Super for different visas

Australian employers are required to pay super to their employees when they earn $450 a week or meet specific criteria based on age or industry. Employer requirements can get confusing however when dealing with international workers or sending employees overseas. Here are the requirements employers must follow when handling super payments to workers with different visas.

Temporary residents:
Temporary residents working in Australia may be eligible to receive super from their employer. Eligibility criteria are the same as it would be for a permanent Australian resident, you must be 18 years or older and have been paid $450 or more (before tax) in a month. Working holiday makers holding a 417 (Working Holiday), 462 (Work and Holiday) or an associated bridging visa can access the super paid as a departing Australia superannuation payment (DASP).

Employees working overseas:
For an Australian employee sent to work overseas, their employer must continue to pay super contributions in Australia for them. The other country may require the employer or employee to pay super there as well if Australia does not have a bilateral agreement with that country. To gain exemption from the super payment in the other country, the employer needs to show the authorities in the other country a certificate of coverage gained from the ATO.

Salary sacrificing super

Contributing extra to your superannuation is a good way to boost your retirement funds. One of the ways you can add more to your super is through salary sacrificing. Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value, meaning your employer will redirect some of your salary or wages into your super fund instead of to you.

The salary sacrificed amounts count towards your concessional contributions cap, in addition to your employer’s compulsory contributions such as super guarantee payments and salary-sacrificed amounts sent by you to your employee’s super fund. The annual concessional contributions cap is $25,000 for everyone and these salary sacrifice contributions are taxed at a maximum rate of 15%. If you have more than one fund, all concessional contributions made to all of your funds are added together and counted towards the concessional contributions cap. Concessional contributions in excess of these caps are subject to extra tax.

Salary-sacrificed amounts are paid from pre-tax salary so they don’t count as non-concessional contributions and will not be considered a fringe benefit if the super contributions are made to a complying super fund. Individuals should also consider whether the amount sacrificed will attract Division 293 tax. This tax applies when you have an income and concessional super contributions of more than $250,000. Division 293 tax levies 15% tax on taxable contributions above this threshold.

Diversification requirements for SMSFs

The ATO has identified approximately 17,700 SMSFs where investment strategies may not meet the requirements under regulation 4.09 of the Superannuation Industry Supervision Act (SISA). Records show these SMSFs may hold 90% or more of funds in one asset, or a single asset class.

Diversification aims to maximise an individual’s return by investing in different asset classes that react differently to the same event. Although it does not guarantee avoiding a loss, diversification is an important component of reaching long-term financial goals while minimising risk. This can help to control a super fund’s risk, as the better performing asset classes will help offset the others that aren’t performing very well. Diversification also provides the super fund with the opportunity for long-term growth, as the portfolio is exposed to asset classes with strong growth potential.

SMSF trustees that don’t have the appropriate blend of different asset classes in their fund risk their portfolio experiencing increased and unnecessary volatility. Well-diversified SMSFs include all the major asset classes including cash, fixed interest, shares and property.

To help ensure an SMSF is properly diversified, consider the exposures the fund currently has to the major asset classes and assess how diversified the fund is. Trustees must then engage in the process of working out which asset classes the fund requires to be properly diversified.

Succession planning for your SMSF

A mandatory component of managing a self-managed super fund (SMSF) is planning out what will happen to the fund if its trustee were to pass away. While succession planning may not be one of the first responsibilities that comes to mind when managing an SMSF, it is a necessity that can provide certainty and peace of mind for a deceased trustee’s family.

Succession planning can become complex if little or no attention is paid to it on an ongoing basis, but there are ways trustees can ensure the best outcome for both the fund and their family.

One option for a sole member fund is to appoint another trustee. Note that the non-member trustee cannot be the employer of the member unless they are related. This would not be an option for a fund with two members as the available exemptions only apply to single member funds. Those who appoint a family member or close friend must consider first whether they are suitable for a role; running an SMSF requires expertise and knowledge, and appointing someone with limited experience may not be in the best interest of the fund’s future.

Some SMSF trustees may also choose to appoint an enduring power of attorney. An enduring power of attorney is someone who makes decisions on the trustee’s behalf if they become incapacitated or pass away. Common power of attorneys include accountants, financial advisors and lawyers; people who understand SMSF management and the associated challenges. For an enduring power of attorney nominee to be appointed, legal documents, i.e. the succession documents appointing the replacement director, must be in place before the member loses their capacity to be a member.

What to look for when choosing a super fund

Over the course of your life, the contributions made to your superannuation fund can often end up being your greatest asset. Because of this, selecting a super fund is an important decision, choosing a fund with the right investment strategies for you could be the difference between retiring comfortably or not. There are five different types of superannuation fund to choose from but not all options are available to everyone.

SMSFs:
Self-managed super funds (SMSFs) are those where the trustee is responsible for managing and making regular contributions to the fund. This option allows for more responsibility in terms of administration, compliance and investment decisions.

Industry funds:
Industry funds generally cater to employees from a specific industry although they are open to everyone. Industry funds are not-for-profit, meaning they have historically charged lower fees on average with profits funnelled back into members’ funds.

Retail funds:
Retail funds are offered to everyone and are usually run by investment companies or banks. A portion of the profits derived from the activities of retail super funds then goes to the shareholders.

Corporate funds:
Corporate funds are offered to specific corporations or if you are employed by a particular employer. They often return profits to their members (although they can be retail funds too), offer a wide range of investment options and are low to mid-cost funds if the business is large.

Public sector funds:
Public sector funds are offered to state and federal government employees. They generally include a wide range of benefits, lower fees and allow members to make higher super contributions.

Ineligible downsizer contributions and how they are administered

When a downsizer contribution is ineligible, the fund must re-assess the amount in accordance with the Superannuation Industry (Supervision) Regulations 1994 and the trust deed. This is to determine if the amount can be retained as a non-concessional contribution.

