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Significant Taxation Reforms to Superannuation

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Significant Taxation
Reforms to Superannuation
Shayne Carter, Director, Greenwoods & Freehills
Graham Warren, Tax Consultant,
Greenwoods & Freehills
Michael Vrisakis, Partner, Freehills
• “The beauty is in the detail”
• Le Corbusier
The Detail
• Tax Laws Amendment (Simplified
Superannuation) Bill 2006
• Superannuation (Excess Concessional
Contributions Tax) Bill 2006
• Superannuation (Excess Non-Concessional
Contributions Tax) Bill 2006
• Superannuation (Excess Untaxed Roll-Over
Amounts Tax) Bill 2006
The Detail cont’d
• Superannuation (Departing Australia
Superannuation Payments Tax) Bill 2006
• Superannuation (Self Managed
Superannuation Funds) Supervisory Levy
Amendment Bill 2006
• Superannuation Legislation Amendment
(Simplification) Bill 2007
• Income Tax Amendment Bill 2007
The Detail cont’d
• Income Tax (Former Complying
Superannuation Funds) Amendment Bill
• Income tax (Former Non-Resident
Superannuation Funds) Amendment Bill
• Income Tax Rates Amendment
(Superannuation) Bill 2007
More to come
• Income Tax Regulations
– Defined Benefit; notional taxed
– Superannuation annuity
• Remedial amendments – particularly in
relation to income streams
Order of presentation
Shayne Carter
• Contribution limits
• Income streams
• Termination payments
• Transfer from non-resident funds
Graham Warren
• TFNs
• Notices of deduction
Order of presentation cont’d
Shayne Carter
• Section 279D death benefits
• Recent amendments/consequential changes
Michael Vrisakis
• Associated legal issues
Existing rules
Contributions – Current Rules
• Age based limits
under 35
35 to 49
50 and over
• Limits applied on arm’s length employer basis
New Contribution Rules
• Concessional contribution limits
• Non-concessional contribution limits
Concessional contributions
• Contribution made to complying fund
• Taxable component of a directed termination
• Notional taxed contributions
• Allocations within fund
Non-concessional Contributions
• Non deductible personal contributions
• Excess concessional contributions
Concessional Contributions –
New Rules
From 1 July 2007
• Annual $50,000 contribution per person (15% tax levied
on the fund)
• above $50,000 (15% + 31.5% levied on the individual)
• Excess concessional contributions count towards non
concessional limits
Contributions: Transitional
• A transitional period is available for those 50
and over
Defined Benefits
• Special rules to determine application of
concessional limits to defined benefit funds
• Calculate notional taxed contributions
• Regulations to specify method
Defined Benefits Continued
• Concession available (amounts deemed to
not exceed concessional contributions limit)
– D.B. interest held since 5 September 2006
– Broadly no substantive rule changes
Non-concessional Contributions
• $150,000 annual limit on undeducted
contributions made on or after 1 July
• Up to $450,000 every three years for
people age < 65
• Excessive contributions taxed at 46.5%
Transitional Provisions – Non
Concessional Contributions
• Special rules apply to non concessional
contributions made before 1 July 2007
• Broadly $1,000,000 available between 9 May
2006 and 30 June 2007
• Ambit expanded to include non deductible
employer contributions
Exceeding the cap
• Where have exceeded $1M cap member can apply to
ATO to withdraw (10 May 2006 – 6 December 2006)
Transitional Provisions: Relief
• Transitional release authority mechanism
• Person may make application to
Commissioner before 1/7/07
• Commissioner has no regard to contributions
post 6/12/06
Release Authority
• Person may give transitional release
authority to a super provider that holds a
super interest for the person within 21 days
of receipt of form
• Super provider has 30 days to respond
Excess Payments; Taxation
• Section 304–15 purportedly makes benefits
paid pursuant to a release authority non
assessable non exempt
• May be prudent to have paid after 30 June
Termination Payments
• Directed termination payments
• Most payments upon cessation of
employment cannot be rolled over
• Can transfer directed termination payments
• Relates to 9 May 2006 entitlement to
payments upon cessation of employment
Pensions – Where are we?
• Current rules
• Different types of pension annuities
• common law non ETP annuities
• common law ETP annuities
• SISR (non complying) annuities
• SISR complying annuities
Pensions: Where are we? cont’d
• Common law pensions
• SISR pensions
Pensions: Where are we? cont’d
Pensions/Annuities: Current Rules
Non ETP annuities
• Deductible amount … s.27H
• No rebate
ETP annuities/ pensions from complying funds
• Deductible amount …s.27H
• Rebates
New Rules
What has gone?
• Division 17 rebates
• ETP provisions (except s.27H)
What is new?
