SUPERCentral News Budget Special

The Treasurer brought down his 4th Budget on Tuesday, 10 May 2011.  While the Budget deals with many issues, we have identified the following seven issues as being particularly relevant to self managed superannuation funds.

1. SMSF annual levy increased
 

The change
The SMSF annual levy will be increased from $150 to $180.  This levy is imposed on each SMSF and will apply in respect of the 2010/11 and following financial years.

Impact on SUPERCentral funds
The annual levy is raised as part of the annual notice of assessment issued to each SMSF.  This change will automatically apply to all SMSFs.

Editorial
Since SUPERCentral was established in 2006, we have not increased our fees.  In the same period the Government has increased the SMSF levy from $45 to $150 and now to $180.


2. Pension Drawdown Relief – continues but at a lower rate

The change
The pension drawdown relief which has applied for 2008/09, 2009/10 and 2010/11 financial years will be extended to 2011/12.

However, while the relief for the previous financial years was a 50% reduction in the minimum, the relief for 2011/12 will only be 25% (ie 75% of the normal rate).

The change as it applies to 2011/12 is set out below

These changes will apply to Account Based and Transition to Retirement Pensions.

Presumably a similar relief will apply to market-linked pensions so that the minimum pension limit for 2011/12 will be 67.5% of the calculated amount (compared with 45% for 2010/11).  For 2012/13 and subsequent years, the minimum pension limit will be 90% of the calculated amount.

Impact on SUPERCentral funds
The minimum pension limits for 2011/12 will apply to the fund if the pension level has been preset to the “minimum pension amount” or if the trustee and the member agree that the pension level for 2011/12 will be based on the 25% relief.

Template resolutions for 2011/12 will be available from the SUPERCentral Toolkit before 30 June 2011 for Trustees and advisers for this purpose.

The most recent update of the SUPERCentral Governing Rules (Version 05/11) which applies on and from 5 May 2011 has anticipated the extension of the minimum pension relief to 2011/12 financial year.  Revised Rule 28 permits trustees and members to adopt any relief which may apply to a particular financial year.

Editorial
A welcome measure: but would it have been too much to simply have kept the relief at 50%?

 
3. Excess Contributions Tax Relief

The Change
Members who exceed their concessional contributions cap in the 2011/12 or a following financial year will be able to apply to the ATO for a refund of the excess.  The refunded payment will be fully assessable to the member when refunded.

There are a number of limits to this measure:

1. the maximum amount which can be refunded is $10,000;
2. the measure does not apply to excess non-concessional contributions;
3. the measure will only apply to the first “breach” of the concessional contributions cap;
4. the $10,000 limit will not be indexed.

Some issues yet to be clarified are:

1. does the measure only apply if the excess contributions are $10,000 or less?
2. does the measure apply to the first $10,000 of excess contributions?
3. does the measure apply irrespective of the source of the excess contributions – whether they are paid by the individual themselves or by their employer?

Impact on SUPERCentral funds
Until the legislation is introduced it will not be known whether the governing rules of super funds need to be amended to permit the refund.  If the governing rules do need amendment to support the refund, the SUPERCentral Governing Rules will be amended in time to confer on trustees the power to effect the refund of the excess contributions.

Editorial
A very minor concession for what is a significant issue!  In particular, the measure does not apply to excess concessional contributions which occurred in the respect of 2010/11 or earlier financial years.
 

4. Concessional Contribution Cap for over 50s

The Change
The concessional contributions cap for the over 50s will be $25,000 more than the cap for under 50s.

This change will apply from 1 July 2012.

Currently the general concessional contribution cap is $25,000.  When this cap increases to $30,000 (it can only be indexed in multiples of $5,000), the over 50s cap will be $55,000.

The previously announced requirement that an individual must have less than $500,000 in super savings to be eligible to access the higher cap still remains.

Impact on SUPERCentral funds
This change applies to all individuals irrespective of the super fund to which they belong.
 
Editorial
A favourable change, so far as it goes.  The real problem will be in applying the $500,000 super balance test.  We have commented on this test in the March 2011 issue of SUPERCentral News (Issue No 85) and can only repeat those previous comments.

5. Co-contribution Freeze continues

The Change
The dollar thresholds which determine the eligibility for and the amount of the Government co-contribution, will remain frozen for the 2012/13 financial year.

The dollar thresholds will remain at $31,920 (cut off point for full co-contribution) and $61,920 (point at which entitlement reduces to Nil).

Impact on SUPERCentral Funds
No particular impact.
 
Editorial
Apparently continuing the freeze on the thresholds will save $75m over three years.

On the bright side, there is one less threshold which need not to be changed for the 2011/12 version of SUPERCentral’s product disclosure statements.
 

6. LITO – Low Income Tax Offset

The Change
The Government will tighten the rules as to when this tax rebate will apply.  In particular, the rules will be modified to ensure that the rebate will not apply to unearned income of children – such as income received from discretionary trusts.

The issue is that children can receive up to $3,333 in trust distributions tax free by using the zero rate threshold of $416 and the rebate to offset tax on assessable trust distributions above $416.

Impact on SUPERCentral Funds
No particular impact.
 
Editorial
It is uncertain whether this change may also apply to superannuation pensions paid to children under age 18.

Hopefully, the Government will distinguish between income splitting by parents with their children from the taxation of superannuation death benefits paid as pensions.

 
7. SMSF Definition Anomaly

The Change
The Government will amend the definition of “SMSF” to overcome a drafting anomaly in the definition.  This anomaly relates to corporate trustees where a parent or guardian acts as the “representative” director for the child member.  On a strict reading of the definition, where a parent or guardian is a “representative director” for the child member, the corporate trustee will not fall within the exception provided by s17A(3)(c) of the SIS Act.

Impact on SUPERCentral Funds
No particular impact - this applies to any SMSF which has a corporate trustee and child members and where a parent or guardian is a representative director for that child member.

Editorial
A welcome amendment to overcome a drafting anomaly.