Exempt Current Pension Income (ECPI)
Titled ATO audits and reviews of super funds in 2014, the speech was given last week to the Tax Institute National Superannuation Conference by the ATO Assistant Commissioner for Public Groups and International, Peter O’Reilly. Though the speech was aimed at APRA funds, much of it is also relevant for SMSFs.
ATO Reinvention program
O’Reilly says that the ATO is currently undergoing a ‘Reinvention Program’, which is intended to “improve the tax and superannuation experience for Australians”, by “designing systems for the majority of taxpayers who do the right thing, not for the small minority who don’t”.
The four points of the plan are:
- Division 293 tax to apply to everyone on the highest tax rate bracket
- No-one in the 19% tax bracket to pay contributions tax
- Introduce lifetime contribution caps in addition to annual contributions caps
- Limit tax-free status of income supporting a pension via an asset cap
Currently Division 293 tax increases the contributions tax for high income earners, those earning more than $300,000, by 15%. Under Mercer’s plan this would extend to people earning more than $180,000. Based on the the 2014/15 tax rates these people would pay 30% on their contributions and have a marginal tax rate of 45%.
Mercer recommends that “nobody pays more tax on their concessional contributions than they do on their income”, and a key part of this would be changes to the Low Income Superannuation Contribution (LISC), so that the contributions tax for someone on the 19% tax bracket or lower would be 0%. However this is unlikely to find favor with the Government, given the announced intention to repeal the LISC as part of the Minerals Resource Rent Tax repeal.
Mercer also recommends implementing a lifetime contributions cap while keeping the annual contributions caps to “limit the cost of the tax concession in any one year”:
“for example a person’s annual cap could be increased by half the unused amount from the previous year but with a limit of say three times the annual cap in any single year. A similar approach cap could apply to non-concessional contributions thereby removing the existing complex three year rule.”
A recent ATO Tax Determination (TD 2014/7) has provided some guidance to the practicalities of asset segregation as it applies to a bank account.
Update: the ATO has issued an addendum to the Determination: ATO reverses position on SMSF actuarial certificate rules.