2017 changes to superannuation were passed in November 2016. It is important for SMSF trustees and advisers to review investment and contribution strategies before the end of this financial year to make any changes necessary.
In particular, consideration should be given to:
- whether to continue any transition-to-retirement pensions,
- ensuring pension balances do not exceed the $1.6 million cap,
- if pension balances exceed $1.6 million, deciding on whether to reset the capital gains tax cost base,
- maximising the level of contributions in the current financial year,
- winding-up anti-detriment reserves, and
- implementing contribution splitting where couples have unequal balances, particularly if the $1.6 million cap may be a problem.
- Deadline for LRBAs
The 31 January deadline has now passed for all SMSFs to ensure related-party loans are operating on a commercial basis.
SMSF trustees need to ensure loans are operating in accordance with the ATO safe harbour guidelines or be able to adequately prove commerciality if alternative terms are in place.
In addition, any shortfalls in interest paid and/or principal repayments from 1 July 2015 needed to be paid before 31 January.
The safe harbour interest rates are:
FSC/UBS report, December 2015
A survey conducted by the Financial Services Council (FSC) and UBS Asset Management provided insights into the structure of SMSFs as well as trends in investment choices.
Some of the key findings (based on 2014/15) include:
- exchange-traded funds are one of the fastest-growing investment categories and are being used by 20 per cent of SMSFs,
- property ownership continues to increase as an investment strategy with two in five SMSFs holding either residential or commercial property, but this sector still represents only a small portion of the overall portfolios,
- the balance held in cash reduced from 85 per cent in 2013/14 to 67 per cent in 2014/15,
- only 13 per cent of members hold life insurance through their SMSF,
- among non-retired members, 32 per cent chose not to (or were unable to) make contributions to their fund, and
- member engagement remains high with 63 per cent of members checking their portfolios every month.
Annual return if using the contribution reserve strategy
If a contribution reserve strategy was used in 2015/16, care should be taken with completing the 2016 annual return.The ATO has updated the SMSF annual return instructions to provide additional guidance to meet the rules outlined in tax determination TD 2013/22. In particular, review examples 1 and 2 when completing the “Request to adjust concessional contributions” form (NAT 74851), and follow the SMSF annual return 2016 instructions.
Auditors should check that trustees have correctly completed the 2016 SMSF annual return.
Centrelink changes from 1 January 2017
Two legislative changes that affect entitlements to age pensions became effective from 1 January:The assets test taper rate, for assets over the lower threshold, increased from $1.50 to $3.00. This significantly reduced the cut-off thresholds.
If moving into residential care after 31 December 2016, the rental income from the former home is counted as assessable income under the income test. In addition, these clients remain assessed as homeowners for only the first two years in care. At the end of two years they switch to non-homeowner status and the market value of the home becomes an assessable asset.
Clients who lost access to the age pension on 1 January due to the changes will automatically be issued with a non-means-tested Commonwealth Seniors Health Card.