YourGuardian: August 2003 edition

Contents

1. Welcome
2. 2003-04 Superannuation Tax Thresholds
3. Investing in Geared Unit Trusts
4. Monthly Information Sessions

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Welcome

Welcome! to the August edition of our newsletter—Your Guardian. 

Your Guardian is intended to provide you with a brief update of the latest changes and issues as they relate to Self Managed Superannuation Funds (SMSFs).

We invite you to forward a copy of our newsletter to anyone you know who may be interested.

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2003-04 Superannuation Tax Thresholds

Low Rate ETP Threshold

This is the maximum Post June 83 taxed amount that a person aged over 55 years can receive as a tax-free lump sum. This amount applies over a lifetime however, because the amount is indexed each year, there will be additional tax-free amounts available up to the new indexed threshold that applies each following year.

Reasonable Benefits Limits (RBL)

The RBL is the maximum amount a person can receive that is subject to concessional tax treatment. Where a person had more than $400,000 accumulated in superannuation as at 1 July 1994, a higher transitional RBL may apply in certain circumstances.

Bona Fide Redundancy Payment

The portion of any redundancy payment in excess of the above amounts is taxed as a normal ETP. To obtain the above concessions in relation to a redundancy payments, certain conditions need to be satisfied

Super Contribution Deduction Limits - Employers

The relevant threshold is determined by reference to the person's age as at the date of the contribution or, where more than one contribution is made during a year, the date the last contribution for the year is made.

Super Contribution Deduction Limits - Self-Employed

The above amounts reflect the total contribution required by a self-employed person to obtain the maximum deduction.

From 1 July 2002, the deductible amount for a self-employed person is the lesser of, the above aged based deduction limit, or $5,000 + 75% of the excess. (Prior to this date it was $3,000 + 75% of the excess). The difference that is not claimed as a tax deduction is treated by the super fund as an "undeducted contribution".

Super Contributions Surcharge Thresholds

The surcharge % payable depends on the total "Adjusted Taxable Income" (ATI) for a person in a particular year. Any deductible superannuation contributions made during a year for that person are then multiplied by the relevant surcharge %.

Where the total ATI is less than the Lower Threshold, the surcharge % is Nil.

Where the total ATI is between the Lower and Upper Threshold amounts, the surcharge % is calculated using the following formula:

(ATI - A) divided by C

For example if the ATI for a person for the 2004 year = $100,000, the surcharge % applicable =

($100,000 - $94,691) divided by $1,355 = 3.92%

Where the total "Adjusted Taxable Income" for a person exceeds the upper threshold, the full 15% surcharge is payable on any deductible super contributions made. A proposal to reduce the surcharge rate to 10.5% over 3 years is still pending.

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Investing in Geared Unit Trusts

Changes to the in-house asset rules applying from 11 August 1999 prevent a self managed super fund from investing in a related unit trust that borrows money to buy assets, unless the unit trust was set up before this date. There are limited circumstances whereby further investments in such a unit trust may be allowed, but only up to 30 June 2009.

What may not be so generally known is that a self managed super fund can still invest in a unit trust that has borrowed money to buy an asset, so long as that unit trust is not deemed to be related to the super fund. A unit trust will be related where the super fund, or any associates of the fund, are considered to control the unit trust.

There will be deemed control of a trust where the super fund is entitled to more than 50% of the income or capital of that trust or, where the super fund has significant influence over the actions of the trustee of the trust.

In addition, where the members and/or trustees of the super fund are in any way related to other unitholders of the trust (eg partners in a partnership operating a business), the super fund and the related unitholders will be treated as one "group" for the purposes of determining control.

What this means is that, for example, three unrelated people could establish a unit trust with 1/3 of the units being held by each of their super funds. Assuming that none of the three super funds are deemed to control the trust, the trust would be able to borrow money to purchase an asset, such as property.

Where the unit trust does borrow, the terms of the borrowing must not require the unit holders of the trust to guarantee the borrowing or to provide a charge over their units. The trust deed should have a provision that precludes the unitholders from being individually responsible for the borrowing by the unit trust.

The trust deed should also include a provision to the effect that no unitholder has a direct interest in the assets of the unit trust and that no individual unitholder can call for assets to be distributed to it.

If you are considering this type of investment for your self managed super fund, it is important that you seek professional advice first to ensure that the particular circumstances surrounding the investment do fall within the law.

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Monthly Information Sessions

From July 2003, we have commenced monthly information sessions which cover the basics of establishing and running a self managed super fund. The information sessions are aimed towards people who are thinking about setting up their own super fund and would like to know more.

The next session will be held on Wednesday 13th August, 5:45pm to 7pm at the SuperGuardian office, Level 8, Optus Centre, 435 King William Street, Adelaide. If you would like to attend, please register your interest by contacting Jenny or Adrienne on (08) 8221 6540 or email michelle@superguardian.com.au. Please note that places are limited to ensure that everyone in attendance has an opportunity to raise questions for discussion.

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DISCLAIMER:  The information in this newsletter has been provided by SuperGuardian in a summarised form.  No responsibility can be accepted for any loss or damage suffered as a result of reliance on the information included herein.  Readers are encouraged to seek professional advice in relation to their particular circumstances.