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Issue 127, 19 May 2006
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Thomson’s Tax & Accounting Insight, your free news
service for tax and accounting professionals.
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Articles in this edition include:
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LRA.Support@thomson.com Copyright:
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Pyrmont NSW 2009
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2006/07 Federal Budget overview
The Federal Treasurer, the Hon Peter Costello MP handed down the
2006/07 Federal Budget, his 11th Budget, on 9 May 2006. From a tax
and superannuation point of view, this Budget is a significant one.
Anyone following all the pre-Budget speculation could be excused for
being confused, but significant tax cuts were announced, as well as
many other major superannuation changes.
As reported on 9 May 2006 in Thomson ATP’s Latest Tax News
(LTN) and Weekly Tax Bulletin (WTB), the taxation centrepiece
of the Budget will probably be seen as the cutting of the top
marginal tax rate by two points from 47% to 45% and the 42% rate
down to 40%, both with effect from 1 July 2006 and the raising of
the new 40% top rate threshold to $150,000 (from the already
legislated $125,000). Overall, the government will increase the tax
scale thresholds so that the 15% rate will apply up to $25,000, the
30% rate up to $75,000, the 40% rate up to $150,000 and the 45% rate
will apply to income above that. This will result in four marginal
tax rates to apply from 1 July 2006 — 15%, 30%, 40% and 45%. The
other significant rate change is the reduction in the FBT rate to
46.5% from 1 April 2006. In addition, the government announced major
tax changes to small business concessions (e.g. CGT net asset
threshold, STS) and a significant and dramatic plan to simplify and
streamline superannuation, including abolishing RBL and aged-based
limits, but the 15% superannuation contributions tax remains
unchanged.
Revenue measures announced
In summary, the many revenue measures announced in the 2006
Federal Budget include:
- the personal tax cut changes noted
above;
- superannuation: the Treasurer
released details of the government’s plan to ‘simplify and
streamline superannuation’ with effect from 1 July 2007 —
with some quite dramatic announcements, including:
- Australians aged 60 or over
will be exempt from any tax on their end benefits where
these are paid from a taxed super fund. The Treasurer said
there would be no tax on a lump sum, and no tax on a
superannuation pension, although the preservation age would
not change;
- reasonable benefit limits (RBLs)
and age-based limits will be abolished;
- a simple universal
contribution limit will apply;
- the self-employed will be able
to claim a full deduction for their superannuation
contributions and they will be eligible for the government
co-contribution; and
- the ability to make deductible
super contributions would be extended to age 75;
- reducing small business compliance
costs: the government will increase the net assets threshold for
the CGT small business concessions to $6 million, and allow STS
taxpayers to be eligible for the CGT small business concessions
without having to satisfy the net assets threshold and to pay
quarterly PAYG instalments on the basis of GDP adjusted notional
tax;
- the low income tax offset will
increase from $235 to $600;
- venture capital: the government
will introduce a new investment vehicle called an early stage
venture capital limited partnership (ESVCLP) which will, from 1
July 2006, progressively replace the existing PDF arrangements.
The government will also make changes to the existing venture
capital limited partnership regime;
- senior Australians who are
eligible for the senior Australians tax offset will pay no tax
on their annual income up to $24,867 for singles and up to
$41,360 for couples; and
- increasing the Medicare levy low
income thresholds to $16,284 for individuals and $27,478 for
families, with effect from 1 July 2005.
The economics
On the economic front, the Treasurer announced a forecast surplus
in 2006/07 of $10.8 billion (perhaps smaller than many might have
thought), the ninth surplus in 10 years. The Treasurer announced a
new program of investment (an additional $2.3 billion), involving
both Physical and research infrastructure); help for Australian
families and for older Australians; and more spending on defence.
