Need to know

Stuart Sheary, Senior Technical Manager

Outlined below is all the latest news you 'need to know'.

IssueWhat it meansWhat do you need to be thinking about?
Australian Taxation Office

COVID-19 Early release of super - integrity and compliance

Australian Taxation Office warning on COVID-19 early release

The Australian Taxation Office (ATO) has warned they are reviewing applications for the COVID-19 early super release to ensure the integrity of the program. To do this the ATO may use data from sources, including:

  • Single Touch Payroll (STP)
  • income tax returns
  • information reported to the ATO by super funds
  • third party data from agencies including:
    • Services Australia
    • Home Affairs.

Behaviours attracting the ATO’s attention include:

  • artificially arranging affairs to meet the eligibility criteria
  • withdrawing and recontributing super to claim a tax deduction
  • contributing an amount of super to claim a deduction and then withdrawing that amount.

Clients should keep records demonstrating that they have satisfied the criteria to be able to access early super release under COVID-19 compassionate grounds. Clients should not use the amounts for recontribution purposes.

When clients access a super lump sum under COVID-19 and recontribute the amount to super as a personal deductible contribution the ATO may review the client’s eligibility to draw the lump sum and may apply Part IVA.

This can result in a cancellation of any tax benefit obtained and apply administrative penalties and interest charges. The withdrawal itself may be assessable at marginal rates under section 304.10 of the Income Tax Assessment Act 1997.

New Legislation

Superannuation Legislation Amendment (2020 Measure No 1) Regulations 2020

Increase in the superannuation work test age and acceptance of spouse contribution age from 1 July 2020

On Friday 29 May 2020, the Superannuation Legislation Amendment (2020 Measures No 1) Regulations 2020 were registered, giving effect to super contribution rules announced as part of the 2019 Federal Budget.

Specifically, the regulations adjust the requirements for a super fund to accept contributions by:

  • allowing member contributions to be accepted regardless of working status up to age 67
  • extending spouse contributions to age 75, in line with member contributions.

These changes apply to contributions made from 1 July 2020.

Legislation to extend the bring-forward period to those under age 67 from 1 July 2020 is still outstanding and is outlined later in this table.

This provides additional opportunities for people over age 65 but under 67 to make contributions to super if they cannot meet the work test or use the work test exemption.

These changes apply to contributions made from 1 July 2020.

Treasury Laws Amendment (2019 Measures No. 3) Bill 2019

FASEA exam extension and more

Existing advisers now have until 1 January 2022 to pass the FASEA Exam and until 1 January 2026 to meet the Education requirements.

FASEA exam extension and more

FASEA exam preparation guidance can be found here. For more information see FASEA’s media release.

 

Testamentary Trusts

Under the change, concessional tax treatment to minors will be limited to income on assets transferred into a testamentary trust from a deceased estate or proceeds of the disposal or investment of those assets.

Testamentary Trusts

This should not impact most testamentary trusts. The measure aims to stop schemes where additional capital unrelated to the deceased is injected into the testamentary trust. This change is expected to impact assets acquired by, or transferred to a testamentary trust on, or after, 1 July 2019.

 

Death benefit rollovers and untaxed element

The new legislation ensures any untaxed element created on the rollover of a death benefit, that was partly funded with insurance premiums for which a deduction was claimed, is excluded from being taxed by the receiving fund.

Death benefit rollovers and untaxed element

The amendments are retrospective and commence on 1 July 2017, which means clients who rolled over an affected death benefit should not be disadvantaged. Please note, this does not stop the untaxed element being created in the first instance. Affected clients should contact their super fund if their rollover has been taxed in these situations.

 

Downsizer contributions to super

The legislation makes three changes to ensure the provisions relating to downsizer contributions operate as intended. Specifically, amendments will:

  • allow an individual’s spouse to make a downsizer contribution when the home was acquired prior to 20 September 1985
  • ensure the maximum amount of downsizer contributions an individual can make are only reduced by their spouse’s downsizer contributions if their spouse’s contributions were made in respect of the disposal of interests in the same property
  • ensure the market value substitution rule in section 116-30 of the Income Tax AssessmentAct 1997 (which applies generally in working out an amount of capital proceeds) cannot increase the amount of the capital proceeds from the disposal of their ownership interests in a dwelling.

