Exciting news this week with the much-anticipated self-managed super fund (SMSF) draft ruling from the ATO, SMSFR 2011/D1. 

Many people are probably aware by now that you can borrow and purchase properties within a SMSF (we’ll post more on this in coming weeks). What hasn’t always been clear are some of the issues surrounding capital improvements of the property within the fund. The draft views expressed by the ATO confirm the opinion our associates at the 2020 Group have always supported. In fact, the ruling provides quite a few positives for limited recourse borrowings in respect to real property, making the solution even more attractive than ever.

Principal of the 2020 Group, Nic Ellis, is continually striving to find new and unique strategies to create wealth for clients. After the release of the ATO’s ruling, Nic had this to say:

“The ATO have confirmed the 2020 Group’s opinion that SMSF’s can renovate investment properties. We’ve been the only firm who has stood by this concept.”

What does this mean for you? According to Nic, you can add value to your investment property by renovating or adding extentions. Best of all, all of this can be funded directly from the SMSF with no out of pocket costs to you. I’ll let Nic tell you more about it himself in the video below….

If the idea of investing in property through a SMSF has peaked your interest, or you’d like to know more, give the team of experts at 2020 Financial Solutions a call on 1800 46 2020. Their integrated service includes all advice, structures, legal work and Conveyancing needed to complete the deal. They’ll even project manage the entire process for you!

Did you know that only one in five taxpayers who meet the eligibility criteria for the super co-contribution actually make a personal contribution in order to receive the additional government payment.

The super co-contribution is a Government initiative to help low to middle income earners save for their retirement. You can take advantage of the super co-contribution payment by making a personal contribution into your super fund before the end of the financial year. You could receive up to one dollar for every dollar you personally contribute, up to the limit.

For the 2010-11 income year, the maximum entitlement is $1,000. This starts to shade out at $31,920 and cuts off completely once your income exceeds $61,920. The current income thresholds are reproduced below. 

If you are eligible, when you lodge your tax return, the ATO will calculate the amount of co-contribution you are entitled to and pay it into your fund. The minimum super co-contribution payment is $20.

Australians receiving government financial assistance will no longer need to worry that additional superannuation contributions, prescribed by law or the rules of their super fund, will be considered when determining their eligibility to receive that financial assistance.

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, today introduced into Parliament an amendment to the definition of reportable employer superannuation contributions (RESC).

“Basically, if a working Australian who is receiving government financial assistance gets additional superannuation contributions they have no control over or cannot influence, because the amount of contribution is prescribed in law or the rules of their super fund, then that superannuation will no longer be considered as reportable employer superannuation contributions, so it won’t be considered income when determining their eligibility for financial assistance,” Mr Shorten said.

“It means we’re not penalising people who are saving for their retirement through superannuation but who still require assistance. This gives effect to the Government’s original intention that RESC should only be those contributions that employees can control, such as salary sacrifice-like arrangements.”

The amendment will apply retrospectively back to July 2009 when RESC was first legislated. RESC are generally superannuation contributions made under formal salary sacrifice arrangements, but include other contributions an employee can influence.

Examples of additional superannuation contributions that will no longer be considered RESC include:

• Contributions required to be made under an enterprise agreement if the employee makes a post-tax contribution (‘matched’ contributions)
• Contributions required by legislation.

The Government is also considering wider issues concerning the RESC definition.

“These things are important to get right. In addition to introducing this amendment today, to provide clarity for those affected, we will have a further process to determine what, if any, additional refinements may be needed,” Mr Shorten said.

Yesterday APRA released it’s Annual Superannuation Bulletin for the 2010 financial year. 

According to the report, total superannuation assets increased by 13.9 per cent during the year to $1.23 trillion.  

Where is this trillion bucks?  

Well, $722.6 billion are held by APRA-regulated super entities and $390.9 billion are held by self managed super funds (SMSFs). The rest is made up of exempt public sector super schemes and the balance of life office statutory funds. 

Growth

Click to enlarge

Industry funds showed the most growth through the year, with assets increasing by 17.9 per cent.  

Small funds, which include SMSFs, increased by 16.9%  and, as at 30 June 2010, now hold the largest proportion of superannuation assets, accounting for 32 per cent of total assets.  

Who has the largest account balances?     

