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Excess Transfer Balance Determinations from January 2018

The Australian Tax Office will start sending Excess Transfer Balance (ETB) Determinations from January 2018.

ETB determinations will be sent to any individuals who have exceeded their transfer balance cap and have not taken any steps to correct this error.

If you manage a SMSF and have exceeded the balance transfer cap by less than $100,000 on 1 July 2017 as a result of income streams in existence prior to 20 June 2017, you have until 31 December 2017 to commute the excess capital, under transitional rules.

If you manage a SMSF and have exceeded the balance transfer cap by more than $100,000, under the transitional rules, you may receive the ETB determination. The ATO becomes aware of transitional balance cap breach based on information APRA funds pass on.

If you receive an ETB determination from the ATO, remember the following:
– The quicker the member rectifies the amount owing set out in the ETB Determination from the retirement phase, the lower the amount of excess transfer balance tax they will be required to pay.
– The SMSF trustee must report information relevant to the member to the ATO, so that they have all the relevant information needed. It is important to do this straight away, if it has not already been done.
– You must commute the amount owing as listed on the ETB Determination from retirement phase. If you choose to remove the amount by making a large pension payment, you will still be in excess of your transfer balance cap as the large pension payment will not, under the circumstances, result in a debit on your transfer balance account.
– You may keep the excess amount determined in the ETB Determination in an accumulation phase account, unless you are commuting a death benefit income stream. If you are, the amount needs to be removed from the super stream.
– Ensure minimum pension payment standards are met at the time of commuting money into your income stream.

If you have any questions or queries regarding Excess Transfer Balance Determinations and how this may affect you, please do not hesitate to contact our office.

Posted on 15 December '17 by , under Super. No Comments.

ATO action on overdue SMSF annual returns

The Australian Tax Office (ATO) is cracking down on self-managed super funds (SMSFs) that have overdue SMSF annual returns, particularly those with two or more returns overdue.

As part of its compliance action, the ATO is currently:
– Cancelling approximately 9,000 ABNs of SMSFs that show no evidence of operating
– Writing to SMSF trustees who are in pension phase to remind them that they still have a lodgment obligation
– Continuing to focus on SMSFs with high levels of income and/or high-value assets who also have overdue returns
– Taking further compliance and audit action on selected SMSFs
– Visiting selected tax agents to obtain feedback on why their SMSF clients’ lodgments are overdue
– Contacting tax agents by phone to obtain an agreed date for lodgment of overdue SMSF annual returns.

SMSFs that do not meet the agreed lodgment timeframes will be subject to serious financial implications.

Posted on 7 December '17 by , under Super. No Comments.

SMSFs warned of risky retirement planning

The ATO is warning self-managed super fund (SMSF) trustees about the risks of some emerging retirement planning arrangements.

Retirees or SMSF trustees who are involved in any illegal arrangement, even by accident, may face severe penalties, risk losing their retirement savings, and potentially, their rights as a trustee to manage their own fund.

The Tax Office has released additional information through their Super Scheme Smart Program to help educate retirees and trustees of these complex tax avoidance schemes and arrangements.

Super Scheme Smart provides case studies and information packs to ensure taxpayers are informed about illegal arrangements including what warning signs to look for and where to go for help.

Many of the arrangements are cleverly designed to look legitimate, give a taxpayer a minimal or zero amount of tax or tax refund or concession, aim to give a present day tax benefit and involve a fair amount of paper shuffling.

Some arrangements may be structured in a way which appears to satisfy certain regulatory rules, however, these arrangements are often ‘too good to be true’ and are in fact illegal.

Among the ATO’s previous concerns about dividend stripping arrangements and contrived arrangements involving diversion of personal services income to an SMSF, there are some new arrangements on the Tax Office’s radar, including:
– Artificial arrangements involving SMSFs and related-party property development ventures.
– Arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF. This results in the rental income from the property being diverted to the SMSF and taxed at lower rates whilst the individual or related entity retains legal ownership of the property.
– Arrangements where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.

If you are concerned about your involvement with such arrangements, you can contact the Tax Office early to work towards a resolution.

Posted on 22 November '17 by , under Super. No Comments.

SMSF annual return for pension phase trustees

Self-managed super fund (SMSF) trustees who are in pension phase must lodge their SMSF annual returns if they remain active, or choose to wind up the fund.

The ATO is warning SMSF trustees about their regulatory obligations and is paying close attention to those SMSFs that are not meeting their lodgment obligations.

Trustees must lodge a Self-managed superannuation fund annual return 2017 if it was a self-managed super fund on 30 June 2017, or a self-managed super fund that was wound up during 2016-17.

Super funds that are not SMSFs at the end of 2016-17 must use the fund income tax return 2017 and, where required, a separate super member contributions statement.

Even if your fund does not have a tax liability, your SMSF must lodge an SMSF annual return.

Posted on 15 November '17 by , under Super. No Comments.

SMSFs: Stats

The Australian Tax Office (ATO) has released its June 2017 quarterly SMSF statistical report detailing key SMSF figures.

As of June 2017, the number of SMSFs increased to 596,516. The number of SMSF members in Australia is 1,124,453.

The estimated value of total Australian and overseas SMSF assets is $696.7 billion.

The number of annual wind-ups including both those initiated by trustees and those as a result of ATO compliance and cleansing activity was 1,419 as of June 2017. This is a significant decrease from 10,551 in June 2016.

The top five asset types held by SMSFs by value include listed shares (30 per cent or $212,210m), cash and term deposits (23 per cent or $159,686m), non-residential real property (11 per cent or $74,772m), unlisted trusts (10 per cent or $71,455m) and other managed investments (5 per cent or $37,695m).

Posted on 10 November '17 by , under Super. No Comments.