Downsizer contributions to super

The first two mentioned changes are effective from 1 July 2018, meaning affected clients who may not have known they were ineligible and made a downsizer contribution will not be penalised. Individuals impacted by this change will need to discuss their circumstances with the ATO.

The third change applies on the disposal of an ownership interest in a dwelling if the exchange contract is entered into on, or after, the day the amendments receive Royal Assent - which was on 22 June 2020.

 

Capped defined benefit income streams

The new legislation provides a new method of calculating the debit value arising on an individual’s transfer balance account when a member commutes a market-linked pension which is a capped defined benefit income stream.

The amendments will be applied retrospectively from 1 July 2017.

For more information please also see the supporting explanatory memorandum

Capped defined benefit income streams

The ATO is reviewing its compliance approach where they had previously advised funds that they would not, at that time, take compliance action if a fund did not report the required transfer balance account events of the commutation and re-start a market-linked pension, or reported a commutation amount other than nil.

Funds will need to review their reporting to the ATO and consider whether they need to amend any reporting in line with the legislation.

Treasury Laws Amendment (2020 Measures No.3) Bill 2020

Instant asset write-off thresholds for small businesses extended until 31 December 2020

The new legislation extends the instant asset write-off for small businesses until 31 December 2020 (previously 30 June 2020).

Small businesses with aggregated annual turnover of less than $500 million may be eligible for an increased instant asset write-off on assets of up to the value of $150,000 (previously $30,000) from 12 March 2020 until 31 December 2020.

Certain assets are excluded, for example, horticultural plants and capital works deductions. There are limits to deductions for certain cars. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets. Clients should confirm their entitlement to the tax deduction with their tax agent.

Employer SG obligations and JobKeeper Payment

Salary or wages that do not relate to the performance of work and are only paid to an employee to satisfy the wage condition for getting JobKeeper payment do not attract Superannuation Guarantee.

Employers are still required to pay superannuation guarantee in respect of amounts that are required to be paid to an employee for the performance of work.

There may be situations when clients with enough income may benefit by making personal deductible contributions to super.

See the explanatory statement for more information.

Bills to be debated in Parliament

Treasury Laws Amendment (More Flexible Superannuation) Bill 2020

The Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 proposes to increase the age at which people can access the non-concessional bring-forward rules from age 64 to 66.

Under current legislation, only clients who were age 64 at the start of the financial year are eligible to access the bring-forward rule. For example, clients also need to have a total super balance of less than $1.4 million as at 30 June 2020 to access the full $300,000 bring-forward amount.

It is important to note that this Bill has not yet passed through Parliament. While this legislation may be passed in the new financial year and be made retrospectively effective from 1 July 2020, financial advisers can only act on the proposal when it’s legislated.


As Parliament does not sit again until 4 August 2020 the uncertainty may continue for some time.

From the Department of Social Security (DSS)

New Centrelink rates and thresholds released

New Centrelink rates and thresholds

Many Centrelink rates and thresholds will be indexed on 1 July 2020.

It will be necessary to apply these new benefit and payment rates when estimating Centrelink entitlements.

Clients who were previously not entitled to a benefit and were marginally above the upper income and/or asset test threshold may now be entitled to a small benefit.

New aged care rates, thresholds and subsidies have been released.

Many aged care fees, charges, subsidies and supplements will be indexed on 1 July 2020.

For further information, see the links below:

Updated schedule of fees and charges for residential and home care

Updated aged care subsidies and supplements

Client fees relating to residential aged care and home care may change from 1 July 2020.

The maximum permissible interest rate used in calculating interest on any outstanding payment will decrease from 4.98% to 4.10% per year for residents entering care between 1 July 2020 and 30 September 2020.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.