Article Super

FPA Congress Paper

I can’t be bothered carrying hundreds of copies of my paper for tomorrow’s presentation at the annual FPA Congress up to Brisbane…

So attached is the paper for delegates (and anyone else with an internet connection) to download.

Enjoy (But you have to be at the session to listen to my not very funny jokes…)

FPA November tax presentation


Using super for tax planning is getting dangerous…

The super system has a legislated sole purpose, and it is not there fpr the purpose of minimising tax or achieving business succession or …

It is just to provide retirement income.

And everytime you think about using a super fund, with all its tax benefits, for anything other than providing for retirement be aware that the Commissioner is looking.

Example 1: ATOID 2015/10

Two brothers run a business. So what happens if one passes away? The spouse of the deceased brother will inherit half the business but she wants nothing to do with the business. She will want to sell it to the still living brother but where will he find the money to buy it?

In this ATOID the brothers solution was to require (in a contract between the brothers) the SMSFs of each brother to hold life insurance equal to their half share of the business. If a brother was to die, the spouse would get the life insurance payout and, again under the contract, the spouse had to give the 50% interest in the business to the living brother.

Why buy the insurance in the SMSF? You can pay for the insurance premiums out of amounts that have been less taxed.

What is the sole purpose of the SMSF buying this insurance in super? The member will never get to use the payout as they are dead and while his spouse will get the insurance payout she has to give up an asset equal to the same value when she gets it.

So it is not for anyones retirement. Rather, it is all for the benefit of the living brother as it effectively funds him buying the other 50% of the business. And so the trustee of the SMSF has now breached section 62 (sole purpose test) and paragraph 65(1)(b) (assisting a member or their associates).

Now remember all this is in a contract so it was obvious why the trustee purchased the life insurance – obvious it had nothing to do with retirement.

Taxpayer Alert 2015/1

Yes it is only a Taxpayer Alert so we wait for a final ruling but…

What do you do if you have lots of profits and franking credits in a private company and shareholders head to 60? Transfer the shares to the SMSF, wait till it is in pension phase and then pay a big franked dividend to the SMSF. The SMSF gets all the franking creits refunded.

The Commissioner states that that he might apply the dividend streaming rules in Subdivision 204D, 177E and 177EA as the purpose is to stream the franking credits to a tax preferred entity. These provisions will deny the SMSF access to the franking credits.


I have seen these set ups more than once. I have heard people at conferences sell both theae ideas.

And I have thought about if anyone has thought about the sole purpose of a super.

Planning Idea Super


Do you have clients who want their money now? “I wont live long enough to get my super!” They want the whole 100% in their hand, not just 91.53% ($91.53 + (9.25% of $91.53) = $100)…

Well maybe you can legally help them…

In ATO interpretative decision ATOID 2015/9 the Commissioner considers whether there are SG obligations when the personal services income rules apply. He asks whether attributed personal services income is ordinary time earnings (as is required before SG obligations apply).

The answer he comes to is, if the attributed income is not actually paid to the individual service provider in the year of income it is attributed to the taxpayer, then there are no SG obligations. As it is not “paid” he says it can’t be ordinary time earnings.

So if you really wanted to keep the 9.25% out of super, set up a personal services entity, get your personal service income paid into the entity, and don’t take it out in the year you earn it… 

You will be taxed on it at your individual rates as the income in the entity will be attributed to the individual and included in the individual’s tax return (rather than the 15% rate that the super fund pays… Maybe everyone earning less than $37,000 should do this once the low income super contributions ends on 30 June 2017????).

In the subsequent years, when it is paid to the individual out of the entity it will be exempt income (86-35 of the ITAA97).

But it does seem like a lot of effort to avoid some of your salary going into a low taxed super fund.

Super Tax Policy

Tax announcement everywhere…

I hope Chris Bowen is Prime Minister one day. Yes big call but he is measured and thoughtful and never ever in a rush.

And he has now released a super tax policy. It is a good start…

For those who will scream “wont we have thousands of more people on the pension if we increase tax on super?” The percentage of people over retirement age receiving the pension is the same as it was in 1992 when super was introduced so end of arguement

Labor will add 15% tax on earnings from super accounts in pension phase where the earnings are above $75,000 a year. They chose this number as to get $75,000 you need to have about $1.5 million in assests in super.

Wayne Swan announced this before but, like mist of his announcements, never got any legislation ready.

There will be transistions for Capital Gains. If it is like the Swanny rules the Capital Gain in any new assets will be covered by the 15% and the tax will apply to all Capital Gains that occur after a date in ten years time.

