Superannuation Funds

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					Superannuation Funds
     MTG Chapter 8
                      Regulation
   The Superannuation Industry (supervision) Act
    and Regulations (SIS) provides the legislative
    framework for the superannuation industry
   All superannuation entities have to comply with
    SIS legislation if the are regulated
   Only funds that are regulated will be eligible for
    classification as a complying superfund and be
    taxed concessionally- tax on taxable
    contributions and fund income (other than special
    income) is limited to 15%
   The Regulators:
    – Australian Prudential Regulatory Authority (APRA)-
      superfunds other than SMSF
    – ATO- regulates SMSF
                        Compliance
 An election to be regulated under SIS means the
  trustee must always comply with SIS operating
  standards
 A complying superannuation fund is taxed at a
  concessional rate of 15% while a non complying
  superfund is subject to tax at 47%
Compliance test for SMSFs
 Compliance test is passed if the SMSF-
    – Did not contravene the SIS Act or regulations during the
      income year; or
    – Did contravene SIS but the ATO decides that a
      compliance notice should not be given for that year after
      taking into account:
          The tax consequences of treating the entity as a non –
           complying superfund;
          The seriousness of the contravention; and
          All other relevant circumstances
                        Trustees
   A superannuation entity can only be regulated if
    the trustee is:
    – A corporation; or
    – Individuals and the sole or dominant purpose of the fund
      is to provide age pension.
Trustees of SMSF
 Funds with 2,3 or 4 members
    Trustee arrangements
    – if the trustee of the fund is a company each director of
      that company is a member of the fund or
    – if the trustees of the fund are individuals each
      individual trustee is a member of the fund
    Membership
    – each member is a trustee of the fund or a director of the
      company that is the trustee: and
    – No member is an employee of another member unless
      the member concerned is related to at least one fund
      member
                        Trustees
   Funds with one member
    if the trustee of the fund is a company-
    – the member is the sole director; or
    – The member is one of only 2 directors of that company,
       and the member and the other director are relatives, or
       the member is not an employee of the other director

    If the trustees of the fund are individuals, the member is
       one of only 2 individual trustees of the fund-
    – One of whom is the member and the other is a relative
       of the member or
    – The member is not an employee of the other trustee
   Small APRA funds
    – Trustee must be an Approved Trustee
            Reporting Requirements
   Each year, the trustee must prepare accounts and statements for
    the superannuation entity:
    – A statement of financial position;
    – An operating statement; and
    – Any accounts and statements specified in the regulations

   Funds with 5 or more members are also required to prepare a
    statement of cash flows

   Superannuation entities are required to lodge a Fund tax return
    with the Tax office every year they exist even if they have not
    received any income

   Lodgment dates are the same as companies

   Regulated superfunds must-
    – File an annual regulatory return with the Tax office if it is a SMSF or
      with APRA if it is not a SMSF and
    – Pay a supervisory levy for each year that they were a superannuation
      fund on 1 July
    – All returns must be audited by an approved auditor
    Taxing Superannuation Entities
    Taxable income of the fund is calculated as:
     Assessable income less allowable deductions

Assessable income includes:
    Gross rental and other leasing and hiring income received
     by the fund
    Interest income received during the financial year from
     investments
    Dividends including imputation credits
    Distributions from partnerships or trusts
    Gross amount of foreign source income
    Capital Gains
    Taxable contributions made to the fund for that income
     year:
    – Employer contributions
    – Deductible personal contributions where the member
        gives the fund a notice under ITAA36 s82AAT(1A) that
        a tax deduction will be claimed
     Taxing Superannuation Entities
   Allowable deductions (8-150) include:
    – Cost of providing death or disability cover
    – Expenses incurred in deriving income
            administrative fees
           accounting & audit fees
           Non capital costs of complying with APRA
           Membership subscriptions
           Commissions and ongoing management fees
           Costs of death or disability benefits
    – Current year and carry forward losses
   Credits and tax offsets
    Tax payable on the income of the fund is the self assessed calculated
      amount less the following offsets-
    –   imputation credits;
    – Foreign tax credits up to the Australian tax payable on that income
    – Tax offsets on short term assurance policies where policies are held for
      less than 10 years
   Exempt Income
    – Complying superannuation funds can reduce its income by any exempt
      current pension income

