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Welcome to the August edition of e-Insight. This month we cover:

- Aged care – minimum permissible amount
- ATO form for contribution reserving strategy
- ATO issue Division 293 tax assessments for Defined Benefit schemes
- FBT exempt thresholds increased

Aged care – minimum permissible amount


If an aged care recipient chooses to pay their accommodation payment as a Refundable Accommodation Payment (RAD) within 28 days of entering the aged care facility and they have provided the aged care facility with information about their assets, the aged care facility must leave the recipient with at least $46,000. This is the current minimum permissible amount from 1 July 2015.
If the aged care recipient chooses not to disclose information on their assets, the aged care facility is not required to meet the minimum permissible amount.
If the aged care recipient cannot pay the total accommodation payment as a lump sum, they may be required to make additional payments to meet the accommodation payment cost. Using a combination of RAD and DAP (Daily Accommodation Payment) may allow the recipient to be left with the minimum permissible amount of assets, with the remainder being paid by as daily payments.

Implications for clients
- Using a combination of RAD and DAP may allow your client to secure a position in their preferred aged care facility.

ATO form for contribution reserving strategy
SMSF members who have been undertaking a common reserving strategy may have ended up with an incorrect excess contributions assessment. This was caused by SMSF trustees having to report to the ATO member contributions made to the fund in the financial year in which they are received by the fund, not in the financial year in which they were allocated to the member’s account balance.
The ATO’s administrative assumption is that contributions are always made to the fund and allocated to the member in the same financial year. This may have resulted in a member receiving an incorrect excess contributions assessment for that financial year. The SMSF members were then required to lodge an objection with the ATO to rectify the issue.
The good news for SMSF members is that the ATO has released a new form ‘Request to adjust concessional contributions’ in response to administrative issues with the reserving strategy. This form notifies the ATO that a member has made concessional contributions in one financial year, but the SMSF did not allocate them until the next financial year.
Request to adjust concessional contributions
It is important that SMSF members use this form when they wish to apply this strategy effectively. The SMSF annual return does not otherwise make provision for it, only allowing for correct reporting of contributions that are both allocated by your SMSF and contributed in the same financial year. The information provided in this form allows the ATO to adjust the contributions information provided in the SMSF annual return in order to correctly apply the concessional contributions cap for both years included in the strategy.

Contribution reserving strategy
A contribution reserve can be useful where an employer or a person wishes to maximise their tax deduction for super contributions by utilising their concessional contributions cap for the current financial year and the next financial year.
The contribution is credited to the fund’s contribution reserve before it is allocated to the member’s account. Provided the contribution is allocated to the members account within 28 days of the end of the month in which it is received, the contribution will count towards the member’s cap for the financial year in which it is allocated (not the year in which the contribution is made).

Example
Matthew (45) is self-employed and eligible to claim a personal superannuation contribution. This year has been a good year and he wishes to maximise his tax deduction for contributions to superannuation. He makes a contribution to the fund of $60,000 in June and claims a deduction for the amount in his tax return for this contribution and claims the deduction in the financial year in which it was made.
$30,000 of Matthew’s contribution is credited to his account in the SMSF and the remaining $30,000 is credited to a reserve. It is allocated to Matthew’s account by 28 July in the next financial year.
It is important to ensure that the notice of intent to claim a deduction is provided to the SMSF prior to the lodgement of his income tax return otherwise it may not be tax deductible to Matthew.

Implications for clients
- Clients who implemented the reserving strategy in 2013/14 and earlier financial years may receive an incorrect assessment of excess contributions tax.
- Clients who implemented the reserving strategy in 2014/15 should lodge the new form with the ATO at the same time as they lodge their SMSF annual return and personal income tax return.

ATO issue Division 293 tax assessments for Defined Benefit schemes
The ATO has advised that will soon be issuing 2013/14 Division 293 tax assessments for members of defined benefit schemes.
Since 1 July 2012, individuals with income greater than $300,000 will incur an additional 15% tax on certain concessional contributions. ‘Income’ for the purposes of this measure is the total of the following:
• Taxable income
• Total reportable fringe benefits
• Total net investment loss (includes net financial investment loss and net rental property loss)
• Low tax contributions

Clients with defined benefit interests (whether funded or unfunded) are equally affected by Division 293 tax. Generally, the amount of ‘defined contributions’ included in low tax contributions is:
- Funded defined benefit funds – the individual member’s notional taxed contributions for the financial year but without limiting the amount too the individual’s concessional contributions cap under grandfathered arrangements.
- Unfunded defined benefit funds and constitutionally protected funds – determined by an actuary in accordance with regulations.
The defined benefit calculation for 2013/14 will be different to 2012/13 which was a ‘transitional year’ where the full value of defined benefit contributions was not taken into account.

Implications for clients
- Some clients may be receiving their first Division 293 tax assessment while others may be received an assessment which is higher than the previous year.

FBT exempt thresholds increased
Fringe benefits provided by certain employers receive concessional treatment subject to a cap. If the total grossed-up taxable value of fringe benefits provided to an employee exceeds the capping threshold, the organisation will be liable for FBT on the excess.
Due to an increase in the FBT rate on 1 April 2015 from 47% to 49%, the FBT exempt capping thresholds have also increased (see table below).

FBT year 1 April 2015 to 31 March 2016
Type of organisation:
Public benevolent institutions
$31,177 per employee (Capping threshold1)
$15,900 (Actual taxable fringe benefits which are exempt (no GST input credit)2
Type of organisation:
Charitable institutions $31,177 per employee (Capping threshold1)
$15,900  (Actual taxable fringe benefits which are exempt (no GST input credit)2
Type of organisation:
Public and non-profit hospitals
$17,667 per employee (Capping threshold1)
$9,010 (Actual taxable fringe benefits which are exempt (no GST input credit)2
1. The capping threshold is the limit on the grossed-up taxable value of fringe benefits which may be provided, without FBT applying.
2. The taxable value of fringe benefits up to these amounts is exempt from FBT. This means the employees receive these benefits essentially tax free (no income tax or fringe benefits tax applies). The taxable value of fringe benefits that are exempt will differ from these amounts, if the employer claims a GST input-tax credit.
The FBT rate will remain at 49% for the 2015/16 and 2016/17 FBT years. However, from 1 April 2017, the FBT rate will revert to 47% and the capping thresholds will reduce to $30,000 for public benevolent and charitable institutions, and $17,000 for public and non-profit hospitals.
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