NetActuary

Simple and Low Cost 2019/20

It’s good to have a simple, known fee that will not vary – even if the requirements of the task become more complex. NetActuary is happy to run a simple system so that advisers/administrators/lawyers don’t have to keep checking what the fee will be - the standard fee always applies.  More than that, we will follow whatever the practitioner needs for a particular case that may require a reduced fee/no fee treatment. Being a long-term, useful service provider is far more important to us than the fee received.

The fees (all inclusive of GST) that apply in 2019/20 are:

Actuarial Services
	ABP Tax Exempt % Certificate   Defined Pension Adequacy Report	$55 $220
Services for Advisors
	QROPS Tax Reports   QROPS Application including Deed   Retirement & Property Calculators   White Labelled Web Calculators	$396 $495 $132 $198
Services for Lawyers
	Family Law DB Valuations   Earnings/Super Loss Calculations   Life Interests	$385 $440 $440

Of course, we undertake many other exercises and actuarial calculations, however the above covers the bulk of requests from practitioners. We undertake no financial planning work so there are no potential (actual or perceived) conflicts of interest. All work will be undertaken by a fully qualified actuary. We invite and encourage users of our services to feel most welcome to discuss with us any esoteric aspects to ensure a good outcome for clients.

Brian Bendzulla

 

Secure Web Calculators

An encrypted internet connection was once only used for payment systems. One knows the connection is secure when a padlock and https:// appears in the address bar. Google Chrome has started to mark all HTTP sites as “not secure”. Google is also down-ranking unencrypted sites in the search engine. Apple Safari browser is going to follow. Consequently, NetActuary has migrated all web calculators and reference pages to a secure host.

Secure sites have an SSL certificate. This has a public and private key that work together to establish an encrypted connection. The increased processing power needed to run encryption has no noticeable response time difference for the web calculators. With the commercialization of the internet, I think we need to accept that the days of http/unsecured connections are numbered. Hopefully, some of the internet scams are driven out at the same time.

 

If you are a user of our branded calculators, what do you need to do? Nothing immediately. They have put redirects on all existing links. However, when you do a website update/maintenance you may like to point directly to the https://netactuary.support/ links. An installation note is available.

 

Brian Bendzulla

Ensuring Correct SMSF Tax Outcomes

While NetActuary will diligently work to ensure administrators achieve appropriate ECPI outcomes taking recent changes into account, this note will provide useful background information – especially with “deemed segregation” and “disregarded small fund assets”.  No comments will be included below on funds that include legacy defined pensions (a separate note will be prepared for those).

 

Elected or Deemed Segregation

Until the 2017/18 year it was common practice to issue an unsegregated actuarial certificate as long as there was an accumulation account at some stage in the financial year.  The ATO’s view – which they will now enforce from the 2017/18 and subsequent years – is that one can have segregation under sec 295.385 of the ITAA 1997, even if the period fully in retirement phase is for only part of a year.  Consequently, one can have both segregated and unsegregated components in the same financial year.  In fact, one can have a number of segregated periods, each having to be separately accounted for – including asset revaluations – but only one residual unsegregated actuarial certificate.  The extra administrative effort can be avoided (which may or may not be in the client’s best interest).

Elected segregation is the old fashioned, conscious decision to segregate and separately account for some of the assets.

We need to be careful about what is exempt and what is not.  A new term – “retirement phase liabilities” has been introduced.  So, we have:

Retirement phase liabilities being:

• Account based pensions
• Market-linked income streams
• Transitional retirement income streams (TRIS) in retirement phase; and

Non-Retirement phase liabilities being:

• Accumulation account
• A Reserve Account
• A TRIS not in retirement phase.

A TRIS is in retirement phase and counts towards tax free earnings after age 65 or once the trustee has been notified that a nil cashing restriction condition of release has been satisfied.  A Transfer Balance Account credit notification must be made.  The TRIS in retirement phase is still not an ABP, although some practitioners feel this should be fixed up.  The same applies to issues around death benefit income streams.

