Regulation Round ups

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Regulation round up: Quarter III, 2018

SMSF Assist website

The ATO’s SMSF Assist website will be shut down in July. Information relevant to SMSFs will now be located on the main website, ato.gov.au.

ATO scrutiny

While tax planning strategies can be legitimate, aggressive tax planning that exploits the tax system and is not within the intent of legislation is coming under increasing scrutiny by the ATO.

The tax office has highlighted its intention to focus on retirement planning schemes and has launched Super Scheme Smart to educate clients and advisers about schemes and traps. Targeted strategies include strategies that inappropriately channel money through SMSFs, refunding excess non-concessional contributions to reduce taxable components, and involvement in property development or other business ventures.

LRBAs and total superannuation balances

Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018

The Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018 includes changes to the total superannuation balance rules for limited recourse borrowing arrangements (LRBA) that come into effect from 1 July 2018.

A member’s share of any outstanding balance of an LRBA is proposed to be included in the calculation of their total super balance, but only if the LRBA was set up after 30 June 2018 and either the member has satisfied a full cashing condition of release or it is a related-party loan. This is a change from the initial proposals where all LRBAs were to be included. If passed, this may limit the ability for affected members to make non-concessional contributions. LRBAs set up before 1 July 2018 are unaffected. These loans can be refinanced after this date without coming under the new rules, but only if the refinanced amount does not exceed the payout amount under the pre-1 July contract.

SG opt-out

Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018

Included in the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018 is the budget announcement to allow a person who has multiple employers to opt out of the superannuation guarantee regime to avoid breaching the concessional contributions cap.

If the employee opts out, the employer will need to apply for an employer shortfall exemption certificate.

Employers will also be given a one-off, 12-month amnesty to pay any unpaid super entitlements.

Event-based reporting

New reporting obligations come into play for SMSFs from 1 July 2018.

An SMSF must report events that impact on a member’s transfer balance on the new transfer balance account report. This is separate to the annual return and allows the ATO to track a member’s balance for the transfer balance cap and total superannuation balance. Events to be reported include details of:

  • retirement-phase income streams being received on 30 June 2017 that continued to be paid on or after 1 July 2017,
  • new retirement-phase and death benefit income streams,
  • some LRBA arrangement payments,
  • personal injury (structured settlement) contributions, and
  • commutations of retirement income streams from 1 July 2017.

The increasing preservation age

Preservation age – when a client can meet the retirement condition of release – has been incrementally increasing up to age 60.

From 1 July 2018, the minimum age for clients newly meeting retirement age will be 57. The preservation age for clients born between 1 July 1961 and 30 June 1962 is 57 and these clients will start reaching that age from 1 July 2018. Therefore, to meet preservation age in 2018/19, clients must have been born before 1 July 1962.

Carry-forward concessional contributions

From 1 July 2018, clients who do not fully use their concessional contributions cap in a year may be able to carry forward the unused cap amount.

In future years, this may allow the client to make concessional contributions that exceed the standard concessional contribution cap for that year without creating an excess. Unused cap amounts in years commencing from 1 July 2018, can be carried forward for up to five years. The 2020 financial year will be the first year a carry-forward is available to top up contributions above the cap amount. The cap remains at $25,000 for 2018/19.

SMSF annual return changes

Legislative changes from 1 July 2017 have led to a number of changes to the 2017/18 annual return, including:

  • a new label for transition-to-retirement income stream accounts that are deemed to still be in accumulation phase,
  • new labels to report on the composition of the closing account balance,
  • new questions on the use of LRBAs,
  • the capital gains tax (CGT) schedule has been updated to report notional deferred capital gains where CGT relief has been applied, and
  • a new label for reporting unused early-stage venture capital tax offsets that are carried forward.

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