Many people have an impression that the super laws haven’t changed much in the past 12 months or so. If only this were true! A word of warning: the super laws, and associated tax, Centrelink and other laws, are changing all the time in one way or another.
So, to make sure your self managed super-fund (SMSF) doesn’t fall foul of the law and that you’re taking full advantage of the changes, here’s a checklist of some of the key things you should know:
Super gearing laws: without question, the biggest super law change made during the 2011 financial year involved super gearing (or ‘limited recourse borrowing arrangements’ as they’re now officially known). The law allows you to borrow money to buy an asset for your fund, such as a commercial property. However, the loan can only be used to buy a single asset or a bundle of like assets, such as shares in a single company. There are also conditions relating to how you can improve or repair an asset. The new rules apply to all such transactions made since 6 July 2010. I’ll tell you more about borrowing to buy property in the next edition of the Switzer Super Report.
NSW stamp duty exemption: the previous NSW government introduced a stamp duty exemption that can be used if you’re transferring dutiable property, such as land, into your super fund. There are some fairly tight rules about when this can be used, so you should seek advice before making such transfers. The exemption applies for transfers made since early July 2010. Other similar exemptions apply in other jurisdictions.
Trauma insurance: the Tax Office confirmed that it’s possible for a super fund to own trauma insurance. However, it’s essential to make sure the policy is owned by the super fund, covers the life of one of the fund members and doesn’t have a nominated beneficiary. This ensures that any claim proceeds are paid into your SMSF.
Terminal medical insurance: super funds can now have insurance that pays a benefit for a fund member who’s terminally ill. The same tax concessions that attach to super fund death benefits also potentially apply to these types of benefits.
Enduring powers of attorney: the ATO issued a ruling that details how and when an enduring power of attorney could be used in an SMSF. This is important for those moving overseas for an extended period of time or for older super fund members who are beginning to feel a little overwhelmed with making decisions. Such arrangements need to be written into your trust deed and the chosen representative must sign the ATO’s trustee declaration.
Acquiring assets from related parties: this is generally prohibited. However, assets can now be transferred between super funds in the case of a formal divorce of a married couple or separation of a defacto couple.
Minimum pension amounts: the government has continued to allow account-based pensions to choose to pay a reduced pension because of the ongoing effects of the global financial crisis. You can find a table of allowed reductions in my previous column on Tax changes that affect your SMSF [2].
TPD insurance: the ATO has made some changes that could affect your tax deductions. I wrote about this in detail in New rules mean it’s time to check your insurance [3].
Personal super tax deductions: it has become set in stone that SMSF members and their funds need to exchange paperwork before a personal super contribution can be claimed as a tax deduction.
Tax deductibility of capital protected products: capital protected products (also called capital protected borrowings) are investments that are not fully exposed to market movements. They include instalment warrants and limited recourse borrowing. From 13 May 2010, the allowed tax deduction for interest costs for capital protected borrowings is the standard variable home loan rate plus 100 basis points. There is a transitional rule for transactions entered into before that date.
And this was a relatively quiet year for super law changes. Make no mistake, you need to keep your eye on the ball!
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.