This is still amazingly concessional, as is you have two retirees and their super fund in pension phase earns $200k a year, each retiree gets $100k each and has to pay $4,500 tax each (15% of $30,000). But it is a start… And I doubt anyone will change the tax planning advice they give to high wealth individuals.

The second change is another no brainer. The Division 293 tax is the extra 15% tax that high income earners (greater than $300,000 a year) pay on their super fund contributions. This tax means those who earn under $300,000 pay 15% on concessional contributions and those above pay 30%.

When this came in people whinged and complained and then realised that a 30% tax rate is 19% lower than a 49% tax rates. So no one changed their advice to their high wealth clients.

So what will Labor change regarding Division 293 tax? The $300,000 threshold goes to $250,000. Yawn… But a good start.

(I should mention they will also remove the 10% tax offset for defined benefit income above $75,000).
A good start. And to call it anything else is kidding yourself. We have a public finance structural deficit if $40 billion a year and this will raise $1.4 billion. But politics wins again.
And of course Mr Populist, Bill Shorten destroys the good start by ruling out any other changes to superannuation if Labor wins the next election. 

This demonstrates how Labor will responsibly manage the budget and the economy without stifling economic growth or cutting billions of dollars from pensions, health and education.

I hope he knows where he is going to find the other $38 billion a year (i am kidding myself) without touching any of these. 
Remember, he wont increases taxes in his first term unless he takes the tax change to next years election.

“If Tony Abbott wants to increase taxes – be it petrol, be it GST – he should take it to an election,”…

So Bill will make only minir changes to revenue and wont change any of the big expenses…
Chris Bowen for PM!!!
FBT Income Tax Super Tax Policy

Tax Impediments Facing Small Business…

The Board of Tax report on Tax Impediments Facing Small Business has been made public. This report, and the Government’s response make some interesting reading.

What do you think about:

  1. “Based on an analysis of business population data, the Board recommends that the small business entity turnover threshold be increased to at least $3 million and investigate the feasibility of an increase to $5 million.” The Government says they will think about it…
  2. “The Board recommends an increase to the ‘minor and infrequent’ threshold from $300 to, at least, $500. This is arguably a reasonable level that keeps the threshold current.” The Government says they will think about it…
  3. “The Board also recommends that there be an investigation of the possibility of aligning the FBT year to the income tax year.” The Government says they will think about it…
  4. “The Board recommends that the superannuation guarantee charge be calculated on the basis of OTE rather than salary and wages to align it with the way that superannuation contributions are calculated. While OTE is a more complex definition it would mean no change to employers’ current calculations. The Government supports this recommendation and has agreed to implement this proposal from 1 July 2016 as part of the package of reforms to be implemented to reduce small business superannuation compliance costs.
  5. The Board recommends that the calculation of the SG Charge components be redesigned by legislation. And the Government will do this as well.
  6. Decision tools from the ATO on PSI, employee vs contractor and whether you will be carrying on an enterprise.

So there are a few good measures but the report does the standard cop out of saying more reviews are need into the Small Business CGT Concessions and the way entities are taxed differently (especially trusts). Still waiting for the Board of Tax review on unpaid present entitlements to companies and Division 7A


Making super for employers “a little bit” easier

Nothing is for free – except the Small Business Superannuation Clearing House. So have you thought about whether you or your clients should be using this system?

The Small Business Superannuation Clearing House is a free online super payment service run by the ATO for small businesses with 19 or fewer employees. It allows businesses to make one secure electronic transaction and the clearing house distributes the super contributions to employees’ nominated super funds.

There are some cool little youTube clips showing how it works, and it looks pretty good.

Even better is that the Government has announced they want to make this service available to more businesses. From 1 July 2015, rather than having to have 19 or fewer employees, an employer will only need to have an annual turnover below the small business entity turnover threshold, which is currently $2 million.

And did I say it was free…


End of Limited Recourse Borrowing Arrangements? And a whole lot more!

I do hope so…

In the final report of the Financial System Inquiry undertaken by David Murray, the main recommendation that applies to Self Managed Super is to remove the exception to borrowing for limited recourse borrowing arrangements. I have seen this done wrong so many times and the ATO states that a large percentage of private rulings requests that are receiving for these arrangements have related party components that make the income non arms length income. So lets kill the idea before thousands of SMSFs find that they are non complying due to less than diligent advisors…

SIDE NOTE: If you are considering these arrangements… consider fast. Early next year the government will respond to these recommendations and I would expect them to remove this opportunity…

But the really interesting thing about the report is it has a go at super tax concessions, and then puts the boot into other tax concession… just before the start of a white paper tax review. Coincidence?