Members of small funds held the largest average account balance of $478,873. Corporate fund members held $90,815 on average, followed by members of public sector funds with an average account balance of $55,2031. Retail and industry fund members held an average of $20,248 and $19,641 respectively.   

Where are contributions coming from? 

Super contributions for the year totalled $107.7 billion. Employers contributed the most with $72.0 billion and members contributed $34.3 billion. Other contributions, which include spouse contributions and government cocontributions, totalled $1.4 billion. 

Want to know more?  

Copies of the Annual Superannuation Bulletin are available for download from APRA’s website.  The Bulletin also includes, for the first time, features on asset exposures of super funds and on gender diversity of licensed trustee boards.

The Australian Prudential Regulation Authority (APRA) has released its Annual Superannuation Bulletin for the financial year to 30 June 2009.  Total superannuation assets fell during the year by $66.4 billion, or 5.8 per cent, to $1.07 trillion.

Small funds, which have fewer than five members, were the only funds to experience an increase in assets over the year, with 0.5 per cent growth to $334.3 billion.  Assets of industry funds fell by 4.7 per cent to $191.8 billion, corporate funds by 9.5 per cent to $54.0 billion, retail funds by 9.6 per cent to $304.7 billion and public sector funds by 10.3 per cent to $153.0 billion.   

In the year to 30 June 2009, the average rate of return (ROR) for large funds (more than four members) was —11.7 per cent. Corporate funds recorded an ROR of —10.0 per cent, followed by industry and retail funds with —11.7 per cent and public sector funds with —12.3 per cent.  

In the ten years to June 2009, the average ROR for large funds was 3.4 per cent per annum. 

For the year to 30 June 2009, contributions to all superannuation entities totalled $112.2 billion, with employers contributing $71.1 billion and members $39.9 billion.  Contributions to large funds totalled $76.9 billion, of which retail funds received 36.8 per cent ($28.2 billion), industry funds 31.1 per cent ($23.9 billion), public sector funds 26.5 per cent ($20.3 billion) and corporate funds 5.7 per cent ($4.4 billion).

Total accumulation retirement benefits are estimated to be 81.3 per cent of total assets, or $571.8 billion, at 30 June 2009 (excluding small funds), with 18.7 per cent or $131.7 billion in defined benefits.

The Bulletin also includes, for the first time, features on member age profiles and on operating expenses. The feature ‘Member age, investment mix and fund performance’ examines the link between average member age and the financial characteristics of funds, including net returns, volatility of returns and investment allocation. The data show that within the for-profit funds sector, funds have essentially identical returns with near identical volatility across the full range of average member ages. By contrast, within the not-for-profit funds sector, funds earn more as average member age increases, with no material change in volatility.

The second Bulletin feature, ‘Operating expenses’, investigates the relationship between operating expenses and fund size and fund type. The data show that operating expenses are driven by fund size in terms of assets and the number of members.

Copies of the Annual Superannuation Bulletin are available on APRA’s website at: www.apra.gov.au/Statistics/Annual-Superannuation-Publication.cfm

The ATO will be conducting audits of SMSFs in 2009/10. 

Recently, the ATO has released various material regarding SMSFs.  Taxpayers should be aware of this material and the possible implications for their SMSF.

 The hot topics on the ATO’s radar at the moment include:

• PAYG obligations – where a benefit is paid, SMSFs may have PAYG withholding obligations.  SMSFs do not have to withhold from all payments.  However, if the SMSF fails to withhold where it is required to do so, penalties may be imposed.

• Related party agreements – SMSFs need to be aware of the “in-house assets” rule which may be breached where SMSFs enter into arrangements (eg investments or loans) with related parties.  If the SMSF breaches the in house assets rule, the fund may become non-complying.

• Use of negotiable instruments (eg promissory notes, cheques to pay contributions) – the ATO is targeting the non-commercial use of negotiable instruments in transactions involving SMSFs (eg using a promissory note or cheque without intending to exchange money or assets).  The ATO is concerned that SMSFs may be using such instruments to avoid liquidating assets, to change the timing of transactions or obtain tax advantages.

