| Commonsense Prevails ------- Super Result That! |
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The financial and SME industry have been given some good news and direction in recent weeks. A Court decision on a commonly used super/tax strategy regarding income splitting and, secondly, some direction from the ATO to clarify re-contributions to Superannuation. But first the Court decision: This decision looked at the validity of superannuation contributions made by a family company on behalf of the wife of a taxpayer. The taxpayer effectively earned the income of the company by providing his services to third parties. The taxpayer's wife provided the company with secretarial assistance and was paid a salary commensurate with her duties. In addition, the company made superannuation contributions on her behalf. The Australian Taxation Office argued that the amounts paid to the taxpayer's wife and on her behalf, as salary and superannuation respectively would have reasonably been included in the taxpayer's income had the amounts not been paid to and on behalf of his wife. Therefore, the payments to the taxpayer's wife were an attempt to reduce the taxpayer's assessable income. The Administrative Appeals Tribunal (AAT) held that no part of the salary paid to the wife (the salary was deemed to be reasonable in its amount) nor her superannuation contributions might reasonably have been expected to be included in the taxpayer's assessable income. The AAT stated that the purpose of the arrangement was not to secure a tax benefit, but to provide the wife with payment for her work, including the provision of superannuation contributions. In addition, the AAT also stated that there was no tax benefit, as if the amounts had not been paid to the taxpayer's wife, the relevant amounts would have been paid into additional superannuation contributions for the taxpayer, ie same deduction amount for the company. This was an important decision re ATO's view of Part 1VA (anti tax avoidance provision) as it goes to the taxpayers' ability to take advantage of concessions in the tax law. The second popular strategy used relates to 'recontribution' or 'recycling' super. This common retirement strategy has been in vogue for years and involves taking money out of super and re-contributing back into super some time afterwards. This has generally been done to boost the tax efficiency of retirement income streams (pensions and annuities) that can be paid after all the re-structure is completed. The transactions usually are conducted either just before, or just after, retirement. In early August, the ATO has clarified its position by way of a press release (yes, legislation by press release still reigns). The ATO says strategies they have examined are designed to maximise retirement benefits and are allowable under the law. So, the strategy outlined above gets the green light as does where a taxpayer makes a large undeducted contribution to their Superannuation Fund before they receive an eligible termination benefit (ETP). The effect is to reduce the amount of tax payable on the ETP. These are significant developments and we await the fine print in coming months. Tony Martin & Geoff O'Neil - Directors |
+ 61 8 8333 1944
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