Centrelink pension deeming – Is my client affected?

6/8/2014 11:35AM

Centrelink pension deeming – Is my client affected?

With effect from 1^st January 2015 the way superannuation pensions are treated under legislation for income support payments (e.g. Age Pension, Service Pension, Disability support pension) administered by Centrelink/Veterans agencies, is changing.  This means that the window of opportunity to make changes closes in just over 4 months.

From the 1^st January 2015, all new pensions (unless grandfathered) drawn from superannuation will be deemed. At present if a client has an Account Based Pension (ABP) or Transition to Retirement Income Stream (TRIS),  these are only assessed under the asset test.

For a client that is already in receipt of an income support payment, any ABP or TRIS in place prior to 1^st January 2015, will be grandfathered. That is, they will continue to be assessed under the asset test only.

Therefore, for clients receiving  income support payments, consideration should be given to reviewing the clients circumstances now, thus allowing time to commence or make any changes to their ABP or  TRIS before 1^st January 2015.

For clients not already on Centrelink/Veterans income support, their circumstances should be reviewed to see if they are currently eligible for an income support benefit.

Remember, for the grandfathering to apply, both of the following conditions must be met before 1^st January 2015:

1) The person must be on Centrelink/Veterans income support payment

2) Their ABP/TRIS must have commenced

Full commutation of a pension or transferring from one provider to another after 1^st January 2015 will result in the ABP or TRIS losing its grandfathered status and it will become subject to the new provisions.

Note:   If grandfathering is lost, it cannot be re-instated

What about Reversionary Beneficiaries? For a pension with a documented reversionary beneficiary, nominated before 1^st January 2015, the reversionary beneficiary will continue to have the ABP exempt from deeming, only if at the time of reversion, the reversionary beneficiary is in receipt of an income support payment.

Adding or changing the reversionary beneficiary after 1^st January 2015 will result in the ABP or TRIS losing its grandfathered status and it will become subject to the new provisions. Therefore care must be taken in making any changes.

What about Complying pensions and Market Linked Income Streams (MLIS)? The ability to set up one of these generally finished on 20^th September 2007. A MLIS already in existence will remain grandfathered so long as the member is in receipt of an income support payment.

If the MLIS is rolled to a new provider then it is expected the new MLIS will be subject to deeming.

For a SMSF paying a Complying Pension, if it is commuted due to it failing or the SMSF is wound up due to the trustees age (and not being able to run it any more), then the funds backing the Complying Pension can be transferred to a life office annuity, a MLIS within the SMSF (not available if winding up), or to a MLIS with another company, e.g. retail super fund.

A Complying Pension or new annuity (lifetime/life expectancy) are not deemed, however changing to an MLIS will result in the funds backing the MLIS being deemed. Therefore when making changes to a Complying Pension, consideration needs to be given to the deeming effects if a new MLIS is established.

Time is running out!

Given the changes, time is running out to review and make changes to clients’ arrangements.  Don’t leave it until the last minute to implement any changes, otherwise there may not be time to implement any changes.

A useful checklist of items to do, well before 1^st January 2015:

• Review clients circumstances now
• Consider current and future client circumstances
• If required, rearrange pensions (ABP, TRIS, MLIS, Complying)
• Consider starting pensions with any accumulation accounts (if income support payments applicable)
• Check existing and potential reversionary nominations (make any changes required before January 2015)
• Review potential SMSF windups and Complying Pensions
• See if there are any clients not currently receiving an income support payment, and who could be entitled; apply and start receipt before 1^st January 2015

This is general information only, prepared under AFSL 238337. Before making changes the full circumstances of a clients situation should be considered by a suitably qualified adviser.

6/8/2014 11:30AM

New credit reporting rules

In March this year, new credit reporting rules were introduced in order to provide more clarity about people’s credit behaviour.

The changes will affect both consumers and business, both as creditors and debtors. It will particularly affect businesses as they also need to have regard to the new Australian Privacy Principles.

The Comprehensive Credit Reporting system broadens the type of credit information that can be accessed and with whom that data can be shared.

How do rules affect a business that’s owed money?

If a client/customer has defaulted on a payment, and the business wants to report information about that to a credit reporting body, the business first has to let the client/customer know in writing that they intend to disclose the default. The business then needs to wait 14 days before listing with the credit reporting body.

It is important that both the business and the client understand the correct procedure, being that a notice is required and there is a 14 day waiting period, before reporting.

What are the benefits of the new rules?

From a business’s perspective it is now much simpler to check an existing or potential client/customer’s credit history, thus enabling better discovery of clients with a bad track record for paying bills, either late or not paying at all.

