New reporting arrangements for SMSFs from 1 July 2023

Posted on July 13, 2023July 13, 2023 by de Kretser

From 1 July 2023, trustees and directors of SMSFs must report certain events that affect their members transfer balance account quarterly.

These events must be reported by lodging a ‘transfer balance account report’ (TBAR) no later than 28 days after the end of the quarter in which they occur. The purpose of this change is to streamline the reporting process and bring all SMSFs under a single reporting framework. This means there will no longer be an ‘annual reporter’ option.

What is a transfer balance account and a TBAR event?

The introduction of a transfer balance cap (TBC) from July 2017 introduced a limit on how much an individual could transfer from their superannuation accumulation account into a retirement phase pension. In order to track an individual’s use of their TBC, a ‘transfer balance account’ (TBA) is created to record necessary transactions from the time an individual first commences a retirement phase pension.

Importantly, a TBAR is only required when a member has an event which affects their TBA. The most common reporting events include:

■Commencement of a pension

■Lump sum withdrawals from a pension account

■Commencement of a death benefit pension.

For many SMSFs, the members will have only one or two TBAR events in their lifetime. Other events that do not affect a member’s TBA and therefore do not need to be reported include:

■Pension payments

■Investment earnings or losses

■When an income stream ceases because the capital has been depleted

■Death of a member.

Changes from 1 July 2023 From 2023/24 onwards

■A member’s total superannuation balance will no longer be relevant in determining whether an SMSF reports on a quarterly or annual basis, and

■All SMSFs must lodge a TBAR within 28 days after the end of the quarter in which the TBC event has occurred (ie, by 28 January, 28 April, 28 July, and 28 October).

This means that SMSFs that have previously been permitted to lodge a TBAR on an annual basis will no longer be permitted to do so from 1 July 2023.

However, the obligation for SMSFs to report earlier will remain in cases where a fund must respond to a pension excess transfer balance determination or a commutation authority from the ATO.

Action items for SMSF trustees

For those SMSFs that already report on a quarterly basis, there will be no change to the reporting frequency for TBAR events. The changes impact SMSFs that are annual reporters only.

Note – if you’re currently lodging your TBAR annually at the same time as your SMSF annual return, you will need to report all events that occurred in the 2023 financial year by 28 October 2023. Should you have any questions on your TBAR reporting obligations, please contact us today as we can help you prepare for these upcoming changes.

If you have any questions regarding these coming changes – de Kretser is here for you.

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How to claim an early tax deduction on SG contributions

Posted on June 1, 2023October 30, 2023 by dekretser

Are you an employer who needs to make superannuation guarantee (SG) contributions for your employees? If so, it may be worthwhile bringing forward these SG contributions to before 1 July to benefit from a tax deduction this financial year. However the timing of when SG contributions are deductible to an employer can be tricky if employers pay SG contributions for their employees via a superannuation clearing house (SCH).

RECAP – WHAT IS A SCH?

The ATO’s free Small Business Superannuation Clearing House (SBSCH) is the only ‘approved’ clearing house – none of the many commercial clearing houses have this status. The SBSCH is a free service that small businesses with 19 or fewer employees, or an annual aggregated turnover of less than $10 million, may use to make superannuation contributions to employees.The SBSCH aims to reduce compliance costs for small business employers by simplifying and streamlining the process of making employee superannuation contributions, by allowing employers to make a single lump payment of their contributions to the SBSCH each quarter. That lump sum payment is broken into individual payments by the SBSCH, and then contributed to each employee’s respective super fund or RSA superannuation account.

TAX DEDUCTION AVAILABLE FOR EMPLOYERS

Employers can claim income tax deductions for SG contributions made to a superannuation fund on behalf of their employees, subject to certain conditions being met. As the income tax deduction is available in the financial year the contribution is made, some employers may wish to improve their current year tax position by bringing forward the June quarter SG contributions to before 1 July, even though these SG contributions are not due until 28 July 2023.

TAKE CARE IF YOU USE A SCH

As mentioned above, SG contributions are tax deductible in the year in which they are made. That said, a contribution is not made until it is received by the fund, and when that happens depends on the way in which the contribution is made. This is clear cut where an employer pays SG contributions directly to an employee’s nominated superannuation fund. That is, the contribution will be made when it is received by the fund.

However, the timing of the tax deduction and when the contribution counts towards the employee’s contribution cap is not as straightforward where SG contributions are made to a SCH for all employees. Here, the SCH electronically transfers SG contributions to employees’ funds on the employer’s behalf. In this situation, the contribution is not made at the time the clearing house is credited with the funds from the employer. Rather, the contribution is made and therefore deductible when the funds are credited to the respective employee’s superannuation fund (following an electronic transfer of money from the clearing house) and then allocated to the employee.

BEWARE OF TIMING DELAYS

The ATO is aware that there may be a period of time between an employer’s payment to the SBSCH and superannuation fund receiving the contribution. Further, the SBSCH may be unavailable over a weekend close to the end of the financial year for scheduled system maintenance. This means that payments made towards the end of a financial year may not be received by an employee’s superannuation fund in the same financial year. This may therefore impact when an employer is entitled to an income tax deduction for the SG contributions

ACTION ITEMS FOR EMPLOYERS

For those employers who do not use the SBSCH but instead use commercial clearing houses, for the contributions to be deductible in 2022/23, it is recommended that it be made up to 21 days before the end of the financial year.

