Tax with Max: Additional super tax

Additional super tax and contributions splitting, reversionary pensions, and more.

Summary: This article provides answers on additional super tax and contributions splitting, SMSFs and reversionary pensions, super contributions from 60 to age 75, SMSF property and state stamp duties, pension payment frequency, and granny flats and capital gains tax.
Key take-out: .The Tax Office will issue an amended assessment to those liable to pay additional superannuation tax. This can either be paid by an individual or a super fund.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

The additional super tax and contributions splitting.

My wife and I operate a SMSF and I have been splitting 85% of my previous years’ taxable contributions with her. I am also a high income earner and will be impacted by the additional 15% contributions tax for last financial year’s contributions. Will the additional 15% be levied against me personally, or against the fund?

How does the ATO intend to match the data? I assume they will have to wait until both my own and the fund’s returns are submitted and then issue an additional assessment. If personally liable, will I still be able to split up to 85% of taxable contributions with my wife? If the fund is liable, am I only able to split up to 70% of contributions?

The way the new Division 293 tax system will work is as follows: The name of the tax has come from the section of the Tax Act that has introduced this increase on super contributions for the so-called wealthy.

After the superannuation fund or funds that the individual has contributions made to have lodged the relevant tax return, an assessment will be issued depending on their adjusted taxable income. Under the Div. 293, tax on an individual’s taxable income is increased to take account of reportable fringe benefits and losses made on negatively geared assets.

Where an individual’s concessional contribution exceeds the $300,000 limit they will receive an amended income tax assessment for the Div. 293 tax. In addition to receiving the amended assessment, the ATO will also issue an invitation to request a withdrawal from their super fund to pay the tax. This is the same system that applies when a person receives an amended assessment if the concessional contribution limits have been breached.

An individual can choose to pay the income tax assessment themselves, or they can return the superannuation withdrawal form within the prescribed time limit. If they choose to have the money come from their superannuation fund this will be paid to the ATO, and depending on the amount of superannuation transferred by the fund there may be no further tax payable by the individual.

The interesting thing is, despite the introduction of the Div. 293 tax there has been no change made to the maximum amount of superannuation that can be split with a spouse. This has resulted in a situation where an individual can request a payout from their super fund of all of the Div. 293 tax and still request that 85% of a contribution be split with their spouse.

SMSFs and reversionary pensions.

My wife and I are trustees of my pension-paying SMSF and I am the sole member. There is currently a binding death benefit in her favour. I want to put in place a strategy whereby, on my death, there is a seamless transition to my wife of the fund with a continuation of the pension. What actions do I need to carry out?

To ensure that there is a seamless transition of the pension to your wife upon your death you need to convert this pension to a reversionary pension. The ATO has recently issued an advice that states that this can be done without the necessity of ceasing your current pension and starting a new one.

You will, however, need to consider who will become a second trustee of the fund once you have died as the fund could not continue with just your wife as the sole trustee. You should also consider forming a company to take over as trustee of your SMSF so that in the event of your death the fund can continue without anything needing to be done.

Super contributions from 60, up to age 75.

I am a member of an SMSF and turn 75 years of age during the current tax year. I note the contribution I can make this year is $35,000 and this will be made prior to my birthday. Do the new rules, which permit the increased contribution to the “over 60s”, include all ages over 60 or does the old cap of 75 years still apply?

The increased contribution applying to someone who is 60 or older for the 2014 financial year applies to anyone up to the age of 75. Once a person turns 75 no further contributions can be made, unless they are compulsory employer contributions. Super funds can receive super contributions on behalf of a member once they have turned 75, up to 28 days following the month that they had their 75th birthday.

SMSF property and state stamp duty legislation.

We are currently changing from having two members as the trustees to a corporate trustee. Our fund owns commercial properties in most states. While there is a nominal stamp duty to transfer the properties to the new corporate trustee, the paperwork required is time consuming and each state has different rules and methods.

All this could be avoided if a property could be titled in the name of a SMSF and not the members of the fund. We started on this process three months ago and are still waiting for all the states to make the transfers and issue the new name change title. What is happening with our bureaucracy? Why can’t a property be titled in a SMSF or family trust’s corporate trustee’s name.

This is one of the areas where Australia is very similar to the US. Unfortunately our Commonwealth government has come from all of the colonies/states agreeing to become a federation. The states wanted to make sure they retained their powers, so they retained control of various matters at the time of federation.

Unfortunately, one of the areas still under the control of each state is the registration of property titles and also the taxation of property. As a result, we have a dog’s breakfast of different regulations and systems applying to property including different rates of stamp duty and land tax. Given the power that the states retained at the time of federation, I do not like anyone’s chance of trying to introduce a more efficient system that applies to all of Australia.

How often can pension payments be made?

You always mention that it is a good practice to have pension payments made regularly. Can these payments be made bimonthly apart from monthly, quarterly, half-yearly and yearly?

There is nothing in the superannuation regulations and laws that would stop you receiving a pension from your SMSF either bimonthly, fortnightly, or even weekly. You should, however, check your SMSF deed to make sure that this level of flexibility is allowed under its rules.

Granny flats and capital gains tax.

If I build a granny flat in the backyard of my principal residence and rent it out, will there be a capital gains tax when my principal residence is sold in the future?

If you build a granny flat in your backyard and rent it out the whole of your property can no longer be considered as being your principal place of residence. This will mean a portion of the property will be liable for capital gains tax when it is sold. If you go ahead with this plan you should seek professional advice to make sure that any future capital gain will be minimised.

Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

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