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ATO issues reminder about October TBAR deadline

The Tax Office has reminded any SMSFs that reports transfer balance account events on a quarterly basis that the report will be due on 28 October where they had an event occur in the September quarter.

In an online article, the ATO stated that where a TBA event occurred in a member’s SMSF between 1 June and 30 September 2020 and any member had a total super balance greater than $1 million, the SMSF will need to report the event.

If no TBA event occurred, they will not need to report, the ATO said.

“The TBAR is separate from the SMSF annual return and it enables us to record and track an individual’s balance for both their transfer balance cap and total super balance,” the ATO explained.

“Different reporting deadlines will apply, if any of your members has exceeded their transfer balance cap, and we’ve sent them an excess transfer balance determination or a commutation authority.”

Back in July, the ATO flagged that it was still seeing some significant errors with transfer balance account reporting, with retrospective reporting, duplicated reporting and late reporting listed as some of the ongoing concerns.

“One of the most significant issues we’re concerned about is late reporting and that’s resulting in members being in excess of the cap for longer periods, thereby needing to commute more from their pension accounts or paying more tax,” ATO assistant commissioner Steve Keating stated.

“Members are at risk of having their pension commuted twice, and this might happen if they have both APRA and SMSF pension accounts, where they commute from their SMSF due to receiving a determination from us, but they don’t report that commutation to us.”

Source: SMSF Adviser 

Tax Office gears up for 6-member SMSF bill

The ATO has flagged that if the bill to increase the number of members allowed in an SMSF is passed before 1 July next year, its systems may not be ready in time, but it will look to implement workaround solutions.

Earlier this month, a measure announced in the lead-up to the 2018–19 budget to increase the number of members allowed in an SMSF from four to fix was reintroduced into Parliament, after previously being scrapped prior to the federal election.

The amendments will apply from the start of the first quarter that commences after the act receives royal assent.

The bill was referred to the economics legislation committee on 3 September. The committee is due to report back on 4 November.

While the bill was introduced during the September parliamentary sittings, it is expected to be carried over to the November or December sittings, ATO director Kellie Grant told delegates at the Tax Institute National Superannuation Online Conference.  

 

“If the measure is passed by both houses at that time and receives royal assent, we’ll be looking at a 1 January start date,” Ms Grant said.

“Now, should the law commence before 1 July 2021, our systems may not be ready by that stage, but we will have workarounds in place until those system changes are made to allow up to six members in a fund.”

SMSF trustees and professionals, she said, need to be aware that there will be a period of time where their information may not be readily accessible in the ATO’s systems.

“[They should] also be aware that state-based state law may limit the number of individual members in a certain fund, but of course, that can be overcome by appointing a corporate trustee to the fund,” she said.

Commenting on the bill in an online article, SMSF Alliance principal David Busoli noted that if the measure does become law, the effect of additional members on control and investments will need to be carefully considered.

“Also, due to the Trustee Acts in most states — NSW, Qld, Vic, WA and ACT — a corporate trustee will be required,” he added.

Source: SMSF Adviser 

6-member SMSF bill introduced into Parliament

A measure from the 2018–19 budget to increase the number of members allowed in an SMSF from four to six has been reintroduced into Parliament, after it was scrapped prior to the election.

Senator Jane Hume has introduced Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 into the Senate this week, which amends the SIS Act, Corporations Act, ITAA 1997 and Superannuation (Unclaimed Money and Lost Members) Act 1999 to increase the maximum number of allowable members in SMSFs from four to six.

The amendments will apply from the start of the first quarter that commences after the act receives royal assent.

The Coalition government first announced plans to extend the SMSF member limit in the lead-up to the 2018–19 federal budget.

Former Minister for Revenue and Financial Services Kelly O’Dwyer said the change would increase choice and flexibility for members.

The measure was previously introduced into Parliament as part of the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019. However, with Labor opposed to the measure, the Liberal Party agreed to remove the amendment to increase the SMSF member limit in order to pass the other measures contained within the same bill.

The measure to increase the SMSF member limit has previously had mixed opinions, with some experts flagging the potential risks that additional members pose in terms of disputes between members and estate planning.

Other SMSF specialists have pointed out that increasing the number of members in an SMSF could raise the risk of members falling victim to elder abuse.

Other commentators in the SMSF industry have supported the measure as it provides larger families with the option of bringing their children into their fund.

Source: SMSF Adviser 

 

Control still key driver for SMSFs

The ability to have personal control over superannuation investments has remained the key driver behind the establishment of SMSFs and concerns they were being used as property investment vehicles was a minor issue, according to research group Investment Trends.

Investment Trends chief executive Michael Blomfield said research conducted for the “2020 Vanguard/Investment Trends SMSF Investor and Planner Report” found control-related issues continued to rate as the leading reasons for the establishment of SMSFs despite an increase in the level of interest in property held within an SMSF since 2015.