                            Capital Gains Tax
    Tax on capital gains will apply on all assets disposed of after 1 July 1988 even where
    the asset was acquired before 20th September 1985

   The cost base of assets on hand at 30 June 1988 will be
     –  Market value as at 30 June 1988 – indexed from 1 July 1988 if held for more than 12 months
        with indexation frozen at 30th September 1999
         OR
     – The actual cost of the asset
     Whichever is the greatest and therefore yields the lower capital gain

   Where a capital loss is incurred the reduced cost base is
     –  Market value as at 30 June 1988 – indexed from 1 July 1988 if held for more than 12 months
        with indexation frozen at 30th September 1999
         OR
     – The actual cost of the asset
     Whichever is the lesser and therefore yields the lower capital loss


   Except for the above, similar rules for Capital Gains for an individual apply to a
    complying superannuation fund except that the CGT discount is 33 1/3% not 50%
   A capital gain arises where the capital proceeds from a CGT event are greater than
    the ‘cost base’ of the CGT asset
   A capital loss arises where the capital proceeds from a CGT event are less than the
    ‘reduced cost base’ of the CGT asset

    Net Capital Gain is calculated as follows:
     Current year capital gain(s)= capital proceeds less cost base
         less Current year capital loss(es)
          less unrecouped previous year capital loss (es)
          equals Notional net capital gain
          less 33 1/3% (if asset was held for more than 12 months and the entity chooses the discount method rather
         than indexation)
          equals Net capital gain
                Capital Gains
Net Capital Gain is calculated as follows:
  Current year capital gain(s)=
    capital proceeds less cost base
    less Current year capital loss(es)
     less unrecouped previous year capital loss (es)
     equals Notional net capital gain
     less 33 1/3% (if asset was held for more than 12
    months and the entity chooses the discount method
    rather than indexation)
     equals Net capital gain
            Special Income
 Special Income is taxed at 47%
 Three types of special income:
  – Private company dividends
  – Non-arms length income
  – Trust distributions from a discretionary
    trust
  – Non arms length trust distribution
    where the amount of that income is
    higher than might have been expected if
    those parties were dealing at arms
    length
    Non complying superannuation
           funds (8-220)
 The taxable income of a non complying
  superannuation fund is taxed at 47%
 Non complying superannuation fund are
  not entitled to the 33 1/3 CGT discount
  nor are they able to claim refund of excess
  franking credits
 Examples of non complying superfunds:
    – Superannuation fund that does not elect to
      become a regulated superannuation fund
      under SISA
    – Non resident superannuation fund
    – Regulated superfund that has contravened a
      regulatory provision and failed the compliance
  Calculate Tax Payable
The ABC Superannuation Fund recorded the following receipts and payments
during the year ended 30th June

Receipts
                                                              $
Employer contributions (deductible)                               250000
Employer contributions (non-deductible)                            15000
Employee contributions                                             10000
Self employed contributions (deductible)                           15000
Self employed contributions (non-deductible)                        4000
Franked dividend (IC=3000)                                          7000
Unfranked dividend from Private company                             1500
Interest received- Investments                                     40000
Interest received - segregated pension                              5000
Proceed From Sale of shares                                        40000

Payments
Staff wages                                                       35000
office expenses                                                   15000
Benefits paid to members                                          85000
Income Tax paid                                                   35000

The shares were purchase 5 years ago for 15000
                  Calculate Tax Payable
Receipts
                                                             Tax rate %
Employer contributions (deductible)                 250000           15
Employer contributions (non-deductible)              15000           15
Employee contributions                               10000           15
Self employed contributions (deductible)             15000           15
Self employed contributions (non-deductible)          4000           15
Franked dividend (IC=3000)                            7000           15
Franking Credit                                       3000           15
Unfranked dividend from Private company               1500           47
Interest received- Investments                       40000           15
Interest received - segregated pension                5000            0
Net Gain on sale of shares ((40000-15000)-33.33%)    16675           15
                                                    367175
Payments
Staff wages                                         35000           15
office expenses                                     15000           15
                                                    50000

Taxable Income                                      317175


Taxable at 15%                                      310675   46601.25
Taxable @ 47%                                         1500        705
Taxable @ 0%                                          5000
Total                                               317175   47306.25
Less Franking Credits                                            3000
Less tax paid                                                   35000
Additional Tax Payable                                        9306.25