SuperGuide.com.au » ATO

Is super pension income considered ‘assessable income’ or ‘total income’?

Trish Power — Sat, 28 Jan 2012 14:47:44 +0000

Q: Can you clarify whether income from a pension (from a taxed and/or untaxed super fund) is considered ‘assessable income’ and/or part of ‘total income’? Is it considered self-employment income or employer income?

You will need to confirm the specifics with your accountant, but whether income from a super pension is counted towards assessable income depends on the age of the recipient of the superannuation income stream. If the recipient is aged 60 or over, the pension income from a taxed source doesn’t count towards assessable income. If the recipient is under the age of 60 (and the benefit from a taxed source includes a taxable component), then the taxable component counts towards assessable income.

Note: the pension income (more specifically, the taxable component) of a benefit from an untaxed source is counted towards assessable income, regardless of the age of the recipient.

Background: The ATO states on its website: “Assessable income – This is a person’s ordinary income and statutory income before deductions are taken into account. Reportable employer super contributions do not form part of a person’s assessable income, but are added to it for a number of income tests that use expanded definitions of income.”

Pension income is not employment income, and nor is it self-employed income but it may form part of assessable income if the recipient is under the age of 60 and the pension income includes a taxable component; or if the recipient is any age and receives a benefit from an untaxed source.

I assume when you refer to ‘total income’ you are referring to the special income tests applicable for different entitlements such as, the ability to claim a super tax deduction or to be eligible for the co-contribution.

For example, looking at the co-contribution rules, you must satisfy two income tests both involving ‘total income’ definitions. The first test is the income threshold test, and the second test is the 10% eligible income test.

Total income for the income threshold test (quoting directly from the ATO website) is:

your assessable income for the income year
your reportable fringe benefits total (RFBT) for the income year
the total of your reportable employer super contributions
less
your allowable business deductions.

Total income for the 10% eligible income test is not reduced by allowable business deductions to ensure that self-employed individuals are not disadvantaged by low profit margins. According to the ATO, “For an individual to satisfy the 10% eligible income test, 10% or more of his or her total income must come from employment-related activities, carrying on a business or a combination of both. These amounts are referred to as eligible income amounts.”

Again, we are an information site rather than advisory site, and you will need to confirm your own circumstances with your accountant, or the ATO.

Do sale of shares satisfy a work test?

Trish Power — Fri, 13 Jan 2012 20:33:46 +0000

Q: I am 68 years of age. Does assessable income from sale of shares satisfy a work test for concessional contributions to super up to the $50,000 cap, or does one need to have other specific employment income for at least 40 hours to satisfy the work test? We would appreciate your comments as we are unable to find the taxation reference on this point.

The work test involves some paid activity rather than passive income, although you will need to verify your personal circumstances with an accountant or the ATO.

The following articles provide further background:

Can my SMSF buy a property without paying tax?

Trish Power — Mon, 09 Jan 2012 02:14:37 +0000

Q: Can I sell my managed funds within my super fund and buy a rental property for the same amount without paying any taxes?

We are an information site rather than an advisory site, and the answer to your question depends on the type of managed fund interests that you hold and how any capital gains (if any) are treated by the managed fund/trust and the value of the units that you hold.

The following resources may be of assistance:

The Australian Tax Office has produced a useful document on capital gains tax that covers individuals and superannuation funds. Although the publication is designed to help taxpayers complete the 2010-2011 tax return, the document provides some excellent explanations on how to calculate an asset’s cost base, how to work out the capital gain or loss, and how to calculate the net capital gain/loss if your fund has bought sold more than one asset. You can find a copy of the ATO’s ‘Guide to capital gains tax 2010-2011’ by clicking on this link. In particular, look at the three extracts ‘What is the cost base?’, ‘capital gain’ ‘capital loss’.
Another useful publication for background information is the ATO publication, ‘Personal Investors Guide to capital gains tax 2010/11′, but note this is not designed for SMSF trustees. It does however have helpful examples. See this link.
A SuperGuide article explaining how CGT works for SMSFs: CGT calculations for SMSFs

Which financial year do salary sacrifice contributions fall in?

Trish Power — Mon, 09 Jan 2012 02:01:41 +0000

Q: I salary sacrifice into my super. My super contribution for the month of June 2011 is not available to my super fund until July 2011. Will this contribution fall under the 2010 financial year limit or the 2011 financial year limit?

The ATO has issued some information on the question that you asked. Generally speaking, the contribution is counted in the financial year that the super fund receives the money rather than the financial year in which the employer/individual pays the money. In certain cases however, the ATO will exercise its discretion to treat a contribution as having been made in a different financial year.