For an SMSF this could be a very useful resource when considering a tenant for a property (commercial or residential), thus checking a potential tenant to see if there is a bad track record.

Want more information?

If you would like to find out more about this, the Australian Retail Credit Association (ARCA) has a useful site: www.creditsmart.org.au

4/3/2014 4:00PM

Cost effective SMSF Establishments!

SMSF establishment cost only $520 + GST, with no strings attached!

This includes all deeds, minutes, ABN & TFN registration and bank account setup where instructed by the trustee. There is no lock in period, unlike some providers of cheap or no fee setups, we don’t require you to have your admin done with us for an extended number of years. This is for individual trustees, if you decide to use a corporate trustee structure, then there is only the company cost in addition.

4/3/2014 3:59PM

Only a few months left to fix problems

From 1 July 2014, the new penalty regime is scheduled to commence for self-managed superannuation    funds (SMSFs). This means that any breach reported in an auditor contravention report (or discovered in an ATO audit) could result in fund trustees personally facing significant fines. This penalty regime was due to start on 1 July 2013, but it was delayed due to the election, with the new government now proceeding with its implementation.

Given that the penalty regime is set to begin in a few months, trustees only have a small window of opportunity to fix any issues they may have.

Under the new rules, the Tax Office will be able to directly fine SMSF trustees, and potentially complicit accountants and advisers, for compliance breaches.

The Tax Office will now have a number of options when a trustee breaches the regulations:

Rectification direction

• may be given if ATO reasonable believes an SMSF has contravened Act or Regulations
• The ATO will have regard to the seriousness of the contravention and the level (if any) of the financial detriment that might be reasonably expected to be suffered by the fund.

Education Direction

• may be given if ATO reasonably believes an SMSF has contravened Act or Regulation
• Appropriate where  trustees’ lack of knowledge contributed to breach
• Trustee will need to provide ATO with evidence of completion of the course

Penalty paid

• If individual trustees – Then each Trustee will incur a penalty e.g. Failure to  keep records of change of trustee – 10 penalty units each individual
• If corporate –  The directors are jointly and severally liable e.g. failure to record trustee change – 10 penalty units on company
• If individual contravenes  – Individual member pays penalty e.g. Trustee declaration not signed – 10 penalty units
• SMSF cannot pay or reimburse the penalty
• Administrative Penalties – Not applied to all contraventions, only ones listed in table subsection 166(1)

The penalty paid is calculated on a set number of “penalty units”, dependant on the breach. The value of a penalty unit is set out in the Crimes Ac 1914 and may change from time to time. The current value of 1 penalty unit is $170.

The application of the ATO penalties and rectification actions are determined by the ATO and will depend on the specific circumstances. You should contact your administrator and/or auditor should you be concerned about any matter involving your SMSF(s) and compliance with the rules.

4/3/2014 3:59PM

Contribution cap changes

The contribution caps are set to increase from 1^st July 2014. These increases are in line with the increase in AWOTE, with the increase applying to both the Concessional and Non Concessional Caps.

Indexation of the general concessional contributions cap was paused at $25,000 up to and including the 2013–14 year. Normal indexation resumes for the 2014–15 year.

Concessional contributions.

These are:

• Employer contributions (including contributions made under a salary sacrifice arrangement)
• Personal contributions claimed as a tax deduction by a self-employed person.

People aged 59 years or over on 30 June 2013, and 49 years or over on 30 June 2014

The concessional contributions cap will be temporarily increased to $35,000 for the:

• 2013–14 financial year if you are aged 59 years or over on 30 June 2013
• 2014–15 financial year or a later financial year if you are aged 49 years or over on the last day of the previous financial year.

The temporary higher cap is not indexed and will cease when the general concessional contributions cap is indexed to $35,000.

Non Concessional

Non-concessional contributions are generally contributions made by a member from their after-tax income or savings. They may also be made by your spouse.

• Personal contributions: a contribution you make to your account balance from your after-tax money for which you do not claim a tax deduction.
• Spouse contributions: a contribution by your spouse from their after-tax money to your account balance for which your spouse may be entitled to claim a spouse contribution offset.

The cap is 6 times the base Concessional Cap and therefore the Non-Concessional Contribution Cap will increase to $180,000 pa

Using the bringing forward will enable up to $540,000 in a one year, by bring forward the future two years worth of contributions.

The contributions listed above are the proposed levels due to start on 1st July 2014. You should however confirm that they are implemented as stated and that no last minute amendments are made. You should also check your own circumstances and verify past contributions and future contribution eligibility.