Superannuation funds are subject to regulation by the Australian Prudential Regulatory Authority (APRA), the ATO and the Australian Securities and Investment Commission (ASIC).
Superannuation funds operate in a regulatory framework governed by the Superannuation Industry (Supervision) Act and Regulations (SIS). To qualify for concessional tax treatment, the trustees must elect to become regulated soon after fund formation. To fall within Commonwealth regulation, this is done by either the fund declaring itself to be primarily a pension fund or appointing a company to be trustee, thus falling within the Federal Government’s Corporation Laws.
Trustees who breach requirements may be subject to civil and criminal penalties, which is central to SIS. Under prior legislation, the members suffered through the loss of tax concessions, whilst trustees were usually not held to account.
APRA is empowered to ensure that superannuation funds comply with legislation. With the exception of Self-Managed Superannuation Funds (SMSFs), all superannuation funds must lodge annual returns and audit reports to APRA.
The ATO is responsible for regulating Self-Managed Superannuation Funds, and the number of SMSFs has continued to increase to over 590,000 in recent years. These funds must be audited, and lodge Income Tax and Regulatory returns to the ATO and pay an annual levy of $259 in advance from 2014-15 onwards. The first-year levy for a newly registered fund is $518.
TAXATION OF SUPERANNUATION FUND INCOME
- A concessional tax rate of 15 per cent applies to all taxable contributions made to complying superannuation funds. In contrast, non-complying funds are taxed at the rate of 45 per cent. Note, however, the 15% surcharge on high-income earners discussed at the end of the chapter.
- The net investment income of complying funds is also taxed at 15 per cent (except any ‘special income’ such as distributions from non-arm’s length transactions which may be taxed at 45 per cent).
- CGT applies to disposals of assets by all superannuation funds, approved deposit funds and pooled superannuation trusts.
- Complying superannuation funds can be taxed on either two-thirds (i.e., at an effective rate of 10% rather than 15%) of the nominal capital gain (for assets held for at least one year). Or, where the asset was acquired on or before 21 September 1999, the whole gain may be calculated using indexation to 30 September 1999.
- A category of ‘no-TFN contributions income’ (taxed at 45%) applies to superannuation entities where a member’s TFN has not been quoted in respect of a contribution.
WHAT IS A SELF MANAGED SUPERANNUATION FUND (SMSF)?
The following must apply:
A self-managed superannuation fund is defined as a fund with:
- Less than seven members (from 1.7.2021, formerly less than five)
- Each trustee (or each director of a corporate trustee) is a fund member (except for single-member funds with individual trustees)
- Each fund member is a trustee (or director of the corporate trustee)
- No member to be an employee of another member (unless related)
- Trustees do not receive remuneration for their services.
In the case of single-member funds:
- The member is a sole director of the trustee company, or
- Related to the only other director, or
- If not a corporate trustee, the member and a relative are trustees (or if not a relative, the member is not an employee of the other trustee).
If these requirements are not met, a SMSF will be regulated by APRA and will have to appoint an approved, independent trustee. This can prove to be an expensive exercise and is not recommended.
OTHER SUPERANNUATION FUNDS
A standard employer-sponsored fund that has in excess of 49 members and is not a public fund has to comply with the “equal representation” rules. This means the trustees or directors should consist of an equal number of employer and member representatives if a trustee company. If either the employer representatives or the members’ request it, an additional independent trustee may be appointed, providing the governing rules (trust deed) allows for this.
Decisions by trustees or directors require a two-thirds vote of the total number (not just those present).
Those funds with between five and 49 members must comply with:
- The above equal representation rules
- An alternative agreed on representation rule
- An appointed trustee appointed by mutual agreement by a majority of employers and members
- An APRA approved management agreement requires agreement by a majority of fund members and employers, then approval by APRA.
Public offer funds may only appoint trustees who APRA has approved.
DUTIES OF TRUSTEES
Trustees are required to:
- Apply ordinary prudent care, skill, and diligence.
- Always act in the best interests of fund members.
- Act honestly at all times.
- Not enter into any contract or arrangement that would prevent or hinder them from properly performing or exercising their functions and powers.
- Keep the fund assets separate from any assets held by the trustees personally and separate from any assets held by the employer.
- Formulate and implement an investment strategy for the fund regarding liabilities, risk and return, diversification, and liquidity.
- Allow members access to relevant information and documents.
- Prudently manage any reserves in line with the investment strategy.
