Monthly Technical Roundup - March 2018

News and legislation

Monday 26 March 2018

Welcome to the March technical roundup. This month the Australian Taxation Office (ATO) issued guidance on the use of reserves by self-managed superannuation funds (SMSFs). This follows earlier comments by the ATO via its Super Scheme Smart website that it was concerned reserves were being used by some funds to circumvent restrictions and limits which may apply as a result of the total superannuation balance and transfer balance cap measures.

Other items of note include the Labor party’s announcement that, if elected to government in 2019, it plans to reform certain aspects of Australia’s dividend imputation system. Superannuation and social security rates and threshold changes were also announced by the relevant Government regulators.

Legislative developments

The following legislative instrument was made during March:

Supporting housing affordability measures

  • Treasury Laws Amendment (Reducing Pressure on Housing Affordability No 1) Regulations 2018 supports the administration of the First Home Super Saver Scheme (FHSSS) and the introduction of downsizer contributions.
  • The Regulations prescribe the amount that the ATO must withhold from assessable payments made to an individual under the FHSSS. The ATO may withhold an amount based on the individual’s expected marginal tax rate for the year less a 30 per cent tax offset. Alternatively, if the ATO is unable to estimate an individual’s marginal tax rate, it is required to withhold 17 per cent of the assessable released amount.
  • The Regulations also amend the superannuation law to ensure that funds are able to accept downsizer contributions made in respect of members who are aged 65 or more.

Regulator views

The ATO issued the following guidance:

Use of reserves by SMSFs

  • SMSFRB 2018/1 outlines the circumstances in which the ATO considers it is appropriate for SMSFs to use reserves. This includes to:
    • hold unallocated contributions
    • enable the fund to pay complying pensions
    • facilitate anti-detriment payments until 1 July 2019
  • The ATO’s view is that it is unnecessary for SMSFs to use reserves:
    • to fund future administration and operational expenses
    • for investment smoothing
    • for Operational Risk Financial Reserve target amounts
    • to back account based pensions
    • for self-insurance purposes
    • to pay insurance premiums and receive insurance proceeds
  • SMSF trustees who are found to be using reserves to circumvent the super reform measures may be in breach of the sole purpose test and be subject to the general anti-avoidance provisions in the tax law.

Policy updates

Reform of the dividend imputation system

  • The Shadow Treasurer, Chris Bowen MP, has announced that the Labor party will reform Australia’s dividend imputation system if elected to government at the next Federal election.
  • The proposed reforms would remove the entitlement of individuals and superannuation funds to receive a refund of excess imputation credits from 1 July 2019, making imputation credits a non-refundable tax offset. This change is not proposed to apply to charities and not-for-profit organisations.

Other news

Superannuation thresholds for 2018/19

  • The ATO has published details of the superannuation-related thresholds that will apply in 2018/19.
  • From 1 July 2018:
    • the low rate cap will increase to $205,000
    • the capital gains tax cap amount and untaxed plan cap will both increase from $1,445,000 to $1,480,000
    • the lower and higher income thresholds for the Government co-contribution will be indexed to $37,697 and $52,697 respectively.
  • The annual concessional and non-concessional contributions caps will remain at $25,000 and $100,000 respectively.

Social security indexation

  • Indexed rates and thresholds for pensions and allowances, effective 20 March 2018, were released by the Department of Social Services.
  • From this time, the maximum Age Pension increased to $907.60 a fortnight for singles and to $1,368.20 a fortnight for couples combined.
  • The income and assets test thresholds that apply for aged care means testing arrangements have also increased due to indexation.

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