• Unpaid trust distributions – the ATO has issued a ruling in relation to whether an SMSF breaches the superannuation laws where it is entitled to distributions from a related trust but it has not received the payments.  The ATO’s ruling examines whether the in-house assets rule, arm’s length rule and / or sole purpose test will be breached by such arrangements.

• Enduring powers of attorney – the ATO has issued a draft ruling in relation to the requirements to remain an SMSF if an enduring power of attorney is entered.

ASIC Media Release

Mr Gerard Karl Little, of Castlecrag, New South Wales, has been sentenced today in the District Court of New South Wales by Judge Williams to two years imprisonment, to be released after eight months, for unlawfully allowing the early access of superannuation benefits. Mr Little’s release is conditional upon entering a $1,000 security to be of good behaviour for a period of three years.

Mr Little, 45, was convicted under sections 62 and 202 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) after an Australian Securities and Investments Commission (ASIC) investigation found he had failed to ensure his self-managed superannuation fund known as the Little Superannuation Fund (LSF) was maintained in accordance with the sole purpose test. Mr Little was trustee of the fund at the time of the offence.

The sole purpose test prohibits trustees maintaining self-managed super funds, for any purpose other than to provide retirement benefits for members. A trustee who maintains a self-managed super fund for other purposes contravenes the law.

The preserved superannuation benefits of 121 superannuants totalling $3,531,056.93 were deposited by Mr Little into the bank accounts of the LSF. These funds were rolled over from 11 complying superannuation funds. Mr Little then used the LSF to obtain early access to these benefits by withdrawing and distributing the funds to the superannuants.

Mr Little retained over $685,000 for himself by way of a commission. At the time the LSF received the superannuation benefits from the complying superannuation funds, Mr Little was aware that he had an obligation to preserve these benefits until the superannuants had satisfied a condition of release but had no intention of doing so.

This conviction follows an investigation conducted with the assistance of the Australian Taxation Office (ATO). Trustees of self managed superannuation funds and their members receive particular taxation benefits for complying with the requirements of the SIS Act. People can only access their superannuation early in very special circumstances. For further information, individuals should contact the trustee of their fund or the ATO.

The Tax Office reviews the taxation returns of superannuants who unlawfully obtain the early release of their superannuation benefits. These superannuants may be liable for unpaid tax as well as penalties.

The Commonwealth Director of Public Prosecutions prosecuted the matter.

Many thanks to Christina from the SMSF Investment Strategies Blog for today’s post. Christina has been sharing a series a posts on the timely topic “Is a SMSF right for you?” Christina is outlining three key questions to ask yourself when deciding to establish a SMSF. Be sure to check 3 key questions to ask #1 Compliance#1 Compliance and #2 Time and Skills. This week she looks at Costs v Benefits; remember, if you’ve only looked at one of these aspects, you’ve done half a job!

Question 3 – Will the benefits be worth the costs?

Many people think that public super funds charge high fees but the true cost of running a SMSF may be more than what you are currently paying. Some accountants and SMSF setup companies like to compare the investment management fees charged by public super funds with the fees that they charge SMSFs for doing just the administration work.  Administration fees alone can typically cost around $1000 or more each year as every SMSF needs to prepare a set of accounts, get it audited and file a tax return every year. On top of this, you will also need to factor in other investment management expenses such as the cost of financial advice, education to acquire investment skills, research to help you select the right investments, brokerage fees and other investment tools such as books and investment magazines. There is also the cost in terms of your own time in managing investments and maintaining records for your SMSF, and other miscellaneous costs such as the SMSF Supervisory Levy and audit insurance.

A quick rule of thumb that a lot of financial planners use to evaluate the cost/benefit is to look at the current balance of your super fund. If you have a balance of $200,000, and your current super fund charges an investment management fee of 1%, you will be paying about $2000 in fees each year. It is probably worthwhile to start your own SMSF (assuming you want control and have the time and skills to manage your own investments) because your administration fees will be around the same or less than what you are currently paying. If you have an aggressive contribution strategy, you could start with less. We started our fund with only $120,000 because we planned to contribute the maximum allowable amount of $50,000 per year (now reduced to $25,000) through employer contributions and salary sacrifice. If you have a balance of less than $100,000, you may find the cost of running your own SMSF is a lot higher than what you are currently paying in fees. Do your own due diligence by checking the actual fees you are paying. I was quite surprised how little some of the industry super funds charge when my daughter signed up with one of them when she started a part-time job.

