The super changes making their way into law
After a break due mainly to this year’s election, we are starting to see some of the previously announced changes to super make it into the law. Here, we explore some recent significant moves.
The most recent changes we have seen are to the superannuation guarantee and salary sacrifice; denial of tax deductions for some types of vacant land; and an increase in the age to access tax concessions for redundancy and early retirement scheme payments.
Some of the other announcements for changes to super, which have a start date after 1 July 2020, will probably pass through the parliament in the first half of next year.
Super guarantee and salary sacrifice
From 1 January 2020, it will not be possible for an employer to count amounts that an employee has salary sacrificed to super to satisfy against their superannuation guarantee obligation.
The legislation has been amended to change the formula to work out the amount of superannuation guarantee contributions that are required to be paid.
The amended formula is:
(excluding any salary sacrifice contributions)
Ordinary time earnings
(with any amounts salary sacrificed to super being added back)
This formula will not reduce the 9.5 per cent superannuation guarantee contribution required to be made by an employer.
An example case study
As an example which compares the current calculation to the calculation from 1 January 2019, let’s consider Mary:
Mary earns $15,000 for the March 2020 quarter before any salary sacrifice to super. Her employer would be required to contribute $1,425 to superannuation to satisfy their superannuation guarantee obligation.
If Mary had salary sacrificed $1,000 to superannuation prior to 1 January 2020, in the expectation that she would increase the amount that’s going into her fund, she could be disappointed.
The reason is that Mary’s employer could count the amount she has salary sacrificed against its super guarantee obligation. This could have the effect of actually decreasing Mary’s total super contributions, as the amount of super required to be paid by her employer would be based on the $14,000 salary actually paid to Mary.
Therefore, the total contribution for super guarantee purposes is now $1,330, which is made up of Mary’s salary sacrifice contribution of $1,000, plus a top up of $330 from her employer to meet the super guarantee liability.
Tax deductions and vacant land
In the 2018/19 federal budget, the government announced restrictions which remove tax deductions for vacant land from 1 July 2019 for individuals, trusts which are not widely held and to SMSFs. However, the restrictions do not apply to companies, managed investment trusts, public unit trusts or superannuation funds other than SMSFs.
There are exceptions to the new rules which allow a deduction for expenses where the vacant land is used to carry on a business of the taxpayer, related entities of affiliates.
Under the new law, the costs of holding the vacant land is limited to land, including any structures used in a business or that are available for rent. The costs can include ongoing borrowing costs, interest incurred for loans to acquire the land, land taxes, council rates and costs of maintaining the land.
If the land that is vacant includes residential premises, a deduction for expenses will not be deductible until the premises are leased, hired or licensed or made available for these purposes.
These rules may apply to deny SMSFs a tax deduction for holding costs, where the fund purchases a block of land on which a building is intended to be constructed.
An example case study
The Stuart Superannuation Fund, which is an SMSF, purchased a block of land on 31 August 2019 on which will be constructed a residential property. The building is completed and is considered suitable for occupation in November 2019, when it is advertised for rent.
Once the property is legally available to be occupied or is leased, hired or licensed then the costs of holding the land that are incurred by the SMSF will be deductible.
It is recommended that if an SMSF holds vacant land that tax advice be obtained to determine the extent to which any expenses are tax deductible to the SMSF.
Redundancy and early retirement scheme concessions
The age at which someone can access the tax-free amount of a genuine redundancy and early retirement scheme payment has been increased from age 65 to 67 to link it to changes in the Centrelink Age Pension age.
For the 2019-20 financial year the service-based tax-free amount is $10,638 plus $5,320 for each completed year of service with the employer.
Until the next round of changes…
Subscribe to SMSF News to receive my latest articlesGraeme Colley, Executive Manager, SMSF Technical and Private Wealth, SuperConcepts
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