SuperStream and its Impact on SMSFs

This month’s Wealth Pipeline discusses the increases to the superannuation contribution caps, and the new SuperStream service and its impact on SMSFs. 

SuperStream and its Impact on SMSFs

SuperStream is a government reform aimed at improving the efficiency of the superannuation system.  Under SuperStream, employers must make super contributions on behalf of their employees by submitting data and payments electronically in accordance with the ‘SuperStream standard’.  All superannuation funds, including SMSFs, must receive contributions electronically in accordance with this standard.  The purpose of this is to provide a consistent and more efficient process for receiving contributions, improve data quality, and simplify employer obligations.

Most SMSFs would have recently received a letter from the ATO detailing their upcoming SuperStream compliance obligations.  The ATO correspondence describes the new requirements for SMSF trustees that receive employer contributions.  From 1 July 2014, employers with 20 or more employees are required to send contributions electronically to all superannuation funds, including SMSFs. 

SMSF members will be required to provide the ABN and bank account details of the fund to their employers by 31 May 2014.  In addition, SMSF members will need to obtain an electronic service address (sort of like an email address for contributions) by which communications regarding contributions can be facilitated. 

For our SMSF administration clients, our software recently launched an online service to assist with SuperStream compliance obligations.  We will send details of this in a separate email.

Increased Super Contribution Caps

The government has recently announced an increase in the concessional contribution cap (CCC) from $25,000 to $30,000 in the 2014-15 financial year.  The non-concessional contribution cap (NCCC) will also increase, from $150,000 to $180,000, in the 2014-15 financial year.  The NCCC is defined as six times the CCC.  In addition, anyone aged 49 or older on 30 June 2014 will have a $35,000 CCC for the 2014-15 year.  This is an extension from last year’s limit of the $35,000 that was available only to those 59 or older on 30 June 2013.

Our Comments

The biggest effect of these changes to the super contribution caps will be seen by employing the three year ‘bring forward’ provisions.  The ‘bring forward’ provisions permit a superannuation member, subject to their age and work tests, to make a NCC of three times the annual cap in one financial year provided they do not make any additional NCC for the following two financial years.  The table below shows two different contribution strategies that could be employed. 

In Strategy A, the ‘bring forward’ is triggered in 2013/14 and the maximum contribution (without incurring excess contributions tax) has been made.  This precludes the member from making non-concessional contributions in respect of the balance of the ‘bring forward’ period.  The superannuation member can next make a non-concessional contribution without incurring penalties in 2016/17.

In Strategy B, the ‘bring forward’ is triggered in 2014/15 and the maximum contributions (without incurring excess contributions tax) for 2013/14 and 2014/15 have been made.  The member can next make a non-concessional contribution in 2017/18.

As the tax rate of earnings in the superannuation environment is generally far lower (no more than 15%) than an individual’s effective marginal tax rate, it is very important that the three year ‘bring forward’ provisions are not triggered until after 30 June 2014.  This will result in a total amount of $60,000 that cannot benefit from the superannuation tax environment over a four year period and $240,000 over a two year period (2013/14 plus 2014/15 financial years).