Early access to super: ‘fee’ included in assessable income

AAT - Early Access to SuperannuationThe Administrative Appeals Tribunal (AAT) has released another decision which shows that it does not pay to participate in superannuation early access schemes.

The decision of Vuong and Commissioner of Taxation [2014] AATA 402 (23 June 2014) following the ATO disallowed two objections by the taxpayer in relation to an early access scheme they participated in, including a significant ‘fee’ paid to the promoter.

Summary of the facts:

  • The taxpayer was aged 49 in 2008
  • He was a member of a large APRA fund
  • In 2008 he was referred by colleagues to a person who offered to help him access his super
  • The fee for this ‘service’ would be 29% of the balance
  • It appears that the taxpayer did not properly understand that this was not allowed
  • Rollover forms were submitted to the APRA fund, and as a result $114,697.23 was deposited into a bank account not controlled by the taxpayer
  • The 29% fee was taken, and the remaining $81,434 transferred to the taxpayer
  • Questions were raised by the taxpayer’s tax agent, and the tax return for the relevant year was lodged, with the intention of amending it when the facts were known
  • In 2011 the ATO audited the taxpayer, and included the full $114,697.23 in his assessable income, resulting in a tax shortfall of $45,298.64.
  • The ATO also imposed  a shortfall interest charge of $2,896.46.
  • The ATO later imposed an  administrative penalty of $11,324.65 – 25% of the shortfall
  • The taxpayer lodged two objections – one over the imposition of the administrative penalty and the other over the wish to claim the 29% ‘fee’ as a tax deduction
  • Both these objections were disallowed by the ATO, and then appealed to the AAT

Early Access Super included in Assessable Income?

Section 6.1 of the ITAA 1997 includes in Assessable Income amounts that are not Ordinary Income, called Statutory Income. Section 304.10, also of the ITAA 97, includes in Assessable Income the amount of a Superannuation Benefit if, among other things, the taxpayer receives a benefit from a complying superannuation fund where the benefit was received “otherwise than in accordance with payment standards prescribed under subsection 31(1) of the Superannuation Industry (Supervision) Act 1993″ unless the Commissioner “satisfied that it is unreasonable that it be included”. Section 307.15(2) of the ITAA 97 also provides that:

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Get ready for SuperStream says ATO to SMSFs & employers

ATO - SuperStreamThe ATO has encouraged both SMSFs and employers to get ready for SuperStream.

SuperStream creates a new standard for employers to transmit data about superannuation contributions to super funds, including both SMSFs and APRA funds.

SuperStream for SMSFs

“Put simply, SuperStream will make the transfer from employer to the SMSF easier and quicker” said Mr Philip Hind, ATO’s National Program Manager, Data Standards & E-Commerce (SuperStream). Over the long term the ATO expects SuperStream to reduce the amount of paperwork for trustees, while providing electronic records for accounting and tax obligations.

Employers will start using SuperStream from 1 July 2014 and the “number of employers using SuperStream is anticipated to steadily increase over coming months” . Therefor the ATO says SMSF trustees should check with employers to find out when they are going to start sending contributions data via SuperStream so the SMSFs can “ensure they have all their details at least 60 days before the planned start date”. Mr Hind also said that it only takes a “matter of minutes” to sign up with an SMSF Messaging Provider, and it is a “once-off event”. The SMSF messaging provider gives an SMSF access to an Electronic Service Address (ESA) and is available “at low or no cost”.

Though at this state the “ATO is emphasising education and support for employers and the SMSF industry during the introduction of SuperStream” Mr Hind said that “SMSF trustees should not delay getting ready”.

The ATO includes the following items on the checklist for employees with an SMSF:

  • Check with your employer about when they will start using SuperStream to send contributions data
  • Check that your employer has all the details required about your SMSF “at least 60 days before their planned start date”
  • Provide your employer with your SMSF’s ABN, ESA – Electronic Service Address and bank details

You can find the full checklist on the ATOs website.

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The Cooper Review & SMSFs – 2 years on

Cooper ReviewIt is now over two years since the Cooper Review, or to give its full name – the Super System Review, was handed down – which seems like a good time to revisit the recommendations made, which have been implemented and which are not proceeding.

In all the Cooper Review made 29 recommendations relating to SMSFs, the following is a para-phrasing of these recommendations, with notes about the changes that have been made since 2010. Quotes are taken either from the Cooper Review, the Governments initial response or the more detailed responses after the consultation process.

Summary of Cooper Review Recommendations:

8.1 – No change to the maximum number of SMSF members

There has been no change to the number of SMSF members allowed.

8.2 – ATO to be given power to issue admin penalties

The ATO has been given the power to issue Admin Penalties.

8.3 – ATO to be given power direct people to rectify contraventions

The ATO has been given the power to issue Rectification Directions.

8.4 – ATO to be given power to require trustees undertake education

The ATO has been given the power to issue Education Directions.

8.5 – ATO to be given power to issue binding SMSF rulings

As this recommendation was rejected by the Government at the time there has not been legislation to empower the ATO to make binding SMSF rulings.

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Returning super contributions: age, tfn, fund capped & mistakes

Returning Super ContributionsThere are certain circumstances in which a super fund is required to return a superannuation contribution received:

  • Age restricted
  • Tax File Number
  • Fund Capped Contributions

Though it is also possible for a super fund to return a contribution that was made by mistake.

Age restricted

Regulation 7.04 of SISR creates a number of restrictions around super funds accepting contributions, many of these are related to the members age:

When can a super fund accept a contribution?

 Type of Contribution / Members Age<6565 – 6970 – 7475+
Mandated Employer Contributions (Super Guarantee)YesYesYesYes
Other Employer ContributionsYesYes *Yes *No
Member ContributionsYesYes *Yes *No

*If work test is passed.

