New changes to Superannuation in summary for SMSF Trustees

Firstly nothing to scary but some stings in the tail.    Tax Reform

Mr Swan and Superannuation Minister Bill Shorten fronted announced a tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent from 01/07/2014.

Based on a 5% earnings rate that would only impact on those with super assets of more than $2 million. Remember this is per account so for a couple each of them could have $2,000,000 without paying tax on their pension

The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.

Special Treatment for Capital gains on Assets purchased before 01/07/2014 ( Did not proceed)

-  For existing assets (such as property or shares) that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

-  For new assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and

-  For new assets that are purchased after 1 July 2014, the new limits will apply to the entire capital gain.

Higher concessional cap for people aged 60 and over brought forward

Accordingly, the government will bring forward the start date for the new higher concessional cap of $35,000  to July 1 for people aged 60 and over. Concessional includes employer SGC (9-12%) and Salary Sacrifice.

Individuals aged 50 and over will be able to access the higher concessional cap of $35,000 from the current planned start date of 1 July 2014.

The general concessional cap is expected to reach $35,000 from 1 July 2018 for those under 50.

Excess contributions tax to be reformed

Mr Shorten said the government will reform the system of excess contributions tax (ECT) that was introduced by the former government in 2007, to make it fairer and give individuals greater choice.

Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent.

Now you will pay tax on the excess contribution to match what you would have paid at your marginal tax rate. for example if you are on the 37% tax bracket you would pay ECT at 22% rather than 30% if you had to pay it on the top marginal rate of 45% (plus Medicare).

Income Streams will be Deemed like non-superannuation assets

Under the change announced today, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.

Instead of the concessional treatment of Account Based Pensions currently for those accessing an Aged Pension, they will be deemed like normal assets. This will affect those on the borderline of $55K income for a single person and $80K for a couple who previously benefited from deductible amounts on their account based or allocated pensions.

Extending concessional tax treatment to deferred lifetime annuities

The Government will encourage the take-up of deferred lifetime annuities (DLAs), by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.

Mr Swan also announced the Gillard government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

Here is the link to the full press release “A fairer superannuation system”

As always please contact me if you want to look at your own particular situation and we will break it down in plain English for you. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AdvDipFS

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook 

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153


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Liam Shorte is a partner in NextGen Wealth Solutions, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

Can I borrow to buy a house and land package off the plan in my SMSF?

I have had a number of enquiries about this strategy in the last few weeks and I felt it was worth clarifying some details.

Off the Plan

Off the Plan

As with any strategy where you commit to a large future purchase in a moving market and also take a risk on the developer performing to contract, buying off the plan can be risky.  Especially because of the way these contracts shift the risk away from the developer.  With a Self Managed Super Fund purchase with a mortgage this can be even more of an issue if the proposed lender’s final valuation comes in lower than the contracted price which is more common recently. You may then be forced to come up with the shortfall in your SMSF which may be more difficult if you have exhausted your contribution limits.

Here are the basic essentials to getting this type of strategy right:

  • The “property purchase” should be subject to one contract which must be for the completed house and land. Do not purchase land and then look for an SMSF loan to construct a property on it. You will be too late to use the land as security.
  • It is often better to have the SMSF pay the deposit and only have the lending arranged as part of the settlement. In my opinion the Holding Trust should still be in place with the Custodian/Holding Trustee on the title of the contract from the outset.
  • Ensure that the bank/ lender’s only security is only over that land and completed house/unit;
  • The only payments made in respect to the purchase are for the deposit and settlement with no “progress payments”. You may breach the “single acquirable asset” rule which is a big no-no!.
  • Be prepared to move quickly at the time of settlement. LRBA loans do not go through lender’s quickly and you should have as much of the documentation prepared in advance and ready to go as is possible. Drum this into your Mortgage Broker and Solicitor.
  • Do not borrow to the limit of your SMSF. Make sure you have some liquidity to manage low valuations or the demand for a lower LVR from the lender. Alternatively have the capacity and ability to add funds to your SMSF without breaching a contribution cap.

Now there are some who feel that more than 2 payments are possible and that the law is silent on the matter but my philosophy is to KEEP IT SIMPLE! Why makes things difficult for yourself especially when there are developers out there redesigning their contracts to meet the basic 2 payment strategy.

For those looking for more detail I would recommend reading the  issues addressed by the ATO their Taxpayer Alert TA 2012/7 and in the minutes of discussion at the NTLG Super Technical sub-group (December 2012) (if you can find a copy as the ATO took down the page) with specific reference to  example 10 within SMSFR 2012/1.

My final tip is to use a SMSF Specialist Advisor who has dealt with SMSF property borrowing and look for references from client’s they successfully guided through the process. Use a conveyancer or solicitor with experience in the intricacies of these strategies. Use a Mortgage broker that knows how to place these specialised loans and is thinking ahead at all times. Oh and READ YOUR TRUST DEED!

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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