THE unfortunate truth about Australian politics is that both big parties tend to look after their supporters with the most influence, sometimes to the detriment of others. For the Liberals, big business gets preferential treatment, while the Labor Party supports the unions.
The recent super changes are examples of small-business owners and the self-employed being disadvantaged and ignored to the benefit of union members. Increasing the super guarantee charge from 9 to 12 per cent, without requiring this to be taken into account in wage case decisions, will lift operating costs for small businesses.
The self-employed are again being treated like second-class citizens with the age limit placed on contributions. Initially the limit will be lifted from 70 to 75 for compulsory contributions and then removed.
Q Does the removal of the 75 years age limit for contributions only apply to employer super guarantee contributions, or will the age limit also be increased/removed for those who are self-employed and meet the work test of 40 hours in 30 consecutive days? I am planning to sell a property and make a concessional contribution into my super before I turn 75 in June. I would prefer to sell the property in September. I expect to be able to meet the work test in September and could put the proceeds into super if the age limit is increased or removed.
A Unfortunately changes to age limits will only apply to compulsory contributions. This means as you turn 75 in the 2012 year you will not be able to make super contributions after July 1. If you sell closer to your birthday, and settle after June 30, you could consider borrowing the funds to make your contributions this financial year.
Q My husband and I are both in our 70s and the sole trustees of our SMSF. Neither of us has nominated reversionary beneficiaries, but would like to nominate each other. However, we have been advised that our Trust Deed does not allow for reversionary pensions and it must be "upgraded", with a hefty fee applicable for the "upgrade". Is this right?
A The trust deed of an SMSF, in addition to the applicable superannuation and taxation legislation, dictates what the trustees and members can do. The problem could be that your deed was drawn up without a reversionary pension considered and needs to be amended to at least include this.
If your fund was set up many years ago the trust deed should be updated anyway due to changes made to superannuation regulations over the past 10 years. You should be able to update your deed for about $350.
You should also consider getting advice on what will happen with your fund when one of you dies. Your options are to appoint a company now to take over as trustee, find another person to join the fund as a member/trustee now or when one of you dies, or wind up the fund with the surviving member's benefits rolled over to another fund or paid out. Changing trustees will result in having to change the owner shown on the investments.
Questions can be emailed to super@taxbiz.com.au
Frequently Asked Questions about this Article…
What were the recent super changes mentioned in the article and who stands to gain or lose?
The article says recent changes include raising the Super Guarantee from 9% to 12% and adjustments to age limits for contributions. It argues these changes benefit organised groups (such as union members) while small-business owners and the self-employed may be disadvantaged by higher operating costs and limits on making contributions.
How will increasing the Super Guarantee from 9% to 12% affect small business costs and wages?
Raising the Super Guarantee to 12% will lift operating costs for small businesses. The article notes the increase won’t be required to be taken into account in wage case decisions, so businesses could face higher super costs without corresponding adjustments in wage awards.
Does the removal of the age limit for super contributions apply to self-employed people who meet the 40‑hour work test?
No. The article explains that changes to age limits will apply only to compulsory (employer) contributions. Self-employed people who rely on the 40‑hour-in-30-days work test remain subject to the age limit, so once you reach the cutoff (for example turning 75 in the 2012 year) you won’t be able to make contributions after July 1 of that year.
I plan to sell a property and contribute the proceeds to super before turning 75—what timing issues should I consider?
Timing matters. If settlement occurs after June 30 and you reach the age limit in that financial year, you may not be able to make the contribution. The article suggests if settlement will be after June 30 you could consider borrowing the funds to make the concessional contribution in the current financial year so it counts before your birthday cuts off eligibility.
My spouse and I are sole trustees of our SMSF in our 70s and want to nominate each other as reversionary beneficiaries—what if our trust deed doesn’t allow it?
The trust deed governs whether your SMSF can have reversionary pensions. If the deed was drafted without reversionary pensions in mind, it may need amending. The article says older deeds should be updated to reflect recent regulatory changes and to allow reversionary nominations.
What are the practical SMSF options for older couples to manage succession and trustee arrangements?
Options include appointing a company to take over as trustee, adding another person as a member/trustee now or when one member dies, or winding up the fund with the surviving member’s benefits rolled to another fund or paid out. The article also notes that changing trustees will require changing the owner shown on the fund’s investments.
How much does it typically cost to update an SMSF trust deed to allow reversionary pensions?
According to the article, updating an older SMSF trust deed to include provisions such as reversionary pensions should be possible for around $350.
Who can I contact if I have more questions about these superannuation changes or SMSF issues?
The article provides an email contact for further questions: super@taxbiz.com.au.
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