Superannuation

There have been a lot of amendments and changes to the rules governing superannuation funds and their providers by the Federal Government that may have an impact on how you as an employer deal with super.

Are you aware of the changes to “choice of fund” rules that you might need to be aware of as an employer of new to the workforce employees?

As an employer, you must provide all new employees with a Superannuation standard choice form within 28 days of their start date. They may also be provided with one if:

• They as an employee request one
• You are not able to contribute to their chosen fund, or it is no longer a complying fund
• You change the employer-nominated fund into which you pay the employee’s contributions.

If the employee holds a temporary working visa or their super fund undergoes a merger or acquisition, they will not be able to choose their super fund themselves.

If you have new employees start and they don’t choose a specific super fund, you may need to request their ‘stapled super fund’ details from the Australian Taxation Office.

A stapled super fund is an existing account that is linked, or ‘stapled’ to an individual employee, so it follows them as they change jobs. This change aims to reduce the number of additional super accounts opened each time they start a new job. If a new employee does not have a stapled fund and they do not choose a fund, the employee’s super can be paid into the employer’s default fund.

With fewer superannuation funds being opened, employees are less likely to generate ‘lost super’ as they transition through their employment periods and various careers leading up to their retirement.

As an employer, you can request stapled super fund details for new employees using the ATO’s Online services for business.

You can check and update the access levels of your business’ authorised representatives (such as your accountant or bookkeeper) in Online services. This will mean you’re ready to request stapled super funds if needed. It will also assist in protecting your employees’ personal information.

As an employer, you legally cannot provide your employees with recommendations or advice about super unless you are licensed by ASIC to provide financial advice. You can give your employees information about choosing a fund however, including:

• Why do they need to choose a super fund?
• The process of choosing a super fund.
• Your obligations as an employer to pay the super guarantee and provide a default fund to pay into
• How they can nominate their chosen fund

Remember, Concord Tax – Kirwan can help you with your tax and super queries. Come and speak with us about your options, and to ensure that you are compliant with your super requirements as an employer.

If you are a new employee entering into the workforce, and you’d like to know more about your options when it comes to superannuation, you should have a serious discussion with providers and conduct your own independent research on the funds available.

Most people will want to keep as much money in their superannuation account for as long as possible. One of the primary reasons behind this is that the longer the superannuation has a chance to stay within the account, the more returns may be seen (depending on how the investment assets are performing).

Often, people will ask if they actually have to take their money out. The simple answer is no.
You never have to take your own super out if you don’t want to. There are plenty of rules regarding keeping money in super (including the conditions and requirements to withdrawing, meeting preservation ages, etc). There are very few however that force you to take it out, and very rarely will you be forced to withdraw your superannuation if you do not want to.

The only time your super must be paid out is following your death (which, technically, means that you won’t receive that money anyway, it will be your beneficiary/ies who will).

The question though is whether or not you should leave your superannuation in there until you die. It comes down to who is receiving the money from your super.

If the money is being paid out to your spouse, it will be tax-free and there will be no issue with accessing it. You can also keep as much of your superannuation in there for as long as is necessary.

When you are a married couple, you can leave it to each other. However the remaining living spouse will often end up leaving their super to their adult children, and therein lies the catch.

When your super is paid to a child who is over 25 (without a disability), the adult child has to pay 17% tax on any taxable component of their parent’s super. In this situation, taking professional advice to compare the tax consequences of taking your super early (where you pay the tax on the earnings) versus the tax position of leaving it in super and your kids paying 17% on the taxable component instead, may be needed to work out what might be best for your situation.

One of the primary concerns is that those finding themselves in this position, where they have for example $600,000 in super and in their mid-eighties are not paying tax and not regularly seeking advice are the ones whose children end up paying the tax.

It may be that the next generation needs to be involved with their elderly parents’ financial positions to ensure that they are not going to be stung with Australia’s death taxes on superannuation payments.

Remember, this tax is only payable on the taxable component of the superannuation – there are strategies that can be put in place during your 60s that can reduce the taxable component of your super (without taking it out and remaining in your name). Everyone in their sixties should be taking advice from professionals so that the impact of death benefit taxes are reduced for their adult children when it is mandatory for their parents’ superannuation to be paid out to them.

The way in which a self-managed super fund is structured could change its legal compliance requirements. If you are in the process of setting up an SMSF, you will need to decide about how to structure it appropriately to suit. 

An SMSF can be structured as a single-member fund or a multiple-member fund, with the trustees of those funds deemed as either to be individual trustees or corporate trustees.

Examining the circumstances of your members could help to narrow down the structure that will be best suited. You can also work out from the requirements of each structure whether or not a fund structure would be suitable for the needs of your members. 

Individual Trustees

Individual trustees in a single-member fund will have two trustees within the fund. One trustee must be the fund member, but cannot be the other trustee’s employee (unless they are also relatives). An example of a single member trust fund structure could be a family super fund, where the members are trustees for the fund.. 

Individual trustees in a multiple-member fund structure generally have between two to six members. Each fund member must be a trustee and each trustee must be a fund member. Like the single-member fund, members of this fund structure cannot be the employee of another member (unless they are relatives). 

SMSFs that use individual trustees or are looking to use individual trustees in their structure may benefit from the following: 

• The fund can be cheaper to establish, as a separate company does not need to be set up to act as a trustee.
• Trustees must follow the rules in the fund’s trust deed, the super laws and the tax laws.
• There are fewer reporting obligations which means it can be easier to administer, however, changing trustees can mean more paperwork and administrative costs. .
• Another trustee must be appointed if your fund only has two trustees and one leaves or dies to continue operating as an SMSF, or it must change to a corporate trustee structure. If the trustees change, you need to notify the ATO within 28 days.
• Fund assets must be held in the name of the fund or the names of the individual trustees, “as trustees for” the fund. If the trustees change, the name in each asset’s ownership document must be changed as well, which can be time-consuming and costly.

Corporate Trustees

SMSFs that are set up using corporate trustees, typically set up a business or company to act as a trustee. The members within these kinds of funds are known as directors and will need to apply for a director identification number as such.

Corporate trustees within a single-member fund structure may have one or two directors, but one of those directors must be the fund member. If there are two directors, the member cannot be the other director’s employer (unless they are relatives).

Corporate trustees within a multiple-member fund structure generally number between two to six members, with each fund member also being a director. A member cannot be the employee of another member (unless they are relatives). An example of a corporate trustee SMSF could be a business acting as the trustee for a super fund, where the members are also directors of the fund. 

SMSFs that use corporate trustees or are looking to use corporate trustees in their structure may benefit from the following: 

• A company must be set up to act as the corporate trustee, for which ASIC will charge a fee to register them as a corporate trustee and an annual review fee.
• Directors must follow the rules in the fund’s trust deed, the super laws, the tax laws, the company’s constitution and the Corporations Act 2001.
• Company directors, including directors of an SMSF corporate trustee, will need to obtain a director identification number. 
• There are some extra reporting obligations to ASIC but it can be easier to administer the ownership of fund assets and to keep fund assets separate from any personal or business assets.
• The corporate trustee does not change if a director leaves or dies, as it can operate with just one director. However, you will need to notify the ATO and ASIC within 28 days if the directors change.
• Fund assets must be held in the name of the fund or the names of the company, “as trustee for” the fund. If the directors change, the corporate trustee does not change so the titles of the fund assets are unchanged. 

The setup of an SMSF can be a complicated process. You may benefit from speaking with a professional assisting you in its preparation and establishment. Choose someone who is qualified, registered and licensed, and right for you and your circumstances.