SMSF Alert: February 2013

February saw much conjecture on the possibility of superannuation tax increases and further restrictions. While the Coalition made a commitment there would be 'no more negative unexpected changes', Prime Minister Gillard informed the House of Representatives that the Federal Government ‘will never remove tax-free superannuation payments for the over-60s’.

What do these statements mean exactly? Why not just say ‘over 60s will never be taxed on their super’? Only time will tell. But for now it seems to have put at rest the idea that those over 60 with million dollar super balances might be up for some extra tax.

Aside from political speculation, February was a quiet month. Let’s take a look at the key developments.

Paying to be regulated

At the time of the Mid-Year Economic Outlook, the Government announced a hike in the supervisory levy payable by SMSFs. Legislation has now been introduced to give effect to the levy increases.

From 2013/14 the levy will jump to $259 (from $191). Not only is it going up, it will also be brought forward. Currently you pay the levy when you lodge your tax return but, over the next two years, a fixed due date will be introduced.

One more complication for SMSF trustees to worry about.

Action point: If you are considering setting up a low-cost SMSF (for instance, through E-Superfund), you need to budget on the ATO levy becoming a larger part of the cost equation.

Tribunal decision: Dowling versus Commissioner of Taxation

On 1 February 2013, the Administrative Appeals Tribunal (AAT) handed down its decision in ‘bring forward rule’.

The first contribution was made with advice from Centrelink and a financial advisor and the second was made after reading media reports on a ‘re-contribution strategy’.

The AAT found that ‘special circumstances’ existed in relation to the first contribution but not the second (the second was essentially a mistake). However, as the second contribution alone wasn’t enough to trigger excess contributions tax, the Tax Office penalty was set aside.

The tax imposed (as is often the case) was significant, so the outcome was good for the taxpayer. But it was a very lucky escape given the high bar that has been set in other cases for demonstrating 'special circumstances'.

Comments from the AAT suggested that they might have found differently if the taxpayer was more sophisticated, or simply an employee who was in a position to know a bit more about superannuation.

Action point: The lesson from this case is to obtain advice unless you are sure of the implications of a course of action, especially if seeking to follow strategies being pitched in media articles. This whole case may have been avoided if the taxpayer checked in with an advisor, lawyer or accountant before making the second contribution.

Other recent developments

Members may also have an interest in the following:

1. Dec 2012 Quarterly superannuation performance. APRA released this publication, which found that total superannuation assets increased by 14.6% to $1.51 trillion over the 12 months to Dec 2012. It also found that SMSFs held the largest proportion (31.5%).
    
2. Dec 2012 Self-managed super fund statistical report . The ATO released its Dec 2012 statistical report highlighting key SMSF statistics, including asset allocations.
    
3. Ownership of assets by self-managed super funds. The ATO released a document setting out the documentation requirements for assets owned by a SMSF.
    
4. ATO compliance update. The ATO released a speech by Alison Lendon, Deputy Commissioner of Superannuation to the SPAA SMSF national conference. In particular, the speech contains some interesting discussion on the future data and e-commerce standards that will apply to SMSF trustees.
    
5. Intimate with self-managed superannuation.The SMSF Professionals Association of Australia (SPAA) and Russell Investments released their annual study of SMSFs.

Note:  Jointly authored by Richard Livingston and Ruth Stringer.