As the end of the year is fast approaching please don’t forget to make your contributions as well as pay out in cash your minimum pension requirements.
Contributions
The tax office is clear that for a contribution to be counted towards a members account it must physically hit the superfund’s bank account before the 30 June. The risk of getting it wrong could be excess contribution in the following year.
For example:
John, who is 35 years of age, he wants to make a $25,000 concessional contribution into his fund for the year ending 30 June 2012; however the funds don’t hit the superfund’s bank account until 14 July 2012.
On the 10th of September 2012 he deposits an additional $25,000.
The result would be no contributions for the year ended 30 June 2012 and $50,000 for the year ended 30 June 2013. He therefore has excess contributions tax on $25,000 (as his cap is $25,000) and the additional $25,000 would also count towards his non concessional cap. However, he would still be able to claim a tax deduction for the contribution in the financial year in which it was made.
Caps for the following years
| Year |
Concessional < 50 yrs of age |
Concessional >50 yrs of age |
Non Concessional |
| 11/12 |
$25,000 |
$50,000 |
$150,000 ** |
| 12/13 |
$25,000 |
$25,000 |
$150,000 ** |
**Note if less than 65 years of age you may bring forward three (3) years so a total of $450,000 may be made over a three (3) year period.
For the next financial year regardless of your age the concessional cap will be $25,000.
For those over the age of 50, the concessional contributions are now $25,000. This is extremely important if you salary sacrifice as you must notify your employer to reduce your contributions.
They will not ask you but will continue with the arrangement in place. This could result in excess contribution.
Pensions
For a superfund to get the benefit of a tax exemption they must ensure their minimum pension is physically withdrawn in cash before the year ended 30 June 2012.
A journal entry will not suffice. Even being short $1 could mean the fund is no longer in pension mode and has therefore reverted to accumulation mode thus making all income and capital gains now fully assessable.
For example:
Bob who is 66 years of age he has a superfund whose whole balance is in pension phase. The minimum pension amount that he must withdraw is $49,000.
Throughout the year Bobby has only taken $46,000 and the superfund’s taxable income is $120,000.
Unfortunately he has not met the minimum pension requirement.
His fund therefore reverts to accumulation phase and the superfund will now need to pay tax of $18,000 (15% of $120,000).
If he had withdrawn $49,000 the $120,000 in the superfund would be exempt from tax.
Every year we provide a letter together with your financials advising of your minimum and if applicable maximum pension for the year. Please ensure you refer to this letter before the end of the financial year.
If you cannot find it please don’t hesitate to contact your local Grant Thornton advisor.
Disability and Life insurance in your superfund
From 1 July 2011 premiums for ‘own occupation’, total and permanent disability insurance (TPD) held within your superfund are no longer 100% deductible.
Broadly, for insurance policies which meet prescribed conditions the following proportions of their insurance policy may be deducted.
| Policy type |
% of deduction |
| Life Insurance (death cover only) |
100% |
| TPD Any occupation |
100% |
| TPD Own occupation |
67% |
| Combined TPD and Life insurance |
80% |
Your investment strategy should now include a line that it has considered its Life and TPD Insurance.
Please ensure any existing insurance policies and any new ones you may establish are in the correct name in order to claim the deduction in your superfund.
It should always be held in the name of the superfund for the particular member.
For example:
John Smith from the Smith Family Superannuation Fund would like to take out a life insurance policy for himself in his superfund. The trustee of the fund is Smith Pty Ltd.
The correct policy should be taken out as follows: Smith Pty Ltd <ATF> Smith Family Superannuation Fund. Life insured for John Smith.
Off market transfers
Out of the Cooper review came the recommendation that there be no off market transfers either in or out of the fund.
Whilst this legislation has not been passed, we suggest if you are considering any off market transfers that these are done prior to 30 June 2012.
Under the proposed changes if there is a market for the investment, such as listed shares, they would need to be sold on the market.
Where no market exists it is recommended that an independent valuation be used to determine the market price.
What does this mean for you if there is a market for the investment?
Gone are the days of in specie contributions where you would transfer from your name a listed investment such as BHP shares, by completing an off market transfer from your name into the superfund’s name.
This was commonly used to make contributions if one didn’t have cash available.
Note this works the same way going out. If you have met a condition of release some members transferred as a lump sum a listed investment from the fund into their own names.
In response to the Cooper review the government had suggested that from 01 July 2012 you could no longer use off market transfers where a market exists.
Please note this is just a warning of what was intended as at this stage it has not been passed.
Instead you will be required to sell the investment on the market, receive the funds and then transfer the cash into the superfund. The superfund could then acquire the same investment on the market.
For example:
John Smith has 100 BHP shares in his own name and would like to get the BHP shares into his superfund. John will now have to call his broker or sell on line the 100 BHP shares he holds. After he receives the sales proceeds he can bank this money into the superfund’s bank account and then get his broker or purchase on line 100 BHP shares.
This will result in extra brokerage and administration costs but must be executed this way.
What does this mean if there isn’t a market?
Such examples include business real property as well as unlisted investments that are widely held.
You will be required to obtain an independent valuation and show sufficient documented evidence as to the market value before it is transferred in or out of the fund.
Reduced Super Contribution Concessions for those earning $300,000+ p.a. income
The rumor mill was buzzing prior to the budget on 8 May 2012, the Government has announced that effective from 1 July 2012, anyone earning more than $300,000 will pay 30% tax on concessional contributions paid into a super fund, doubling the super tax bill for high-income earners. This could result in up to an additional $3,750 tax per person.
According to the Government, the definition of ‘income’ for the purpose of this measure will include:
- taxable income
- concessional superannuation contributions
- adjusted fringe benefits
- total net investment loss
- target foreign income
- tax-free government pensions and benefits
- BUT less child support.
Originally the $300,000 income was rumoured to include the tax free component of a private lump sum or pension payment.
There is some relief, as this has been excluded from the above definition.
The Government announced that if an individual’s income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold.
For example Peter’s income excluding concessional contributions is $280,000 but he has salary sacrificed $25,000 as concessional contribution. Only $5,000 ($280,000+$25,000-$300,000) will be subject to 30% tax not the full $25,000.
The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap of $25,000 as they are already subject to excess contributions tax (ECT).
The Government has recognized that this could have resulted in an effective tax rate of up to 108% (93% if you exceed both the concessional and non concessional cap as well as an additional 15% if you exceed the $300,000 income test).
It’s now a little harder to get money tax effectively into super.
Last year it was announced that as of 01/07/2012 the concessional cap for those over the age of 50 with a member’s balance of less than $500,000, could continue to make a $50,000 concessional contribution.
The Government has announced that this will now be deferred until 01/07/2014.
This means regardless of age or members balance, the concessional caps for both the 2012/2013 and 2013/2014 years will be $25,000 per person. Be careful not to get caught with excess contribution tax by exceeding the caps.
