Three tranches of superannuation reforms
The federal government has released exposure draft legislation in three tranches to introduce the 2016 budget proposals for the reform of superannuation. These drafts have been released for public consultation.
The draft legislation includes changes in relation to:
- the $1.6 million transfer balance cap,
- reductions to the concessional and non-concessional contributions (NCC) caps,
- the abolition of anti-detriment payments,
- the removal of tax exemptions on transition-to-retirement earnings,
- allowing employees to make personal deductible contributions, and
- increasing the income threshold for the spouse contribution tax offset.
The budget proposals to introduce a lifetime NCC cap have been abandoned and replaced with a $100,000 annual cap commencing from 1 July 2017. In the trade-off for this change, the ability to make NCCs will only apply to members with superannuation savings under $1.6 million and the ability to contribute over the age of 65 without a work test will not be introduced. The government hopes to introduce legislation into Parliament before the end of the year.
Taxation Determination TD 2016/16
In new Tax Determination (TD) 2016/16, the ATO has outlined its view on when a limited recourse borrowing arrangement (LRBA) set up under a non-arm’s-length arrangement could result in non-arm’s-length income (NALI).
The basic premise is that NALI may be determined if the SMSF has entered into a non-arm’s-length arrangement that results in the SMSF earning more income (either ordinary or statutory income) than if the parties were dealing at arm’s length. If it is determined that the parties would not have entered into the same agreement with a non-related party, NALI will be assessed. As a result of this TD, two previous interpretative decisions (ID) (ATO ID 2015/27 and 2015/28) are no longer required and have been withdrawn.
Voluntary disclosure of contraventions
The ATO has introduced a new early engagement and voluntary disclosure service that can be used if a contravention has occurred and remains unrectified at the time the auditor reports to the ATO.
To use the service, SMSF trustees or professionals should complete the SMSF regulator contravention disclosure form and submit it to the ATO. The trustee should include a rectification proposal with the disclosure.
Voluntary disclosure is taken into account when any penalties are applied.
Updated instructions for reserving strategy
The ATO has updated the SMSF annual return instructions with additional guidance for SMSF trustees who used the contribution reserving strategy in June 2016.
It is important for trustees and accountants to follow the instructions to ensure the contributions are correctly recorded and to complete the Request to Adjust Concessional Contributions form (NAT 74851). Auditors should also ensure details are correctly completed.
Centrelink assets test changes
The asset test thresholds for means-tested pensions from Centrelink/Veterans’ Affairs are set to significantly reduce on 1 January 2017. The lower thresholds will increase on this date, but the taper rate will increase from $1.50 per $1000 of assets over the lower threshold to $3, causing a faster reduction in pension entitlements.
As a result of this change, many clients may face significant reductions in pension payments or lose eligibility all together. An opportunity exists to review client details before 1 January to determine if actions can be taken to reduce assessable assets. Alternatively, additional income may need to be generated to replace lost income support payments.
If a client loses eligibility for Centrelink/Veterans’ Affairs but subsequently requalifies, all account-based pensions will be assessed under deeming rules.
Marginal tax rates
Legislation has been passed to lift the income threshold at which the 37 per cent marginal tax rate starts to apply to $87,000. This was announced in the 2016 budget. It provides a slight tax saving to anyone earning over $80,000.