Budget 2011 – SMSF

Key changes for SMSFs

Reduction of 25% in the minimum pension payment amounts for 2011-12

The Government will phase out the pension drawdown relief that has been provided over the last three years.

Minimum payment amounts for account-based, allocated and market linked (term allocated) pensions have been reduced by 50% since the global financial crisis to allow pension recipients to maintain the balances of their super.

Minimum payment amounts for 2011-12 be 75% of the normal level. They will return to normal in 2012-13.

The usual minimum pension limits start at 4% per annum and increase with age. See moneysmart.gov.au for full details of the usual limits.

SMSF annual levy to increase by 20%

Each year an SMSF needs to pay a levy to the ATO when lodging its tax return. This levy is paid in addition to a fund’s tax liability or deducted from it’s refund.

The purpose of the levy is to fund the ATO’s role as the regulator of SMSFs. The role of a regulator is to educate fund trustees, set the rules and make sure that trustees follow the rules.

The current levy of $150 will increase to $180 beginning in the current tax year (2010-11).

Super contributions limits for over 50s

The government has confirmed that a higher concessional contributions cap will apply to people over 50.

Currently the concessional contributions cap is $25,000, but for people over 50 the limit is $50,000. This allows people over 50 to use salary sacrifice to boost their super in the lead up to retirement.

The special rule for over 50s was set to expire at the end of 2011-12.

The new rules from 2012-13 will set the concessional cap for over 50s at a level permanently $25,000 higher than the usual cap.

This means the cap will start at $50,000 and will be indexed in $5,000 increments along with the base level cap.

However, the higher cap will only apply to taxpayers who have less than $500,000 in their super.

Strategic Opportunity

The spouse super splitting contributions can help keep your super balance below $500,000. Each year you can choose to split 85% of your super contributions to your spouse.

If your balance stays below $500,000 you can continue to use the higher $50,000 contributions cap and maximise tax savings of salary sacrifice.

Excess Superannuation Contributions—Refund Opportunity

The Government will provide eligible individuals with the option to have excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal rate of tax, rather than incurring excess contributions tax.

· This change commences from next financial year (2011-12).

· You can only use this rule once. If you breach the cap a second year you won’t be able to ask for the refund.

· Only applies if you have breached the cap by less than $10,000

This option will prove attractive for most taxpayers. The penalty rate for breaching the contribution caps is 46.5%. Any taxpayer earning less than $180,000 will be better off incurring tax at their marginal rate.

Increased funding to monitor SMSF changes

The increase in the levy is supposed to partially fund some new changes in the SMSF sector. These were previously announced in December 2010.

These include a number of government admin changes that don’t effect self managed funds.

The major impact on funds themselves is a tightening of the rules on investing in collectibles and personal use assets.

From the budget website: “Tighter legislative standards for investments in collectables and personal use assets will apply to new investments from 1 July 2011, with all holdings of collectables and personal use assets to comply by 1 July 2016. “

CGT changes

A SMSF must account for gains and losses on shares, unit trusts and land using the CGT rules. Most super funds already do this, however a minority of funds choose to treat these assets as “trading stock” and are not taxed under the CGT provisions. In a bad year, this allows the fund to claim a tax loss, rather than having a deferred capital loss.