Other than fees, another important consideration is what kind of returns you think you can generate through your planned investment strategy. If you don’t think you can out perform the best public super funds, it may be better to simply switch to a top performing fund, if you are not happy with your current fund.

There are many good reasons for starting your own SMSF but you must make sure you start one for the right reasons. For more good reasons for starting a SMSF, check out “Why have an SMSF?” on my blog.

The SMSF Investment Strategies website is aimed at supporting the Self Managed Super Fund (SMSF) Trustee and Retail Stock Investor community. I’d encourage anyone considering a SMSF to inform themselves fully, visit the site and take advantage of the knowledge and experience Christina has shared.

 The Australian Prudential Regulation Authority (APRA) has today released performance data for individual superannuation funds, covering the five-year period from 2004 to 2008.

The performance data for APRA-regulated funds — with the exception of small APRA funds, single-member approved deposit funds, exempt public sector superannuation schemes and pooled superannuation trusts — are published in two versions on the APRA website http://www.apra.gov.au/:

1. Superannuation fund-level rates of return presents three-year and five-year performance information on the 200 largest funds by asset size — which cover 95 per cent of members and 98 per cent of the assets of APRA-regulated funds — as well as eligible rollover funds (ERFs). This is available in both PDF and Excel format.
2. Superannuation fund-level profiles and financial performance is available in Excel format only and contains detailed data for each financial year from 2004 to 2008. The detailed data allow observers to analyse the superannuation funds across a range of measures (subject to privacy considerations).

APRA has released the fund-level performance data following industry discussions about the publication of more disaggregated data that looked at individual superannuation funds, rather than the industry as a whole or sections of the industry. The Government also requested that APRA consider how it might publish performance data at the individual fund level.

Superannuation Industry (Supervision) Act 1993, trustees of superannuation funds must formulate an investment strategy for the benefit of all members of the fund. The performance data released today, much of which are available through financial statements and annual reports, support APRA’s objective to promote transparency and accountability.

APRA Deputy Chairman Ross Jones said that the fund-level data will assist superannuation trustees and other interested parties to assess the relative performance of the long-term investment strategies adopted by each trustee for their funds.

‘We expect this whole-of-fund performance information will improve public understanding of the superannuation industry, encourage trustees to demonstrate that they can provide superannuation benefits over the long-term and provide better measures of the overall relative performance of their funds,’ he said.

It is important to keep in mind that the information is not intended to be used for assessing short-term returns. Any super data should be viewed considering the longer-term performance of funds.  

Many thanks to Christina from the SMSF Investment Strategies Blog for today’s post. Christina will be sharing a series a posts on the timely topic “Is a SMSF right for you?” Christina is outlining three key questions to ask yourself when deciding to establish a SMSF. Be sure to check #1 Compliance.

Question 2 – Do you have the time and skills?

 ‘Self managed’ super means you do the work. You must work out an investment strategy. Then you must select and manage investments well enough so they grow in value and meet your fund’s investment objectives. As a trustee of your own fund, even if you get help, you remain legally responsible.

Time

If you have a full-time job / business and a lot of family responsibilities, it can be hard to find the time manage your investments. Many SMSF trustees simply leave their funds in cash because they are too busy to find and evaluate good investment opportunities. When interest rates are high, this is probably not a bad option.  However, interest rates have come down to 3-4% and this is not a good return, especially if inflation continues at a rate of 3%. Other busy trustees may outsource the investing to others but to me this defeats the purpose of having a DIY fund in the first place, and may be less cost effective as retail managed funds tend to have higher fees compared to industry super funds.

Skills

One of the most popular investments for SMSFs is listed securities i.e. direct or indirect shares. In a recent Share Ownership Study conducted by the ASX, they found that there are four types of investors whom they have named Confidents, Aspirationals, Diligents and Delegators. On one end of the scale are the Confidents who rate themselves as knowledgeable or somewhat knowledgeable. Although they do not see themselves as experts, they are eager to find out more about the share market and they are the most active information seekers. On the other end of the scale are the Delegators who have neither knowledge nor interest in the share market. They have investments, but they delegate their management to others. They get none of the energy and excitement from the markets that others do.

