Budget 2016 – Superannuation

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Budget 2016 – Superannuation

Last week, in his budget speech, Federal Treasure Scott Morrison put forward a number of proposed changes to superannuation.

Here is a brief roundup of what the proposal are.

  • Lifetime cap on non-concessional contributions
  • Concessional contributions cap reduced
  • 30% tax on super for high income earners
  • Tax free super balances capped at $1.6m
  • Tax deductions on super contributions expanded

You can see by the dates to take effect only the lifetime cap on non-concessional contributions has an immediate impact.

If you are planning to make a non-concessional contribution to your super fund prior to 30 June 2016 and have made previous contributions of this nature please contact us to ensure you don’t breech this cap.

Regarding the other changes they will not take effect until 1 July 2017, so there is plenty of time to plan.

Remember, proposals are not set in stone and could change as legislation passes through parliament.

Once these changes are passed we recommend you strategically review how these changes impact your current circumstances.

If you require assistance with this do not hesitate to contact myself or Susan Stainwald.

Sunshine Coast: 07 5474 8955

JOHN SIEMON

John Siemon

(Partner)


Lifetime cap on non – concessional contributions

Applies to all non – concessional contributions made on or after 1 July 2007
Date of effect: 7.30 pm (AEST) on 3 May 2016

  • The current contributions cap will reduce to $25,000 from 1 July 2017.

A lifetime $500,000 non-concessional contributions cap will be introduced from Budget night.

The current system of annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65), will be replaced with this new lifetime cap.

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7.30 pm (AEST) on 3 May 2016.  Contributions made before commencement will not result in an excess.  However, excess contributions made after commencement will need to be removed or will be subject to penalty tax.  The cap will be indexed to average weekly ordinary time earnings.

The lifetime cap is available up to age 74.


 Concessional contributions cap reduced

Date of effect: 1 July 2017

  • The current concessional contributions cap will reduce to $25,000 from 1 July 2017.

Age: Under 50
Current concessional gap: $30,000
From 1 July 2017: $25,000

Age: 50 & over
Current concessional gap: $35,000
From 1 July 2017: $25,000


30% tax on super for high income earners

Date of effect: 1 July 2017

At present, individuals with combined income and superannuation contributions of more than $300,000 pay an additional  contributions tax of 15% on concessional contributions. From 1 July 2017, this income threshold will reduce to $250,000.


Tax free super balances capped at $1.6m

Date of effect: 1 July 2017

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free.  Transfers in excess of this $1.6 million cap (including earnings on these excess transferred amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).

Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017.  Excess balances for these members may be converted to superannuation accumulation phase accounts.

The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment.


Tax deductions on super contributions expanded

Date of effect: 1 July 2017

All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017.  This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self employed, employees whose employers don’t offer salary sacrifice arrangements, etc.This is a sensible move, which means that it will no longer be necessary for individuals to pass a 10% test in order to be able to claim a deduction for personal superannuation contributions.  Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities.  The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

(Source: The Knowledge Shop)

If you have one employee but less than 19

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If you have one employee but less than 19, You must be Super Stream ready by 30 June 2016

  • Do you have 19 or fewer employees?
  • Are you an SMSF Trustee? Self-managed super funds (SMSFs) must be able to receive employer contributions and the associated data electronically.
  • APRA – regulated funds

From 1 July 2016, the ATO’s SuperStream standards are set to be enforced.

A reminder:

  • If you are a larger employer, you should already be using SuperStream.

A Brief Overview

These new rules require employers to pay and report contributions to superannuation funds electronically. Both the payment and the reporting will need to be completed on the same day.

  • These measures don’t apply to individuals who are making personal contributions direct to their superannuation funds, only employers.

SuperStream will make it easier for you. 

  • You need to use SuperStream when paying employees super.
  • With SuperStream contribution payments are made electronically and you can pay all your employees super; sending all their information through one clearing house; saving you time and effort.
  • Providers must be approved by the ATO and are listed on the ATO website.

You should have already started transitioning by choosing an option to make super contributions electronically: 

  • Your payroll system
  • Your super funds online system, or
  • The Small Business Super Clearing House (SBSCH). This is a free service administered by the ATO whereby you can make super guarantee contributions as a single payment to the clearing house and it distributes the payments to the employees fund/s.

