What is SuperStream?
Employers must make contributions in specified electronic format.
SMSFs must be able to receive the contributions in specified electronic format.
If SMSF cannot comply, they will not be able to receive contributions (and employers cannot pay Super).
Who does it apply to?
Effective from 1 July 2014 for all employers with 20+ employees (exception related party employers)
Effective from 1 July 2015 for ALL employers (exception related party employers)
Related Party Employer – SIS Definition (Part 8 Associates).
What do SMSFs need to do?
By 31 May 2014, if employed by an employer with 20+ employees, make sure their employer has the following:
• Bank Details (BSB, Acc No, Bank Name)
• Electronic Service Address
• By 31 May 2015, all employees must provide this information to their employer (except related party)
• Going forward, the Super Choice form will be updated to cover for this for new SMSFs.
SMSF Trustee Penalty Regime
A new Penalty Regime for SMSFs will apply for contraventions that occur on or after 1 July 2014.
Currently, the ATO has following options:
• making SMSF non-compliant for tax purposes (45% tax);
• applying to a court for civil penalties to be imposed;
• accepting an enforceable undertaking in relation to a contravention; and
• disqualifying a trustee of an SMSF.
From 1 July 2014, the ATO will have the
• rectification and education directions for contraventions of the Super Law; and
• an administrative penalty regime for SMSF trustees for certain contraventions of the SIS Act.
1. Penalty is imposed on trustee or director of trustee company.
2. Personally liable – trustee cannot request that the super fund pay the penalty.
3. Penalty imposed on each individual trustee or once to a corporate trustee.
A rectification direction will require a person to undertake specified action to rectify the contravention within a specified
time and provide the Regulator with evidence of the person’s compliance with the direction.
An education direction will require a person to undertake a specified course of education within a specified time frame
and provide the Regulator with evidence of completion of the course.
It is expected that the ATO will use the Auditors’ Contravention Report (and other SMSF auditor correspondence to ATO) to ascertain that the fund has contravened one of the relevant sections.
Excess Contributions Tax –
1. From 1 July 2013, ECT in its original form was repealed in relation to Concessional Contributions (CC’s).
2. ECT for CC’s replaced with system which automatically adds the amount of the Excess CC to the individual’s
assessable income, taxing the individual at their MTR less 15% tax offset.
3. Individual can elect to have 85% of their Excess CC released from their Super (no limit on # of requests).
4. Amount(s) released from Super are classified as NANE in
hands of recipient.
The new playing field seems straight forward, but there are 2 additional charges:
1. Excess CC Charge (non-deductible)
2. Shortfall Interest Charge
Excess Contributions Tax – Nonconcessional
Excess non-concessional contributions are currently taxed at penalty rates – potentially 93%.
The Government has announced that individuals who make excess contributions after 01/07/2013 can simply
withdraw the excess component (& associated earnings).
No excess tax will apply, and the related earnings will be taxed at the individuals marginal tax rate. The
Government has indicated that they will consult with
industry on the finer details of this measure.
Effective from 2012/13 year onwards.
• 15% tax applied to concessional contributions if assessable income is in excess of $300k.
• It applies to contributions made to Defined Benefit Funds, as well.
• Does not apply to excess concessional contributions
Zero Interest SMSF Loans
SMSFs & Zero/Low interest loans under Limited Recourse Borrowing (LRB) from related party. Recent Private Binding
1. Will a Zero/Low interest loan give rise to a deemed contribution?
A contribution is anything of value that increases the capital of the SMSF provided by a person
whose purpose is to benefit one or more members of the SMSF or all the members in general.
A. The Zero/Low interest loans do not give rise to an increase in SMSF Capital,
B. Interest does not need to be charged to have a borrowing,
C. Beware of any situation where the liability for interest is “forgiven” as this may be a contribution,
D. Ensure there is a temporary transfer of money with the expectation of repayment.
2. Will income be taxed under s295-550 (NALI) if Zero/Low interest loan is in place?
Previously, the ATO has said NO.
On this occasion, the ATO said YES.
1. Section 295-550 applies to income, not net income,
2. The rent/capital gain (assuming LRB was for property asset) is no greater as a result of not paying interest,
3. ATO stated (in recent Private Ruling) that the income would not have been earned if not for the low interest loan.
3. Can Part IVA apply?
No - unlikely. In the recent private binding ruling, the ATO noted “There is no indication that the arrangement will result in persons involved in the arrangement obtaining a tax benefit, nor any indication that the sole or dominant purpose of the arragement is to obtain a tax benefit”. Further…”we do not consider that Part IVA applies to the arrangement”.
4. Will a loan at less than arm’s length interest breach 109 of SIS Act?
No. The initial investment or the ongoing investment must be detrimental to the fund. Zero/Low Interest loans are advantageous to the fund, as confirmed in ATOID 2010/162.
It is important to note that each Private Binding Ruling is different, and the ATO determination relates to the facts of
each case specifically.
The circumstances in this instance were a 100% loan to purchase a property, with no interest charged on a related
party loan. In this instance, the ATO took a “holistic” view that it is not a commercial arrangement. If considering zero/low interest SMSF LRB loans in future, consider the implications of s295-550 (NALI).
Other Recent Super Changes
1. Super Guarantee (SG) rose to 9.25% from 1 July 2013.
2. Super Guarantee will rise to 9.5% from 1 July 2014, and will remain at 9.5% until 1 July 2018. This change is essentially a re-phasing of the eventual increase to 12%. 0.5% rises after that until it reaches 12%.
3. SG for all individuals regardless of age from 1 July 2013. Only SG (no voluntary). No longer age 75 restriction.
4. Low Income Super Contribution (LISC) – Government recommended for this to be abolished. Yet to be legislated.
5. If 2 x outstanding SMSF tax returns – removal from ATO SMSF Lookup. No contributions can be made to SMSF.
6. Pension deeming changes from January 2015. Existing pension accounts to be ‘grandfathered’ and will be exempt
7. Additional changes likely to be announced in future when the Finance Industry Review and Taxation White Paper are
finalised. Speculation the preservation age will follow the pension age upwards.