 

Disregarded Small Fund Assets

If at 30/06/2017 (and each subsequent period) a member was in retirement phase and had a Total Superannuation Balance (TSB) above $1.6m in any fund and there was a retirement phase benefit in the fund at any time in 2017/18, the SMSF is classified as having “Disregarded Small Fund Assets”.  In this situation the fund is not allowed to use the segregated method for ECPI.  One will note that is necessary to ask clients what their superannuation assets are in all their funds.  Unsegregated assets are covered in section s295.390 of ITAA 1997.  If the trustees want to claim ECPI they need to get an actuarial certificate.  The calculated ECPI proportion applies to assessable income and net capital gains earned on assets which were not segregated.  Where the value of pension assets has grown above $1.6m it is possible that an actuarial certificate is needed – even if solely in pensions i.e. 100% exempt.

 

Avoiding Deemed Assets

Having to account for and revalue assets for a number of periods within a year is more administration work.  This can be avoided if (say) $100 was kept in an accumulation account at all times during the year.

The issue is that – just like the elected segregation – one or other option may give a better tax outcome.  If there are non-uniform gains or losses e.g. a property sale, the extra administration may be worth it.  Even items such as dividends may not be uniform over the year.  This area is interesting but more of a strategic plan ahead issue rather than an actuarial certificate production issue.    There are many actions that optimize tax and TBC outcomes.  These can be as simple as making pension commencements and Lump Sum Accumulation withdrawals early in the year and contributions late in the year.  From a TBC perspective, it’s better to have amounts above minimum payment requirements as a commutation, not as a pension.

The unsegregated ECPI percentage is used also to claim an expense deduction.  It is important to observe we are talking about tax calculations and the trustees may adopt a different approach for member allocations.

 

Keeping It Simple

Most funds will not have the above issues.  An innovation on the NetActuary data-forms (and in evaluating the SMSF admin general ledgers submitted) is only to ask the usually required questions and have a “less usual” checklist advice.  These are also the areas we watch out for in that they may affect outcomes and require more information.

• Are there legacy defined pensions?                    
• Is there “deemed or elected segregation” in the year?     
• Are there “disregarded small fund assets”?      
• Did the fund commence or wind up in the year?               
• Does the fund have a reserve account?           
• Is there any non-arms length income?
• Did a member pass away during the year or have insurance proceeds been received?       

 

NetActuary is the renamed company in the previous Bendzulla group of companies that provided actuarial certificates.  In recommencing these services, we have the ambition to be the pre-eminent source of quality support for the area.  That includes funds with legacy defined pensions.

Please ‘phone Brian Bendzulla on (03) 6224 1145 if we can help.

COME CELEBRATE WITH NETACTUARY

NetActuary is back in the SMSF Actuarial certificate business! Yes, this has been a long wait!! That is even more reason for a celebration you too can share.

A number of initiatives are planned for the coming months. As an opening special all account-based pension actuarial certificates submitted in the first week of July will be processed for a fee of only $11 inclusive of gst.

The 2017-18 actuarial certificates need a different approach to previous years. It is no longer adequate to mechanically process them. Many fund circumstances have alternative possible approaches and strategies that need to be evaluated to determine which is in the client’s best interest. While NetActuary will use extensive production system support, this will be combined with a careful actuarial judgement. All calculations will be undertaken personally by the qualified actuary who signs the certificate. The turnaround will be prompt, but always subject to what needs to be done.

Will this cost more. No!! Our account-based pension actuarial certificate maximum price will be $132 inclusive of gst. There will be a guarantee of no fee increases in the next two years. Lodgement is simple – on NetActuary.com.au is a data form or simply send us the general ledger download from any of the SMSF accounting systems.

We also have a profound interest in helping with all types of legacy pension aspects including actuarial adequacy and tax exemption reports. For more information see the website or phone Brian Bendzulla on 03-6224 1145.

 

 

 

 

Items to consider before 30 June 2017

This blog considers some actions that may need to be taken before 30^th June, 2017

CONTRIBUTIONS BEFORE JUNE 2017

The Concessional contribution cap in 2016/17 is $30,000 for people aged under 49 and $35,000 for those 49 and over.  From 1 July, 2017 this will reduce to $25,000 p.a. for all taxpayers.  The Division 293 extra contribution cap will have the threshold reduced from $300,000 to $250,000.