Provided the trust deed allows so, the fund can return the contribution to the member or adjust the prior downsizing contributions to nil and report this amount as a non-concessional contribution when the member meets the age and work tests.

When a contribution can’t be returned or returned in full:
Members who no longer have a super interest with the fund, or an insufficient return amount, must have their contribution re-reported as non-concessional, even if the contribution was returned because the member did not meet the age/work tests. Some of the contribution may be an excess non-concessional contribution (ENCC). Regardless of the age of the member, if this is the case the member will receive an ENCC determination or when the fund can’t return the full amount. Members will continue to have access to all review rights under the ENCC scheme. Even if the member is in pension phase, the funds will still need to return an ineligible downsizer contribution if it cannot be accepted.

When a fund receives a release authority:
An amount released under these circumstances is treated as a super lump sum as it is a portion of the member’s super interest. Being in pension phase doesn’t prevent a fund from complying with the release authority although it may mean the full amount can’t be released, as the available balance may be lower than the amount stated in the release authority. Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.

The ATO monitors the rectification of this contribution reporting. Where funds don’t act within legislative timeframes, the Australian Prudential Regulation Authority (APRA) may be contacted.

Illegal early release of super on ATO watch-list

Illegal early release of super (IER) is one of the risk areas that the ATO has identified as being of most concern and in need of action.

Each year, the ATO analyses its data to identify the areas of high risk that will form part of its compliance program. Aside from illegal early release, another key risk area is non-lodgement. In the last year, the ATO has targeted individuals and promoters who register self-managed super funds with the intention of using the fund to illegally access super benefits.

In the 2019 financial year, the ATO cancelled the registration of 609 newly registered SMSFs who intended to use the funds for IER. They also withheld the details of 352 funds from the Super Fund Lookup, meaning they couldn’t receive payments and rollovers.

The ATO has warned of severe consequences for you and your fund if super is accessed before you are legally entitled to it. These include disqualification of trustees, administrative penalties, the fund deemed as non-complying, or even prosecution.

Fund trustees or members who have knowingly been involved in a scheme or been approached by anyone claiming that they can withdraw their super early should contact the ATO immediately to advise of the situation and avoid further penalties.

Tax requirements for capped defined benefit income streams 

Members who receive income from one or more capped defined benefit income streams may have additional tax liabilities. They would then need to calculate their entitlement to the 10% tax offset if the income from all their capped defined benefit income streams exceeds their defined benefit income cap.

SMSF’s who pay a capped defined benefit income stream to members with a cap will need to provide the ATO with a PAYG withholding payment summary annual report, due by 14 August 2019. Members will have a cap if they have income from a capped defined benefit income stream and are 60 and above or under 60 and receiving a death benefit income stream from a person who died aged 60 or over.

When preparing their individual tax return, members need to:

• Consider all income they receive from capped defined benefit income streams.
• At label 7M, include half of the income from the tax-free component and taxed elements of all their capped defined benefit income streams which exceeds their defined benefit cap.
• At label 7N, include any untaxed element.
• At label T2, calculate and include their entitlement to the 10% tax offset (the amount may be nil).

The defined benefit income cap will be $100,000 for most individuals. It may be less in some circumstances, such as if they turned 60 during the year or were over 60 and then started receiving income from a capped defined benefit income stream for the first time partway through the year.

SMSF’s must ensure all obligations are met, include registering for PAYG, providing members and the ATO with payment summary information, and making sure to comply with withholding obligations of their activity statement.

What SMSF records should you keep?

A key responsibility for trustees of self-managed super funds (SMSFs) is to ensure proper and accurate tax and superannuation records are kept for the fund. When you have been running your fund for a long period of time and have amassed a large amount of information, it can be hard as a trustee to know exactly what records to keep, how long for and where to store them.

The ATO requires SMSF trustees to keep the following records for a minimum of five years:

• Accurate accounting records that explain the transactions and financial position of the SMSF.
• An annual operating statement and statement of the SMSF’s financial position.
• Copies of all annual returns and transfer balance account reports lodged.
• Copies of any other statements the fund trustee is required to lodge with the ATO or other super funds.

The following records are required to be kept for a minimum of 10 years:

• Minutes of trustee meetings and decisions if matters affecting the fund were discussed, such as the fund’s investment strategy.
• Records of all changes of trustees, and members’ written consent to be appointed as trustees.
• Trustee declarations that recognise the obligations and responsibility of any trustee or director of a corporate trustee, appointed after 30 June 2007.
• Copies of all reports given to members.

Your SMSF’s records must be kept in Australia, in writing and in English. If your SMSF does not keep the records for the minimum time required, you may be subject to penalties and fines.

SMSF rollovers in SuperStream to be deferred

The 2019-2020 Federal Budget suggested a deferral of the extension of SuperStream to self-managed superannuation fund (SMSF) rollovers from 30 November 2019 to 31 March 2021. The commencement of this deferral has recently been confirmed by the government.

The deferral will coincide with the $19.3 million that will be provided to the Australian Taxation Office (ATO) over three years from 2020-21, enabling electronic requests to be sent to superannuation funds for the release of money required under a number of superannuation arrangements.

With the combined date for both bringing electronic release authorities into SuperStream and allowing SMSF rollovers, changes needed to update SuperStream will only need to be undertaken once. The deferral aims to reduce administrative costs for funds and allows for a more integrated design of SuperStream.

First introduced in 2015, SuperStream is a government standard for processing superannuation payments electronically in a streamlined manner. Currently, SuperStream can only process rollovers between two APRA funds electronically but with the change will see this process extend to SMSFs.

Regulations for the deferral to put into effect will be made promptly.