If a super fund receives a contribution which it is unable to accept – for example a member contribution from someone over age 75, “the fund must return the amount to the entity or person that paid the amount within 30 days of becoming aware that the amount was received in a manner that is inconsistent [with the subregulation]” – SISR 7.04(4)a.

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Fund Capped Contributions and Super Funds

Fund Capped ContributionsThe Fund Capped Contribution rules limit the amount that a super fund can accept in a single contribution. Super funds do not have to monitor contributions for excess concessional or non-concessional contributions throughout the year, but they do have to check that each individual contribution is less that the Fund Capped Contribution limit. For example, if a members non-concessional cap was $ 450,000, they could make three contributions during the year of $ 200,000 each, the fund could accept these contributions even though they total an amount over the contributions cap. However if the member made a single contribution of $ 500,000 the fund would not be able to accept all of the contribution – see ATO ID 2007/225.

How much are the Fund Capped Contributions?

The Fund Capped Contributions limit is created by regulation 7.04 of the SIS Regulations, which says that a super fund must not accept contributions which exceed:

  • For a member 64 years old or less on 1 July of the financial year – three times the non-concessional contributions caps (in other words NCC cap with the 3 year bring forward)
  • For a member between 65 and 75 years old on 1 July of the financial year – the non-concessional capacity

Note that the Fund Capped contributions limits apply to the Non-Concessional Contributions, not concessional contributions. Also fund capped contributions aren’t relevant for people 75 years and older as super fund are only able to receive “mandated employer contributions” in respect of them. Therefore the Fund Capped amounts are:

YearFund Capped – <65Fund Capped – 65-<75
2013/14$ 450,000$ 150,000
2014/15$ 540,000$ 180,000

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Temporary Budget Repair Levy & Superannuation rates

Temporary Budget Repair Levy - Legislation, Act, BillAnnounced in the 2014 federal budget, the Temporary Budget Repair Levy is an additional 2% tax on individual incomes over $180,000, however it also increases a number of other tax rates. The levy, as legislated, applies for the following financial years:

  • 2014/15
  • 2015/16
  • 2016/17

The following temporary budget repair levy bills relating to superannuation have now passed both houses of parliament:

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New version of eSAT Electronic Super Audit Tool released

eSAT Electronic Superannuation Audit ToolThe ATO has released version 7.0.0 of the eSAT electronic superannuation audit tool. The June 2014 release has been updated to allow lodgement of Auditor/Actuary Contravention Reports for the 2014 lodgement year.

This release also includes a new question R8.02B – Valuation of Assets, with the note:

“When preparing accounts and statements required by subsection 35B(1) of SISA, an asset must be valued at its market value”

What is eSAT?

First introduced in 2008 eSAT is an alternative to the paper form for auditors to lodge a contravention report. eSAT offers the following features:

  • identify contraventions
  • prepare, save and lodge Auditor Contravention Reports electronically
  • revise Auditor Contravention Reports
  • record notes and audit history
  • access reference material
  • review audit outcome

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FoFA changes to proceed via regulation and legislation

FoFA changes regulationFollowing the release of the Senate Economics Committee report into the Governments announced FoFA changes, of which the majority report was in support of passing the bill with minor changes, the Acting Assistant Treasurer Senator Mathias Cormann has announced that the changes will proceed largely via regulation with some legislative changes.

In the media release Cormann said that “under the Corporations Act the Government variously has the power to make regulations; some in ‘prescribed circumstances’ or in ‘particular situations’ “, and intends to use this power to give effect the FoFA changes via regulation from “1 July 2014 where that is legally possible”, in order to “provide clarity and certainty for the financial advice industry and for investors seeking financial advice”.

However, speaking to Michelle Grattan of The Conversation Cormann said, with regard to the ability of the Senate to try and disallow the regulations, “that is an option that is available to the Senate and that will be a matter for the Senate to resolve if that occurs”.

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Henry Tax Review – SMSF & Superannuation

 

As it is now over four years since the Henry Tax Review, or to give it the full title the Australia’s Future Tax System Review, was released it seemed like good time to revisit some of the recommendations to see which have been implemented and which have not.

The Henry Tax Review

Announced in May 2008, around the federal budget by then treasurer Wayne Swan the Henry Tax Review was to be a “comprehensive review of Australia’s tax system to create a tax structure that positions us to deal with the demographic, social, economic and environmental challenges of the 21st century“. When the report was handed down, in December 2009 the review panel had made a total of 138 recommendations, including several about superannuation.

Tax on super fund income

Recommendation 19 was to halve the tax rate for super fund earnings from 15% currently to 7.5%. The 7.5% would apply to what is currently Exempt Current Pension Income and also to capital gains, though funds would loose the one-third discount. This has not been implemented.

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What is Super Fund Lookup?

Super Fund Lookup

Super Fund Lookup is an online government-run database of superannuation funds which have been issued with an ABN, including APRA-regulated funds – such as retail or industry funds, and ATO regulated funds – such as SMSFs. It can be found at superfundlookup.gov.au.

What is Super Fund Lookup used for?

Super Fund Lookup is often used to confirm that a super fund is a Complying Fund, either by super funds in order to make a rollover, or by employers so they can make superannuation guarantee-complying contributions.

Super Fund Lookup can be searched either by the name of the fund or the ABN, and will return some or all of the following information:

  • Fund Name
  • ABN
  • ABN Status
  • Fund Type
  • Contact Details
  • Status

SMSFs are added to Super Fund Lookup by applying for an ABN, though this process does take time.

What do ‘Complying’, ‘Non-Complying’ and ‘Registered – status not determined’ mean?

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