16 Jun 2015

Super Snippets: June 2015

The Eviser Team highlight the key developments affecting self-managed super fund trustees over the past month.

Snapshot

  • Federal Budget changes
  • ATO determinations on disability superannuation benefits and tax deductions for death benefits
  • Tribunal decision on disqualified SMSF trustee

The May federal budget contained a number of changes that will affect super investors and retirees. The past month has also seen the ATO issue two super related determinations and a tribunal decision on a disqualified SMSF trustee.

Federal budget

While changes to superannuation were only minor, the 12 May budget contained numerous significant changes that will affect retirees, or those planning for their retirement.

The changes are discussed in more detail in Federal Budget 2015: Video conference. We also covered the change to the age pension Assets TestOne of the two tests that determine eligibility for the Age Pension (the other is the Income Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Assets Test calculations and limits can be found at the Department of Human Services website. in last month’s Super Snippets.

There has been some confusion over the changes to the Assets TestOne of the two tests that determine eligibility for the Age Pension (the other is the Income Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Assets Test calculations and limits can be found at the Department of Human Services website. and the announcement relating to the Commonwealth Seniors Health Card (CSHC), so here’s our current understanding. Based on the announcements, the Department of Human Services website and discussions with the office of the Minister for Social Security:

  • If you have the age pension (and Pensioner Concession Card) and lose them on 1 January 2017: you will be issued with a CSHC and be exempt from the usual income testOne of the two tests that determine eligibility for the Age Pension (the other is the Assets Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Income Test calculations and limits can be found at the Department of Human Services website. requirements indefinitely (see Department of Human Services website).
  • If you apply for the age pension (and PCC) after 1 January 2017: you will be subject to the new Assets TestOne of the two tests that determine eligibility for the Age Pension (the other is the Income Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Assets Test calculations and limits can be found at the Department of Human Services website. and (if you don't qualify for the age pension) the normal income testOne of the two tests that determine eligibility for the Age Pension (the other is the Assets Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Income Test calculations and limits can be found at the Department of Human Services website. rules for the CSHC. Under the new test upper thresholds are reduced to $823,000 for home owning couples and $547,000 for home owning singles. Non-home owners thresholds will be $1,023,000 (couples) and $747,000 (singles).

Assuming the changes to the Assets TestOne of the two tests that determine eligibility for the Age Pension (the other is the Income Test). The test that applies (dominates) is the one which gives the worst result. Details of how the Assets Test calculations and limits can be found at the Department of Human Services website. become law, we’ll look at the impact on the age pension in more detail and potential strategies to counteract the changes.

ATO determination on meaning of ‘legally qualified medical practitioners’

Fund members can apply to receive a superannuation lump sum benefit under the ‘condition of release’ for permanent incapacity. In this case, the trustee needs to consider whether the payment is a ‘disability superannuation benefit’ in working out how much tax needs to be withheld.

A ‘disability superannuation benefit’ requires two legally qualified medical practitioners to certify that, because of ill health it’s unlikely the individual can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.

The ATO’s view (expressed in ATO ID 2015/11) is that a legally qualified medical practitioner is someone who has general or specialist registration with the Medical Board of Australia. This rules out receiving a certificate from other types of health professionals.

ATO determination on the tax deduction for future liability to pay death benefits

The Tax Act allows super fund trustees a choice when it comes to claiming tax deductions for member death benefits. The fund can claim a deduction based on:

  • premiums paid on life insurance policies (under section 295-465 of the Act); or
  • the future liability to pay death benefits (under section 295-470 of the Act).

The ATO has issued a determination (ATO ID 2015/17) confirming that the trustee can make this decision anytime up to the lodgment of the fund’s tax return, even if the member (to whom the tax deduction relates) has already died.

In practice, this means that upon the death of a member, SMSF trustees can claim a deduction for any death benefit paid based on the formula set out in Table 1. Where this gives rise to a large tax deduction (which can happen when the benefit is large or the member is a long way from retirement) it can be used to offset other taxable gains or carried forward to use in future years.

Note however, this is a ‘one-off’ election so any fund making the switch is no longer able to claim a deduction for premiums paid on life policies for the remaining members. A deduction is only available going forward based on death benefits paid.

Action point: Upon the death of a member, SMSF trustees should weigh up the benefits of claiming a tax deduction based on death benefits paid, against the cost of giving up future deductions for life insurance premiums. In many cases it will be advantageous for the trustee to elect to claim tax deductions for benefits paid. However, this result depends on the circumstances of the fund and we strongly recommend seeking tax advice and personal financial advice before taking any action.

Tribunal decision: Shaw and Commissioner of Taxation

A recent decision of the Administrative Appeals Tribunal (Shaw and Commissioner of Taxation) serves as a reminder that acts outside the superannuation sphere can have an impact on a person’s ability to act as an SMSF trustee.

In this case, Mr Shaw was convicted of a series of offences arising from signing false statutory declarations for speeding infringement notices. Mr Shaw arranged for a number of friends and family members to agree that they had been driving his vehicle at the time the infringements occurred.

As a result of his conviction, Mr Shaw was disqualified from acting as trustee of his SMSF and the ATO refused to exercise its power (under section 126D of the SIS ActThe Superannuation Industry (Supervision) Act 1993. It is the main piece of law governing the operation of superannuation funds (including SMSFs).) to waive this status. The Tribunal upheld the ATO’s decision, finding that Mr Shaw had not shown it was ‘highly unlikely’ he would breach (or cause his SMSF to breach) the SIS ActThe Superannuation Industry (Supervision) Act 1993. It is the main piece of law governing the operation of superannuation funds (including SMSFs)..

Other developments and reading material

Eviser members may also be interested in the following:

  1. ATO webinars for June. The ATO is running a series of webinars for SMSF trustees covering refunds of excess non-concessional contributionsVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information., recent ATO alerts and determinations, SuperStream and compliance update.
  2. SMSF Statistical Report: March 2015. The ATO has released the latest statistical report on the SMSF market, including information on asset allocations, population and establishments.
  3. Superannuation Complaints Tribunal Quarterly Bulletin. The latest quarterly bulleting from the SCT contains details of a number of determinations relevant to SMSF trustees.
  4. Howard Marks memo. A recent memo, by the Chairman of Oaktree Capital, on the subject of liquidityAn asset is ‘liquid’ when it can be easily converted to cash. Bank deposits, short term bonds and large listed shares are very liquid. Investments such as property and art aren’t. An investor is also said to be ‘liquid’ when they have plenty of cash and other liquid assets in their portfolio or spare borrowing capacity which allows them to make investments at short notice. Liquidity is a reference to how liquid an asset (or investor) is.. In particular, note his comments on the rise of high yield credit mutual funds and ETFsThe acronym for Exchange Traded Funds. ETFs are funds (unit trust) listed on a stock exchange. Many ETFs are passive index funds, which simply aim to track the performance of major indices (in the asset class being invested in)..

 

All Eviser content is covered by our Terms and Conditions.

Note: this article was originally published with incorrect references to the CSHC that have now been amended.