Likewise, the non-concessional contribution cap will reduce from $180,000 p.a. to $100,000 p.a. with no non-concessional contribution allowed for taxpayers with more than $1.6m in superannuation.  The $540,000 bring forward will apply for those eligible i.e. under age 65 and not previously triggered in the relevant period.  One needs to be careful with transitional rules for not full bring forwards and also for taxpayers approaching the $1.6m limit.

If a taxpayer wants to get extra contributions – including in specie transfers – into a superannuation fund, consideration should be given to using the opportunity to make higher contributions that apply until 30 June, 2017.

 

TRANSFER BALANCE CAP (TBC)

From 1 July, 2017 superannuation fund members will be subject to a $1.6 million transfer balance limit on assets eligible for tax exemption for funding superannuation pensions.  Amounts in excess of this will need to be held in accumulation phase and taxed at 15% or withdrawn from the superannuation system.

Existing superannuation steams will count but TTR pensions, the Age Pension and overseas pensions are excluded.  A transfer balance account operates.  Account based pensions result in a credit to the account at market value.  Lifetime defined pensions are valued as 16 times 2017/18 income.  Life expectancy and market linked pensions are valued as the annual entitlements times the remaining term.  If the excess is not commuted, the entire income stream will not be eligible for the tax exemption for earnings from assets supporting the income stream.  Also attracts “notional earnings” of the bank bill rate plus 7%.

Some non-commutable income streams have special rules.  The additional income tax consequence is determined by reference to a taxpayer’s “defined benefit income cap” which is the general transfer cap divided by 16 i.e. $100,000 in 2017/18.  Untaxed elements are not eligible for the 10% tax offset and taxed at full marginal rate.  The taxed element or tax free element has 50% of the amount exceeding the defined benefit income cap included in assessable income.

One needs to identify if the TBC is going to be relevant and what course of action will be adopted.  Taxpayers in excess of $1.6 million in superannuation will be required to use the unsegregated method to calculate the tax the fund must pay on earnings.  Another change from 1 July, 2017 is that partial commutations will not count towards a person’s minimum drawdown requirement under the new rules.

 

TRANSITION TO RETIREMENT PENSIONS

From 1 July, 2017 superannuation fund members will lose the tax exemption of earnings on assets that support a transition to retirement pension (TTR).  Members will still be able to start or maintain existing TTRs, but they should be reviewed.  Whether it is worthwhile to continue with this strategy will depend on age and objectives of the strategy.

 

CGT RELIEF

Capital Gains Tax (CGT) relief has been introduced to provide amelioration for individuals who will have to reduce the assets currently supporting superannuation income streams in order to comply with the TBC or TTR reforms.  The relief effectively “locks-in” the CGT treatment of these assets up to 30 June, 2017.

The concept is simple, but the implementation is surprisingly complex.  It may not be in the taxpayer’s interest to claim the relief.

Certain eligibility conditions must be met.  The assets must have been held at 9 November, 2017 and continue to be held.  There are different measures for segregated versus unsegregated assets methods of working out tax.  Mostly, the unsegregated method will be used.  The trustee can choose relief for some or all eligible assets.  The assessable proportion is based on the fund’s exempt current pension income proportion for 2016/17.  The trustee has the option to pay the tax on the notional gain in 2016/17 or defer the tax on the notional gain until the asset is sold.  If this issue is relevant, I suggest you start to evaluate the issues without delay, even though the final aspects can’t be finalised until year end.

 

Brian Bendzulla

Child Dental Benefits Scheme

A compassionate, decent society would not leave people – especially a child – with toothache due to inadequate resources.  In Australia, some 30,000 children per year have to be hospitalized for dental treatment under general anesthetic.  Many of these admissions could be avoided with preventative dental treatment.  Consequently, I was thrilled to see a newspaper article about The Child Dental Benefits Scheme, but dismayed at reported Government inaction to promote it to save money.  We (in the financial sector) could do this in our newsletters, blogs and other communications with the general public.

