Traps With New Super Rules
One area of significant importance with the new superannuation rules is the superannuation valuation rules, in particular on fund investment values as at 30 June 2017 and beyond.
These rules are of real consequence to self- managed superannuation funds (SMSFs). The valuation of fund assets is important if a fund member’s balance is close to the $1.6 million transfer cap balance.
Depending on the valuation methodology undertaken, a member may find they are in fact above this threshold level without realising it. With this in mind, investment valuations will become an area of focus for fund auditors and potentially also the ATO. For specific asset classes the following valuation requirements exist:
(i) Listed securities: use the closing price on each listed security.
(ii) Real property: the general rule of thumb is that real property should be revalued every three years and the valuation undertaken by a qualified expert – i.e. a real estate agent or similar
(iii) Unlisted securities and unit trusts: when valuing these types of investments the relevant factors to consider are:
- The value of assets in the entity – a potential method being the net asset value reflected for market values of assets
- Current valuation of large assets held in unlisted trusts and companies such as property can be attained to gain more objective and supportive data
- Distribution statements may supply objective information
- The consideration paid on the acquisition of the unlisted unit or securities may be a reasonable market price when there has been a recent purchase.
(iv) Investments without a ready market: it is expected that investors were aware of the value of an asset at the time of acquisition, its potential for capital growth, and its capacity to produce income.
It is unlikely that an asset with no known value or potential or income growth would be considered a prudent investment to support a member’s retirement goals.
It is acknowledged that there are circumstances where investments fail and there is neither a current value nor a ready market. In these circumstances the asset should be recorded and valued at a nil or nominal amount.
Transition to retirement pensions (TTR)
From 1 July 2017 TTR pensions no longer provide exempt pension income relief for superannuation funds paying them. A TTR pension allows Australians who have reached preservation age (at least the age 55, and now increased to age 57 and older, depending on date of birth) to access their super in the form of a pension without retiring or satisfying an additional condition of release.
From 1 July 2017 the maximum concessional contribution that can be made by an individual or their employer to a superannuation fund is $25,000. As this amount has been reduced from previous years, employees who have salary sacrifice arrangements will need to check them to ensure that no more than $25,000 is paid into a superannuation fund as a concessional contribution. Excess contribution over and above this amount will incur excess contributions tax.
Questions or further information