- Notify APRA of any significant adverse event affecting the fund’s financial position.
- Provide information to members and annually a report on the fund’s performance and statements showing members’ balances.
- Establish an internal mechanism for handling enquiries and complaints and advise members when they join the fund and at each year after that; and
- Give each member a final member statement on termination.
SOLE PURPOSE TEST
A superannuation fund must be maintained for the sole purpose of providing retirement benefits to members:
- On their retirement, or later on reaching the age for payment of preserved benefits; or
- For beneficiaries, if a member dies.
The following ancillary purposes may be allowed in certain circumstances:
- Benefits on termination of employment.
- Benefits to a member suffering permanent disability.
- Benefits to a member’s dependants or estate upon the member’s death.
Trustees should carefully consider this requirement when making investment decisions. The sole purpose test may be contravened if the nature of investments suggests a non-retirement purpose behind the decision. The provision of retirement benefits to members must be the overriding consideration behind all investment decisions.
Trustees are required to formulate and implement an investment strategy, and the following key factors must be considered:
- Investment risk relative to the fund’s objectives and cash flow requirements.
- The composition of investments and diversification.
- Liquidity of investments relative to cash flow requirements; and
- Ability to meet current and prospective liabilities.
In managing the fund, trustees should consider that superannuation is, by its nature, a long-term investment that generally requires a balanced portfolio. This may involve acceptance of some volatility in short-term investment returns. The investment objectives and investment strategy should be stated to members in the trustee’s annual report. There is scope for members to direct the trustee’s strategy from a menu of strategies that they have vetted.
RECORD KEEPING OBLIGATIONS
Trustees are required to:
- Retain copies of the trust deeds and any amendments.
- Keep minutes of trustee meetings and a record of all changes of trustees for at least 10 years.
- Maintain accurate and accessible accounting records.
- Prepare annual financial statements which show the financial position of the fund, together with an operating statement showing the profit or loss of the fund and details of all members’ accounts with the fund; and
- Ensure an approved auditor audits the accounts in the approved format.
PROHIBITED INVESTMENTS AND BORROWINGS
- Trustees must not lend money or give any financial assistance to a fund member or a member’s relative.
- Trustees must not acquire an asset (apart from “real property” or listed securities) from a member or relative of a member. Business real property means commercial property being actively used in a business. For an asset to be real property, it must be used wholly or substantially in one or more businesses (SIS s66(5)).
- Self-managed superannuation funds (with less than seven members) may acquire business real property from a member or relative provided it is acquired at market value. As long as the investment strategy allows, the value of the property can be up to 100% of the value of all assets of the fund.
- Trustees are not allowed to borrow money on the fund’s behalf (except for limited recourse borrowing arrangements are allowed).
- All investments must be made on a commercial arm’s length basis.
- Each time a major investment is made, trustees should consider the fund’s investment strategy as a reference point.
- Trustees are restricted from making loans to or investments in assets owned by employer-sponsors or associates. These are called in-house assets. From 1 July 2000, there must be no more than 5% of assets held in-house based on market values.
The Superannuation Legislation Amendment Act (No. 4) widened the definition of in-house assets to include:
- Loans to or investments in a related party
- An investment in a related trust of the fund; and
- An asset of the fund subject to a lease between the fund and a related party.
Superannuation funds cannot invest in a related unit trust (50% or greater ownership) in order to acquire a geared investment, nor can they acquire plant or motor vehicles and lease them to members or employer-sponsors (unless the market value of the leased item is less than 5 per cent of the total value of all assets).
Although trustees usually cannot delegate their duties, trust deeds often allow for the delegation and appointment of investment managers. If an investment manager is appointed, there must be a written agreement specifying the precise roles of each party, and the trustees’ expectations of the manager should be supplied to the manager.
Employer contributions made to a complying superannuation fund are tax-deductible to the employer.
Complying superannuation funds pay a concessional tax rate of 15 per cent of employer contributions and fund earnings. If the fund invests in shares, it may be possible the excess imputation credits (at 30%) will further reduce the total tax payable.
Non tax-deductible contributions are received by the fund tax-free. Providing an asset has been held longer than 12 months, complying funds are able to claim a discount of one-third on a taxable capital gain, meaning the fund will pay an effective CGT rate of 10 per cent.
Superannuation funds become eligible for these tax concessions by making an election with the ATO within 60 days of formation to become a SIS complying fund. The fund will then receive written confirmation from the ATO that it is a complying fund.