I definitely fall into the Confident category and if you think you are this type of person (or aspire to be one), you will probably do well to have your own SMSF as you are prepared to spend the time needed to manage your investments. However, if you are more of a Delegator, you may be better off staying with a good public super fund. SelectingSuper and Superatings are two sites that can help you find a top performing public super fund, if you are not happy with your current super fund.

Not having the skills should not put you off having a SMSF. If you have the desire to learn and are prepared to devote the time and some money to invest in yourself, you can develop the necessary skills over time. To me, this is a worthwhile investment as we all will need to live off our investments when we retire.

To help new SMSF Trustees, I have started to a blog to share some of the simple investment strategies that I have used  for my SMSF. You can find out how to prepare an investment strategy and access a repository of free and inexpensive educational resources to learn the investment strategies discussed. If you are interested to know more, do visit us at http://blog.sli-smsf.com.

The SMSF Investment Strategies website is aimed at supporting the Self Managed Super Fund (SMSF) Trustee and Retail Stock Investor community. I’d encourage anyone considering a SMSF to inform themselves fully, visit the site and take advantage of the knowledge and experience Christina has shared.

Stay tuned for part 3 in this series…

Many thanks to Christina from the SMSF Investment Strategies Blog for today’s post. Christina will be sharing a series a posts on the timely topic “Is a SMSF right for you?”

With the recent under performance of many public super funds, running your own fund and taking control of your super is becoming an increasingly popular strategy. As a trustee of my own Self Managed Super Fund (SMSF), I am definitely a supporter of having one for those wishing to take more control of their financial destinies. However, I also realise that it may not be the right vehicle for everyone. There are three key questions to ask yourself to help you make the right decision and we will address each one of them in a separate post.

Question 1 – Is your planned investment strategy for your SMSF compliant?

Superannuation in Australia is governed by specific regulation called the Superannuation Industry Supervision Act (SIS Act) and there are a number of restrictions that apply. Failure to comply with these restrictions can make your fund non-compliant and this can have serious financial consequences (see AAT article). Non-compliance does not mean you have done anything bad or illegal. It simply means you have failed to adhere to with one or more of the restrictions. For example, a number of people I know have told me that they would like to set up a SMSF to buy a house. After all, “I will need a house to live in when I retire and I think residential property is a sound investment”. This sounds like a good idea and this investment strategy is fine as long as you

• don’t live in the house or rent it to your relatives, otherwise it becomes an “in-house asset” and may not meet the “sole purpose” test
• have other investments in other asset classes to maintain the diversification required by the Australian Tax Office
• are able to maintain enough liquidity to pay for all your property and other super fund expenses
• are able to buy the house without borrowing, or find a lender who will meet the strict borrowing criteria that has been set out for SMSFs and are prepared to pay the higher cost (compared to normal residential home loans)

However, if you only have $100,000 in your SMSF and you plan use all of it as a deposit to buy a single property that you or your family members plan to live in, your fund will have compliance issues.

This may not make sense to you. In some countries, you are allowed (and even encouraged) to use your super funds to buy your own home as this is seen by the government as a safe investment that will benefit you in your retirement. However, this is not the case in Australia.

Any investment strategy you have in mind that involve borrowing money, lending money to the SMSF members, buying assets from related parties or buying assets that can benefit you before retirement would most likely have compliance issues. There are a number of free publications covering the compliance aspects for SMSF on the ATO website (http://ato.gov.au/super/). Read them and if in doubt, check with your accountant before you proceed with your planned investment strategy.

There are many good reasons for starting your own SMSF but you must make sure you start one for the right reasons. For more good reasons for starting a SMSF, check out “Why have an SMSF?” on my blog.

The SMSF Investment Strategies website is aimed at supporting the Self Managed Super Fund (SMSF) Trustee and Retail Stock Investor community. I’d encourage anyone considering a SMSF to inform themselves fully, visit the site and take advantage of the knowledge and experience Christina has shared. 

Stay tuned for part 2 in this series…

Media release 2009/51

The Administrative Appeals Tribunal (AAT) has upheld the Tax Office’s decision to issue a notice of non-compliance to a self-managed super fund (SMSF) found to have contravened the in-house asset rules.

