Superannuation changes

• The Government will pause the indexation of the superannuation concessional contributions caps for one year in 2013-14.
• In response to industry feedback, the Assistant Treasurer said the Government would undertake further consultation on compliance cost issues raised by industry in relation to the higher concessional contributions cap for those aged 50 and over.
• The Government will streamline the low income superannuation contribution (LISC) so that individuals automatically benefit from it without being burdened with extra paperwork. Rather than requiring eligible workers to fill out a tax return or other type of form, the ATO will verify an individual’s income using available data.
  • Individuals who receive less than 10% of their income through employment or business will not be eligible.
  • Individuals will only receive a payment if their LISC entitlement is at least $20, to reduce administration costs.
• The Government will reduce the matching rate and maximum payment of the voluntary superannuation co-contribution from 1 July 2012, when the new LISC commences. [No details were given of these reductions.]
• The Government will extend to the 2012-13 year the current drawdown relief for minimum payment amounts for account-based, allocated and market linked pensions. [This means the minimum drawdown for these pensions will be 75% of the required amount for the 2011-12 and 2012-13 years ie a 25% reduction in the minimum drawdown amounts.] Regulations giving effect to this change will be made before the new financial year.

Source: Treasurer’s press release Nos 148 and 149; Assistant Treasurer’s press release Nos 160 and 162, 29 November 2011

Yesterday, directors were given a temporary reprieve from the potential of personal liability to meet employees’ superannuation obligations but it is only temporary.

Bill Shorten the assistant treasurer said the measure would be re-introduced in early 2012 following more consultation with stakeholders.

So, for the time being, it remains that Director Penalty Notices relate only to unpaid PAYG – but change is likely in 2012.

People planning their retirement finances now have two new tools to help them make informed decisions. Financial Decisions at Retirement clearly explains the financial choices available to people at retirement and the pros and cons of each retirement income option.

The guide covers:

• when you can access your super
• how much money you’ll need in retirement
• how you can use your super when moving to part-time work
• the benefits and drawbacks of withdrawing super as a lump sum or income stream
• how low-tax retirement income streams work, and
• risky or more complex investment strategies to think twice about.

To accompany the new guide, ASIC also launched an upgraded MoneySmart Retirement Planner, an online calculator that shows people how to boost their retirement savings in simple, sensible ways.

ASIC Chairman, Greg Medcraft said, ‘The MoneySmart Retirement Planner provides people with an estimate of how much they are likely to have in every year of retirement and even calculates the best way to make extra super contributions. It also generates a personalised printout for people to give to their employer to increase their super contributions.

‘Financial Decisions at Retirement will help people decide what to do with their retirement nest egg. It has been extensively user-tested to ensure it meets the needs of people on the verge of retirement. Trial users said the guide explained a complex subject in simple terms. They liked the case studies, explanations of different super income options and unbiased, simple facts. They also said they wanted to be better informed about retirement income choices,’ said Mr Medcraft.

Financial Decisions at Retirement should be used to complement professional financial advice.

View, download or order copies of Financial Decisions at Retirement (new window)

To use the Retirement Planner, also visit www.moneysmart.gov.au (new window)

The amendments are proposed to commence on 1 July 2013 (dependent on the passing of the Minerals Resource Rent Tax package).

• increase the small business instant asset write-off threshold from $1000 to $6500, and consolidate the long-life small business pool and the general small business pool into a single pool to be written off at one rate of 30 per cent
• allow small business entities (annual turnover less than $2 million) to claim an accelerated initial deduction for motor vehicles acquired in the 2012–13 and subsequent income years. Purchase of a motor vehicle costing $6500 or more from the 2012–13 year will be able to be immediately written off up to $5000
• amend the Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 to provide for a maximum $500 low-income superannuation contribution
• repeal the 25 per cent entrepreneurs’ tax offset

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, recently released draft Regulations that extend the audit period when the audit report cannot be provided on time due to certain circumstances beyond the auditor’s control.

“The proposed changes will ensure SMSF auditors are not penalised unfairly when external factors cause delays in the completion of the audit report,” Mr Shorten said.

Currently, SMSF auditors are required to provide SMSF trustees with their audit report no later than the day before the SMSF trustees are required to lodge their annual return. They can be penalised for not providing the audit report within this period, regardless of the
reasons for the delay.

The draft Regulations create certainty for SMSF auditors by extending the period when SMSF trustees do not appoint the auditor on time or do not provide them with information needed to complete the audit.

“The draft Regulations respond to concerns raised by the accounting profession and provide fairer outcomes for SMSF auditors,” Minister Shorten said.

Date of effect: The regulations commence on 9 August 2011.

Please note that “Proceeds of crime legislation” is far far wider than you probably think. In some states assets acquired decades before any crime was  or owned jointly with uninvolved persons can be confiscated. See this ABC radio nation law report program for a disturbing discussion of this

The Carbon Pricing Mechanism (CPM) is a mechanism by which businesses pay a charge for each tonne of carbon pollution they emit each year.  The following industries will be covered by the CPM:

• Stationary energy
• Industrial processes
• Fugitive emissions (but excluding those from decommissioned coal mines); and
• Emissions from non-legacy waste (waste deposited after the scheme starts)

Affected businesses will pay the charge by purchasing a carbon unit (permit) for each tonne of carbon pollution emitted and surrender these to the government either yearly, or half-yearly if they emit greater than 35,000 tonnes.