“In the year to September 2019, the number of SMSFs continued to grow, but at a lower rate than previous years. There were almost 600,000 funds by September 2019, but only 20,000 were set up in the 12 months before that date,” Blomfield said.

“When we talked about why they [trustees] established an SMSF, control of investments remains the big driver. Control is the number one issue by a long way for all SMSF trustees and behind that we start to get into issues related to better returns and being more tax effective.”

He said the issue of property investment was one he had to “call out” and  despite an increase in investment in property between 2015 and 2020 by SMSF trustees, as a reason for starting an SMSF it “does not get anywhere close to the drivers for control or approach the secondary drivers of better returns”.

He pointed out control was the leading factor for the establishment of a fund for 67 per cent of SMSF trustees, while property investment was the leading factor for around 32 per cent of funds and prior to 2015 was the primary driver for only 15 per cent of trustees.

While SMSF trustees continued to remain strong in their views they can make better investments than an Australian Prudential Regulation Authority-regulated fund, some trustees had hesitated to set up a fund because of regulatory concerns, he said.

“We saw in lead-up to the last federal election there was discussion about franking credits and we were not sure if that drove people to holding back or decreased their interest in SMSFs,” he said.

“Trustees have been telling us for a long time that it is regulatory uncertainty that makes them think twice, or three times, about whether SMSFs are the right place to be, and while we are still seeing growth, we have no reason to believe that has ceased.”

The report was compiled from 3156 trustee responses to a quantitative survey conducted online between February and May and also found a large unmet need for advice from trustees who had not made major changes to their SMSF investments as a result of COVID-19 market downturns.

 

Changes to your super

The recent change to change to the work test for making contributions to superannuation to age 67 has certainly raised issues with clients making contributions after 65 and how those changes impact on any contributions that are being made for them. The downside of the Government’s 2018 budget announcements for superannuation contributions is that the opportunity to use the bring forward rule is still restricted to those age 65 or younger.  

The changes to the income tax law in the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, which move the bring forward rule to age 67, remain in the House of Representatives. As parliament does not resume until early August, the bill has a way to go prior to becoming law. So where are we now with contributions for anyone 65 or older with the start of the 2020/21 financial year?

Until 30 June, 2020, personal concessional and non-concessional contributions could be accepted by a fund without any work test being met prior to the member reaching age 65. However, once the person reached the age 65 in the financial year the member was required to meet the work test at some time during that year and in all later financial years prior to the contribution being accepted.  

As with personal superannuation contributions, the fund trustee is unable to accept personal concessional or non-concessional contributions any later than 28 days after the month in which the person reaches age 75. There is one exception to the age test which is the acceptance of downsizer contributions.  

The only exceptions to the work test are where a person wishes to make contributions in the year after ceasing work and downsizer contributions.  Ceasing work contributions are permitted to be made on a once only basis after the member has reached 67, previously age 65, in a year after they have ceased work if they have a total super balance on 30 June in the previous year of less than $300,000. These contributions can be accepted by the fund trustee 28 days after the month in which the person reaches 75.

As far as downsizer contributions are concerned, a person and their spouse are eligible to each make a contribution of up to $300,000 within 90 days of selling their main residence after age 65. There is no upper age limit applying to downsizer contributions or any work test that needs to be satisfied.

Anyone who is employed after age 65 may be eligible for compulsory employer contributions and if they meet the work test, they may wish to salary sacrifice to super. 

Employer-mandated contributions, such as those made for super, guarantee purposes or under an industrial award, are not subject to a work test or age limit. However, other employer contributions, including salary sacrifice, are subject to age limits described above.

The changes to the work test requirements have been extended to include non-concessional contributions made for an eligible spouse. The age restriction which applied up to 30 June, 2020, permitted spouse contributions to be made between ages 65 and 70 providing the spouse met the work test. 

From 1 July, 2020, this is now extended to apply for spouse contributions made between 67 and 28 days in the month after the spouse reaches 75 in line with other personal superannuation contributions. The work test is required to be met prior to contributions being made to the fund.

In relation to the operation of the bring forward rule for non-concessional contributions, those fund members who are in the 65 to 66 age bracket are in a bit of a dilemma from now until the time when the passage of the legislation is clear. It is only those members who have a total superannuation balance of less than $1.5 million as at 30 June, 2019, or 2020 that should be concerned if they wished to maximise their non-concessional contributions by using the bring forward rule.  

The rules for non-concessional contributions allow up to two years standard non-concessional contribution to be brought forward if the total super balance as at 30 June in the previous financial year and up to one year standard non-concessional contribution  is between $1.4 and $1.5 million. Anyone with a total superannuation balance of greater than $1.5 million on those dates does not have access to the bring forward rule for the subsequent financial year.

