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Self Managed Super Fund (SMSF) Article
Super changes demand attention
By Tony Negline.
This article may be out of date.
20th May 2009
The dust has begun to settle on the recent Federal Budget. Overall the budget was more negative than positive for self-funded retirees and super investors. Fortunately it wasn’t shockingly negative as some rumours had predicted it might be.
As always there are issues which impact retirees in different ways depending upon individual circumstances. The following is 10 items which may be of interest:
- Concessional contributions – halving the maximums that can apply before penalty tax is imposed was an early and accurate budget leak. Many financial advisers and accountants suggested to their clients that they should make maximum contributions before budget night just in case the Government reduced these maximums immediately from announcement. Fortunately these reductions apply from 1 July 2009 so investors will have time before 30 June ’09 to get their act together before the higher tax concessions are lost. If you’re claiming your personal contributions as a tax deduction make sure you satisfy the paper-trail requirements and remember that your super tax deduction cannot give you a tax loss
- The Government has elected to leave the non-concessional contribution limit at $150,000 for the 2009/10. Under current tax laws this was meant to increase to $165,000 from 1 July ’09 via existing indexation provisions. At this stage it would appear that the $450,000 three year in advance rule will not be changed for 2009/10 as well
- The reductions in the Government Co-contribution are unfortunate but the scheme remains generous for low to moderate income earners. The government has also elected to introduce some minor reductions to the Family Tax Benefit arrangements. All these policy announcements necessitate recalculating the tax effectiveness of salary sacrifice versus the co-contributions for all effected years especially with personal tax cuts still remaining in place. Many people have not bothered to do these iterative calculations but they are essential for quality planning
- Increasing the minimum Age Pension age from 65 to 67 is hardly a surprise given the healthy and longer lives most Australians are experiencing. What is a surprise is the time it has taken Governments to make this change and how slowly the Rudd Government has elected to introduce this new policy. It seems reasonable to assume that now the ice has finally been broken there will be further increases in the minimum Age Pension age in future years
- Earlier this year the Government agreed to halve the minimum income that had to be paid from account based pensions and annuities for the 2008/09 year. It has decided that this measure will also be allowed for the 2009/10 financial year. This problem arises because of the product structures used to generate the income paid from these investments. Will the Government address the underlying problems or merely continue to use band-aid solutions?
- The Australian Bureau of Statistics has been given specific funding to produce a “Pensioner & Beneficiary Living Cost Index”. Industry research over the last 15 years has found that the normal Consumer Price Index statistics do not apply to pensioners because of their spending patterns are different to the general populace. This is a great idea which should have been implemented years ago because there is a need to for retirees and financial services companies to understand what changing cost pressures average retirees encounter
- The Henry tax review released their “Report on Strategic Issues” into the retirement incomes system. The review suggested to the Government that should increase the preservation age of superannuation to the minimum Age Pension age (65 now but going up to 67). The Henry review also said that the Super Guarantee should not be extended to the self-employed. The Government has deferred responding to both these suggestions but the smart money is on these changes being adopted
- The Government has issued a discussion paper that explores the idea of giving the Tax Office the ability to modify the tax law in order to give relief to taxpayers. The paper says that “the power would enable the Commissioner [of Taxation] to actually alter the law, not merely to administer or interpret the laws passed by the Parliament”. On the face of it this seems like a sensible suggestion because on average it takes Parliament six months to pass legislation which the Government has deemed important whereas presumably the ATO could consider a matter much more efficiently. This is a remarkably complex legal matter and it will be important to make sure that excessive powers are not unnecessarily given to unelected officials
- The Government has also introduced a discussion paper on simplifying how the GST applies to financial services. This would be an important and welcome reform for all financial service organisations and their clients (ie everyone!)
- The Government says that it will simplify how the Foreign Investment Funds provisions apply to taxpayers. This is an important reform for all taxpayers, including super funds, that invest overseas
Prior to budget night there were many rumours about possible nasty policy announcements. For example it was rumoured that Transition to Retirement pensions would either be restricted or be completely removed. Prior to Budget night many financial planning businesses had been working hard preparing advice for clients so they wouldn’t miss out on current arrangements. It had also been rumoured that non-recourse borrowing by super funds would be eliminated. Some had thought that the Age Pension assets test taper rate, which was reduced by the Costello Better Super changes from $3 to $1.50 per $1,000 of assets, would be increased to $1.75, $2, $2.50 or even back up to $3.
Fortunately none of these rumours saw the light of day. Hopefully they never do.
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