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  • AIA Technical Education Centre of Excellence (TECE) Tip

    17 April 2018


    At AIA we know the importance of having access to technical experts to help you provide exceptional service and grow your business. AIA's Technical Education Centre of Excellence (TECE) is here to do just that. For today's tip learn more about the Eligible Service Date (ESD), and how it determines the tax payable calculation for your clients who make a claim on a policy they hold within their superannuation fund.

    What is the Eligible Service Date (ESD)?

    The ATO defines ESD (also known as service period start date) on their website as:

    1. the first day of the first period of employment that the lump sum relates to if the member was employed when some or all of the lump sum accrued

    2. the earlier of the following if the member was not employed when some or all of the lump sum accrued;

    • the date when the member joined your fund
    • if the lump sum is attributable to an earlier lump sum previously rolled over, the first day of the service period of the earlier lump sum.

     

    TECE ESD

    What does this mean?

    The ESD is the earliest date that can be attributed to the superannuation benefit, whether by first date of fund membership, first date of employment relating to a contribution, or by rollover from a fund with an earlier ESD.

    Here is an example of how the ESD is recorded from fund to fund.

    Andrew is 17 years old and has started work on 01/02/2005 with his first employer, First Choice Employment Pty Ltd and is eligible to receive superannuation contributions.  Andrew does not make a choice regarding here his superannuation should be paid because he does not have an existing superannuation account and has not applied to become a member of a particular fund.  First Choice Employment Pty Ltd makes a payment to their nominated default fund ABC Super Fund. Due to quarterly payment obligations for employers, this payment is made to ABC Super Fund on 28/04/2006.

    • The ESD for ABC Super Fund is recorded with the fund as 01/02/2005 which is the first day of the first period of employment in relation to the superannuation contribution.
       

    On 25/07/2010, Andrew starts work with a new employer, General Consulting Services Pty Ltd, however he forgets to nominate a super fund. General Consulting Services Pty Ltd makes payment to their default super fund, Super for Life on 28/10/2010

    • The ESD for Super for Life is recorded with the fund as 25/07/2010 which is the first day of the first period of employment in relation to the contribution to this new fund.
       

    On 01/07/2015, Andrew applies for a Public Offer superannuation account with Self-Employed Super and commences working as sole-trader.  He makes regular, tax deductible payments to this fund, however he does not organise to roll over any funds held with ABC Super Fund or Super for Life.

    • The ESD for Self-Employed Super is recorded with the fund as 01/07/2015 which is the date that Andrew joined the fund.
       

    On 15/02/2016 Andrew decided to start a Self-Managed super fund – Andrews Family Self-Managed Fund.  He establishes the account by rolling over the funds from Self-Employed Super and he also remembers his first super account with ABC Super Fund. On 01/03/2016, he receives the rollovers into his SMSF from both Self-Employed and ABC Super Fund.

    • Before the funds are rolled in, Andrew records the ESD as 15/02/2016 which is the date he became a member of his SMSF.
    • On 01/03/2016 on receipt of the two rollovers, he updates the records for the ESD as 01/02/2005 as this is the earliest start date attributable to all rollovers received into the Andrews Family Self-Managed Fund.
       

    On 22/10/2017 Andrew remembers to roll-in funds from Super for Life. He receives the funds on 02/11/2017.  The ESD that was held with Super for Life is 25/07/2010 and the ESD currently recorded for his SMSF is 01/02/2005.

    • Andrew does not need to update the records regarding the service period start date as the date that must be used is the oldest date in relation to all superannuation benefits that now form part of his Andrews Family Self-Managed Fund account.
    • For any rollovers or lump sum payments processed from his SMSF, the ESD used on the Rollover Benefit Statement (RBS) or PAYG Summary is always 01/02/2005.
       

    Why is this relevant?

    The service period start date is used in calculating tax on lump sum superannuation benefits payable on death or total and permanent disablement (TPD) and is an important consideration for clients with insurance cover held inside superannuation.  The service period in the fund holding the insurance can impact the amount of tax payable on any insured benefits paid from the fund.

    What is the impact on insured benefits?

    When a superannuation benefit for:

    • TPD is paid to a member who is under age 60, or
    • a death benefit is paid to a beneficiary and that beneficiary is not a dependent for tax purposes (eg: an adult child who does not live with the insured person or receive financial assistance from them) and the trustee of the fund has either claimed a deduction for life insurance premiums or for the future service portion of the benefit;
       

    Then the service period is used to calculate the tax components of the benefit.

    The taxable component of the death benefit will be split into elements taxed and untaxed in proportion to the insured persons ‘actual’ and ‘future service’. The element taxed represents the insured persons ‘actual service’ period, which is calculated from the service period start date (ESD) of their superannuation interest to their date of either TPD or death.  The ‘element untaxed’ represents the deceased’s ‘future service’ period, which is calculated from their date either TPD or death until what their expected retirement date would be (generally age 65).

    Summary

    If the eligible start date on the rollover is earlier than that recorded on the receiving fund, the ESD will be updated; if the ESD is later than that recorded on the receiving fund, there will be no change to the ESD.

    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

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    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

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    Copyright © 2021. AIA Group Limited and its subsidiaries or affiliates. All rights reserved. Priority Protection and Priority Protection for Platform Investors products are issued by AIA Australia Limited (ABN 79 004 837 861, AFSL 230043). AIA Vitality, a personalised, science-backed program that supports members every day to make healthier choices, is available with eligible products issued by AIA Australia. AIA Health with AIA Vitality is issued by AIA Health Insurance Pty Ltd ABN 32 611 323 034, a registered private health insurer governed by the Private Health Insurance Act 2207, Private Health Insurance Rules 2007 and the AIA Health Insurance Pty Ltd Fund Rules. The information on this website is current as at 14 January 2021 and may be subject to change. It is general information only and is not intended in any way to be financial, legal, tax, health, medical, nutritional or other advice. You should consider your own personal circumstances and needs and view the relevant product documents, fact sheets, fund rules and terms and conditions before making a decision to acquire such products. If necessary you should obtain professional advice from a financial, tax, medical or health professional. Unless expressly stated, any views or expressions of opinion (including any video content) do not represent the opinion of AIA.
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