• Exemption on super annuities > 60
• Rebate 55 – 60
• Tax free amount
• Transitional rules
Transitional Rules
• Commencement before 1 July 2007
• Deductible amount proxy for tax free amount
• commutation
• death
• 60
Transitional Rules: Tax free
• Commutation
• UUPP + pre 83
• Issues
• Commutation of super annuity
Income Streams
Non ETP:
Rebate x
Deductible пЃђ
Complying (e.g. new account based):
– Exempt >60
– 55–60 rebatable
– Deductible amount/Tax free amount 
ETP Common Law
Deductible amount пЃђ
ETP SISR (Non complying)
Deductible amount пЃђ
Significant Taxation
Reforms to Superannuation
Graham Warren, Tax Consultant,
Greenwoods & Freehills
No TFN tax
• 46.5% tax on �no TFN contributions income’
• Tax on fund: self assess in ITR
• Applies to Div 295-C assessable contribution
if TFN not quoted to fund by year end
• Exception if pre-1 July 2007 account and
contributions equal or less than [$1,000]
• Tax offset to recoup tax if TFN quoted in
succeeding 3 years
– interest if employer failed to pass on TFN
Passing TFN onto fund
• If quote TFN to payer and payer makes
super contribution then payer authorised to
pass TFN onto fund: s.202DHA
• If quote to employer from 1 July 2007 then
employer who makes contribution is required
to pass TFN onto fund: s.229C(1)(a) SIS Act
– Previously additional prerequisite to pass
on is that TFN quoted to employer for
super purposes
Rejection of member
contributions if no TFN
• Fund must not accept member contributions
(ie not employer contributions) if no TFN
– Exception if self employed and give NOD,
structured injury settlement, sm. bus. CGT,
SG, small acct, Govt co-contribution
– Position of excess concessional contrib.
• If fund does accept then must refund within
30 days less: (a) fall in value of product and
(b) administration costs (but not commission)
No TFN tax - issues
• Getting TFNs before 1 July 2007: ATO help
• Recognising contributions to reject
– unallocated contributions
– transfer from foreign fund, change in NOD
– [fund contributions, eg from refund of fee]
• Deducting expected tax from benefits
• TFN provided within following 3 years:
– delay in crediting account until ITR
– if member left fund or fund wound up
Notice of Deduction (s.290-180)
• Give valid notice in approved form before
lodge ITR and before end of following year.
• Can vary downward during this time, or later
if deduction disallowed
• Variation not effective if no longer member of
fund, fund no longer holds contribution or
already begun income stream based on
• Non-conc. contrib. if deduction disallowed
Anti Detriment Deduction
Former s.279D
• Background
• Formulaic approach (EM)
New Provisions
• Application of new concepts to formulaic
• Can we apply formulaic approach?
Transfers from non-resident
Old Rules
• otherwise assessable
• transfer of assessable amount
Transfers from non-resident
New Rules
• otherwise assessable
• transfer of assessable amount
• non concessional contributions
Recent Changes
• Transitional arrangements – substituted
accounting periods
• Tax exempt directed termination payments
• Super Guarantee opt out
Super Simplification
- Legal Issues
Long Live the Compliance Clause!
Michael Vrisakis
Partner, Freehills
• need for information collection in applications
and/or under trust deed
• ascertaining whether employer or personal
(viz no acceptance rule if no TFN)
• ascertaining age of personal members (viz
over $150k if more than 65)
Contributions (cont’d)
• quotation of TFN by employer
• quotation of TFN by members making
personal contributions
Trust Deed
• provisions of trust deed to allow for tax to be
calculated at member level (viz no TFN tax)
• provisions for calculation of tax-free
• consider “stasis” position: do not have
relevant information and place in “holding”
• consider “mistake” position: where wrong
TFN has been provided or status of
contributions is wrong; are contributions void
ab initio? (see below)
• ability to deduct tax from other interests held
by member?
• ability to be indemnified by member or
employer when incorrect tax deducted (viz
taxed payments generally, no TFN
• ability to credit tax offsets obtained (viz TFNs
quoted subsequently or employer does not
pass on TFN)
• use of a tax reserve?
• payments of refunds to former members
(trust deed permits and SIS?)
Information to be given specifically
• no TFN exists
• persons have reached their limit on
concessional or non-concessional
• notification of pre-July 1983 component
• death benefit nominations where not to
• application of choice of law to new
pensions/payments from 1 July
• disclosure of consequences of no TFN being
• no ability to elect the withdrawal of taxable
• is there best interests duty to protect
member from themselves?
Information to be given generally
What to tell new investors:
• section 1013D?
• material reasonable investor would expect to
be informed about?
• what information can be assumed to be
within knowledge of reasonable person?
• what information, if any, can be put on the
• what information can be disclosed, given the
state of legislation?
• when to disclose; on or prior to 1 July 2007?
• what to tell existing investors?
• same information?
• use SPDS?
SIS Changes
• new SIS regulations
• reduction of accrued benefits?
• contribution changes (viz return of
• consequential amendments
• APRA view on rollovers and transfers
• Changes to portability
Consequential changes
• bankruptcy repercussions (with no RBLs)
• benefit design and planning (eg paying death
benefits to dependant/spouse up to pension
• what about binding nominations to this
How best to manage?
• probably via a new improved Compliance
• some existing clauses may do the trick
• others will not
• need to contemplate some new twists and
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