Diverting personal services income into an SMSF – deadline extended
Due to the volume of change with the 1 July changes to superannuation, SMSF trustees were given an additional three months to contact the ATO and voluntarily disclose arrangements whereby personal services income has been diverted into the SMSF.The ATO raised concerns about these arrangements last year in Taxpayer Alert TA 2016/6. Voluntary disclosure may enable trustees to avoid administrative penalties. The deadline was extended to 30 April 2017.
Clarification on CGT relief – exceeding the $1.6 million cap
Law Companion Guideline (LCG) 2016/8
Clients with current superannuation income stream balances in excess of $1.6 million may choose to roll back into accumulation phase to remain within the transfer balance cap and meet the new rules from 1 July 2017.
SMSF trustees can then choose to apply capital gains tax (CGT) relief provisions to reset the cost base of assets transferred back into accumulation phase to current market value. This will lock in the tax-free status of unrealised capital gains accumulated to 30 June 2017 (or transfer date).
The rules for how to apply the relief have been confusing and contentious, so the ATO issued LCG 2016/8 to provide further clarity on which assets qualify and the steps required to elect for the relief to apply.
Clarification on CGT relief – TTR pensions
Transition-to-retirement (TTR) income streams lose their tax-free status from 1 July 2017 and clients can also elect to apply CGT relief on assets which have been supporting a TTR pension.
In LCG 2016/8, the ATO clarified that if the SMSF is operated on an unsegregated basis, the TTR pension is not required to be commuted back into accumulation phase to reset the cost base of assets to current market value at 30 June 2017.
The intention is to apply the same basis for segregated funds, but options for how to make this work are still being reviewed.
Total superannuation balance
The concept of ‘total superannuation balance’ is relevant to determine eligibility to:
• make non-concessional contributions from 1 July 2017 and use the bring-forward caps,
• use the unused concessional contributions cap carry forward from 1 July 2019,
• receive co-contributions, and
• be eligible for the spouse contribution tax offset.
In addition, an SMSF will be unable to use the segregated method to determine exempt current pension income if a retirement-phase member has a total superannuation balance (across all funds) of more than $1.6 million.
LCG 2016/12 clarifies how total superannuation balance is defined and calculated.
Clarification on 1 July changes
The ATO has released a range of LCGs to provide clarification on the application of components of the 1 July 2017 superannuation reforms. Other LCGs released to date include:
- LCG 2016/9: Transfer balance cap – clarifies how the transfer balance cap operates for an account-based superannuation income stream,
- LCG 2016/10: Capped defined benefit income streams – clarifies how the defined benefit income cap applies to non-commutable lifetime pensions and annuities, and
- LCG 2016/11: Defined benefit and constitutionally protected funds – clarifies how the concessional contributions caps will apply to clients with interests in these types of funds.
The ATO is continuing to develop further guidelines and the following draft LCGs have also been released for comment:
- LCG 2017/D1 – clarifies how the defined benefit income cap applies for non-commutable life expectancy or market-linked income streams, and
- LCG 2017/D3 – clarifies how the transfer balance cap impacts on superannuation death benefit income streams.