TAX DEDUCTIONS FOR PERSONAL CONTRIBUTIONS
Providing the below criteria is met, a person may claim a tax deduction for 100% of personal contributions made to super. Personal contributions where a tax deduction is claimed are concessional contributions, which are subject to a person’s concessional contributions cap. Excess concessional contributions are effectively taxed at the individual marginal tax rate.
Conditions for claiming a tax deduction for personal super contributions
The following primary conditions must be met to claim a tax deduction for a personal super contribution:
- The taxpayer makes a personal contribution to a complying super fund or RSA for themselves to provide super benefits.
- The taxpayer may only deduct the contribution for the income year in which the contribution is made.
- The taxpayer must submit a valid notice to the fund trustee.
- The fund trustee must have given the taxpayer an acknowledgement of receipt of the valid notice.
Additional conditions must be met only if:
- The taxpayer is under age 18, or
- The contribution is sourced from the sale of an active asset, where the small business CGT concessions apply.
Taxpayer’s Valid Notice
To deduct the contribution or a part of the contribution, a taxpayer must have given the trustee of the fund a valid notice of their intention to claim the deduction, and the trustee must have given the taxpayer an acknowledgement of receipt of the notice.
It is not compulsory to use the ATO version of this form. These notifications can be made to the super fund in various ways, and funds may create their own form for their members to use. The ATO form sets out the minimum data requirements.
The notice must be given to the fund provider before the earlier of:
- The day the taxpayer lodges their income tax return for the income year in which the contribution was made, or
- The end of the next income year following the year of the contribution.
EMPLOYER CONTRIBUTION VS PERSONAL CONCESSIONAL CONTRIBUTION
|Employer Contribution||Personal Concessional Contribution|
|Treatment of contribution for tax purposes (2021/22)||An employer contribution is a concessional contribution (irrespective of whether it is tax-deductible) and counts towards the member’s concessional contributions cap.
The contribution is included in the assessable income of the fund and is taxed at 15%. If the contribution exceeds the member’s annual concessional contributions cap of $27,500, the excess is included in the member’s individual income tax return and taxed at marginal tax rate.
|A personal member contribution covered by a valid notice to claim a tax deduction is a concessional contribution and counts towards the member’s concessional contributions cap.
Suppose a tax deduction is not claimed or is subsequently denied by the tax office, or the amount is reduced under a notice. In that case, that contribution is non-concessional unless it is an employment termination payment that is a directed termination payment.
A contribution covered by a valid notice is included in the assessable income of the fund (unless the amount is subsequently varied) and taxed at 15%. If the contribution exceeds the member’s annual concessional contributions cap of $27,500, the excess is included in the member’s individual income tax return and taxed at marginal tax rate.
|Ability to make an in-specie contribution||Yes
Fringe Benefits Tax (FBT) is not payable on in-specie contributions made to an employee on or after 1 July 2007.
Caution: CGT and stamp duty may apply (but any assessable capital gains may be offset by deductibility of the contribution). Trustees must also ensure that they do not breach the related party acquisition and or in-house asset rules.
Caution: CGT and stamp duty may apply (but assessable capital gains may be offset by deductibility of the contribution). Trustees must also ensure that they do not breach the related party acquisition and or in-house asset rules.
*Note: A contribution for tax purposes does not include a rollover super benefit or super lump sum paid from a foreign super fund.
SELF MANAGED SUPER FUNDS
Recently the ATO outlined SMSF specific compliance risks. These are as follows:
In relation to residency, there are strict rules which funds must meet. A self-managed superannuation fund that is not a resident fund at all times during the income year is not a complying fund for tax purposes in that year. Initial analysis shows that some may not meet the residency requirements for complying superannuation funds. The main concern is where trustees are absent from Australia for an extended period of time.
Trustees who will be temporarily going overseas for more than two years need to ensure, prior to going overseas, that the fund does not become a non-resident fund and, as such, ineligible for concessional tax treatment.
Steps that trustees should consider taking include:
- Appointing a legal personal representative who holds an enduring power of attorney to act on their behalf as a trustee for the period that they will be overseas; and
- Ensuring that, during their absence, the accumulated entitlements of the fund’s resident active members will be more than 50 per cent of the total accumulated entitlements of all active members. In some cases, this might be achieved by ceasing contributions for the relevant period; or
- Resigning as the non-resident trustee and rolling the benefits into a public offer fund.
