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Self Managed Super Fund (SMSF) Article
The fund landscape is gradually being transformed
By Tony Negline.
This article may be out of date.
29th September 2010
A regular reader of this column recently asked if many changes have been announced since March 2010 in relation to Self Managed Super Funds. The short answer is – absolutely! The following is the first of two articles briefly detailing some of the changes.
Clearing house rules – legislation acknowledging that employer contributions to certain authorised clearing houses satisfy compulsory super obligations has passed Parliament. However this policy is still not fully implemented.
Trauma insurance inside super – the ATO issued a final Self Managed Super Fund Determination which details how a SMSF might be able to own a trauma insurance policy.
Federal Budget 2010 – at least four changes are relevant for SMSFs:
- The ATO will be able to detail if a super contribution will be an excess contribution prior to issuing a formal tax assessment for excess contributions
- The Government will permanently reduce its co-contribution for eligible non-concessional contributions to 100% of a person's contribution. The maximum Government Co-contribution will remain at $1,000
- Super funds will be permitted a tax deduction for terminal medical condition insurance
- Capital protected products – the benchmark interest rate which determines what amount of interest on these arrangements is tax deductible will be increased for new contracts entered into after budget day
Changes to super gearing laws – several changes have been made to the super gearing laws from 7 July 2010. The most important changes are that a holding trust can only hold a single acquirable asset (or the same assets with the same value) and that the asset cannot be improved whilst held in the holding trust. In mid-September the ATO issued an Interpretative Decision which said that any related party lending money to a super fund could offer terms different than that available from banks and other arm's length lenders.
Enduring Powers of Attorney (EPoA) – The ATO released a finalised SMSF ruling on this subject. Some key changes were made about the use of EPoAs especially if a SMSF has a corporate trustee.
In May 2010, the Government announced four changes when it released the Henry Tax Review. These changes are not officially legislated so precise details are unknown. From 1 July 2012 the Government will refund some of the contributions tax for people with "adjusted taxable income" less than $37,000. Also from this date individuals aged over 50 with less than $500,000 in superannuation will have a Concessional Contribution threshold of $50,000. From 1 July 2013 the Super Guarantee will begin to increase ultimately reaching 12% in the 2019/20 financial year. Also in July 2013 the maximum age for Super Guarantee will increase from 70 to 75.
The Henry Tax Review recommended the following 10 changes but thus far these haven't been officially accepted so we'll not look at these here.
Also in May the ATO issues an Interpretative Decision about excess contribution tax assessments for contributions made by mistake.
In June the Cooper Review made the following 18 recommendations to the Government. Thus far the Government and Opposition have only formally responded to one of the suggestions. They have both rejected the suggestion that Self Managed Super Funds should not be permitted to invest in collectibles such as artwork. We'll not look at the remaining Cooper Review recommendations.
In the same month the Federal Treasury releases draft legislation that puts into place an announcement first made by Chris Bowen the then Minister responsible for superannuation. The draft rules reveal what types of total and permanent disablement insurance contracts super funds will be able to claim as a tax deduction.
Also in June many superannuation and income tax related thresholds are indexed.
In July we had four changes:
- The Government introduced legislation into Parliament, which will permit a super fund to acquire assets from another super fund, and not breach the super law which prohibits super funds from acquiring asset from related parties. This proposed legislation was cancelled because of the election and will have to be reintroduced before it's finalised
- The ATO released a document about SMSFs running businesses. After years of rejecting the idea that a Self Managed Super Fund could run a business the ATO now say that it is technically possible
- The Tax Office released a document which shows the administrative process it will follow to disqualify an SMSF auditor for poor quality work
- The Government announced that, due to poor performance in financial markets continuing, in 2010/11 account based pensions would be permitted to pay themselves half their normal annual income amounts.
Next week we'll detail all the remaining changes including some changes made to stamp duty rules made by various State Governments.
Funnily most people would have concluded that not much has been happening in the SMSF regulatory world!
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