Death benefits more than a journal entry
ATO ID 2015/2 and ATO ID 2015/3
When paying death benefits from an SMSF, the ATO has made it clear a physical transaction is required. In two recent interpretative decisions (ID), the ATO stated a journal entry would not meet the requirements of paying a death benefit under either the Income Tax Assessment Act or Superannuation Industry (Supervision) Act.
Converting foreign transactions
ATO ID 2015/7
If a client rolls foreign super benefits into an Australian superannuation fund (including an SMSF) more than six months after becoming an Australian resident, a tax liability arises on the earnings component. This component relates to earnings derived since becoming an Australian resident.
Unless the client elects for tax to be deducted within the fund, the earnings will be taxed at the client’s marginal rate of tax under section 305-75 of the Income Tax Assessment Act 1997 (ITAA 1997). In this circumstance the earnings need to be converted into Australian dollars.
This ID verified the correct rule for converting foreign currency into Australian dollars is the rule described in item 11A of the table in subsection 96-50(6) of the ITAA 97. That is, the conversion applies the exchange rate applicable when the superannuation lump sum is received.
2015/16 super thresholds
Super rates and thresholds for the next financial year have been released. The main changes for 2015/16 are:
- no indexation to concessional or non-concessional contribution caps,
- the capital gains tax cap amount will increase to $1.395 million,
- the low-rate cap for super lump sums will increase to $195,000,
- the super guarantee remains at 9.5 per cent and the maximum super contribution base will increase to $50,810 per quarter,
- the tax-free amounts for genuine redundancy will increase to $9780 plus $4891 for each complete year of service, and
- the co-contribution thresholds increase to $35,454 (for full co-contribution) and $50,454 (cut-off).
Excess non-concessional contribution laws passed
Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill
A new regime for excess non-concessional contributions now applies, with changes finally passed as law.
Clients now have the choice to withdraw any excess non-concessional contributions that have been contributed on or after 1 July 2013 to avoid the application of excess contributions tax. If withdrawn, 85 per cent of the ‘associated earnings’ must also be withdrawn and this amount is included in the client’s assessable income and taxed at marginal tax rates.
Warning on death benefit planning
Ioppolo & Hesford v Conti [2013] WASC389 (24 October 2013)
Members of SMSFs should give careful consideration as to who is likely to take on their role as trustee upon death, particularly where a split/blended family is involved.
This recent decision of the Supreme Court of Western Australia highlighted the power an SMSF trustee has in making decisions to pay a superannuation death benefit if a valid binding death benefit nomination (BDBN) does not exist.
In this case, the deceased member had children from a former marriage. Her BDBN had lapsed and her will directed all super benefits be paid to her children and not her husband. However, the lapsing of her nomination meant the trustee retained full discretion to determine how to pay death benefits.
The husband was also a member of the SMSF. He decided to appoint a corporate trustee (100 per cent controlled by him) and the new trustee decided to pay the full death benefit to the husband.
The court held that while section 17A allows an executor to be appointed as a co-trustee, it was not mandatory that the appointment be made as it depends on the terms of the SMSF trust deed. It was therefore found the remaining member of the fund had the legitimate ability to appoint the corporate trustee.
Accordingly, this new trustee was within its rights to pay all of the death benefits to the husband as the deed specifically gave this power to the trustee in the absence of a BDBN.
Be SuperStream ready
Small employers (less than 20 employees) need to comply with SuperStream requirements from 1 July 2015. All contributions will need to be received electronically as cheques cannot be received.
Before this date, SMSF trustees need to obtain an electronic service address (ESA). This can be obtained from the SMSF administrator, tax agent, accountant or bank. Alternatively, the trustee can choose to engage an SMSF message provider. A list is available at ato.gov.au/superstream.
Employees need to provide their employer with the SMSF’s ABN, bank account and ESA so electronic contributions can be made.