The CPM will be divided into two stages.  From 1 July 2012, there will be a fixed price stage, whereby businesses will pay a fixed charge per tonne of carbon emissions.

From 1 July 2015, the mechanism will shift to effectively change to a market based system, whereby carbon units are tradable on an emissions market and the price of a carbon unit is “floating”. The floating system is called a ‘cap and trade’ emissions trading scheme, and a minimum floor and maximum ceiling will be set for the price of a carbon unit.

How does the first (fixed) stage of the CPM work?

The first stage starts on 1 July 2012 and ends on 30 June 2015.  During the first stage of the CPM, affected businesses will be charged a fixed price per tonne of carbon emissions.  The initial price will be $23 per tonne of carbon, increasing by 2.5% in real terms per year, over the next two years. As such, the fixed price for a carbon unit has been set at:

The fixed carbon price will be imposed by the Clean Energy Regulator
issuing carbon units (ie permits to emit a tonne of carbon pollution)
for a fixed charge to affected businesses. These carbon units issued
during the fixed stage will have a “vintage” year allocated to each
unit, which prevents the banking of carbon units to later periods.

What emissions are caught by the CPM?

The CPM will cover 4 of the 6 Kyoto greenhouse gases. These have been identified as:

1. carbon dioxide
2. methane
3. nitrous oxide
4. perfluorocarbon

These are also covered by the introduction of the National Green
Energy Reporting Act 2007, which was effective from 1 July 2008.

Will I be subject to the Carbon Price Mechanism?

The government has continually announced that only the “top 500
Australian polluters” will be liable for a price on carbon under the
CPM.  If you are not one of these, then you will not need to pay a
charge for carbon under the CPM.

I am not one of the top 500 polluters.  How will my business be impacted?

Although the scheme will only require approximately 500 of the
country’s biggest emitters to purchase and surrender carbon units for
their greenhouse gas emissions, many other businesses are likely to be
impacted in several ways.

Most businesses are likely to experience the indirect effects of
increased prices on many production inputs and general business
expenses, as suppliers subject to the CPM are likely to pass on their
carbon price burden to their customers, in the form of increased prices.

In conjunction with the scheme, there will also be changes to the
Fuel Tax Credit system. The effect of these changes is to reduce the
Fuel Tax Credit available and apply an “effective carbon price” on the
use of certain fuels.  As these changes are not confined to the same top
500 polluters, they will directly impact many more Australian
businesses from various industries that are currently eligible for fuel
tax credits. This is explained further below.

The degree to which any particular business experiences increases in
its cost structure will depend on a number of factors, in particular,
the amount of energy it expends in its operations, its exposure to
transportation costs and the proportion of its domestic inputs and
production compared to its imports.

Is it a tax?

Although the CPM has a similar effect to levying a tax on carbon
emissions during its initial fixed stage, it is not technically a tax.

Each carbon unit is a separate asset issued by the Clean Energy
Regulator and paid for by emitters.  A carbon unit is considered to be
an item of personal property and as such it is not a tax.

During the second stage of the CPM, these units are able to be traded on the market with other businesses.

The cost of acquiring the carbon units will be deductible to
business; however the timing of the deduction will be similar to trading
stock in that the amount of the deduction will be limited to the
proportion of the carbon units surrendered/traded.

Taxpayers will be assessable on revenue account on amounts they are
entitled to receive on ceasing to hold a unit.  Free carbon units
granted to certain emissions intensive industries which are not required
to be surrendered can be sold back to the Regulator or traded, at which
time that income will be assessable.

Thanks to Grant Thornton for this summary

The draft ruling confirms that the ATO believes that a:

superannuation income stream ceases as soon as the member in receipt of the superannuation income stream dies, unless a dependent beneficiary of the deceased is automatically entitled under the superannuation fund’s deed, or the rules of the superannuation income stream, to receive an income stream on the death of the member.

THe consequences of this is that any fund investment sold at at profit to fund the payment of death benefits to the member’s benficiaries with be taxable capital gains for the fund.

This ruling will not comes as a surprise as many commentators have reached the same interpretation of the law.

One way to avoid or mininise this additional tax sting on death is for the trustees to try to avoid building up large unrealised capital gains. Where the fund invests in listed investments such as shares, the trustees could regularly sell growing shares and repurchase them at the same price. This would realise the capital gain while the fund is still tax exempt.

Feedback
on the system from large funds has been very positive, with the new
system reducing rollover processing times and removing the need to
request further documentation from members to verify SMSF membership
(for example, certified copies of SMSF trust deeds). The new system also
provides confidence that a rollover request to an SMSF is legitimateThis
new service has obvious benefits for SMSF trustees wishing to roll over
into their SMSF from large funds.

However, SMSF trustees who have not
kept up to date with their administrative obligations (for example,
informing the ATO of any changes to their SMSF membership) may find that they
will not be able to roll over to their SMSF.

SMSF
trustees are required under the super regulations to inform us of any
changes to their SMSF within 28 days of the change. This includes
changes to:

• the name of the SMSF or corporate trustee
• addresses (including postal, registered and addresses for the serving of notices)
• trustees, directors and membership.

Where a large super fund does not have a successful member match for a
rollover request, they will direct their member to contact the ATO.