SMSF: Capital vs revenue expenses

Self-managed super funds (SMSFs) have access to a range of tax deductions for expenses incurred. Whether the expenses are capital in nature or are considered as revenue will affect eligibility for claiming such deductions.

The Tax Office considers an expense that is incurred in establishing or making enduring changes to a super fund’s structure or function as capital and not deductible under the general deduction provision. For example, the costs of establishing an SMSF are capital in nature. An expense incurred in acquiring capital assets is also usually capital in nature.

Trust deed amendment costs incurred in establishing a trust, executing a new deed for an existing fund and amending a deed to enlarge or significantly alter the scope of the trust’s activities are generally not deductible as they are capital in nature.

If trust deed amendments are required to facilitate the ongoing operations of the super fund, they are generally deductible. For example, if a fund amends a trust deed to keep it up to date with changes in super legislation this would be deductible.

Furthermore, expenses incurred in making changes to the internal organisation or day to day running of the fund are not considered to be capital in nature provided such changes do not result in an advantage of a lasting character. If a super fund is carrying on a business, it may be entitled to deduct certain capital expenses under the specific deduction provision, section 40-880 of the ITAA 1997.

Funds that incur expenditure in gaining or producing exempt income or incur expenditure of a capital, private or domestic nature cannot access a deduction under Section 8-1 of the ITAA 1997.

Contact our office if you have any questions about the deductibility of your SMSF’s expenses.

Posted on 1 November '17 by , under Super. No Comments.

Lower House passes first home super scheme

While many Australian’s sit firmly on either side of the first home super scheme debate, the Lower House has passed the scheme.

The scheme was proposed in the Budget released in May 2017 and was only just passed by the Lower House. The Government has notioned that Australia’s retirement savings system will not come under threat by allowing first-homebuyers to use their superannuation funds to save for a house deposit.

The measure was passed with the strong backing of the Coalition, even though it is heavily opposed by Labor and the Greens. The opposition claims the scheme will not make housing more affordable, which is a key issue in the property market today, with record low numbers of young people entering into the property market.

Posted on 27 October '17 by , under Super. No Comments.

Super co-contributions

Individuals may be eligible for a Government super co-contribution.

A Government co-contribution means the Government adds to your super. You may be eligible for the super co-contribution, low-income super contribution (LISC) from the 2012-13 to 2016-17 financial years, or low-income super tax offset (LISTO) from 1 July 2017.

Super co-contribution
The Government will make a co-contribution of up to $500 if you are a low or middle-income earner and make personal (after-tax) contributions to your fund.

The eligibility conditions for a co-contribution from the 2017-18 financial year include:
a total superannuation balance less than the general transfer balance cap for that year
the contribution you made to your super fund must not exceed your non-concessional contributions cap for that year.

Low-income super contribution
The low-income super contribution (LISC) is a Government super payment of up to $500 to help low-income earners save for retirement.

If you earn $37,000 or less a year, you may be eligible to receive a LISC payment directly into your super fund.

The LISC is 15 per cent of before-tax super contributions made you or your employer from the 2012-13 to 2016-17 financial years.

If you have reached your ‘preservation age’ and are retired you can apply to have your LISC paid directly to you.

Low-income super tax offset
The low-income tax offset (LISTO) was introduced from 1 July 2017. If you earn income up to $37,000, you may be eligible to receive a refund into your super account. This is on the tax paid on your concessional super contributions up to a cap of $500.

This means most low-income earners will pay no tax on their super contributions.

Posted on 18 October '17 by , under Super. No Comments.

Splitting super

When partners in an SMSF separate, there are specific legal and tax implications that should be considered.

It is possible to split super benefits, i.e., transfer assets, such as property, from one super fund into another and roll money over to another fund; however, trustees need to keep the following in mind:

  • Separating couples need to work out how they will split their super. They can choose to enter into a formal written agreement, seek Consent Orders, or if the separating couple cannot reach an agreement, they can seek a court order.

  • It is important to have necessary documentation in the event of an ATO audit including financial and non-financial records. Due to the tax outcomes of splitting super in an SMSF, it is essential to have documentation, such as the notice for splitting the super, to show a genuine separation.

  • There is the potential for SMSFs with property as a major form of investment to create a liquidity problem; however, this can be addressed with future contributions. Individuals will also need to be aware of the market valuation rules for real estate in SMSFs.

  • If one member establishes a new single-member fund it is advisable to incorporate a special purpose company as the trustee. This avoids having a second person as a trustee.

  • Trustees can now acquire assets from a related party of the fund (in-house assets) as a result of marriage breakdown. Legislation was recently amended to broaden the scope to the breakdown of opposite-sex and same-sex de facto relationships. Where in-house assets are acquired as the result of a relationship breakdown, transitional exemption provisions apply.

Posted on 13 October '17 by , under Super. No Comments.

Transfer balance account report now available

The new transfer balance account report (TBAR) is available on the ATO’s website.

Self-managed super funds can use the TBAR report to report events that affect an individual member’s transfer balance account. The option to report is available from 1 October 2017, however, SMSFs are not required to report anything until 1 July 2018.

Events that affect a member’s transfer balance account will need to be reported to minimise the tax consequences of exceeding the transfer balance cap.

Funds with straightforward affairs are likely to have only a few events per member to report over the life of the fund. Common events that will require reporting include:

  • the values of any retirement phase income streams to which an SMSF member is entitled, including reversionary income streams
  • the value of any commutation of a retirement phase income stream by an SMSF member
  • structured settlement payments an SMSF member receives and contributes to their fund
  • certain limited recourse borrowing repayments that give rise to a transfer balance credit as a result of recently enacted legislation.

Posted on 5 October '17 by , under Super. No Comments.