Next: You need to collect the following information on your employees. 

  • Their Tax File Number (TFN) and,
  • A Unique Super Identifier (USI)
  • Super fund ABN
  • For employees who have selected a SMSF for their contributions, they will also need to provide their Fund’s Bank Account details and Electronic Service Address (ESA)

Once this is done, these details must be entered into your preferred clearing house site.

For new employees, the ATO has updated the Super Choice form to include collection of the extra information required.

Start using SuperStream as soon as this process is completed so that any problems can be solved before 30 June, 2016.

If you any questions on setting up SuperStream super contributions for employees, please contact McAdam Siemon.

Top Things To Do and Review Before 30 June

Here’s our list of the top things you need to do and review before 30 June arrives:

1. Write-off bad debts. To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.

2. Trading Stock. Write off any stock that is damaged or obsolete. Complete a stock take (if you are not using the simplified trading stock rules) and remember that stock can be valued at the lower of cost, replacement, or net realisable value. You can use different methods for different stock items.

3. Review your asset register and scrap any obsolete plant. Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for each pool. This means you only have to do one calculation for the pool rather than for each asset. It also allows you to claim an immediate deduction for depreciating assets that are bought for less than $1,000.

4. Repairs, consumables (office stationery etc), trade gifts or donations. To claim a deduction for the 2014/2015 financial year, consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June.

5. Pay June quarter employee super contributions if you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2015. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months.

6. Superannuation. Don’t forget yourself. Superannuation can be a great way to get tax relief and still build your wealth position. Your personal or company sponsored contributions need to be received by the fund before June 30 to ensure deductibility.

7. Capital gains and losses. Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses that you have. These need to be genuine transactions in order to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.

8. Directors’ fees and bonuses. Declare them before 30 June and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again, a director’s minute is a good idea. The directors and employees only need to declare this income in the year of receipt although they need to be formally notified of their entitlements by 30 June.

9. Management fees. Where management fees are being charged between related entities, make sure that the charges have been raised by June 30. Where management charges are used, make sure they are commercially reasonable and there is documentation to support this position. If any transactions are being undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s expectations in relation to documentation will be much greater. This is an area that the ATO are placing under greater scrutiny.

For Your Business

Trustees must make a decision on distributions by 1 July

Trustees need to decide on distributions of trust income by 30 June (at the latest) to ensure that beneficiaries are presently entitled to trust income for tax purposes. Trustees used to have until 31 August to make a decision but this administrative concession has been removed. If the ATO is not satisfied that the resolutions have been made in time then the risk is that the trustee or default beneficiary will be taxed on all of the trust income.

Defer your income

If possible, defer your income until the new financial year. In particular this can work for service based businesses or where you are billing your clients on a progress payment basis. Make sure that you can manage any cash flow effects that come with this one.

Manage your capital gains and losses

Remember that capital gains trigger on the date of the contract not the date of payment. Also, capital losses can only be written off against capital gains. So, if you are selling assets that will trigger a capital gain try and delay the contract until 1 July unless you have some capital losses that you are able to offset against.

Please contact either John, Rob or Sam, if you would like further information.

Superstream Update

Superstream update

SuperStream is a government reform aimed at improving the efficiency of the superannuation system.

Under SuperStream, employers must report super contributions on behalf of their employees by submitting data and payment details electronically in accordance with the SuperStream standard. All superannuation funds must receive contribution details electronically in accordance with this standard.

The new rules apply to employers that have 20 or more employees from 1 July, 2014.

Employers that have less than 20 employees have until 1 July, 2015 to comply with the new regulations.

It is the employers’ responsibility to collect the required information and ensure that their payroll software can cater for SuperStream.

Employers will have to:

  1. Make contributions electronically to employees’ nominated super funds, and
  2. Provide details of the payment transaction, e.g. employee name, TFN and super fund member number electronically to the relevant super fund via an electronic service address

Super funds will need to provide the below information to the employer:

  1. ABN
  2. Bank account details where the contributions should be paid to, and
  3. Electronic service address (ESA)
  4. Bank account details where the contributions should be paid to

Please contact the team at McAdam Siemon if you would like further information regarding Superstream.