Note that from 1.7.2022, the central management test safe harbour is expected to increase from two to five years as per the May 2021 Federal Budget.
The second area is record keeping. The ATO has identified poor and inadequate record-keeping as a problem for self-managed superannuation funds. Decisions made by trustees should be recorded properly.
Relevant records include minutes of meetings, investment decisions, changes of trustees, and so on. If a compliance team undertakes an audit and finds that proper records have not been kept, the ATO has immediate concerns about the fund.
Superannuation rulings and Practical Compliance Guidelines
The ATO has continued to prepare rulings relating to the above issues. The new series of rulings has improved the Commissioner’s views on how the SIS Act applies to Self-Managed Superannuation Funds. At publication date, there had been six SMSF Rulings issued in 2008/2009, two in 2010 and one in 2012. None have been issued for the last nine years.
In 2016 the ATO began to issue Practical Compliance Guidelines to provide clear and practical public advice and guidance.
Existing and Future SMSF Rulings Dealing with the following issues:
Prohibited financial assistance
Financial assistance is not defined in the Superannuation Industry (Supervision) Act 1993. SMSFR 2008/01 expands on the term’s ordinary meaning and includes examples of financial assistance in instances where it may be allowed and prohibited.
Incidental Benefit – Identifying a breach in the Sole Purpose Test
The sole purpose test states that trustees must ensure that a fund is continuously maintained solely for one or more core purposes, or additionally one or more ancillary purposes provided for in the legislation.
In some cases, fund members or others may derive incidental benefits from the conduct of the fund’s investment activities. SMSFR 2008/2 clarifies circumstances when such incidental benefits will not constitute a breach of the Act.
What constitutes Business Real Property for Self-Managed Super Funds?
SMSFR 2009/1 explores the definition of ‘business real property’ and provides guidance on each of the tests that must be met when determining whether or not the definition is satisfied.
Acquisition of assets from related parties
SMSFR 2010/1 considers and provides guidance on the general prohibition as well as each of the exceptions.
SMSFR 2012/1 deals with limited recourse borrowing announcements.
PCG 2016/5 deals with the arms’ length terms for LBRAs.
ASIC now registers SMSF auditors and commenced issuing SMSF audit annual statements from 31 January 2014. All approved and suspended SMSF auditors must now complete their annual statements within 30 days of each year’s registration anniversary.
The ATO is active in checking auditor registrations are valid and correct. In a recent case, a Queensland tax agent was banned for four years after sustained and systematic SMSF auditor number misuse. He had lodged more than 170 returns for SMSF clients where he had claimed the funds had been independently audited. In fact, no audit had taken place.
TAXATION OF SUPERANNUATION BENEFITS
The Reasonable Benefit Limits were abolished on 1 July 2007. Below are the new tables.
Low-Rate Cap Amount and Untaxed Plan Cap Amount
The application of the low-rate threshold for superannuation lump sum payments is capped. The low-rate cap amount is reduced by any amount previously applied to the low-rate threshold.
The untaxed plan cap amount limits the concessional tax treatment of benefits that have not been subject to contributions tax in a super fund. The untaxed plan cap amount applies to each super plan from which a person receives super lump member benefits.
|Income Year||Low-Rate Cap Amount||Untaxed Plan Cap Amount|
Note: The low-rate cap amount is indexed in increments of $5,000.
Super Lump Sum Tax Table
|Income Component Derived in The Income Year||Age at The Date Payment Is Received||Amount Subject to Tax||Maximum Rate of Tax (Including Medicare Levy)|
|Member benefit – taxable component – taxed element||Under preservation age||Whole amount||22%|
|Preservation age to 59||Amount up to the low-rate cap amount||Nil|
|Amount above the low-rate cap amount||17%|
|Aged 60 and above||Whole amount||Nil|
|Member benefit – taxable component – untaxed element||Under preservation age||Amount up to untaxed plan cap amount||32%|
|Amount above untaxed plan cap amount||47%|
|Preservation age to 59||Amount up to the low-rate cap amount||17%|
|Amount above the low-rate cap amount and up to the untaxed plan cap amount||32%|
|Amount above the untaxed plan cap amount||47%|
|Aged 60 and above||Amount up to the untaxed plan cap amount||17%|
|Amount above the untaxed plan cap amount||47%|
|Death benefit lump sum benefit paid to non-dependants – taxable component – taxed element||Any||Whole Amount||17%|
|Death benefit lump sum benefit paid to non-dependants – taxable component – untaxed element||Any||Whole Amount||32%|
|Death benefit lump sum benefit paid to dependants – taxable component – taxed and untaxed elements||Any||None||Nil|
|Rollover superannuation benefits – taxable component – taxed element||Any||Whole Amount||Nil|
|Rollover superannuation benefits – taxable component – untaxed element||Any||Amount up to the untaxed plan cap amount||Nil|
|Amount above the untaxed plan cap amount||47%|
|Superannuation lump sum benefits less than $200||Any||None||Nil|
Element taxed in the fund of a Superannuation Income Stream
The table below summarises the taxation of a superannuation income stream paid with an element taxed in the fund.
