02/08/2010

50% Minimum Pension Relief Continues for 2010/11.

The Federal Government has announced that the 50% minimum pension relief which has applied for the last two financial years will now apply for 2010/11.

Essentially this means that super investors, who are in pension phase and who are under age 65 at 1 July 2010 will have a minimum pension limit of 2% of their pension account balance.  Without the relief, the minimum pension limit of 4% of their pension account balance would have applied.

For super investors who are 65 or more at 1 July 2010, and who are in pension phase, the minimum pension limits for 2010/11 will be :

• 2.5%  - normally the limit would be 5% if the super investor is aged 65 or more but less than 75
• 3.0% - normally the limit would be 6% if the super investor is aged 75 or more but less than 80
• 3.5% - normally the limit would be 7% if the super investor is aged 80 or more but less than 85
• 4.5% - normally the limit would be 9% if the super investors is aged 86 or more but less than 90
• 5.5% - normally the limit would be 11% if the super investor is aged 90 or more but less than 95; and
• 7.0% - normally the limit would be 14% if the super investor is aged 95 or more.
  

These reductions also apply to transition to retirement pensions.  However, the 10% pension ceiling continues to apply to transition to retirement pensions.

A similar relief also applies to market linked pensions (also called term allocated pensions).

The relief does not apply to defined benefit pensions.
   
Implications of the Continuation of the Pension Relief

Trustees should consider revising the fund’s general product disclosure statement.  We can help

For SuperCentral users the revised 2010/11 general product disclosure statement will be available from the Toolkit on the SUPERCentral Website in the next week or so.

Also, the template resolutions for account-based, transition to retirement pensions and market linked pensions, to permit the trustee to apply the 50% reduction for pre-existing pensions, will also soon be available from the Toolkit on the SUPERCentral Website.
   
Cooper, at last! 

The report of the Super System Review was handed to the Federal Government on 30 June 2010, and on Monday, 5 July the Report was released by the Government.

The Government has not provided its policy responses to the Report.  Given recent events, it may be some time before the Government does provide its policy responses.

However, in few words the main proposals – so far as they apply to self managed superannuation funds – are:

• No change to the 4-member rule
• ATO should have the power to issue administrative penalties to miscreant trustees – affectionately known as “speeding tickets”
• ATO should have the power to force miscreant trustees to undertake compulsory rectification actions
• There should be a review of super gearing in 2012 to ensure that gearing is not and is not becoming a significant focus of super funds
• The 5% in-house assets exception should be removed and no new in-house asset investments permitted
• SMSFs should be prohibited from investing in collectibles (art, antiques, stamps, coins) and personal-use assets (antique sewing machines, cars, first generation computers and slide rules)
• The business real property exception should remain (ie SMSFs will be able to continue to acquire business real property and lease business real property to fund members)
• SMSFs with existing in-house investments should be provided with a 5-year transition period to either convert their status to an APRA regulated fund or to dispose of their in-house investments
• All SMSF assets should be valued at net market value
• Proof of identity checks should be required for all new SMSF members
• Rules should be introduced as to the naming of SMSFs – to avoid names which could cause confusion with retail or industry funds
• The anti-money laundering legislation should be amended to treat SMSF rollovers as a designated service under that legislation (requiring proof of identity for rollovers)
• The SIS Act should be amended so that anything permitted by the SIS Act or the Tax Act is likewise permitted by SMSF trust deeds
• In formulating investment strategies, SMSF trustees should be required to consider life and TPD insurance for SMSF members.
  

New NSW Stamp Duty Concession

NSW has recently introduced a new concession in respect of the transfer of dutiable property (eg land) held by a member of a super fund to their super fund.  Without this concession, ad valorem duty would have been payable in respect of the transfer.  Now, if certain conditions are satisfied, the duty will be $50.  The concession is provided by s62A of the Duties Act, 1997.  The normal title registration fees will still apply.

For the $50 concession to apply the following conditions must be satisfied:

• The fund must be a self managed superannuation fund
  

• Either:

• the member is the sole member of the fund; or
• the fund is a multi-member fund and the transferred property is held solely for the benefit of the member who made the transfer;
  

• The transferred property is to be used solely for the purpose of providing a retirement benefit for the member who made the transfer.
  

The requirement that the transferred property is to be held solely for the member who made the transfer means that the property must be held in a distinct property portfolio; the property cannot be pooled with any other property held for another member of the fund, and no other member can obtain an interest in the property.

The property can be sold and the requirement for separate and exclusive holding will apply to the proceeds of the sale of the property.

It seems that the property could be transferred during accumulation phase and held during pension phase.  However, the requirement that the property is used solely for the purpose of providing a retirement benefit arguably means that any pension financed by the property must not be a reversionary pension.

A duties ruling is likely to be issued in respect of the new concession by the NSW Office of State Revenue to clarify the finer administrative practices to be applied to applications for the $50 concession.
   
New Super Gearing Legislation – Now in Place

This legislation applies from 7 July 2010 and introduces new sections 67A and 67B into the Superannuation Industry (Supervision) Act, 1993.  These new sections will apply to borrowing transactions by super funds entered into on or after 7 July 2010 (the date after the Amendment Act received Royal Assent).  The previous provision (section 67(4A)) applies to borrowing transactions which were entered into on or before 6 July 2010.

The main differences between the previous provisions and the new provisions are:

• the new provisions are strictly limited to a “single acquirable asset” (or a collection of fungible assets which are treated under the new provisions as a single asset) unlike the previous provision;
• the new provisions permit the borrowed funds to be used to pay the transaction costs of acquiring an asset (eg stamp duty, conveyancing fees, brokerage and loan establishment fees) – this was not clear with the previous provision; and
• the new provisions permit refinancing of the borrowing  - this was not clear with the previous provision.
  

Importantly, the refinancing of the borrowing has been expressly extended to apply to borrowing transactions entered into under the previous provision.   

Please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222 for more information.