The AAT concluded that the seriousness of the breach and the time taken by the fund’s trustees to correct it weighed most heavily on its decision.

Once a fund is found to be non-compliant it loses access to concessional tax treatment and its taxable income is assessed at the top marginal rate.

In the year a previously complying fund becomes non complying its income includes the assets of the fund less any undeducted contributions, thereby recouping all previously allowed tax concessions.

Tax Commissioner Michael D’Ascenzo said the decision is a reminder to trustees to act on any breaches.

“The sole purpose of an SMSF is to provide benefits for members in retirement and should not be used to invest in related parties above the five per cent in-house asset limit,” Mr D’Ascenzo said.

“I’d like to take the opportunity to remind trustees of the seriousness of such a breach, and of the need for trustees to act urgently to remedy the situation.

“The Tax Office has increased its focus on ensuring high levels of compliance among trustees given the important role of SMSFs and their access to concessional tax treatment.”

The “JNQV” case involved the trustees of an SMSF who breached in-house asset rules after their fund made loans to a related company to support its business activities.

The company failed to repay the loan until four years later which was two years after the fund’s auditors reported the breach to the trustees and the Tax Office.

The repayment was also long after Tax Office contact provided a further opportunity to appropriately rectify matters.

The loans were much greater than the permitted level of in-house assets of five per cent.

The Tax Office has a range of information and services available to assist trustees of SMSFs meet their obligations. Visit www.ato.gov.au for more information.

Last week the Tax Office issued two final rulings for self-managed super funds (SMSFs), which should be read together:

• Ruling (SMSFR 2009/3)  discusses how the super laws apply if your SMSF is entitled to distributions from a related trust but the payments have not been made.
• Ruling (SMSFR 2009/4) defines the meaning of ‘asset’, ‘loan’, ‘investment in’, ‘lease’ and ‘lease arrangement’ in the definition of in-house assets in the super laws with additional examples. To avoid exceeding the 5% in-house asset limit, it is important to know what assets are defined as in-house assets.

The Australian Prudential Regulation Authority (APRA) today released its March 2009 Quarterly Superannuation Performance publication, which shows total estimated assets fell over the quarter by $14.9 billion, or 1.4 per cent, to $1.03 trillion.  

 Over the March 2009 quarter, industry funds’ assets fell by 1.4 per cent ($2.6 billion) to $180.0 billion. Retail funds’ assets fell by 2.6 per cent ($7.8 billion) to $285.6 billion, corporate funds’ assets declined by 2.9 per cent ($1.6 billion) to $52.0 billion and public sector funds’ assets fell by 3.2 per cent ($4.7 billion) to $144.7 billion.

 Contributions to funds with at least $50 million in assets over the March quarter were $17.3 billion, with employers contributing $14.3 billion and members contributing $2.8 billion. Other contributions, including spouse contributions and government co-contributions, totalled $198 million. 

 During the March 2009 quarter, retail funds received 34.1 per cent ($5.9 billion) of total contributions, while industry funds received 32.4 per cent ($5.6 billion), public sector funds 27.1 per cent ($4.7 billion) and corporate funds 6.5 per cent ($1.1 billion).

 The combined return on assets was —3.3 per cent for the quarter. The return on assets for corporate and retail funds was —3.1 per cent, industry funds —3.3 per cent, and public sector funds —3.7 per cent.

 Copies of the March 2009 Quarterly Superannuation Performance publication are available on APRA’s website at www.apra.gov.au/Statistics/Superannuation-Institutions-Statistics.cfm. 

The Federal Government has announced changes to the taxation treatment of superannuation contributions after 1st July 2009. If you wish to maximise salary sacrifice contributions to superannuation then you should do so on or before 30th June 2009.

The maximum contributions allowable includes superannuation contributions paid by employers under the Superannuation Contribution Rules (9% of ordinary time earnings). The maximum superannuation contributions that can be made on or before 30th June 2009 are taxpayers aged 50 and over – $100,000 and under 50 – $50,000 (from 1st July 2009 these contributions limits will be halved).

Changes apply this year to unclaimed super for former temporary residents. If you’re a former temporary resident, your super fund, retirement savings account (RSA), or approved deposit fund (ADF) may pay your unclaimed super to the Australian Taxation Office where it has been at least six months since you departed Australia and your visa was cancelled or expired.

