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As in recent years, there were numerous changes to superannuation during 2019.

Some have been enacted, some announced and not yet law, and others are things to keep an eye out for.

This update will tell you what’s important and likely to impact on SMSF and your clients during 2020.

Enacted Changes

Do you have clients with excess contribution issues?

SUPER GUARANTEE OPT OUT

This is an important change for your clients who have excess concessional contribution issues.

The change affects people that have multiple employers and exceed the concessional contribution cap due to super guarantee (SG) contributions that exceed $25,000 which result in excess contribution issues.

People affected can now voluntary opt out of employer contributions if they have an excess by applying to the ATO for an employer shortfall exemption certificate. The certificate releases one or more of their employers from their SG obligations for up to four quarters in one financial year.

Important items to note:

• A person must be paid SG from at least one employer
• A person can apply to the ATO for an employer shortfall exemption certificate at least 60 days before the first quarter for which the certificate is sought
• Once issued, the certificate is irrevocable
• The $25,000 contribution must be exclusively SG contributions, not salary sacrifice
• The certificate is not binding on an employer so people are encouraged to speak with their employers before applying for the certificate.

NON ARMS-LENGTH INCOME (NALI)

From 1 July 2018 income will be taxed as NALI if:

• It exceeds amount expected from an arm’s length dealing; or
• In gaining or producing it, the entity incurs a loss, outgoing or expenditure that is less than the amount expected from an arm’s length dealing.
• Whether NALI rules apply depends on the capacity in which the trustees undertake those activities
• The rules also apply to general expenses

Accountants and Advisers or other industry professionals are directly caught and should take measures now to ensure their SMSFs are being charged for professional services at a fair rate.

TOTAL SUPER BALANCE (TSB)

For FY19 and beyond, a person must include the loan amount of any Limited Recourse Loan Borrowing Arrangement (LRBA) in their total superannuation balance calculation.

This calculation applies if:

• The fund is an SMSF
• The LRBA arose under contracts entered into on or after 1 July 2018
• The fund’s LRBA asset supports the member’s super interest in the fund
• The member has satisfied a full Condition of release
• It is a related party loan

It is the trustee’s responsibility to report the LRBA amount as part of the annual return.

Changes announced but not yet law

Budget changes announced in 2019 were intended to bring more flexibility around superannuation for older Australians. These include:

• The Work test
• Extension of bring-forward arrangements
• Increased age limit for spouse contributions

WORK TEST

From 1 July 2020, individuals aged 65 and 66 will be allowed voluntary contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without the need to meet the work test.

This means that people in this age bracket can also utilise bring-forward rule.

At present, draft legislation is before parliament and expected to pass without consultation, however given it has not yet been made law, planning out contributions for Advisers and Accountants cannot be done properly. With ample sitting days between now and 30 June we can only hope it is dealt with sooner rather than later.

ECPI CLAIM

From 1 July 2020, super fund trustees with interests in both the accumulation and retirement phases during an income year, will be allowed to choose their preferred method of calculating ECPI. Trustees can decide either whether to apply current law approach or revert back to old industry approach where you claim all the income for the year.

From1  July 2020, the Government will also remove a redundant requirement for super funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members o fthe fund are fully in the retirement phase for all of the income year.

DOWNSIZER CONTRIBUTIONS – APPLIES FROM 1 JULY 2018

This has passed through the House of Reps on 12/2/20 but not yet made law.

DEATH BENEFIT ROLLOVERS

Ensures any untaxed element as result of a rollover, is not required to be included in the assessable income of the new fund.

Other proposed changes to super

SELF-MANAGED SUPER FUND TO BECOME SELF MANAGED SUPER FUND

Yes. It’s official! The Treasury Laws Amendment (Miscellaneous Amendments) Regulation 2019 is proposing that the hyphen be removed to reflect modern day conventions.

CHANGES TO DIRECTORS OF COMPANIES

There is a new bill introduced to parliament that impacts on setting up companies known as the new Director Identification Number (DIN) regime.

Important items to note:

• Before establishing a company you will need to apply for a unique identifier for each person who consents to being a Director of the company
• All Directors will need to confirm their identity
• You must apply for a DIN prior to appointment as a Director
• Will take effect 2 years after the Bill receives Royal Assent

There should be sufficient time between now and when this takes effect to sort out your operational processes to handle the DIN application.

6 MEMBER FUND

6 Member funds remain Government policy and will be progressed in line with other legislative priorities

3 YEARLY AUDITS

This measure and the outcomes of the consultation are currently being considered.

Things to keep an eye on in 2020

INCREASED AUDIT SCRUTINY

In 2019 the ATO did an audit of the top 100 Auditors in the SMSF sector. 23 auditors failed to obtain sufficient evidence to verify the fund’s compliance status.

As a result of this audit, it’s anticipated SMSF Auditors are going to be more diligent than ever in their request for information to support their fund audit.

ATO’S INVESTMENT DIVERSIFICATION REVIEW

SMSF Auditors are going to be required to ask the question – Does the fund have a compliant investment strategy? If not, Auditors will need to notify the trustees in the management letter, or lodge an ACR if trustees have previously been advised.

TRANSFER BALANCE CAP

Keep an eye on the Transfer Balance Cap. It’s meant to be indexed in line with CPI, and at this stage Industry Experts are saying it’s not looking likely we’ll see an increase for FY2021.

Summary

The many ongoing changes to super is a key reason we recommend SMSF trust deeds are regularly updated. To discuss any aspect of this article in more detail please contact Olivia Long or Karen Dezdjek.