The key superannuation caps and thresholds for the 2009–10 financial year have been published. Many of these are set to increase in line with indexation:
|Cap / threshold||From 1 July 2009|
Note: the cap for persons aged 50 years or over remains at $100,000 per financial year.
|$55,000 per financial year|
|Non-concessional contributions||$165,000 per financial year|
|3-year ‘bring-forward’ non-concessional contributions for those aged under 65 years||$495,000 over three financial years|
|CGT cap amount||$1.1 million lifetime cap|
|Low rate cap amount||$150,000 lifetime cap|
|Untaxed plan cap amount||$1.1 million lifetime cap|
The contribution regime now requires careful management, especially as allocations from reserves and expenses paid on behalf of a fund may be counted. Excess contributions also continue to be a major planning issue for SMSFs and their advisers.
Pre-1999 geared unit trusts
There are now less than three months until the 30 June 2009 deadline for maximising reinvestment by SMSFs in pre-1999 unit trusts!
Any reinvestments after the deadline will not be exempt as in-house assets. Advisers and trustees must take timely action now as the receipt of distributions from the unit trust and reinvestments by the SMSF cannot be applied ‘retrospectively’ after the deadline.
How can SMSFs reinvest distributions?
Broadly, the trustee of an SMSF which had an investment in a unit trust as at 11 August 1999 can invest in further units until 30 June 2009, which will be exempt as in-house assets, if the value of its reinvestments since 11 August 1999 does not exceed the distributions received from that unit trust since 11 August 1999 at any point in time.
(Note: these rules do not apply if the SMSF made a written election by 23 December 2000 to reinvest the level of debt of the unit trust. Refer to s 71E of the SIS Act for the rules applying in that case.)
For example, assume Sally’s SMSF has a pre-11 August 1999 investment in a unit trust.
- Scenario 1: if Sally’s SMSF has received $150,000 in distributions from the unit trust since 1999 and has not made any further investments to date, the SMSF may now invest in further units to the value of $150,000 (without such further investments constituting in-house assets)
- Scenario 2: if Sally’s SMSF has received $150,000 in distributions from the unit trust since 1999 but has made further investments to the value of $80,000, the SMSF may now invest in further units to the value of $70,000 (ie, $150,000 less $80,000) (without such further investments constituting in-house assets).
In both cases, any further investments must be made before 30 June 2009 in order to be exempt from the in-house asset rules.
When is a distribution ‘received’?
The ATO confirms that that the SMSF trustee must have actually received a distribution and it is not sufficient to be merely entitled to it: see SMSFD 2007/1.
The ATO states that a distribution is ‘received’ when it is actually collected by the SMSF (eg, by cash or cheque) or, if the parties have agreed it will be applied in some way by the unit trust trustee (ie, reinvested by issuing further units), when it is so applied.
Bob’s SMSF has a pre-11 August 1999 investment in a unit trust. Since that date the SMSF has become entitled to total distributions of $700,000 from the unit trust. These are still owing as unpaid entitlements which have been recorded as ‘loan’ amounts.
Bob also expects the SMSF will be entitled to a distribution of approximately $80,000 for 2008–09.
How much can Bob’s SMSF reinvest?
According to the ATO, merely having unpaid present entitlements recorded in the accounts is not sufficient to say that those amounts have been ‘reinvested’ by the SMSF trustee. In other words, action must be taken now. The unit trust trustee should either:
- actually pay the amounts to the SMSF (to enable the SMSF trustee to in turn reinvest these by 30 June 2009); or
- make an arrangement with the SMSF trustee to deal with the amounts internally and reinvest the distribution (and actually reinvest the amounts before 30 June 2009).
The latter requires that the unit trust deed have a power to reinvest distributions this way, so the deed should be reviewed beforehand and expert advice sought if there is any doubt.
Further, most unit trust deeds prescribe procedures for the issue of units, which may include the completion of an application form, unit trustee resolutions and updating the unit register, etc. If these steps are not completed in accordance with the deed by 30 June 2009, the SMSF trustee might not have validly reinvested the amounts by the deadline. Therefore, timely action is required.
(Note also: the ATO has issued a draft ruling on unpaid present entitlements owing from unit trusts to SMSFs and states that these amounts may be considered ‘loans’ from the SMSF if not appropriately dealt with, thus giving rise to possible in-house assets or breaches of the sole purpose and arm’s length tests. All SMSF trustees should be aware of this issue and take action if needed. Refer to SMSFR 2008/D1.)
What about the $80,000 expected for FY 2008–09?
As mentioned, an amount must actually be received before it can be invested. A mere entitlement, and a mere expected entitlement, are not sufficient.
The unit trust trustee should therefore consider having interim accounts prepared to determine the net income until, eg, May or early June 2009. An interim distribution could be made and the amount reinvested before 30 June. Again, the unit trust deed must authorise interim distributions so a review should be undertaken beforehand.
The small portion of net income earned after the interim distribution until 30 June could be reinvested, eg, if a further interim distribution is made.
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