Amendments made by Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015
On 19 March 2015 Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015 received royal assent. Read on for a summary of the superannuation related amendments.
Excess non-concessional contributions
The amendments allow a choice for individuals to release from superannuation an amount equal to their superannuation contributions in excess of their non-concessional contributions cap plus 85% of an associated earnings amount, with the full earnings amount included in the individual's assessable income and taxed at the individual's marginal tax rate.
Only 85% of the associated earnings amount may be released, as the superannuation provider may already have included the earnings on investments made with the excess contributions in the provider's assessable income and been taxed on those earnings (at a rate of up to 15%).
The individual will be entitled to a non-refundable tax-offset equal to 15% of the associated earnings amount.
Excess non-concessional contributions tax will not be imposed on excess contributions to the extent that they are released from superannuation, or where the value of an individual's remaining superannuation interests is nil. Excess non-concessional contributions tax will be imposed on excess non-concessional contributions that remain in a superannuation plan.
The amendments apply to non-concessional contributions from 2013-14.
Extending the capital gains tax (CGT) exemption for certain compensation payments and insurance policies
A capital gain or capital loss you make in relation to a policy of insurance for an individual's illness or injury is disregarded if you are the trustee of a complying superannuation entity for the income year in which the CGT event happened.
The CGT primary code rule applies to capital gains and capital losses that are disregarded by complying superannuation entities arising from life, injury and illness insurance policies and annuity instruments. This ensures that they are not subject to treatment on revenue account.
A CGT exemption is also available in respect of compensation or damages received by:
- a trustee (other than a trustee of a complying superannuation entity) for a wrong or injury a beneficiary suffers in their occupation, or a wrong, injury or illness a beneficiary or their relative suffers personally
- a beneficiary that subsequently receives a distribution that is attributable to such compensation or damages from the trustee
- a taxpayer (other than a trustee of a complying superannuation entity) for a policy of insurance on the life of an individual or an annuity instrument if the taxpayer is the original owner of the policy or instrument.
The law now supports the Commissioner's long standing administrative practice of extending this CGT exemption to capital gains and capital losses that resulted where a payment of compensation for wrong, injury or illness was paid to a trustee on behalf of an individual.
Insurance
From 1 July 2014, a trustee is prohibited from providing insured benefits that are not consistent with the conditions of release in the Superannuation Industry (Supervision) Regulations 1994 (SISR) for death, terminal medical condition, permanent incapacity and temporary incapacity. The prohibition does not apply to the continued provision of insured benefits to members who joined the fund before 1 July 2014 and were covered in respect of that insured benefit before 1 July 2014, or to the provision of benefits under an approval that has been granted. This may require certain amendments to be made to the fund rules or the rules may be taken to be amended. See Regulation 4.07D of the SISR.
From 1 July 2013, a regulated superannuation fund that did not self-insure on 1 July 2013 is no longer able to self-insure. If on 1 July 2013 the fund does self-insure in relation to a particular risk, the fund may no longer self-insure in relation to that risk on and after 1 July 2016. This provides a three year transitional period for funds to move from self-insurance to external insurance arrangements. This may require certain amendments to be made to the fund rules or the rules may be taken to be amended. See Regulation 4.07E of the SISR.
SMSF bank account and electronic service address details
Question 7 Electronic funds transfer (EFT) in Section A has changed. It now:
- allows SMSFs to provide different bank accounts for tax refunds and super payments (such as super co-contributions or unclaimed super money rollovers)
- collects the electronic service addresses of SMSFs; see SMSFs – the SuperStream standard for contributions for more information.
Changes in tax rates for SMSFs
From 1 July 2014:
- a 2% temporary budget repair levy applies
- the Medicare levy increased by 0.5%.
As a result, the following tax rates for SMSFs have changed.
Rate of tax on: |
in 2013–14 |
in 2014–15 |
|---|---|---|
No-TFN-quoted contributions of a complying SMSF |
31.5% additional tax |
34% additional tax |
No-TFN-quoted contributions of a non-complying SMSF |
1.5% additional tax |
2% additional tax |
Net non-arm's-length income of a complying SMSF |
45% |
47% |
Taxable income of a non-complying SMSFs |
45% |
47% |
The tax rate that applies to arm's-length income of complying SMSFs remains unchanged at 15%.
Dividend washing
The dividend washing integrity rule (Tax and Superannuation Laws Amendment (2014 Measures No. 2) Act 2014) prevents taxpayers from obtaining franking credits if the taxpayer has engaged in dividend washing. Broadly, dividend washing is a form of scheme by which a taxpayer claims multiple franking credits for a single economic interest by selling the interest after an entitlement to a franked distribution has accrued and then immediately purchasing an equivalent interest with a further entitlement to a corresponding franked distribution.
Find out about:
Conservation tillage refundable tax offset repeal
SMSFs cannot claim a conservation tillage refundable tax offset in 2014–15. The conservation tillage refundable tax offset was repealed by the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 which received royal assent on 17 July 2014.