As an example of the operation of the bring forward rule, a person who is currently 65 would have access to the bring forward rule of at least one year standard non-concessional contribution assuming their total super balance is less than $1.5 million. If they contribute greater than the standard non-concessional contribution, the bring forward rule will be triggered and they will be able to make the relevant contributions over a two or three year period. If they make the contributions prior to reaching age 67 the fund can continue to accept the contributions without requiring the member to meet the work test.

In contrast, a person who is currently 66 or 67 will not be able to trigger the bring forward rule as they were older than 65 on 1 July in the 2020/21 financial year. This will limit the maximum amount of non-concessional contribution they can make without penalty to $100,000 p.a., however, the consolation is that there is no requirement for them to meet the work test unless they wish to make contributions in the financial year after they reach 67.

Source: moneymanagement.com.au

Contributions level out after 2017 reforms

Contributions reverted to normal during the 2018 financial year, following an atypical jump in contributions in anticipation of the July 2017 superannuation reforms, the latest ATO SMSF figures have revealed.

According to the ATO statistical overview for the sector regarding the 2018 financial year, total contributions to SMSFs increased by 32 per cent to reach a high of $41.8 billion in 2016/17, with total SMSF benefit payments increasing by 31 per cent to $46 billion in the same year.

During the 2018 financial year, however, total contributions dropped to $17.4 billion and total benefit payments decreased to $37.7 billion.

In its analysis of the figures, the SMSF Association noted: “[The 2016/17 figures] were significant increases over the previous financial years, most of which can be attributed to a behavioral change resulting from the introduction of the superannuation reforms taking effect on 1 July 2017.

“With the release of the 2017/18 statistics, we now have a reversion to the norm.”

The association pointed out member contributions declined the most during the 2018 financial year, falling to $11.6 billion after peaking at $33.9 billion in 2016/17.

“This is likely due to the fact many SMSFs would have used their three-yearly contribution bring-forward rule in the previous financial year,” it noted.

As part of its analysis, the industry body also highlighted a sharp increase in lump sum withdrawals from SMSFs during 2017/18, which it attributed to the introduction of the transfer balance cap (TBC).

“As SMSFs moved money into accumulation phase and the TBC took effect, they took the opportunity to withdraw funds as a lump sum to keep a larger amount in retirement phase,” it said.

“If lump sums were taken from the retirement phase, this would create debits to their TBC.”

The ATO’s report also revealed the growth in the number of SMSFs reporting limited recourse borrowing arrangements had steadied and is increasing at a manageable rate.

In addition, the ATO found the level of SMSF wind-ups hit a record high during the 2018 financial year, while new establishments fell away.

Source: SMS Magazine

ATO outlines tax return changes for SMSFs this year

The ATO has highlighted some of the new measures and changes to be aware of when completing tax returns for clients this year.

In an online update, the ATO provided an outline of some of the specific measures and support available for individuals impacted by COVID-19 as well as some changes specific to SMSF clients.

Updated SMSF instructions

The ATO said that the instructions for “Section A: SMSF auditor Part A” have been updated to help clarify the requirements for the fund. 

“This question can now be answered as ‘No’ if the audit report was qualified only in relation to insufficient audit evidence under Auditing Standard ASA 510 Initial Audit Engagements – Opening Balance,” the ATO explained.

Question 6D also no longer includes Part A qualifications, the ATO said. This question relates only to rectifying to Part B of the audit report.

A new label, J7 Property count, has been added to section H: Assets and liabilities at 15b.

“If your SMSF holds investments in real property that was held in trust as a security under a limited recourse borrowing arrangement, this information must be reported at J7 Property count,” the ATO explained.

Label G1 Death benefit increase at Section C, Deductions and non-deductible expenses has now been removed.

“If a fund member died on or before 30 June 2017, the fund must have paid the benefit before 1 July 2019 to be eligible to claim a deduction. From 1 July 2019, the deduction is no longer available,” the Tax Office stated.

NALI changes

The ATO reminded SMSF professionals that from 1 July 2018, NALI was expanded to also include income derived by an SMSF from a scheme in which the parties were not dealing with each other at arm’s length.

“This is where the fund incurred expenses (including nil expenses) in deriving the income that are less than those which the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s-length basis,” it explained.

“The expenses may be of a revenue or capital nature in the same way that NALI may be statutory or ordinary income.”

From 1 July 2018, income derived by an SMSF in the capacity of beneficiary of a trust through holding a fixed entitlement to the income of the trust will be NALI where both:

  • The SMSF acquired the entitlement under a scheme or the income was derived under a scheme in which parties weren’t dealing with each other at arm’s length.
  • The SMSF incurred expenses in acquiring the entitlement or deriving the income that are less than, including nil expenses, what the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s length basis.