The scheme provides $1,000 worth of Medicare funded dental care every two years for families eligible for Family Tax Benefit A.  It can be used to get free or reduced cost dental care from a family dentist.  The Government tried to shut the scheme or reduce its benefits, but was unsuccessful.  Family Tax Benefit has an eligibility determined by the child’s age, immunization status and an income test.  The income test is complex but is as high as between $100,000 to $240,000 before it phases out completely (depending on the number of children).

Here is a link if you would like more information:

https://www.humanservices.gov.au/customer/services/medicare/child-dental-benefits-schedule.

Let us play our part in ensuring that the children of Australia get a comfortable visit to the family dentist for preventative dental care instead of a trip to hospital in pain.

Brian Bendzulla

Word Processors and the Web

In the 1980’s – and into the 1990’s – the dominant word processing program was WordPerfect, with more than 50% of the worldwide market.  However, by 2000 Microsoft Word had taken over 95% of the market share.  One needs to adapt quickly.  My suggestion is that even if you use dedicated web programmers, you should be able to make modifications yourself to your website personally.

The core of any financial planning firm that is worth its salt is the ability to mathematically model alternative options to evaluate optimal paths for the client.  This again means your website must have the functionality to assist in achieving this.  NetActuary is assisting by making white label calculators available.  A total rewrite is nearing completion.  More than forty thousand lines of code have been written.

The purpose of this blog is to highlight the HTML you need to link into this resource.  The first thing to note is that the URL (uniform resource locator) can have a “query string”.  We use this on the end of a calculator link to note information about what branding to effect i.e. ?ID=companycode.

 The next bit of HTML you need is an ability to create a hyperlink – a link from one page to another.  This is the <a> tag.  It looks like this:

 <a href = “http://netactuary.com.au/calculators/WLdefault.aspx”>OurCalculators </a>

Other attributes can be embedded in the <a> tag.  A very useful one is to include target = “_blank”.  This causes the calculator to be opened in a new window.  So, when the user closes the calculator, your website is still visible.

For the next week or two we will be working progressively with our white label clients to ensure they have all links working and have considered which of the new capabilities they would like to implement.

 

Brian Bendzulla

The $1.6 million transfer balance cap

Now that the Age Pension changes from 1 January 2017 have the management strategies well developed, it time to think of the next major advisory changes facing advisers.    Among the changes to superannuation was the introduction of a $1.6 million transfer balance cap which limits the tax exemption for assets funding superannuation pensions.

This new limit on superannuation will apply from 1 July 2017 and creates additional responsibilities for SMSF trustees. The main issues one needs to be aware of are:

• All super fund members who are receiving a pension on 1 July 2017 will have a transfer balance cap of $1.6 million created at that time.
• Those not receiving a superannuation pension on 1 July 2017, but will in the near future, their transfer balance cap will be created when they first receive a superannuation pension.
• The amount of tax-exempt assets available to fund a super pension under the cap is determined by a system of debits and credits which are recorded in a transfer balance account.
• Credits are created by:
  - The value of super assets supporting income streams on 30 June 2017;
  -  Starting new superannuation income streams from 1 July 2017 onwards;
  -  The value of reversionary income streams where an individual becomes entitled to them; and
  -  Notional earnings accruing to excess transfer balance amounts.
• Debits are created by:
  -  Commutations of superannuation pensions;
  -  Structured settle payments contributed to superannuation; and
  -  Certain payments arising from family law splits, fraudulent or void transactions.
• Reversionary pensions will count towards the cap, but members will have a 12 month period from the date of death to deal with the reversionary pension before a credit arises and counts towards their cap.

Going over the $1.6 million transfer balance cap will require the excess amounts to be removed from the retirement phase which will likely require the commutation of the relevant pension which has exceeded the cap.

Defined benefit pensions and certain pre-2007 superannuation pensions have special rules for the transfer balance cap recognising their non-commutable nature.

Any amounts in excess of a member’s personal transfer balance cap can continue to be maintained in their accumulation account in their fund.  This means if one has more than $1.6 million in super you can maintain up to $1.6 million in pension phase and retain any additional balance in accumulation phase.

Approaching 1 July 2017 people may wish to structure their asset holdings to be in a position to optimise the $1.6 million transfer balance cap, especially between spouses.

