Three important super issues you need to know about

SMSF technical expert and columnist for The Australian newspaper
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As we head into a new year, it’s a good idea to take stock of what has been happening in the super world over the past few months, and in particular, the past few weeks.

This week I want to discuss three developments to superannuation that occurred during the Christmas and New Year period and which should not be ignored by SMSF trustees.

Higher income earner’s super tax

This super tax on high-income earners was announced in the budget of 2012 by the then Labor government. However the tax legislation (Division 293) did not receive royal assent until the second half of last year. The Tax Office has now announced that in early February, it will begin issuing assessments for the Higher Income Earners Super Tax for the 2012/13 financial year.

In very simple terms, if you have income of more than $300,000 in 2012/13 then you will pay 30% tax on super contributions made by your employer or any contributions you claim as a tax deduction. (You can get more details on how this new tax works in an article I wrote in May last year here.)

When you get one of these notices, you’ll have a short period of time to work out what you want to do.

You can pay the tax out of non-super fund money. If you select this option, you will have 21 days from the date of the tax notice to pay the tax.

Alternatively, you can ask your super fund to pay the tax for you. For this option, you will need to send to your super fund a formal ATO “release authority”.

The ATO can’t issue these notices until you submit your personal tax return and your super fund has sent contribution information to the ATO. This means that if you haven’t put in your tax return, it might be a while before you see this new ATO document with its demand that you pay a tax liability.

As many of you would be aware, ATO documents can sometimes be a bit difficult to understand. If you disagree with the information on the notice, especially the amount of tax owing, then make sure you follow the detailed information about objecting to the Tax Office’s assessment. Please seek advice if you’re unsure.

Tax deductibility of expenses

Also recently a draft tax ruling on the tax deductibility of expenses paid by your super fund was released. In particular, it deals with how much of an expense can be claimed as a tax deduction, where some of the cost relates to your super pension assets, and the rest of the expense relates to your non-retirement money.

At the moment the ATO expects this ruling to apply from 1 July 2014 and will replace some of the information contained in TR93/17 which we have previously reviewed here.

At this stage I don’t think this ruling will have a huge impact on most SMSFs (some large super funds might face some difficulties). At the moment there’s nothing that needs be done about this draft ruling until it is finalised. I’ll provide full details about these rulings, once they’ve been made official.

Incidentally the ATO says that it intends to release at some stage during 2014, another Tax Ruling on the overriding tax deductibility of super fund expenses. I believe this ruling will have more significance to SMSFs and I will provide more details when it’s published.

Asset segregation

Our final issue involves a draft Tax Determination released in June 2013 about how assets can be segregated between your non-pension and pension parts of your super fund.

Pension assets are segregated if they’re specifically identifiable within your super fund’s financial accounts and records as pension assets. In effect, it means specific assets have been set aside for the purpose of paying pensions.

Most SMSFs use the unsegregated assets approach and don’t need to worry about this draft determination. Funds using the unsegregated assets method need to obtain an actuarial certificate each year to get an exemption from income tax.

Some of the information contained in this determination was reasonably controversial and some quite complex problems were raised with the ATO about its views.

As a result of this feedback the ATO has elected to withdraw the draft document. It has said it will release a revised document about asset segregation and bank accounts.

The bottom-line – funds with segregated accounts can use their current approaches and don’t need to worry about the ATO draft determination that has been rescinded.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report:

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