Binding Death Benefit Nominations In Superannuation
A few recent Supreme Court decisions have highlighted the importance of having valid binding death benefit nominations (BDN) in place for your superannuation benefits, both in self-managed super funds (SMSF) and in public super funds.
A BDN is the document that will ensure your superannuation entitlements are distributed according to your wishes. There are different types of BDNs and understanding them is essential:
| Binding | Non-Binding | |
|---|---|---|
| Lapsing | Valid and binding for a specified period per trust deed, generally 3 years. Trustee must comply with directions within this period. Converts to non-binding after period lapses. | Not applicable |
| Non-Lapsing | Trust deed must allow this type. Valid and binding until a new nomination is made. Trustee must comply with the directions. Important to update as circumstances change to ensure it still complies with your wishes. | Trustee is entitled but not bound to follow the nomination so can distribute funds as they see fit. |
Recent court cases typically involve blended families where there are children from a previous relationship. Generally, a parent wants their children to benefit from their superannuation upon their death, a wish that is usually very clear in their will and in discussions with their spouse. However, a will does not apply to your superannuation. If there is no valid BDN in place, the trustee/s can (but do not have to) take your instructions into account.
With superannuation becoming an increasingly large component of a person’s wealth, the need for regular reviews of superannuation arrangements assumes even greater importance.
For example: There is the recent court case of Ioppolo v Conti [2013] WASC 389 in which Francesca Conti died leaving her second husband, Augusto as sole trustee of their SMSF. He set up a corporate trustee within the required timeframe so the fund remained complying after her death. In her will, Francesca had specified that her super entitlements were to be paid to her children and stated that no benefit was to go to Augusto. The BDN that she completed in 2006 had lapsed at the time of her death. As the trust deed provided absolute discretion of the trustee in paying out death benefits in the absence of a binding nomination, Augusto paid her super benefit to himself. The Supreme Court has upheld that Augusto has complied with the requirements of the trust deed and denied the application of Francesca’s children for access to her super benefits.
Is Your Will Up To Date?
Have you got a valid Will? If you have already made a Will, have you reviewed or updated it since there was a significant change in your life?
You may need to make changes to your Will to ensure that it still meets all of your goals. Below are some events that may prompt a need for review of your Will:
- Change in marital status (many states have laws that revoke part or all of your Will if you marry or get divorced)
- Additions to your family through birth, adoption or marriage
- Spouse or family member has died, become ill or is incapacitated
- Acquisition or disposal of a significant asset
- A significant change in your asset position or business interests
- A spouse, parent or family member has become dependent on you
Estate planning is a specialist area and as such your estate planning requirements should be reviewed on a regular basis with your Solicitor or estate planning specialist.
What Changed on 1 July 2014?
A number of changes to rates and thresholds occurred on 1 July 2014, in addition to the introduction of more stringent penalties for SMSF trustees who contravene superannuation legislation. Some of the most relevant changes include:
- A Temporary Budget Repair Levy of 2% will be payable on taxable incomes over $180,000 p.a. for the next three financial years, increasing the personal income tax rates for the 2014/15 year to the following rates:
| Taxable Income | Tax Payable |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 + 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,547 + 37c for each $1 over $80,000 |
| $180,001+ | $54,547 + 47c for each $1 over $180,000 |
In addition, the Medicare Levy will increase from 1.5% to 2% from 1 July 2014 to fund Disability Care Australia (National Disability Insurance Scheme).
- The Super Guarantee contributions rate has increased to 9.5% 1 July 2014; however the next increase to the Super Guarantee contributions rate is not schedule to occur until 1 July 2018.
- The Dependent Spouse and Mature Age Worker Tax Offsets have been abolished from 1 July 2014.
- Increase in the standard concessional contributions cap to $30,000 (and $35,000 for those age 49 or over on 30 June 2014) and the non-concessional contributions cap to $180,000.
- People who make non-concessional super contributions from 1 July 2013 that exceed the cap now have the option to withdraw the excess amount plus earnings on the excess (subject to the passing of legislation). Excess contributions tax will continue to apply for individuals who leave their excess contributions in their fund.
New Powers Given to the ATO to Penalise SMSF Trustees Who Breach Their Obligations
Legislation has given the ATO new powers to penalise SMSF trustees who breach their obligations. These powers cover monetary penalties, education directions and rectification directions. The changes commence on 1 July 2014 and the powers also apply to contraventions that were made prior to 1 July 2014 and continue after this date.
The ATO has only had a limited range of penalties to deal with SMSF trustees who break the rules, and these penalties were difficult and time-consuming for the ATO to manage. Hence, some trustees were not being held accountable for failing to meet their obligations under the law.
Any financial penalties payable (up to $10,200 per trustee) are personally payable by each trustee (or director of the corporate trustee), meaning that the SMSF cannot pay or reimburse the penalty to the individual.
If you would like further information regarding the changes to legislation for SMSF trustees who breach their obligations, please contact us.
Payment Summaries for SMSF Clients
If you are a member of an SMSF, you are under the age of 60 and have received pension payments or a lump sum benefit during the 2013/14 financial year from your SMSF, you should receive a pay as you go (PAYG) payment summary from your payer (SMSF).
Generally, the SMSF must provide the PAYG payment summary to the relevant member by the 14th July following the end of the financial year in which the payment was made; however SMSFs who meet certain eligibility criteria may be eligible to access the “closely held lodgement concession”, allowing the registered tax agent to lodge the Fund’s PAYG report by the due date of the Fund’s tax return rather than by 14th July.
Where eligible, SMSF clients of Jodie Dickson Accounting and Superannuation and Veritas Wealth Solutions will be added to Jodie Dickson’s “closely held lodgement” list and as such, PAYG payment summaries will be completed at the same time as the Fund’s annual accounts and income tax return, unless we hear otherwise from you.
For those clients that we complete both personal income tax returns and SMSF accounts, we will endeavour to undertake the preparation of personal income tax returns, SMSF accounts and SMSF PAYG payment summaries at the same time to simplify the accounting process and ultimately keep the cost of our services at a competitive rate.
Recurring Payments for SMSF Clients
If you have a Macquarie Cash Management Account in your SMSF, did you know that you can set up an electronic funds transfer to make the same payment each week, fortnight, month or quarter?
For example, if your superannuation benefits are held in pension phase and you take regular withdrawals from your account to meet your income needs and/or minimum pension requirements, establishing a recurring payment can alleviate the sometimes cumbersome process of drawing a cheque from your super fund account and waiting for these funds to clear in your personal bank account before you can access the money.
Payments can be easily set up and maintained online through Macquarie Online using your Macquarie Access Code (MAC) if you utilise internet banking. Alternatively, if you are interested in establishing a recurring payment and do not utilise internet banking, please contact us and we will send you a Recurring Payment Authority form.
Extension of Superstream Compliance Date for SMSF Clients
The government has announced that the date by which SMSFs must comply with the SuperStream contributions data standards has been pushed back from 1 July 2014 to 1 July 2015. The change in date for compliance provides more time for employers and SMSF trustees who still need to take action to comply with the SuperStream contribution standards.
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.
From 1 July 2014, employers with 20 or more employees were to start using the SuperStream standard to send contribution data and payments electronically. From 1 July 2015, employers with 19 or fewer employees are required to send contributions data and payment electronically. The shift to 1 July 2015 for SMSF trustees to comply with SuperStream standards aligns this date with the proposed date for “small employers” to comply with SuperStream.