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  • 29 March 2017

    Meeting held on Wednesday 29 March 2017.

    The information provided below is a summary of topics discussed at the meeting.

    Superannuation measures that received Royal Assent on 29 November 2016

    Concessional and non-concessional contributions caps from 1 July 2017

    There was discussion with members of some of the key elements relating to these measures, including:

    • That the concessional contributions cap reduces to $25,000 per annum for individuals with a total super balance (TSB) under $500,000, a carry-forward will be available over a rolling five year period. Unused concessional contributions from 1 July 2018 can be used to increase the basic contributions cap from the 2019-20 financial year.
    • The non-concessional contributions cap reduces to $100,000 per annum and is controlled by the individual's TSB. A TSB over $1.6M, will reduce the cap to zero. Individuals aged under 65 can access a two or three year bring forward cap where their TSB is less than $1.5M or $1.4M, respectively. Non-concessional contributions made above their cap will be in excess. There will be a proactive push-out of correspondence to people reaching a TSB of $1.6 million and to people who triggered a bring forward arrangement by exceeding their concessional contributions in the 2014–15 year.
    • The ‘streamlining’ measures will align with the election process to release amounts under each of the measures (Division 293, non-concessional contributions caps, concessional contributions caps, etc). All elections, regardless of the type, will be required to be returned to the ATO within 60 days, and the ATO will send the release authority to the relevant fund allowing them 10 business days to comply. All released amounts will come back to the ATO and the ATO will offset any liabilities and return the remaining amount to the individual. Other measures include allowing individuals to claim a deduction on personal super contributions and, for individuals contributing on behalf of a spouse, the spouse income threshold has increased to $40,000.
    • When checking that trustees have met their obligations to value fund assets at market value, Auditors will need to be mindful of where a member is reaching a particular threshold, eg $1.6 M TSB.

    Transfer Balance Cap (TBC)

    The TBC, from 1 July 2017, imposes a limit on the amount of a member’s super balance from which an income stream can be paid. The TBC will be $1.6 million from 1 July 2017, and it is subject to indexation in line with the CPI, but only when the increment amount reaches $100,000. The TBC is counted once, at a point in time when an income stream starts. A calculator and guidance, including a formula, in calculating notional earnings will be provided on the ATO website.

    Reporting requirements are still being worked out (eg starting, stopping, commuting) and, in the interim, it should be within a reasonable period. This is important because commutation authorities will be delivered, and the ATO needs the relevant details.

    Auditors may not be aware of a commutation authority but, as part of due diligence, they could ask trustees if they had received one. Checking if there has been a commutation authority and if so, whether it has been complied with, is relevant to assessing whether Exempt Current Pension Income (ECPI) has been correctly claimed. A superannuation income stream stops being in the retirement phase when a commutation authority is not complied with.

    The ATO valuation guidelines remain in place and still apply for TBC purposes. Trustees should be able to justify the value of assets and the ATO would be looking for a reasonable explanation of the basis of the valuation. SMSF auditors should look for this and qualify auditor reports as needed.

    Transition to retirement income streams (TRIS)

    • From 1 July 2017, earnings from assets supporting a TRIS will cease to be tax free and will instead be taxed at 15%. This change is effected in law by the introduction of the concept of ‘retirement phase’. Only an income stream in the retirement phase will be eligible for the earnings tax exemption (ECPI). A TRIS is specifically noted as not being an income stream in the retirement phase and does not get the earnings tax exemption.
    • The ATO's interpretation of the definition of TRIS is that once something starts as a TRIS, it remains a TRIS unless it ceases – it does not auto-convert into a different income stream. As it is recognised this interpretation may cause issues for some funds, a law change is being progressed with Treasury.
    • Anti-detriment provisions have been removed for members who die after 30 June 2017. Transitional measures may apply for members who died before this date.
    • Innovative retirement scheme products for which ECPI will apply include deferred life annuities and group self-annuity type products. SMSFs cannot offer these new products themselves, but could obtain one if it is wholly underwritten by a life insurance company. Draft SIS regulations are out for consultation.

    Other business

    Whilst the principles outlined in the ATO valuation guidelines remain in place, the document will be reviewed and updated to ensure it makes appropriate references to the new measures.

    ASIC has discretion to register an individual who does not meet certain eligibility requirements as an SMSF auditor, however, this only applies in very exceptional circumstances and has only been used once. Most who cannot meet the prescribed academic qualifications or experience apply under the equivalent qualifications and experience provisions (eg overseas qualifications) which is used fairly regularly.

      Last modified: 22 Nov 2018QC 55831