You can access the relevant ATO publications by clicking on the links below:

Super contributions – too much super can mean extra tax
Practice Statement Law Administration (in particular Example 7, which is outlined below. The example talks about excess contributions, but the issue of timing is the same)

I suggest you confirm the treatment of your super contributions with the ATO.

47. Example 7 37
George is 45 years of age. George’s employer contributes $50,000 each year to his superannuation plan under the terms of an effective salary sacrifice agreement. However, George was unaware that his employer’s contribution for the 2008 financial year was made late, on 3 July 2008. The employer’s contribution for the 2008-09 financial year was made on time on 29 June 2009. This resulted in George having no concessional contributions in the 2008 financial year but concessional contributions of $100,000 in the 2009 financial year. George is issued a concessional contributions tax assessment for the 2009 financial year based on excess concessional contributions of $50,000. George applies to the Commissioner to exercise his discretion and reallocate $50,000 in contributions to the 2008 financial year.
The following factors are relevant matters to consider in this example:
Of the total contributions made on George’s behalf in the 2009 financial year, $50,000 is more appropriately allocated to the 2008 financial year.
George could not control the timing of the contribution to his plan. George’s employer controlled the timing of the contribution. However, it is clear from his salary sacrifice agreement that George intends to spread his contributions evenly across financial years.
George could not reasonably foresee that the superannuation contribution made under his salary sacrifice agreement would be made outside the financial year to which the contribution related.
Had George’s employer made the 2008 financial year contribution within that year, George would not have had an excess concessional contributions tax liability for the 2009 year.
In these circumstances, a decision maker may consider that special circumstances exist and decide that the contribution of $50,000 made by George’s employer on 3 July 2008 should be reallocated to the 2008 financial year. An excess contributions tax liability in this case could be regarded as unjust, unreasonable or inappropriate because it has arisen as a direct consequence of the actual timing of the employer’s contributions which were meant to be made annually and would have been expected to be made in different years. Also, reallocating the contribution to the appropriate financial year is consistent with the object of Division 292, to ensure that superannuation contributions are spread over the person’s life.
This example describes the situation where the timing of salary sacrifice contributions made by an employer causes an artificial distortion or bunching of contributions in one financial year but where the contributions relate to different financial years. Exercising the discretion to reallocate the contributions to the appropriate year spreads the contributions and aligns them with the financial year in which the employer’s obligation arises. This is consistent with the object of Division 292.
The way in which the Superannuation Guarantee (Administration) Act 1992 (SGAA) operates may also result in timing issues. Contributions made within 28 days after the end of the quarter are taken into account for the purposes for the SGAA as if they had been made in that quarter.38 A contribution made by 28 July for example, will therefore be counted for the purposes of the SGAA as a contribution made for the quarter commencing 1 April of the previous financial year, but for Division 292 purposes it is counted as being made in the next financial year. It is possible that counting the contribution for that later year could produce excess concessional contributions. If excess contributions tax arises, the applicability of the contributions for SGAA purposes to an earlier year might form part of special circumstances and would then be a relevant matter to consider.

Retrospective payment into a super fund to reduce tax

Trish Power — Fri, 06 Jan 2012 06:19:05 +0000

Q: After completing my personal tax return my accountant advised I was up for approx $45k tax. (I had ceased work and sold an investment property, then unexpectedly recommenced work). The accountant advised I pay the ATO with the proviso the return would be further investigated before submission as I had in the past made some capital losses. These are proving hard to track down. I recently purchased your book “How to make $300,000 without trying” and was interested in the story of Mark on page 54. As I mentioned earlier I have paid the ATO the calculated tax due but have not yet lodged the return. My question to you is: Can I now make a contribution to my Self Managed Super Fund of a suitable amount to reduce the tax. ie making the contribution this tax year for last tax year? And secondly, how would I calculate the optimum amount? I am 58 years of age.

Generally speaking, it is not possible to make super contributions in a current financial year to represent contributions for a previous financial year. In certain circumstances, the ATO does exercise discretion and sometimes allows contributions to be reallocated, but only for ‘special circumstances’ (you can read about the ATO’s approach by clicking on this link).

We are an information site rather than an advisory site, so you will need to confirm with the ATO, or your accountant, the impact of any strategies that you are considering.

You also mention the strategy of reducing potential CGT by making super contributions. I explain this strategy in the following articles:

I have exceeded the contributions cap. What can I do?

Trish Power — Fri, 06 Jan 2012 04:57:21 +0000

Q: It seems I have exceeded the contributions cap in 2007-2008 by $6,600 and the ATO has imposed a penalty. Can you provide any guidance on what sort of pleas they would consider?

