Superannuation is about Planning ahead...........If you do it well you will be better able to achieve your financial goals. These may include being self sufficient financially by a certain age so you can retire, ensuring your family is well cared for financially, managing your tax position, etc.
Whether you are the member/trustee of a SMSF or have your superannuation in a managed fund the same principals apply – plan ahead.
Much comment is made in the press by industry associations, politicians, journalists and other stake holders about the constant changes that are made to Superannuation legislation. This clearly makes it more difficult to plan ahead.
Well, here are some more changes which need to be considered. Changes to the superannuation rules which became effective on 1 July 2013 which need to be considered by all superannuation fund members are listed below:
1. Concessional contribution cap
The cap on concessional contributions for those aged over 60 has increased from 1 July 2013.
- For those aged over 60, the cap has increased from $25,000 to $35,000 a year. If you turn 60 during the financial year you will have access to the $35,000 cap.
- It is expected that the concessional cap will also rise to $35,000 from 1 July 2014for those aged over 50.
Now is the time to review any salary sacrifice arrangements to take advantage of this change.
- This is particularly so for those earning in excess of $80,000 p.a.
2. Excess contribution tax
The penalties for exceeding concessional contribution caps have been considerably reduced.
Before 1 July 2013 excess contributions incurred a penalty tax of 31½% on top of the normal 15% contributions tax, meaning that the contributions were taxed at the top marginal individual tax rate.
Excess contributions can be withdrawn from a superannuation fund and they will then be taxed at the personal marginal tax rate, plus interest for late payment.
Note that the tax is up to 93% on excess non-concessional contributions (more than $450,000 over 3 years) still applies. It is prudent to monitor the level of contributions being made to ensure the contribution cap is not exceeded. Employers are required to include details of contributions made on pay slips so this is a good reference to ensure the contributions do not exceed the caps.
3. Surcharge tax
From 1 July 2012 those earning over $300,000 p.a will pay an additional 15% tax on top of the 15% contributions tax on concessional contributions into super. This means that superannuation contributions for those individuals will be taxed at 30%, instead of 15%.
Earnings for this purpose will include taxable income, concessional contributions, adjusted fringe benefits, net investment loss, some foreign income, tax-free government pensions and benefits, less child support.
4. SMSF’s must have a Registered Auditor
From 1 July 2013, SMSF trustees must appoint an approved SMSF auditor registered with the Australian Securities Investments Commission to audit their fund. Trustees should check this requirement with their appointed auditor.
WLM Director, Geoffrey Walker is a registered SMSF Auditor under the ASIC requirements so clients of WLM can be assured their position is well looked after.
5. SMSF supervisory levy
The SMSF annual levy payable to the Australian Tax Office has increased from $200 to $321 for the year ended 30 June 2013. This comprises $191 for the year ended 30 June 2013 and 50% of the levy ($260 x 50%) for 2014.
6. SMSF Investment Strategy
The rules require SMSF’s to have an investment strategy.
- Trustees must now review it regularly.
- This means the review should be at least annually, but should also be reviewed when the circumstances of the fund change such as when starting a pension, admitting new members etc.
- The investment strategy should include consideration by the Trustees whether the trust should also hold insurance cover for the members.
7. SMSF – Valuation of Investments
All assets must be re-valued at market value in the fund’s financial statements. This applies at 30 June 2013.
WLM have always advised clients to value assets at market value, regardless of whether the fund was in accumulation or pension phase. Previously this rule only applied to funds when a pension started, or there were related party assets.
8. Superannuation Guarantee Increase
The superannuation guarantee rate has increased from 9% to 9.25% from1 July 2013.
This is the first step in increasing the compulsory level of superannuation contributions employers must make for employees to take the rate from 9% to 12%, as follows:
2019/2020 and later years
The 70 year age limit for compulsory superannuation contributions has been removed from 1 July 2013.
Contributions are based on ordinary time earnings.
Contributions are not required to be made if the employee earns less than $450 per month.
9. Prospective change – Taxation of earnings on superannuation assets supporting Income Streams
On 5 April 2013, the Federal Government announced proposed changes via media release.
One of these changes, to be effective from 1 July 2014, is that earnings (dividends, interest, rent, trust distributions, capital gains) which are in excess of $100,000 (to be indexed annually) and which are derived from assets that support income streams for members in the pension phase of a superannuation fund will be taxed at 15% in the hands of the fund. Currently such earnings are tax free.
The proposed changes include transitional rules for calculating capital gains on assets purchased before 1 July 2014. This will give members of funds affected by the proposed change 10 years in which to consider restructuring their superannuation investments.
WLM can assist you to ensure your fund complies with these and all the other rules regarding superannuation. We have;
- accredited SMSF specialist advisers
- an accredited SMSF auditor to assist
- invested significantly in developing systems and training to make the management and compliance obligations as efficient as possible.
Should you wish to discuss this further please contact us.