Simple super now super complicated

Created on January 16, 2018 10:14 am

It has been 10 years since the Simple Super Reforms were brought in on 1 July 2007. A decade later the “Simplified Superannuation” system has become a labyrinth of legislation.

From 1 July 2017. running a SMSF became more complicated and the new raft of reporting obligations and total superannuation balance calculations has created some new acronyms to drop-in on the next BBQ conversation, including:

  • TBA: transfer balance account – this tracks transaction and amounts in retirement phase and this determines whether you have exceeded your TBC on any day
  • TBC: transfer balance cap – this is a limit on how much of can be held in retirement phase across all of your super accounts including your SMSF; the cap will start at $1.6m
  • TBAR: transfer balance account report – this is the reporting mechanism by which the ATO will track each person’s TBC and TSB
  • TSB: total super balance (across all super accounts) regardless of whether held in an SMSF, retail fund, industry fund, defined benefit fund
  • RTRIS – Retirement Phase Transition to Retirement Income Stream where the tax exemption on earnings remain
  • TRIS – Transition to Retirement Income Stream where the tax exemption on earnings now removed and will be taxed at 15%

 

As such, it is more important than ever to engage with your administrator more regularly rather than on an annual basis to ensure that you advise them of your non-SMSF balances so we can correctly report your fund’s contributions, pensions and other reportable events by the due date.

Here is a summary of the new changes which may require reporting to the ATO from 1 July 2017:

Contributions

  • Notify your employer to reduce salary sacrifice amounts to stay within the $25,000 cap for everyone
  • this is even more important if you are contributing to more than one fund and/or your employer is paying your insurance premiums
  • Personal super deductions of up to $25,000 will be available to everyone
  • the 10% test has been removed
  • documentation must still be completed in writing and lodged on time to ensure you are eligible to claim the deduction
  • Before making Non-Concessional Contributions, you need to check total super balances and not just within your SMSF to ensure:
  • you don’t exceed the $1.6m transfer balance cap as at 30 June 2017 and/or
  • you are within your 2018 contribution caps whilst taking into account your contribution history
  • Repayments of Limited Recourse Borrowing Arrangement (“LRBA”) debt from an accumulation interest is to be treated as a “credit” to the TBA of the member
  • Ensure your employer is correctly reporting your contributions using the correct Electronic Service Address (“ESA”) for your SMSF as part of the SuperStream obligations

Pensions

  • If you have existing Account Based Pension (“ABP”) or Transition to Retirement Pensions (“TRIS”) in excess of $1.6m and you have not made the irrevocable election by 30 June 2017 to commute the excess back to accumulation to or below this limit, penalties may apply
  • Non-retirement TRIS
  • continue to have their 10% maximum withdrawal limit each year
  • investment earnings on assets will now be taxed up to 15%
  • does not count towards the TBA
  • Retirement TRIS
  • continue to have their 10% maximum withdrawal limit each year
  • investment earnings on assets are now tax exempt
  • does count towards the TBA
  • TRIS’ are not automatically converted to ABPs – additional pension documentation is required upon meeting a condition of release
  • Any new pensions that have commenced or existing pensions commuted, on or after 1 July 2017 need to be reported to the ATO under the TBAR event-based reporting requirements
  • SMSFs with total super account balances of less than $1 million can choose to report events which impact its members’ transfer balances at the same time the fund lodges its annual return;
  • SMSFs that have members with total super account balances of $1 million or more, events impacting members’ transfer balances will need to be reported within 28 days after the end of the quarter in which the event occurs

Lump Sum Payments

  • Pension payments can no longer be treated as lump sums for tax purposes to take advantage of the low rate cap threshold
  • Where more than the annual minimum pension is required, members may elect to receive a pension commutation / lump sum payment which may have a more favourable impact on their TBA

Death of a Member

  • Under these new reforms, the death of a member may limit the amount that can be retained in the SMSF, especially if the total balance of the surviving spouse’s balance is greater than $1.6m. As such, the importance of Death Benefit Nominations in combination with Reversionary or Non-Reversionary Pensions needs to be carefully considered.