Budget documents available
The 2006/07 Commonwealth Budget Papers are available at any of
the following five websites:
This article appeared in Thomson’s Super
News Alert. Delivered 2–3 times a week to specifically
cover superannuation developments as they happen, it is ideal for
specialist practitioners who need to keep fully up-to-date with the
latest superannuation developments without searching through large
quantities of general tax news and information. To find out more,
phone Thomson Customer Service on 1300 304 197.
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According to APRA, total superannuation assets grew 4.1% during
the December 2005 quarter, bringing the overall value of
superannuation assets to $844.6 billion. That represents a 19.1%
increase for the year to 31 December 2005.
APRA indicated that industry funds, once again, showed the
strongest growth during the quarter, with assets up 5.9% to $137.2
billion and retail fund assets grew by 4.4% to $271.5 billion.
Public sector fund assets grew by 3.9% to $141.9 billion, while
corporate fund assets rose 2.3% to $55.8 billion. Self-managed
superannuation fund (SMSF) assets grew 3.8% to $190.3 billion
(representing 22.5% of total assets).
As at 31 December 2005, APRA’s statistics indicate that there
were 320,623 superannuation funds. Of these funds, 312,657 were
SMSFs, representing a 1.5% increase for the quarter.
Over the December quarter, contributions to funds with at least
$50 million in assets were $14.6 billion, with employers
contributing $10 billion and members contributing $4.3 billion.
Other contributions, including spouse contributions and government
co-contributions, totalled $284 million.
The overall return on assets was 3.3% for the December 2005
quarter, made up of public sector funds (3.5%), corporate funds
(3.4%), retail funds (3.3%) and industry funds (3.2%).
The quarterly superannuation performance statistics are
available on the APRA
Website.
This article appeared in Thomson’s Superannuation
& Financial Services Bulletin, a comprehensive and
informative superannuation news service, covering all
superannuation developments, from cases, new legislation, rulings,
Tax Office/APRA developments and major announcements to detailed
practitioner articles. Special coverage is given to newly
introduced legislation with contributions from business-focused
experts. To find out more, phone Thomson Customer Service on 1300
304 197.
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The OECD has released new guidelines on pension fund asset
management. It says that, as more and more people invest in
private pensions, funds must be managed well and transparently.
The guidelines mark an initiative by OECD countries to set
international standards for the oversight and day-to-day
management of pension fund investments. They simultaneously call
on regulators to give pension funds more flexibility in their
investment choices and on trustees to be more diligent in
monitoring their fund’s investments.
The OECD says pension fund investment strategies are becoming
more sophisticated, but differences remain between countries in
the way pension fund investments are managed and regulated. For
example, there are substantial differences between countries in
the extent to which company-sponsored pension funds are authorised
to invest in the equity of the sponsoring company.
The OECD guidelines, endorsed by all 30 member governments,
offer a roadmap for how pension funds should manage their assets.
They propose that funds follow the so-called ‘prudent person’
rule and hence:
- define an overall investment
policy and actively follow it;
- require the governing body to
act in the ‘best interest’ of beneficiaries when investing
pension plan assets;
- establish internal controls and
procedures to effectively implement and monitor the way
investments are managed; and
- identify and measure the risks
to which the fund is exposed and put in place mechanisms to
monitor and manage those risks.
To give trustees a clear picture of how the pension fund is
performing, the market value of the fund’s assets and
liabilities should be disclosed on a regular basis, according to
the guidelines. This is intended to give trustees early warning of
a fund’s underperformance and enable them to take quick
corrective action.
The guidelines say legal provisions should not prescribe a
minimum level of investment for any given category of investment,
nor prohibit investment abroad by pension funds. Furthermore,
portfolio limits should be set only in specific instances, for
example, to limit investment in the securities of an individual
company or in shares of a fund’s sponsoring employer and/or its
asset manager.
The full text of the guidelines is on the OECD
website.
This article appeared in Thomson’s Superannuation
& Financial Services Bulletin. To find out more, phone
Thomson Customer Service on 1300 304 197.
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