The tax-free component is not included. This component is NOT assessable income and NOT exempt income in all cases.
|Age of Recipient||Income Stream|
|Age 60 and over||Not assessable, not exempt income|
|At or above preservation age and under 60||Taxed at marginal tax rates.
Tax offset of 15% is available
|Under preservation age||Taxed at marginal tax rates, with no tax offset.
Tax offset of 15% is available if a disability superannuation benefit
*Note: Medicare Levy (2%) is added to whichever rate of tax applies.
Element untaxed in the fund of a Superannuation Income Stream
The table below summarises the taxation of a superannuation member income stream paid with an element untaxed in the fund.
The tax-free component is not included. This component is NOT assessable income and NOT exempt income in all cases.
|Age of Recipient||Income Stream|
|Age 60 and over||Taxed at marginal rates, with a 10% tax offset|
|At or above preservation age and under 60||Taxed at marginal rates, with no tax offset|
|Under preservation age||Taxed at marginal rates, with no tax offset|
*Note: Medicare Levy (2%) is added to whichever rate of tax applies.
PERSONAL SUPERANNUATION CONTRIBUTIONS INCLUDING SELF EMPLOYED PERSONS
These are personal contributions for which you do not receive a tax deduction.
Non-concessional contributions cap
- The non-concessional contributions cap increased on 1 July 2021 to $110,000, up from $100,000.
Non-concessional contributions include personal contributions for which you do not claim an income tax deduction.
Non-concessional bring-forward cap
- The bring-forward non-concessional cap increased on 1 July 2021 to $330,000, up from $300,000.
People aged less than 65 years on 1 July in a financial year may be able to make non-concessional contributions of up to three times their non-concessional contributions cap over a three-year period – this is known as the “bring forward” rule.
The bring-forward cap is three times the non-concessional contributions cap of the first year. If you brought forward your contributions in 2021/22, it would be 3 x $110,000 = $330,000.
This consequential change to the non-concessional contributions cap means you can put less into super.
To maximise non-concessional contributions, you may consider the strategy of making a $110,000 contribution. However, care should be taken to ensure that the $110,000 cap in this financial year is not accidentally exceeded, triggering the ‘bring-forward’ provisions.
Non-concessional contributions include contributions that are not included in the assessable income of the receiving superannuation fund, e.g., non-concessional personal contributions made from the member’s after-tax income. These were formerly known as undeducted contributions.
EXTENDING ELIGIBILITY FOR BRING-FORWARD CAP
Access to the bring-forward cap has been extended from 2020-21 for taxpayers aged less than 65 to those aged 65 and 66. This will enable these taxpayers to make up to three years’ worth of non-concessional contributions, capped at $110,000 a year, to superannuation in a single year.
This gives older pre-retirees greater flexibility to save for retirement. Those in this age bracket are able to contribute large lump sums that they have on hand into superannuation more quickly, bringing forward the accompanying tax concessions, rather than $100,000 per year under the current rules that formerly applied.
The super co-contribution is an Australian Government initiative to assist eligible individuals to save for their retirement.
If you are eligible and make personal superannuation contributions, the Government will make a co-contribution up to $500 for the year 2013 onwards.
|Year of entitlement||Maximum Entitlement||Matching Rate||Lower Threshold||Higher Threshold|
|2021 – 2022||$500||50%||$41,112||$56,112|
You will be eligible for the co-contribution for an income year if:
- You make personal superannuation contributions by 30 June to a complying superannuation fund or retirement savings account (RSA)
- Your total income (assessable income plus reportable fringe benefits) is less than $56,112 (the higher income threshold in 2021/22 income year)
- You have not exceeded your non-concessional contributions cap for the income year
- Your transfer balance cap had not been exceeded prior to the start of the income year
- 10% or more of your total income is from eligible employment or carrying on a business
- You are less than 71 years old at the end of the income year
- You do not hold an eligible temporary resident visa at any time during the income year; and
- You lodge an income tax return for the relevant income year.