After departing Australia, you can claim your super at any time from either your fund (if they still have it) or the ATO (if it has been passed along). To find out where your super money is, you should contact your fund. The easiest way to claim is using the online payment system.

New Witholding Rates:

There are new withholding tax rates for super payments you apply for on or after 1 April 2009. The new withholding tax rates are:

0% for the tax-free component
35% for a taxed element of a taxable component
45% for an untaxed element of a taxable component.

Who’s exempt from the changes?

These changes do not apply if at the time you make the application for payment you are:

• an Australian citizen
• a New Zealand citizen
• a holder of a permanent or temporary visa
• a temporary resident who has left Australia and receives an income stream
• a holder of a retirement visa (subclasses 405 and 410).

Note to Employers:

There are no changes to employer obligations. Where applicable, you still need to continue to pay super guarantee for eligible temporary residents in the future.

This week saw the successful passage through Parliament of the Tax Laws Amendment (2008 Measures No. 6) Bill which includes amendments to improve the operation of the Superannuation Guarantee late payment offset.

The existing late payment offset allows an employer who makes a late SG contribution into a superannuation fund to reduce their SG charge liability for a quarter. This ensures employers are not required to pay the SG contribution twice (once to the fund and once to the ATO).

The amendments in this Bill ensure that an employer will only be able to use the offset if they make SG contributions before they are assessed with the superannuation guarantee charge liability.

According to Senator Nick Sherry, Minister for Superannuation and Corporate Law, “This measure provides an incentive for employers to make their super contributions in a more timely manner, while still providing employers with the option of using the offset to reduce their superannuation guarantee charge liability,” Senator Sherry said.

The amendments also improve the operation of the general interest charge (GIC) applying to SG payments so that it will accrue on the remaining amount of any unpaid SG liability after the offset has been applied. This ensures the GIC calculation takes into account the fact that the employer has made a contribution to the fund for the employee.

These amendments will commence from the date the Bill receives Royal Assent.

Some people may need to make sure their self managed superannuation funds (SMSF) are complying with changes to the investment rules that take effect after 30 June 2009 – less than five months away.

Is my SMSF at risk?
These changes may catch some SMSFs unaware because they go back to 1999 and have taken until now to come into effect for some SMSFs. As you are already aware, there are a number of investment restrictions preventing an SMSF from borrowing and entering into a range of transactions with related parties. Prior to 11 August 1999, SMSFs were able to invest in entities such as unit trusts, which in turn could enter into transactions that were not strictly within the investment rules applying to the SMSF. Even though these arrangements were closed off effective from 11 August 1999, transitional rules were put in place that allowed SMSFs to

• continue to hold pre-11 August 1999 unit trust and company investments; and
• increase the value of these investments until 30 June 2009.

Do I need to do anything?
If your SMSF was around before 11 August 1999, you need to get advice about whether these changes impact on your fund and what you may need to do to ensure your SMSF remains compliant with the superannuation laws after 30 June 2009.

If you’d like to discuss how these changes will impact your SMSF, please give Alan a call on (02) 43904156.

This month saw ASIC bring the first criminal charges against an SMSF trustee under the SIS Act.

It is alleged the trustee failed to ensure the fund was properly maintained in accordance with the sole purpose test.

The sole purpose test sets the purposes for which a superannuation fund must be operated, ie. to provide benefits for members after their retirement, on reaching retirement age, or on their death.

SMSF’s have grown in popularity in recent years and compliance appears to be an ongoing concern. This case serves as a warning to the serious view ASIC takes of non-compliance. If you are uncertain about whether your SMSF is complying with the Act, you should seek advice as early as possible.

The super co-contribution has been extended to include self-employed people.

The amount of co-contribution that you receive depends on your total income and the personal ‘after-tax’ superannuation contributions that you make during the financial year.

You are only eligible for a co-contribution on personal contributions that you don’t claim a deduction for in your tax return.

You don’t need to apply for the co-contribution. It is paid automatically into your super fund or retirement savings account (RSA) after you lodge your income tax return. The Tax Office works out if you are entitled to receive the co-contribution using information provided to the Tax Office by your super fund and your income tax return.

Visit the Tax Office website www.ato.gov.au to find out if you’re eligible.