For employers who make contributions directly to their employees’ superannuation funds, the contributions should be made a few days before the end of the financial year to ensure they are received before 1 July and therefore deductible in the current financial year.

If you have any questions regarding these coming changes – de Kretser is here for you.

Need more information? Please contact us quickly so that we can help you ensure all entitlements are finalised – and you do not miss out.

We look forward to working with you.

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Proposed changes to super balances over $3m and how they may effect you.

Posted on March 29, 2023March 31, 2023 by de Kretser

What is the proposed new tax on $3m+ Super balances?

Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.

What has been proposed?

Recently, the government announced it will introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year. Those affected would continue to pay 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.

The proposal will not impose a limit on superannuation account balances in the accumulation phase, rather it is about how generous the tax concessions are on higher balances. The government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025.

This means your balance in superannuation at 30 June 2026 is what matters initially.

What counts towards the $3m threshold?

The $3m threshold is based on your total superannuation balance (TSB) and includes all of your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have). Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in superannuation/pension phase before being impacted by the proposals.

How will earnings be calculated?

Put simply, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Rather, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses). This means any growth in balances will include anything that causes your account balance to group – such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn’t sold them.

Apart from the extra 15% tax, the taxation of unrealised gains is what has caused a stir, as currently individuals do not pay tax on income or capital gains on assets that have not been sold. When looking at how to capture growth in a person’s TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year, and will be adjusted for withdrawals and contributions. It is also worth noting that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.

How is the extra 15% tax calculated?

Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member’s balance above $3m. Rather, the ATO will use a three-step formula to calculate the proportion of total earnings which will be subject to the additional 15% tax.

How will the extra tax be paid?

Individuals will be notified of their liability to pay the extra tax by the ATO. This means the ATO, not their superannuation fund, will issue members with a tax assessment. Individuals will have the choice of either paying the tax themselves or from their superannuation fund(s) (if they have multiple funds). The tax will be separate to the individual’s personal income tax liabilities.

Don’t fret just yet! The measure is due to start from 1 July 2025, so superannuation funds and members still have time to consider their options.

Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don’t rush to remove benefits below the $3m limit just yet as once amounts have been withdrawn from superannuation, it’s hard to get them back in.

If you have any questions regarding your Super obligations – de Kretser is here for you.

We look forward to working with you.

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The Lowdown on the Small Business Superannuation Clearing House

Posted on March 23, 2022March 23, 2022 by dekretser

If you’re a small business owner, you’ll know that you’re required to pay your employees (and certain contractors) superannuation guarantee (SG) in addition to their salary or wages. But how do you pay your SG contributions in a simple and effective way? The answer is through a superannuation clearing house (SCH).

A superannuation clearing house is an online portal that allows you to make all your super contributions for all your employees in one single payment. The clearing house will then distribute the money to each employee’s super fund on your behalf and according to your instructions. This means using a SCH can save you time and also minimise the risk of payment errors.

WHY DO CONTRIBUTIONS HAVE TO BE MADE ELECTRONICALLY?

Back in 2012, legislation was passed to make electronic payment of super compulsory. This was done to reduce the number of missing and lost super payments and make managing and reporting on payments simpler for businesses. As a result, employers must send contribution payments and data electronically in a standard format called ‘SuperStream’. SuperStream transmits money and information consistently across the super system between employers, funds, service providers and the ATO. The data is linked to the payment by a unique payment reference number.

WHERE DO I FIND A SCH?

There are a few options available when paying super to employees’ super funds which meet the SuperStream requirements. These include:

Using a payroll system which is in line with SuperStream requirements, such as MYOB and Xero.
Using your employer-nominated super fund’s clearing house – most super funds provide access to a SCH service and will help you set up your account.
Using the ATO’s ‘Small Business Super Clearing House’ (SBSCH) – this free service is available to small businesses with 19 or fewer employees, or a turnover of less than $10 million a year.
Using a commercial SCH of your choice – there are a number of private/commercial SCH service providers but they do generally come at a cost.

WHAT TO CONSIDER WHEN CHOOSING A SCH

Is the SCH SuperStream compliant?

It may be worthwhile looking for another SCH if your preferred SCH does not meet the Government’s SuperStream and Single Touch Payroll requirements.

Is there a cost?

If you’re using a payroll system that offers a similar service to a SCH, there may be fees involved to use this software. If fees apply, check if the charge is per employee or per transaction as this will allow you to estimate your annual cost. Other SCH services can be a low or no-cost option, so it’s best to research the costs involved (if any) before you choose a service.

How long does it take to process payments?

The time it takes for your payment to be processed by the SCH and deposited into employee super fund/s must be considered. For example, if you use the ATO SBSCH and provide the ATO with all of the required information, payments may take up to seven business days to be transferred through the clearing house before they reach employee super fund accounts. Thus, choosing a SCH that processes payments quickly and efficiently may minimise the number of enquiries from your employees.

Does the SCH automatically validate employee information?

It is worthwhile asking the SCH if they use the Australia Post database to automatically validate employee addresses. This will minimise the chance of errors and speed up processing times.

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This is a de Kretser Client Information Newsletter keeping you on top of the issues, news and changes you need to
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