Self-employed persons are also eligible for the co-contribution.
CHOICE OF SUPERANNUATION FUND
Choice of superannuation fund – gives many employees the right to choose which superannuation fund will receive their employer superannuation guarantee contributions. This choice commenced on 1 July 2005. Employers are obliged to offer the choice of superannuation fund in the prescribed format to eligible employees.
Eligible employees are all those who are currently receiving superannuation benefits except:
- Those receiving superannuation benefits under a State Award.
- Those receiving superannuation benefits under an Australian Workplace Agreement (AWA) or certified agreement.
- Those who are members of a Defined Benefit Fund; and
- – Have reached their maximum benefit in the scheme; or
- – Would be entitled to the same amount of benefit from the Defined Benefit Scheme whether or not they choose a new fund; or
- – The Defined Benefit Scheme is in surplus as certified by an actuary.
Employers must provide each eligible employee with a standard choice form with the employer’s section of the form fully completed. This form must be supplied to new employees within 28 days of their start date.
If the employee does not wish to make a choice, they may do nothing. The employee must complete Part B of the form if making a choice and provide all necessary details.
You should record the date you received and accepted the employee’s choice and the date you actioned their choice in Part C.
You should keep the following records:
- Details of ineligible employees
- Confirmation that the employer fund meets insurance requirements
- Records showing the standard choice form has been provided to eligible employees
- Written details of employee nominations, receipts or other documents issued by the fund evidencing payment.
SUPERANNUATION GUARANTEE (SG)
Employers are required to pay a minimum level of superannuation for employees. Currently, this is 10%. Payments must be made quarterly by the 28th day following the end of the quarter.
If not paid by that date, a non-tax-deductible superannuation guarantee charge (SGC) including interest and penalties will be incurred.
Employees are defined as including those who receive salary or wages either on a full-time, part-time, or casual basis and may include persons working under a contract wholly or principally for that person’s labour. Also covered are members of parliament, directors, artists, musicians, and sportspersons. Superannuation guarantee support does not have to be provided for:
- Employees paid less than $450 in a particular month
Note that from 1.7.2022, the Government has announced it intends to remove this $450 threshold.
- Employees under 18 working not more than 30 hours per week
- Employees paid for domestic or private work for not more than 30 hours per week
- Partnerships, companies, or trusts.
To calculate the superannuation guarantee contribution, you apply the prescribed percentage of 10% to the employee’s earnings base. The earnings base is determined either:
- By the superannuation fund’s trustee, an industrial award or existing agreement; or
- As ordinary time earnings (OTE).
Ordinary time earnings include most payments to employees, including over-award payments, loadings, sick leave, allowances etc., but do not include bonuses that do not relate to specific performance criteria, ex gratia payments, overtime payments, annual leave loadings, accrued annual leave and long service leave paid as a lump sum on termination.
Since 1 July 2011, the directors’ penalty regime has included the SG. This means that in addition to PAYG, company directors can now also become personally liable for unpaid super.
From 1 July 2019, the maximum SG contributions base has increased to $55,270 per quarter.
Following the 2014 Federal Budget, SG contributions were paused at 9.5% from 1 July 2014 until 1 July 2021.
Superannuation Guarantee Percentage
|Year commencing||SG contributions|
|1 July 2015||9.5%|
|1 July 2016||9.5%|
|1 July 2017||9.5%|
|1 July 2018||9.5%|
|1 July 2019||9.5%|
|1 July 2020||9.5%|
|1 July 2021||10.00%|
|1 July 2022||10.50%|
|1 July 2023||11.00%|
|1 July 2024||11.50%|
|1 July 2025||12.00%|
SUPERANNUATION EXCESS CONTRIBUTIONS TAX
For any excess contributions made after 1 July 2013, breaching the non-concessional cap, the Government will allow individuals to withdraw those excess contributions and associated earnings.
If an individual chooses this option, no excess contributions tax will be payable, and any related earnings will be taxed at the individual’s marginal tax rate.
Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.
Superannuation contributions made on or after 1 January 2006 can be split into your spouse’s superannuation account.
