Over the last few months, many of our clients have been asking us what they need to do – if anything – following the raft of super changes that were made law in November that come into effect 1 July 2017.
Before I explain our approach for working with SMSF trustees impacted by the changes, I need to provide some context around the magnitude of these new laws.
Sustainable means less tax breaks
These changes will impact SMSF members more than the general population. By our calculation, at least 48% of our clients are directly impacted by the changes. Of this 48% the people MOST impacted and who have the biggest advice need are those SMSF members with pension balances over $1.6m – this equates to approximately 10% of the clients we work with.
The changes fall under a piece of legislation called the “Fair and Sustainable Superannuation Act 2016”.
The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert their personal services income to an SMSF, so that the income is taxed concessionally (or exempt from tax) in the fund, rather than being subject to tax at the individual’s marginal tax rate. These arrangements normally involve the individual’s income being paid to another entity (e.g., a company) which then makes distributions to the SMSF as a ‘return on investment’ (e.g., dividends, where the SMSF holds shares in the relevant company).
WHAT TO DO
The ATO advises any people that have entered into such an arrangement to contact the ATO by 30 April 2017, so they can work with them to resolve any issues in a timely manner, and minimise the impact on the individual and the fund.
Please Note: Individuals and trustees who are not currently subject to ATO compliance action, and who come forward will have administrative penalties remitted in full (although interest may still be payable on any tax collected later than it should have been).