We live in a world of constant change. Our Tax updates are designed to provide you with a summary of key tax and superannuation issues when they arise. Our aim is to give you Clarity and Certainty in a complex world.
Today’s update provides clarity around proposed changes to FBT and recent changes to the administration of superannuation pensions… and a promise.
Tax system “fairer”
The Government to make the tax system “fairer” by applying business use to the fringe benefits tax exemption for cars As we are all aware the Government recently announced that it would scrap the Statutory Method for calculating the Fringe Benefits Tax (FBT) exemption on motor vehicles. (Under the statutory formula method, a person’s car fringe benefit was the cost of the car multiplied by 20 per cent, regardless of actual personal use of the car).
We have delayed making any comment in relation to this announcement as it is only still an “announcement” and the politics of an election, and industry lobbying, is yet to end. However, in the interest of keeping you informed as to the facts, we have summarised below the key points:
- This reform will remove the statutory formula method for both salary-sacrificed and employer-provided car fringe benefits for new contracts entered into after announcement, with effect from 1 April 2014;
- Existing contracts materially varied after 16 July 2013 will also fall under the new arrangements;
- Existing contracts that are not varied will continue to have access to the existing statutory rate throughout the contract;
- All car fringe benefits for new leases will be calculated using the operating cost method from 1 April 2014;
It is likely that these reforms will be enacted as the Opposition has voiced its support for the changes. In exactly what form, and from what date, is still to be determined.
The key takeaway is that for any new motor vehicle salary packaging arrangements, or for new leases on existing arrangements, consideration should be had as to whether a vehicle is supplied by the employer. The clear benefit of continuing to provide motor vehicles to employees under the new rules is the attractiveness to employees and the Input Tax Credit claim on GST, however there is a sting in the tail in the way that the operating cost of a car is calculated for FBT which may make the provision of luxury cars comparatively more costly than simply paying a higher salary.
Self-Managed Super Funds: starting and stopping a pension
After over two years of debate, Draft Taxation Ruling TR 2011/D3 was finalised last week as both Taxation Ruling TR 2013/5 and Self Managed Superannuation Fund Determination SMSFD 2013/2.
The original draft ruling created a significant degree of concern in the superannuation industry and for all Self Managed Superannuation Funds, and their members, in pension phase. The finalised materials reveal some very positive surprises. (we will try to keep this non-technical).
Taxation Ruling 2013/5 applies to taxed, complying, superannuation funds which commence a pension on or after 1 July 2007. The Ruling focuses on when a pension commences and when it ceases and consequently when a pension is payable – critical to this distinction is the tax that may be payable by the fund. These concepts are relevant for trustees in determining:
- Whether the fund can apply the exempt current pension income (ECPI) provisions (i.e. continue to pay 0% tax on assets used to fund a pension),and
- The income tax treatment applicable to payments from the fund (to members or their beneficiaries), including the correct calculation of the tax free and taxable components.
To date there has been a lot of interest as to when a pension ceases and the Ruling now confirms our view.
Recent amendments, applicable to the 2012-13 income year and later income years, ensure that where a member was receiving a pension immediately before their death, the fund will continue to be entitled to ECPI in the period from the members death until their benefits are cashed where the requirements specified in the amendments are met. These amendments require benefits to be cashed “as soon as is practicable” following the death of the member and, hence, align with existing superannuation laws.
The recent amendments also specify a method for calculating the tax free and taxable components of a superannuation benefit following the death of a pensioner, where the pension did not automatically revert to another person and where the requirements specified in the amendments are met. This proportioning rule applies to a superannuation benefit paid on or after 4 June 2013.
Government Announces 5-year moratorium on major changes to superannuation
Last week Treasurer Chris Bowen announced that the future Rudd Government will legislate a five-year moratorium on major changes to superannuation.
Mr Bowen also confirmed that any changes to the superannuation system that have already been announced will stand.
They said this in 2007… they won’t be able to help themselves!