Guidance regarding the payment of death benefits

The Superannuation Complaints Tribunal, which can resolve disputes between large superannuation funds and their members, recently provided some guidance regarding the payment of death benefits from superannuation funds, possibly because the largest category of complaints the Tribunal determined at review last year (44.8%) was death complaints.

This guidance is reproduced below.

“There are some common misconceptions about superannuation death benefits that can result in unexpected outcomes for the beneficiaries of a death benefit, and may result in a complaint being made to the Tribunal.

The most common misconception, arguably, relates to the purpose of superannuation.

Broadly speaking, the purpose of superannuation is to provide income in retirement to members and their dependants; it does not form part of a person’s estate.

Accordingly, a superannuation death benefit should be paid to dependants and those who had a legal or moral right to look to the deceased member for financial support had they not died.

The ability of a superannuation fund to pay a death benefit directly to a dependant rather than to the estate has a number of advantages.

Firstly, it ensures that the benefit is paid directly for the benefit of the dependants and is not available to creditors who would be paid first from the assets of the estate.

Secondly, it can usually reach the beneficiaries quicker than if a grant of probate or letters of administration has to be obtained and the estate called in and distributed.

Thirdly, as a general rule, superannuation death benefits are protected from bankruptcy.

Therefore, even if the deceased member was bankrupt, or if the estate is insolvent, funds can be paid direct to the dependants to replace the income stream that may be lost as a consequence of the death.

However, if you would like to ensure that your superannuation is distributed a certain way then it is important to find out if your superannuation fund has the option for a binding nomination and if so, ensure you meet the requirements, including renewing your binding nomination every three years.”

Note: The requirements for making a binding death benefit nomination for an SMSF are normally found in the trust deed of the fund, and may allow the nomination to be ‘non-lapsing’.

ATO reviewing taxable payments annual reports

money puzzle

The ATO has advised that it is contacting businesses in the building and construction industry about information provided on their Taxable payments annual report, where the businesses have:

  • provided a report with missing or invalid ABNs;
  • included amounts paid for GST when the contractor isn’t registered for GST;
  • not lodged a report; or advised the ATO they are not required to report, when the ATO’s records indicate they should.

The ATO will explain what their review has found and suggest ways to make it easier to complete accurate reports in the future, such as using the ABN Lookup tool or ATO app to check a contractor’s ABN or if they are registered for GST.

Can we claim the Christmas Party?

This is a question that we as accountants are typically asked this time of year and unfortunately our response is not always in the affirmative.

With the December/January break fast approaching, many employers and business owners are planning to reward their staff with a Christmas Party and/or provide a gift of some description. Before we delve into the intricacies of the FBT, Income Tax and GST Acts let’s start at the outset saying that in the majority of cases the ATO will disallow tax deductions for entertainment benefits provided to employees unless certain criteria are met.

Now for the intricacies (summarised of course)…

  • FBT
    Generally speaking fringe benefits tax (FBT) applies to most forms of “entertainment” style benefits provided by an employer to their employees. There are several methods available to calculate FBT however both typically incur additional tax costs to the employer which can be a unexpected surprise when it comes time to actually registering for FBT and paying the appropriate FBT tax itself (this is obviously in addition to the cost of providing the actual Christmas party and/or gift so can have the potential effect of doubling the cost of providing the benefit in the first place!).Many small business owners rely on an FBT exemption called the Minor Benefit Exemption which allows the employer to avoid paying FBT on benefits provided to employees (and their family/associates) when the cost is less than $300 and the benefit is provided on an infrequent and irregular basis. The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and gift) are not added together when applying this less than $300 exemption.
  • Income Tax
    Income tax deductibility of Christmas parties and employee gifts generally depends on how you choose to treat the same for FBT purposes.If registered for FBT and pay FBT on the actual entertainment and gift expenditure then the ATO allow tax deductions for the expenses. If however the employer relies on the FBT minor benefit exemption (which has the effect of exempting the expense for FBT as discussed above) the trade-off is that the expenditure generally becomes non-deductive from an income tax perspective. Generally because for entertaining expenditure (i.e. the cost of the Christmas party) if exempt from FBT there is not tax deduction for the cost however the cost of the gift, if not entertainment in nature (i.e. Christmas hamper, bottle of wine, flowers, etc.) would still remain tax deductible. If the gift is considered entertainment in nature (i.e. movie tickets, sporting tickets, etc.) then they fall outside what the ATO accept as tax deductible gifts to employees. Clear as mud?!?
  • GST
    The general rule of thumb is if the expenditure qualifies as tax deductible then GST typically is claimable on the expenditure. If however the expenditure is not tax deductible then GST should generally not be claimed on the same.

We understand that these areas of tax law can all be somewhat bewildering, so if you would like a some assistance to work out exactly where you stand this year with your Christmas Party and employee gifts, please contact the team at Aspect Accountants & Advisors where we will be more than happy to work through the particulars with you.

The ATO and its regulation of SMSFs

Editor:  In a recent speech, Kasey Macfarlane, Assistant Commissioner, SMSF Segment, Superannuation, discussed the issues facing SMSFs and their aging trustees.  The following is an excerpt from her speech.

Planning ahead – cognitive decline
“I’d like to touch on the increasingly important topic of cognitive decline. Dementia is on the rise and currently affects one in ten people over 65, and three in ten over 85.”

“Even mild dementia will affect a person’s ability to make financial decisions.  SMSF numbers continue grow, and . . . require a high level of financial decision making.

“While many trustees remain perfectly capable of effectively managing their financial affairs well past retirement age, there is a risk that some with diminished capacity to effectively manage their fund may nevertheless continue to do so.

“As my colleague Matthew Bambrick said back in March, ‘These issues are a time bomb waiting to go off if not addressed now’.

“It’s essential to ensure that all trustees are genuinely involved in managing SMSF funds, to agree in advance about decision points and exit decisions, to have a will, and appoint an enduring guardian and power of attorney.”

Editor:  If you would like to discuss this important issue further, please contact our office.