It is also important to know that there is transitional capital gains tax relief for superannuation assets that are affected by any changes you might need to make by 1 July 2017 to comply with the new rules.  This capital gains relief will ensure that any capital gain accumulated on affected superannuation assets will be deferred to a later time when the asset is sold.

Taxpayers with in excess of $1.6 million in superannuation will be required to use the unsegregated method to calculate the tax their fund must pay on earnings when they have assets in retirement phase and assets in excess of $1.6 million.

The indexation of the $1.6m will be less than the earnings.   I want to research how “crystallising” the value earlier may allow one to maximise the amount it is possible to get into pension phase.  At the moment, it’s a gut feel about the potential optimisation – it needs to be looked at carefully.  Those on public sector life time pensions and those with old legacy pensions are two further areas for consideration that jump out.

The Net Actuary Team

Are Actuarial Certificates Gone?

Scott Morrison, The Treasurer, and Kelly O’Dwyer introduced three Bills into the House of Representatives in the past few days.  This paragraph was included:

“3.337 A regulation will be made for the purposes of subsection 295-390(7) to determine liabilities in respect of account based income stream benefits for the proportionate method.  This means that superannuation funds who use the proportionate method but whose only superannuation income stream benefit liabilities arise from account based superannuation income stream products will also not be required to obtain an actuary’s certificate for the purpose of determining their exempt current pension income.”

The wording in the ITAA for 295-390(7) is:

“295-390(7) Subsections (4), (5) and (6) do not apply in working out the amounts to be used in the formula in subsection (3) if, at all times during the income year, the liabilities of the fund in respect of  superannuation income stream benefits payable at those times were liabilities in respect of superannuation income stream benefits that are prescribed by the regulations for the purposes of this subsection.”

Basically, the legislation is already in place to abolish actuarial certificates by regulation.  The vast majority of this work is for account based income streams.  The old legacy defined pensions have been steadily reducing.  If this is the case – and you can see from the above that it is not a careless statement, but rather a thought out course of action – there are going to be a lot of disappointed actuaries moving on to the next challenge.  It will not take admin providers and software developers long to provide the tools to do these rather simple cash weighted calculations.

We will only know with certainty when the regulations are published, but the intent certainly seems to be to remove the actuary’s certificate for account based pensions.  I will keep you posted on developments in this area.

The NetActuary Team

Closing Corporate Defined Benefit Plans

It has been quite a few years since most corporate defined benefit plans have been closed to new members.  As the membership is run down, a point is reached where the cost of operating the arrangement is expensive on a per member basis.  In such a situation the company naturally would like to consider closing the plan by converting the remaining members to an accumulation arrangement.

To obtain the consent of the affected members involves designing the transfer value offer and future contribution levels.  Often a top up amount is involved and this has the potential to trigger excess contribution tax.  The expected tax impact for the member needs to be incorporated in the calculations.

The illustrations for the member need to be on a year by year basis as the resignation benefit in the defined benefit arrangement may not smoothly link to the early retirement benefit design.  When considering whether the new arrangement is likely to be better, death and salary continuance benefits need to be factored in, as one must for administration fees.  At a practical level the member will want reassurance that the new covers will not be subject to medical requirements.  There is potential for the individual to redirect this resource to retirement asset build up if that is their preference.

Benefit projections should be on a number of bases to allow the affected member to judge variability of outcomes.  It’s important to point out that these alternatives do not indicate upper or lower bounds of all possible outcomes.

It’s right and proper that the accumulation design should have a greater expected retirement sum.  The member has more risk, for example, that at retirement returns may be poor – what is called sequence of return risk.  Where I find this risk difference really problematic is when a member is giving up pension rights.  Here the member is taking over the payment duration risk (mortality risk), the rate of return that can be achieved (market risk), inflation risk etc.

From an employer sponsor point of view, these exercises are facilitated by the existence of a decent surplus.  Interestingly, there is a parallel at the SMSF level.  A point may be reached where the cost of SMSF structures do not offset the tax advantages – especially since tax free thresholds and SAPTO may mean little tax on non-super assets.  With a shorter planning duration, the interest component in each payment is less.

The NetActuary Team