Superannuation News

2011 Federal Budget – Impact on Superannuation

The main changes announced in this year's Federal Budget which will have an impact on superannuation included:

Refund of excess concessional contributions

The Government will provide eligible individuals with the option to have excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax, with effect from 1 July 2011.

The measure will apply where an individual has made excess concessional contributions of up to $10,000 (not indexed) in a particular year and is only available for breaches in respect of 2011 12 or later years, and only for the first year, commencing from 2011 12, in which a breach occurs.

Excess contributions tax is incurred where an individual exceeds their concessional contributions cap. Concessional contributions include compulsory superannuation guarantee payments, salary sacrifice contributions, and other deductible contributions. Excess concessional contributions are taxed at 31.5 per cent, in addition to 15 per cent tax when contributions are made to the fund.

The Government has announced that this measure makes the super system fairer by allowing those who have breached the cap for the first time, by $10,000 or less, the option to have these contributions refunded and taxed at their potentially lower marginal tax rate rather than the 46.5 per cent effective excess contributions tax rate.

Securing super

The Government will ensure that employees receive information on their payslips about the amount of superannuation actually paid into their account; and employees and employers will receive quarterly notification from their superannuation fund if regular payments cease, with effect from 1 July2012. This measure was initially announced as one of the Gillard Government's election commitments.

Superannuation contribution caps – operation of the higher cap for over 50s

The Government will set the higher concessional superannuation contributions cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000, due to apply from 1 July 2012, to $25,000 above the general concessional cap. This measure clarifies the operation of the higher cap for the over 50s which was introduced in the 2010 11 Budget, and means those eligible Australians over 50 will be able to contribute $25,000 more per year than other workers. The general concessional contribution cap is set at $25,000. When it increases due to indexation, the higher cap will increase by the same dollar amount.

Stronger super – SMSF reforms

The Government will provide funding to the ATO and ASIC to implement the Stronger Super self managed superannuation fund reforms, announced on 16 December 2010.

The measures include the introduction of a new administrative penalty framework, registration of fund auditors subject to competency and independence standards, improved data collection and improvements to the self managed superannuation fund registration process.

From 2010-11 to 2014-15, the ATO will be provided with $40.2 million and ASIC with $8.4 million to implement a range of measures that will improve the operation, efficiency and integrity of the self managed superannuation fund sector.

The increased funding will be fully offset by a $30 increase to the self managed superannuation fund levy, from $150 to $180, with effect from the 2010-11 income year, and by the collection of fund auditor registration fees.

Stronger Super – initial funding for self managed superannuation funds auditor registration

The Government will provide $2.8 million over two years to ASIC to develop a second pass business case and initial capital expenditure for the development of a facility for the online registration of approved auditors of self managed superannuation funds (SMSFs) from 1 July 2012. Further information on this measure can be found in the Government Response to Stronger Super at http://strongersuper.treasury.gov.au.

Capital gains tax – amendments to the scrip for scrip roll over and the small business concessions

Measures have been announced to ensure that the scrip for scrip roll over integrity provisions that apply to individuals and companies will also apply appropriately to trusts, superannuation funds and life insurance companies.

The scrip for scrip roll over integrity provisions apply to transactions where stakeholders in the target and acquiring entities have the potential to influence both entities. Some trusts, superannuation funds and life insurance companies consider the integrity provisions do not apply to them because as the stakeholders, they own the interests for the benefit of others (that is, the beneficiaries), rather than for their own benefit. This was never the intended interpretation of the integrity provisions, and so the Government will amend them to ensure that they apply effectively to all stakeholders.

This measure will have effect for the scrip for scrip roll over and small business CGT concessions for CGT events happening after 7.30pm (AEST) on 10 May 2011.

Capital gains tax – limiting the trading stock exception for superannuation funds

The Government will remove the trading stock exception to the 'capital gains tax (CGT) primary code rule' for complying superannuation entities for specified assets, with effect from 7.30 pm (AEST) 10 May 2011.

This measure will ensure gains or losses on specified assets (primarily shares, units in a trust and land) are subject to CGT, consistent with CGT being the primary code for taxing gains and losses of complying superannuation entities. A small number of complying superannuation entities are seeking to treat shares as trading stock, so as to deduct losses on their shares against income other than capital gains.

This measure also provides transitional rules to ensure that assets held or accounted for as trading stock before the time of announcement are unaffected.

Extension of the temporary loss relief for superannuation funds mergers by three months

The Government has extended the end date of the temporary loss relief for complying superannuation fund mergers by three months, from 30 June 2011 until 30 September 2011, to provide additional time for mergers in progress to be completed.

The additional three months will allow affected funds to complete their merger transactions in an orderly manner. It will also reduce the risk of inadvertent breaches of the eligibility requirements for the current loss relief that may potentially prevent the merging funds from accessing the loss relief.

Further information about the extension can be found in the press release of 3 May 2011 issued by the Assistant Treasurer and Minister for Financial Services and Superannuation.

Reduction in the minimum payment amounts for account based pensions in 2011 12

The Government will phase out the pension drawdown relief that has been provided over the last three years. Minimum payment amounts for account based, allocated and market linked (term allocated) pensions will be reduced by 25 per cent for 2011 12 and will return to normal in 2012 13.

Reducing the minimum payment amounts for account based pensions will assist holders of these products to recoup capital losses incurred as a result of the global financial crisis. The Government previously provided pension drawdown relief in the 2008 09, 2009 10 and 2010 11 years by halving the minimum payment amounts.

Greater use of tax file numbers

The Government will allow superannuation fund trustees and retirement savings account (RSA) providers to make greater use of tax file numbers (TFNs) to locate member accounts and to facilitate the consolidation of multiple member accounts.

This measure is designed to improve superannuation industry administration by removing the existing requirement for fund trustees and RSA providers to use other methods of identification to locate accounts before TFNs can be used, with effect from 1 July 2011. It will also assist fund trustees and RSA providers to carry out more efficient consolidation of multiple member accounts, with effect from 1 January 2012, if not proclaimed earlier.

Tax compliance – countering fraudulent phoenix activities by company directors

The Government will strengthen the tax law to counter fraudulent phoenix activity, which involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt. The business is then continued as another corporate entity, controlled by the same person or group and free of their previous debts and liabilities.

With effect from 1 July 2011 (amongst other measures) the director penalty regime will be extended to superannuation guarantee amounts, making directors personally liable for their company's failure to pay employee superannuation.

Minor amendments to legislation regarding SMSFs

The Government will make minor amendments to the superannuation legislation so that where the trustee of a self managed superannuation fund is a body corporate, a parent or guardian may be director of the body corporate in place of a member that is a minor.

Infrastructure investment

The Government will provide $36.0 million over four years to continue and strengthen the activities of Infrastructure Australia (IA). This will ensure the continued capability of IA to review national infrastructure priorities, assess projects and provide advice on infrastructure financing and reforms that promote productive investment in Australian infrastructure. It will also enable IA to develop further opportunities for private investment (such as by superannuation funds) in nationally significant infrastructure.