There is a range of before-tax contributions which can be split. These contributions are made to your superannuation fund and are taxable to the fund for income tax purposes. They include:
- Employer contributions
- Personal contributions for which an income tax deduction is to be claimed
- Superannuation holding accounts (SHA) special account amounts transferred to your superannuation account by the Tax Office on or after 1 January 2006
- Superannuation guarantee entitlements transferred to your superannuation account by the Tax Office on or after 1 January 2006; and
- Allocated surplus contribution amounts.
Several after-tax contributions can be split. These contributions to your superannuation account are not taxable to the fund for income tax purposes. These include:
- Personal contributions for which you have not claimed and do not intend to claim a tax deduction; and
- Superannuation co-contributions.
Taxpayers can claim an 18 per cent offset on superannuation contributions of up to $3,000 made on behalf of their low-income or non-working spouse. The maximum rebate allowed is $540.
From 1 July 2017, to be eligible to claim the maximum tax offset, your spouse must be earning in total $37,000 or less in a financial year. A reduced tax offset is payable for spouses earning up to a total of $40,000 in a financial year. Rates for prior years were $10,800 and $13,800 respectfully. The spouse must also not have exceeded their non-concessional contributions cap or their transfer balance cap.
A ‘spouse’ includes another person who, although not legally married to you, lives with you on a bona fide domestic basis as your husband or wife (including same-sex couples) but does not include a person who lives separately and apart from you on a permanent basis.
The $3,000 limit on contributions is reduced by $1 for each $1, by which the total of the spouse’s assessable income and reportable fringe benefits exceeds $37,000.
The age limit for spouse contributions was increased from 69 to 75 years from 1 July 2020.
AGE LIMIT ABOLISHED
From 1 July 2013, the age limit for statutory employer contributions (Superannuation Guarantee) has been abolished. Employees aged 70 or older are entitled to super guarantee payments from their employer.
TRANSITION TO RETIREMENT
Under the transition to retirement rules, if you have reached preservation age, you may be able to reduce your working hours without reducing your income. You can do this by topping up your part-time income with a regular ‘income stream’ from your super savings. The income from assets supporting a transition to retirement income stream was tax-exempt for payments made until 30 June 2017.
SUPER SURCHARGE ON HIGH-INCOME EARNERS
Division 293 tax was introduced from the 2012-13 year to reduce the tax concession on superannuation contributions for individuals with income greater than $250,000 from 2017/18.
Division 293 tax will be charged at 15% of an individual’s taxable concessional contributions above the $250,000 threshold. For individuals who are members of a defined benefit fund, Division 293 tax may be calculated on notional contributions which are not capped.
Since 1 July 2016, SuperStream has been mandatory.
SuperStream is the way businesses must pay employee superannuation guarantee contributions to super funds. With SuperStream, money and data are sent electronically in a standard format.
It must be used by:
- Self-managed super funds
- APRA-regulated funds
SuperStream transmits money and information consistently across the super system – between employers, funds, service providers and the ATO. The data is linked to the payment by a unique payment reference number. This means:
- Employers can make all their contributions in a single transaction, even if they are going to multiple super funds.
- Contributions and rollovers can be processed faster, more efficiently and with fewer errors.
- People can be more reliably linked to their super, reducing lost accounts and unclaimed monies.
CHANGES TO SUPER EFFECTIVE 1 JULY 2017
Superannuation Reform Package:
Allow catch‑up concessional superannuation contributions
From 1 July 2018, individuals are allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance of less than $500,000. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
The measure will also apply to members of defined benefit schemes, and consultation will be undertaken to minimise additional compliance impacts for these schemes.
Lowering of the concessional contributions cap
Since 1 July 2017, the annual cap on concessional contributions was $25,000 per annum for all individuals. It is $27,500 from 1.7.2021.
Lowering of the non-concessional contributions cap
Effective 1 July 2017, the annual cap on non-concessional contributions was reduced to $100,000 per annum. Consequently, the “bring forward” cap was reduced to $300,000.
From 1.7.2021, the respective figures are now $110,000 and $330,000 (bring forward).
Improve superannuation balances of low-income spouses
The low-income spouse superannuation tax offset has been increased from 1 July 2017 by raising the income threshold for the low-income spouse to $37,000 from $10,800. The low-income spouse tax offset provides up to $540 per annum for the contributing spouse. It builds on the Government’s co-contribution and superannuation splitting policies to boost retirement savings, particularly for women.
