Regulation Round ups

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Regulation Round-up: Quarter III, 2014

Segregated pension assets – bank accounts

ATO Tax Determination TD 2014/7

To receive the tax exemption on pension income, trustees need to segregate pension assets from accumulation assets (section 295-385 of the Income Tax Assessment Act 1997).

A previous Australian Taxation Office (ATO) draft determination (TD 2013/D7) created concerns for segregation of bank accounts (particularly for Australian Prudential Regulation Authority-regulated funds) as it indicated separate bank accounts were needed for accumulation phase and pension phase cash holdings. However, that draft determination has been withdrawn and a more practical approach has been applied in TD 2014/7. The ATO position is a super fund can hold one bank account with separate sub-accounts to record the cash holdings for accumulation and pension phases.

Limited recourse borrowing arrangements

Legislative instrument – The Self-Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014

This legislative instrument addresses concerns raised by industry in relation to the in-house asset exemption provided by subsection 71(8) of the Superannuation Industry (Supervision) Act for related-trust investments that are held as part of a limited recourse borrowing arrangement (LRBA).

In particular, it now specifically exempts the custodial trust from being an in-house asset:

  • at the beginning of an LRBA before the acquirable asset has been transferred into the trust, and
  • if the asset continues to be held in the trust after the LRBA has been repaid.

The instrument was registered in April and will be taken to have commenced on 24 September 2007.

New penalty powers for ATO in effect 1 July

Tax and Superannuation Laws Amendment (2014 Measures No 1) Act 2014

From 1 July, the ATO has a range of new powers that allow more flexible and proportionate powers to deal with breaches by SMSF trustees. These penalties include:

  • administrative penalties,
  • education directions, and
  • rectification directions.

Previously, the main penalty available to the ATO was to make a fund non-complying, but this was often not applied as it was seen to be too harsh. The new powers give greater ability to apply smaller penalties in line with the breaches.

Another distinction is that trustees can also be made personally liable for penalties (up to $10,200 per breach of an administrative nature) and can be directed to undertake an SMSF education course.

Changes to SMSF supervisory levy

Clients with an SMSF may expect to pay higher fees this year, as part of the two-year transition to switch from payment in arrears to payment in advance.

For existing funds, the levy payable is $388, while for new funds the levy payable is $518. The levy for existing funds is shown in the table below. If an SMSF is wound up, the supervisory levy will be adjusted so the levy is not paid for the following year.

Death benefit case

Supreme Court of Queensland (McIntosh v McIntosh ([2014] QSC 99)
This case holds a warning for potential beneficiaries of a super death benefit who become the executor of an estate.

In this case, the mother successfully applied to be the legal representative of her son’s estate. She then accepted personal payment of the super death benefit directly from the super fund trustee.

However, the court found she breached her fiduciary duty to the estate by seeking to have the death benefit paid to her rather than to the estate. It directed that she pay the benefits into the estate.

Rate changes on 1 July

A range of superannuation and taxation rates and thresholds index on 1 July each year. Apart from the normal indexation changes, some of the ones to remember include:

  • the Medicare levy increases to 2 per cent,
  • the 2 per cent temporary budget repair levy has passed and increases the top marginal rate to 47 per cent for three years. This also impacts on other
  • penalty rates that are linked to the top marginal rate,
  • contribution caps index for the first time,
  • access to the higher concessional contribution cap is reduced to the age of 50, and
  • the super guarantee increases to 9.5 per cent.

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