Source: SMSF Adviser

ATO clarifies stance on in-house asset breaches

The Tax Office has sought to clarify how it will approach concerns from SMSFs that they may be breaching in-house asset rules due to the economic impact of COVID-19.

On its SMSF FAQ page updated on 8 May, the ATO addressed concerns from SMSFs that the recent downturn in the sharemarket may result in the fund’s in in-house assets being more than 5 per cent of the fund’s total assets, thereby breaching in-house asset rules.

The ATO updated its response on its SMSF FAQ page on 8 May, stating:

If, at the end of a financial year, the level of in-house assets of an SMSF exceeds 5 per cent of a fund’s total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5 per cent or below.

This plan must be prepared before the end of the next year of income.

If an SMSF exceeds the 5 per cent in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021.

However, we will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.

This compliance approach also applies where the SMSF exceeded the 5 per cent in-house asset threshold as at 30 June 2019 but has been unable to rectify the breach by 30 June 2020.

Speaking at a recent webinar run by the ATO and the SMSF Association, ATO director Kellie Grant said the regulator has taken this approach because it understands that rectification plans may also be currently impacted in 2019–20 as a result of COVID-19.

Further, Ms Grant said it also means the ATO will also be updating its 2020 Auditor/Actuary Contravention Report (ACR) instructions to let auditors know not to report these sorts of in-house asset breaches as well.

Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said that, in his experience, the ATO usually enforces in-house requirements quite strictly.

“If the trustee does not implement the rectification plan and reduce the in-house asset level below 5 per cent before the end of the following financial year, the SMSF has compliance issues,” Mr Hay-Bartlem said.

Source: SMSF Adviser 

Minimum super withdrawal reduced by 50% for retirement phase pensions

IMPORTANT: Minimum super withdrawal reduced by 50% for retirement phase pensions

In response to the COVID-19 pandemic, the Federal Government recently announced that the minimum superannuation drawdown rate would be halved for the 2019/20 and 2020/21 financial years. This measure is designed to benefit retirees by reducing the potential need to sell investment assets into a depressed market to fund their minimum drawdown requirements. See the following table for details:

Age Default minimum drawdown rates (%) Reduced rates by 50 per cent for the 2019-20 and 2020-21 income years (%)
Under 65
4
2
65-74
5
2.5
75-79
6
3
80-84
7
3.5
85-89
9
4.5
90-94
11
5.5
95 or more
14
7

Please note that if you have already drawn more than your reduced minimum for this financial year, you are unable to return the excess amount.

The information provided in this article is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial or taxation advice. Before acting on any information in this article, you should consider its appropriateness in relation to your personal situation and seek advice from an appropriately qualified and licensed professional.

ATO investigating errors in SMS alert service

The ATO is investigating system errors in its newly launched text message alert service for SMSF trustees which were mistakenly triggering alerts for trustees upon lodgement of their 2019 annual return.

The errors, which have been flagged by a number of SMSF industry professionals this week, are being investigated “as a priority” by the ATO, with a fix to be deployed shortly, a spokesperson for the regulator told SMSF Adviser.

“This matter came to our attention late yesterday and we took steps to stop new SMSF alerts going out and identified the reason for the incorrect alerts,” the spokesperson said.

“The SMS alert is intended to advise SMSF fund trustees [when] we believe there has been changes to some client account details. It should be noted that there is no impact on SMSF account balances or fund details.”

According to reports from SMSF practitioners, the errors appeared to stem from lodgement of SMSF annual returns, which triggered a change in the SMSF’s electronic service address (ESA) that then generated a mistaken alert to the affected trustees.

“The ATO is now issuing alerts directly to trustees via email and/or text messages when any changes are made within their SMSF. Unfortunately, one of those communications may involve an error in the ATO’s own database concerning a change of ESA,” SMSF Alliance principal David Busoli said in an email to clients on Wednesday.

“If your clients receive such a notification, you should first check to see if it is correct as, in the short term, it is likely that it’s not.”

Vincents director of SMSF advisory Brett Griffiths also identified the issue, which was generating mistaken alerts for SMSF clients whose annual returns were lodged through Class, in a LinkedIn post this week.

“Trustees of SMSFs administered on Class may start to receive notices, thereby adding extra time constraints on tax agents answering questions of trustees due to an ATO error,” Mr Griffiths said.

The ATO said upon discovering the issue, it had stopped the SMS alert service incorrectly triggering to impacted funds.

“We will provide an update as soon as the fix has been deployed. SMSF trustees can be assured that any alerts received are being correctly triggered,” the ATO spokesperson said.

Source: SMSF Adviser