For concessional contributions such as employer, salary sacrificed or personal deducted contributions, the cap has been indexed and therefore increases in the 2015 year. For individuals under 50 years of age, the concessional contribution cap is $30,000 whilst those over 50 are able to contribute up to $35,000.
In line with indexing to concessional contributions, the non-concessional contribution cap has risen to $180,000 in the 2015 year. This flows on to allow the maximum contribution utilising the bring forward provisions to be $540,000. The contribution caps have not been indexed for the 2016 year and therefore both concessional and non-concessional contribution caps will remain steady into 2016.
Super guarantee (SG) or ‘employer’ contribution rates rose to 9.5% for the 2015 year but will remain at 9.5% for the near future until the 2021 financial year.
Contributions to a fund are only counted towards the various contribution caps when they are received. That is, if the cash is not received in the fund by 30 June it will not be included as a contribution. Please ensure all required contributions are received into the fund’s bank account by 30 June 2015.
Once an individual turns 65 years of age, there are restrictions relating to an individuals eligibility to contribute. The main restriction requires an individual to pass the ‘work test’ and be gainfully employed for 40 hours in a 30 day period in each year to make contributions. Individuals over 65 are also prohibited from using the averaging provisions. If you are over 65 and looking to make contributions, we suggest you contact our office to further review and discuss your eligibility to contribute.
All superannuation funds, including Self Managed Superfunds (SMSF) are required to comply with the new ‘Superstream’ requirements. From 1 July 2015, many of the requirements are now compulsory for all employers. If your fund receives contributions from an unrelated party and is not registered for an Electronic Service Address (ESA), your fund is not eligible to receive contributions and your employer may be required to pay these to their default fund.
The ATO were initially suggesting they were going to be lenient and cooperative with employers and superannuation funds in adopting these new measures. As the compulsory start date was deferred by one year, they should no longer be expected to be as accommodating so please ensure that your SMSF is compliant.
As a client of RSM Bird Cameron, your Fund is eligible to use our ESA provider SMSF Data Flow at no additional cost to you.
The government co-contribution scheme continues to match non-concessional contributions at a rate of 50c for each dollar contributed up to a maximum of $500. The co-contribution begins phasing out once your adjusted taxable income reaches $34,488 and completely ceases at $49,488, only a slight increase from the 2014 year.
Excess Contributions Tax (ECT)
The biggest change to superannuation in the past year has been the passing of legislation to allow excess non-concessional contributions to be refunded to members. Whilst the legislation was only passed recently, it applies for the 2014 financial year onwards.
From the 2013 year, excess concessional contributions were assessed to individuals in their personal income tax returns and the excessive amount (less contributions tax) was able to be withdrawn from a superannuation fund.
Similarly, excess non-concessional contributions can now also be withdrawn from the superannuation fund, however a deemed earnings on those contributions will be required to be paid and will be assessable to the individual. The deemed earnings will be calculated using an average general interest charge rate for the whole year. This is irrespective of when the contribution was made to the fund so is therefore still a small ‘penalty’ to discourage over contributing.
Additional tax for high income earners
Division 293 assessments still exist and will continue on into the future. Division 293 is also known as the ‘over $300,000 surcharge tax’ and tops up the tax on your superannuation contributions from 15% to 30% in the aim of ‘averaging’ a high income earners overall income tax rate. This is assessed on the individual but may be paid from a superannuation fund.
Changes to government benefits
In the May 2015 federal budget, further changes were announced as to how government benefits are calculated and included for ‘means’ or income tests. In addition to previous years treatments of SMSF benefits and pensions, eligibility for the age pension will become stricter. As this is now becoming a more complex area, should you have concerns about your eligibility, we suggest you contact us promptly.
Income streams and pensions
Account based pension withdrawal minimum proportions continue to be as follows:
- Under 65 4%
- 65-75 5%
- 75-80 6%
- 80 + 7% and higher
It is now a legislative requirement that all assets of an SMSF be reported at market value annually. For assets with no underlying liquid market (ie property), it may be necessary to obtain a new valuation for use in the 2015 financial statements to ensure compliance with this new measure.
From 1 July 2014, the type of insurance policy that can be owned by a SMSF will now be restricted. Whilst existing policies are exempt from the new rules, only life or Total and Permanent Disability (TPD) policies that align with Superannuation Industry (Supervision) (SIS) legislation conditions of release (ie the rules around when money can be released from a fund) will be able to be held. As an example, ‘own occupation’ TPD policies will be unable to be held in an SMSF after 1 July 2014.
Limited recourse borrowing arrangements
Whilst the government has made no further changes to the legislation allowing SMSFs to borrow to buy assets, the market is seeing greater self regulation with many financial institutions, including ‘big 4’ banks, scaling back or removing their lending to SMSFs. This is a hot topic in the industry and may see further changes in the future.
If your SMSF owns collectibles, time is running out in your transitional period to bring them in line with the new requirements before 1 July 2016. If you hold ‘exotic’ or personal use assets and do not yet have insurance, hold the asset at your private residence or have not appropriately documented the storage decision, you may be at risk of breaching these regulations.
Estate planning considerations
Please note that there has recently been a number of legal cases involving disputes over how a member’s death benefits are to be divided up amongst their beneficiaries, with some cases deeming the member’s Binding Death Benefits Nomination to be void. This has resulted in a member’s balance being paid to someone other than who the member may have initially intended upon their death.
In light of this, we recommend that you consider a comprehensive review of your current estate planning arrangements including any Binding Death Benefits Nominations, Enduring Powers of Attorney and your Wills.
In 2014, a new penalty regime was introduced giving the ATO greater powers to penalise Trustees. It is important to note that any penalty issued applies to each trustee. Therefore, for a Fund with a corporate Trustee, only one penalty will be issued however for a Fund with individual Trustees, each individual receives the same penalty. This could double, triple or quadruple a penalty. If your Fund has individual trustees and you would like to discuss changing your trustee to a corporation, please contact us.
The 2015 budget indicated that while there were no direct changes to superannuation, increased funding would be directed to all regulatory bodies to increase their review and audit abilities. As a result, we expect that there will be even more contact made by the ATO with trustees directly in relation to their activities and reporting obligations.
There are many resources available to trustees to assist them in understanding and performing their duties. The ATO website provides significant guidance on the role and responsibilities of trustees. The Chartered Accountant website also provides a trustee education program that the ATO strongly support. So much so that should they deem you to be uneducated, they will direct you to this program. It is free and easy to access at www.smsftrustee.com.
Our superannuation specialists are always available to assist you. Please contact us for further advice and guidance.