Simple super now super complicated

Current as of January 2018

 

It has been 10 years since the Simple Super Reforms were brought in on 1 July 2007. A decade later the “Simplified Superannuation” system has become a labyrinth of legislation.

From 1 July 2017, running a SMSF became more complicated and the new raft of reporting obligations and total superannuation balance calculations has created some new acronyms to drop-in on the next BBQ conversation, including:

  • TBA: transfer balance account – this tracks transaction and amounts in retirement phase and this determines whether you have exceeded your TBC on any day
  • TBC: transfer balance cap – this is a limit on how much can be held in retirement phase across all of your super accounts including your SMSF; the cap will start at $1.6m
  • TBAR: transfer balance account report – this is the reporting mechanism by which the ATO will track each person’s TBC and TSB
  • TSB: total super balance (across all super accounts) regardless of whether held in an SMSF, retail fund, industry fund or defined benefit fund
  • RTRIS – Retirement Phase Transition to Retirement Income Stream where the tax exemption on earnings remain
  • TRIS – Transition to Retirement Income Stream where the tax exemption on earnings are removed and will be taxed at 15%

As such, it is more important than ever to engage with your administrator more regularly rather than on an annual basis to ensure that you advise them of your non-SMSF balances so we can correctly report your fund’s contributions, pensions and other reportable events by the due date.

Here is a summary of the new changes which may require reporting to the ATO from 1 July 2017:

Contributions

  • Notify your employer to reduce salary sacrifice amounts to stay within the $25,000 cap for everyone
    • this is even more important if you are contributing to more than one fund and/or your employer is paying your insurance premiums
  • Personal super deductions of up to $25,000 will be available to everyone
    • the 10% test has been removed
    • documentation must still be completed in writing and lodged on time to ensure you are eligible to claim the deduction
  • Before making Non-Concessional Contributions, you need to check total super balances and not just within your SMSF to ensure:
    • you don’t exceed the $1.6m transfer balance cap as at 30 June 2017 and/or
    • you are within your 2018 contribution caps whilst taking into account your contribution history
  • Repayments of Limited Recourse Borrowing Arrangement (“LRBA”) debt from an accumulation interest is to be treated as a “credit” to the TBA of the member
  • Ensure your employer is correctly reporting your contributions using the correct Electronic Service Address (“ESA”) for your SMSF as part of the SuperStream obligations

Pensions

  • If you have existing Account Based Pension (“ABP”) or Transition to Retirement Pensions (“TRIS”) in excess of $1.6m and you have not made the irrevocable election by 30 June 2017 to commute the excess back to accumulation to or below this limit, penalties may apply
  • Non-retirement TRIS
    • continue to have the 10% maximum withdrawal limit each year
    • investment earnings on assets will now be taxed up to 15%
    • does not count towards the TBA
  • Retirement TRIS
    • continue to have the 10% maximum withdrawal limit each year
    • investment earnings on assets are now tax exempt
    • does count towards the TBA
      • TRIS’ are not automatically converted to ABPs – additional pension documentation is required upon meeting a condition of release
  • Any new pensions that have commenced or existing pensions commuted, on or after 1 July 2017 need to be reported to the ATO under the TBAR event-based reporting requirements
    • SMSFs with total super account balances of less than $1 million can choose to report events which impact its members’ transfer balances at the same time the fund lodges its annual return;
    •  SMSFs that have members with total super account balances of $1 million or more, events impacting members’ transfer balances will need to be reported within 28 days after the end of the quarter in which the event occurs

Lump Sum Payments

  • Pension payments can no longer be treated as lump sums for tax purposes to take advantage of the low rate cap threshold
  • Where more than the annual minimum pension is required, members may elect to receive a pension commutation / lump sum payment which may have a more favourable impact on their TBA

Death of a Member

  • Under these new reforms, the death of a member may limit the amount that can be retained in the SMSF, especially if the total balance of the surviving spouse’s balance is greater than $1.6m. As such, the importance of Death Benefit Nominations in combination with Reversionary or Non-Reversionary Pensions needs to be carefully considered.

 

DISCLAIMER
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.