I’m sorry to read about your predicament. I assume the ATO has sent you a letter regarding your appeal options, which is a starting point for you. SuperGuide has previously published some information on what the ATO will consider as a legitimate reason for the ATO to exercise its discretion. I have provided the links to these articles (set out below):

THE SOAPBOX: Show mercy on contributions caps, for votes’ sake (this article includes this link to the ATO document explaining the process for having your excess contributions disregarded by the ATO)
Super tax alert: Have you counted your super contributions lately? (this articles includes this link to an ATO practice statement outlining some scenarios where the ATO forgives excess contributions and where it doesn’t)
Making super contributions: cracking concessional cap means more tax

If you believe your financial adviser gave you incorrect advice, you can make a complaint about that advice to the Financial Ombudsman Service (FOS). FOS may then be able to broker a financial settlement for you. You can find out more by clicking on this link.

You may also be able to take legal action against your adviser, but that can be an expensive process.

If I’ve reached preservation age can I claim my super?

Trish Power — Thu, 05 Jan 2012 00:47:17 +0000

Q: If you are living in New Zealand and you have super which has been sent to the ATO, and you have reached your preservation age, and you have retired, is there any reason you would not be able to claim your super directly from the ATO?

An individual who has reached preservation age and retired has satisified a condition of release for accessing super benefits, so presumably any super money held by the ATO would be able to be paid directly to such an individual. You will need to contact the ATO for the information they require to verify these facts.

This ATO link should assist you with your question.

Do I need to pay super for my 16-year-old employee?

Trish Power — Thu, 05 Jan 2012 00:41:33 +0000

I am a small business owner who currently employs a 16-year-old employee. She works a minimum of 20 hours per week and her gross income exceeds $450 per calendar month. Am I required to pay her superannuation?

You will need to verify your SG responsibilities with the ATO (on 13 10 20) but the general rule is: if an individual is under the age of 18, they must work at least 30 hours each week and be paid at least $450 (before tax) in a calendar month to be eligible for SG. I explain this situation in more detail in the SuperGuide article Super for beginners, part 2: My first job.

Can my employer insist I join the super fund they use?

Trish Power — Fri, 30 Dec 2011 03:35:15 +0000

Q: I am about to start a new position. I am 67 years old and have a SMSF. My new employer has said I must join the super fund they use and cannot use my SMSF as they have too many employees. It was my understanding I could have the SCG paid to the Fund of my choice. Would you kindly let me know if this company can insist I join the super fund they use?

Thanks for your email. I suggest you phone the ATO SG hotline on 13 10 20 to follow up on this matter.

Some employers are not required to offer choice because a collective agreement is in place, or because an award stipulates that an employer must pay into a certain super fund. The fact that an employer has ‘too many employees’ is not a reason not to offer fund choice.

The SG hotline should be able to help you work out whether you have fund choice, and this link below provides you with some background information.

My employer has not paid my super entitlements. What can I do?

Trish Power — Tue, 27 Dec 2011 20:01:32 +0000

Q: My husband has been working for the same company for 4 years, and the whole time he has been working for them they have not being paying superannuation. We have asked about it regularly with no results but have noticed on his last payslip they have started to write superannuation guarantee in the spot where they use to have superannuation contribution, we are wondering what this means for us. We tried to access or super when my husband had a heart attack last year and could not get anywhere although the employer tells us he is paying it? Thank you for your time.

Thanks for your email and sorry to read about your circumstances.

Your husband can ask which super fund the money is paid into, and also the account number of your husband’s super account within the super fund. If your employer doesn’t assist you, you can contact the SG hotline on 13 10 20 (run by the ATO) and discuss your circumstances and potentially report your employer.

It is unusual that your husband has not received member statements from his super fund, unless you have moved recently or frequently. I hope everything works out.

SMSF audit: Where is your fund’s trust deed and investment strategy?

Trish Power — Mon, 19 Dec 2011 04:23:57 +0000

Q: Do I need to provide a copy of my super fund’s trust deed and financial strategy to my SMSF fund auditor in order to complete the auditing process?

‘Yes’ is the answer, based on the ATO publication ‘Auditing a self-managed super fund’, which provides instructions for SMSF auditors. You can read the list of questions a SMSF auditor should ask a SMSF trustee by clicking on this link.

Note: Also, under section 35C(2) of the SIS Act, a trustee must give an appointed auditor any documents requested in writing by the auditor within 14 days.

The ATO publication, ‘Approved auditors and self-managed super funds – Role and responsibilities of approved auditors’ also explains what’s involved in a SMSF audit. Click here to access a copy of this document.