To close off the calendar year, it is timely to provide a quick regulatory update before you look to close down your emails and head off on your well-deserved Christmas break with your family and friends. It has been a big year in the SMSF space, as we have had to continually deal with regulatory changes and tweaks, go head deep into the implementation stage of the Super Reforms, whilst overlaying it with the repercussions and ‘volcanic’ disturbance of the Royal Commission, Productivity Commission & ASIC reports to name a few.
Clarity on Reversionary TRISs:
The reversionary status of Transition to Retirement Income Streams (TRISs) is one of the proposed changes contained in the Treasury Laws Amendment (2018 Measures No.4) Bill 2018. This Bill was introduced into Parliament in March and entered Senate in June. This measure has passed Senate but still needs to go through Parliament in the new year.
So, what is this measure about?
Under the current law, if the recipient of a reversionary TRIS dies, the TRIS can only revert to a dependant beneficiary if the beneficiary satisfies one of the relevant conditions of release.
This outcome arises because of the interaction between the specific ‘retirement phase’definition that applies to TRISs and the requirement in regulation 6.21 of the SIS Regs that death benefits can only be paid through a superannuation income stream that is in the retirement phase.
As you can see this approach is just not practical and has caused a lot of uneasiness and lobbying from industry.
It is comforting to see that Treasury has listened to feedback on this one. The new changes will see the relevant laws modified so as to ensure that reversionary TRISs can always be paid to a reversionary beneficiary, irrespective of whether they have satisfied a condition of release. This approach will be consistent with the treatment of other superannuation income streams, which do not require the reversionary beneficiary to satisfy a ‘condition of release’. This just makes common sense..
The EM states that the amendment applies from 1 July 2017, which will mean that any payments of TRISs to reversionary beneficiaries that have occurred since 1 July 2017 do not result in a contravention of the requirement in regulation 6.21 of the SIS Regulations.
Work Test Exemptions for Recent Retirees:
We saw a welcome relief last Friday (7th Dec), when the Assistant Treasurer,the Hon Stuart Robert stated the regulations to give recent retirees an extra year to contribute to superannuation have been made by the Federal Executive Council. This measure came from the Federal Budget handed down in May 2018 as part of the More Choices for a Longer Life Package.
The regulations mean that from 1 July 2019, Australians aged 65 to 74 with a Total Superannuation Balance below $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test. Total Superannuation Balance will be determined at the beginning of the financial year following the year that they last met the work test.
Once eligible, there is no requirement for individuals to remain under the $300,000 balance cap for the duration of the 12-month period.
Existing annual concessional and non-concessional caps($25,000 and $100,000 respectively) will continue to apply to contributions made under the work test exemption. Individuals will also be able to access unused concessional cap space to contribute more than $25,000 under existing concessional cap carry forward rules during the 12 months.
The welcome relief comes in the fact that the regulation will also extend to bring forward arrangements for non-concessional contributions. This means that individuals will be able to make up to $300,000 in non-concessional contributions. This will provide that needed extra flexibility for retirees to contribute after tax monies and aligns to current contribution rules.
Recent instalment of the Aussigolfa case:
This case will be added to the list of ‘landmark’ cases that will be discussed for many years to come. It has had a very interesting journey to say the least.
The recent and expected instalment, has seen the ATO release a decision impact statement. This was after the Full Federal court, after a series of appeals, handed down a favourable decision for the trustee regarding the leasing to a related party of a property held in a DomaCom sub-fund where an SMSF is the owner of units in the sub-fund. The ‘Aussiegolfa’ case basically centred around the operation of two core regulatory provisions; the sole purpose and in-house asset test. The favourable decision was handed down in relation to the sole purpose test and not the in-house asset rules under subsection 71(1) of the SIS Act.
In its decision impact statement, the ATO said while the decision offers valuable guidance on how it is determined whether a separate trust has been created, it does not expect this case will significantly affect traditional multi-class funds. The ATO went on further to state that ‘whether classes of a trust are in fact separate trusts will depend on the particular facts and circumstances of each case having regard to factors considered by the court, including the relevant governing and disclosure documents, the ‘terms of issue’ of the class and the general law concept of a trust’.
It is also important to note that the ATO also stated that with regard to the sole purpose test, the ‘court decision was based on the specific facts of the case’ and it does not form a new benchmark on how to measure and apply this core regulatory test. The application of the sole purpose test is still status quo.
From the NowInfinity Team we wish you a wonderful Christmas and a safe and prosperous New Year. We look forward to continually making your business efficient and seamless in 2019 as we strive to provide you with the tools to ‘change the conversation’ between you and your clients.
By your side in this exciting journey