Introduction of a $1.6 million superannuation transfer balance cap
The Government introduced a $1.6 million transfer balance cap (now $1.7 million) on the total amount of accumulated superannuation an individual can transfer into the retirement phase. Subsequent earnings on these balances will not be restricted. This will limit the extent to which high wealth individuals can use the tax-free benefits of retirement phase accounts.
Introducing a transfer balance cap will improve sustainability and fairness in the superannuation system. Where an individual accumulates amounts in excess of $1.7 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 per cent).
Tax deductions for personal superannuation contributions
The Government has improved flexibility and choice by allowing all individuals up to age 75 to claim an income tax deduction for personal superannuation contributions.
This effectively allows all individuals to make concessional superannuation contributions up to the concessional cap, regardless of their employment circumstances. Individuals who are partially self-employed, partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
Contributing the proceeds of downsizing the family home to superannuation
The May 2017 Federal Budget announced an additional superannuation proposal allowing individuals aged 65 years and older to contribute up to $300,000 from the sale of their home as a non-concessional contribution. This contribution will not count towards the existing non-concessional cap and could be made irrespective of satisfying the age, work, or $1.7m balance tests. This measure has applied since 1 July 2018 and is restricted to homes owned as the primary residence for over 10 years.
First Home Super Saver Scheme
The May 2017 Federal Budget showed the Government’s commitment to assisting in housing affordability by announcing the ‘First Home Super Saver Scheme’. Since 1 July 2017, first home buyers have taken advantage of the tax savings afforded in superannuation. The scheme allows for voluntary contributions of up to $15,000 per year ($30,000 in total) that can be taxed at a concessional rate of 15%. Withdrawals are taxed at marginal rates less a 30% offset available from 1 July 2018. The Government estimates that most home buyers could boost their savings by 30% over a standard savings account by using salary sacrifice under the scheme.
It should be noted that concessional contributions made towards the First Home Super Scheme count towards the individuals $25,000 concessional contributions cap.
First Home Super Saver Scheme – increasing the maximum releasable amount to $50,000
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start from the first financial year after the enabling legislation received Royal Assent. The Government has stated it expects this to occur prior to 1 July 2022.
Preventing inadvertent concessional cap breaches
Individuals with multiple employers and whose income exceeds $275,000 are allowed to nominate that their wages from certain employers are not subject to the compulsory Superannuation Guarantee (SG) contributions. The employee could negotiate to receive additional income instead of the SG contributions from their employer.
A work test applies to people aged 65 or older to determine whether they are entitled to contribute to superannuation, which broadly is at least 40 hours in any consecutive 30-day period. Plans for its proposed removal have been shelved.
Repealing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74
From 1.7.2022, individuals aged 67 to 74 will be allowed to make or receive non-concessional (including under the bring forward role) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test.
Reducing the eligibility age for downsizer contributions to 60
The Government has announced that from 1.7.2022 it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60.
The downsizer contribution rules allow people to make a one-off-after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both couple members can make downsizer contributions for the same home, and the contributions do not count towards a member’s non-concessional contribution cap.
Work Test and spouse contributions superannuation regulation
New regulations have been made to increase the age at which the superannuation work test starts to apply from 65 years to 67 years and also the cut-off age for spouse contributions from 70 years to 75 years. This aligns the age limits with the general contribution rules. The changes apply to contributions made from 1 July 2020.
Capping passive fees for low balance superannuation funds
The introduction of a 1.5 per cent semi-annual cap on administration and investment fees charged by superannuation funds on accounts with balances below $6,000.
If the balance of a member’s superannuation account is less than $6,000, the maximum amount of these fees that can be deducted from the account in the following six-month period is 1.5 per cent of the balance.
Regulations will prescribe the dates on which trustees will be required to assess the balance of the account and thus eligibility for the cap. It is expected that these dates will be 30 June and 31 December.
Ban on exit fees and inactive superannuation funds
This will also expand the ATO’s data matching process to proactively reunite inactive superannuation accounts with member’s active accounts where possible. Superannuation accounts with a balance under $6,000 and inactive for a continuous period of 13 months will be required to be transferred to the ATO to help accommodate this measure.
Insurance in superannuation
Insurance within superannuation will move from a default framework to be offered on an opt-in basis for members:
- With balances of less than $6,000
- Under the age of 25; and
- Whose accounts have not received a contribution in 13 months and are inactive.
This measure does not apply to defined benefit members or ADF (Australian Defence Force) Super members.
Relaxing residency requirements for SMSFs and Small APRA Funds (SAFs)
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years, and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.