Here are some of the other recommendations in the review…

  • Enshrine in legislation the objectives of the superannuation system. If the aim is to keep people off the aged pension then the super system is a total failure. The percentage of aged people who will be on the aged pension has not changed from 1992 and all the modelling says it won’t change. The $30 billion a year in concessions DOES NOT save $30 billon in aged pension costs, no where near it! So if this is the aim of the super system and it is written in the law it will be pretty easy to remove it…
  • Introduce a formal competitive process to allocate new default fund members to MySuper products. This would mean the cheapest fee default fund gets all new My Super members for a period. The Unions are about to scream…
  • Provide all employees with the ability to choose the fund into which their Superannuation Guarantee contributions are paid. Isn’t this the case now? No! Our friendly Unionist, is an EBA, can lock their member and those working in that area who are not members into their some fund and the employee cannot get out! More screaming!
  • Require trustees to pre-select a comprehensive income product for members’ retirement. We all know that if we get our super at 60 and the pension starts (will start for most of us) at 70 we blow our super in ten years and then let the taxpayers fund the rest of our lives. This idea is to discourage lump sums over annuity products. Don’t worry it does not apply to SMSFs;

Here are some of the “observation” that are aimed straight at the tax review…

  • Aligning the earnings tax rate across the accumulation and retirement phases.
  • Options to better target superannuation tax concessions to the objectives of the superannuation system. In other words, get rid of most of the concession.
  • Lowering the non-concessional contribution cap or having a cap on funds held in super and requiring members to take amounts out of super above these caps.
  • Reduce the CGT discount to limit the benefit of negatively geared properties (Some journalist AGAIN are banging on about negative gearing when it is not the deductions that are the problem but the capital concessions).
  • Remove imputation – After you show me how you unscramble an egg. Get over it as it is not going to happen!
  • Make financial supplies taxable supplies for GST. This might work as it will be argued this is “picking on the evil banks”. But don’t worry, someone will say “unfair” and the media will forget to look at the real policy discussion and report what the latest polly said on twitter about it.

Sounds like a great start for a tax review when there is a $40 billion structural deficit and a crazy Senate…

Legislation Planning Idea Super

The End of Excess Contributions Tax Mark 2

In the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 we finally get the final rules that will allow the refund of excess non-concessional contributions. We have discussed this change when it was released as draft legislation. But the final legislation is different from the draft legislation in the following ways:

There is no longer a requirement an amount withdrawn from a superannuation fund must be from the member’s tax-free component. Therefore, a release authority payment will always reduce the taxable component of a superannuation interest in accumulation phase.

The time limit for a superannuation fund to pay a release amount to the member has been increased from 7 days to  21 days.

The fund will only release 85% of the earnings they calculate. However, 100% of the earnings will be taxed in the taxpayer’s amended tax return, but the taxpayer will get a 15% offset for the earnings tax the fund will pay.

These are three great changes…


“Buy our properties in an SMSF”

Very interesting… In a Media Release, ASIC has announced that it has commenced proceedings to prevent a property investment promoter from promoting the use of Self Managed Super Funds to purchase investment properties.

ASIC claims to have evidence of where this entity has given advice to set up an SMSF to hold the rental property to over 500 people… AND THEY DON’T HAVE AN AUSTRALIAN FINANCIAL SERVICES LICENCE…

So to all the real estate agents out their telling people to buy the rental property in an SMSF…

It is worth noting that in almost all these cases the first investment property acquired by the newly formed SMSF was owned or promoted by the entity that gave them the advice to set up the SMSF. DODGY

Rulings Super

Super paid for the dead… Required by law???

What do you do regarding super payments if an employee dies? In ATO Interpretative Decision ATO ID 2014/31 the Commissioner considers whether you have SG obligations on salary and wages paid to an employee after they died. In this case the payment was made as the employer owed the employee salary for the last fortnight they had worked before they had died.

An employer’s SG shortfall for an employee for a quarter is based on the total salary or wages paid by the employer to the employee for the quarter. So can a dead person be an employee?

Section 15B of the SGAA says that former employees as employees. So a deceased employee will be a former employee and therefore an employee under the SGAA.

The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 specifically stated that a deceased employee is a former employee at paragraph 1.39 when discussing the deductibility of super payments.

So there you have it. Super paid for the dead required by law.