Self Managed Super Fund News

Compliance Hotspots for SMSF 2018-19

Compliance Hotspots for SMSF 2018-19 from Shirley Schaefer, Partner BDO published in SMSF Adviser Magazine Nov/Dec 2018

What the ATO has on their Radar this year

Late or Non-Lodgement of Tax returns. “The ATO has clearly done some work around this and SMSF trustees are realising that they need to get everything into line … Interestingly, for some … it goes back a significant number of years; the ATO seems to be happy so long as the trustees actually engage an accountant or an administrator to take them under their wing and get it done. That’s their main focus, to make sure people get it started if nothing else.”

“We may see them (ATO) focusing on related party limited recourse borrowing arrangements. Now that most of 2016-17 tax returns have been lodged, they’ll be able to identify those funds that have got a related party borrowing arrangement in place, and of course if they’re not at arm’s length terms, then the income from that arrangement could potentially be taxed as non-arm’s length income. Taxed at the highest rate.”

The other thing, which is always on their radar, is early access to super and loans to members. They’ve always got their eye out for those types of things.”

Compliance Hot Spots

Issues with returns for the 2016-17 financial year – “The biggest area of concern, although it wasn’t so much a problem, was just having to deal with the resetting of pension balances down to the $1.6million and then correctly calculating the reset of any asset cost bases and the capital gains tax for the relief.”

2017-18 financial returns, traps that will arise with those – “Nothing that’s really come in so far, but I do expect to see some problems or some issues and errors with contributions made to super in the 2017-18 financial year, with changes in the limits. Concessional contributions caps went down to $25,000 and non-concessional limits were reduced to $100,000. Also, the additional thresholds around non-concessional contributions, the fact that you can’t really make non-concessional contributions if you’ve got more that $1.6 million in super, and just the further complication of those rules. Despite everyone’s best intentions, I think trustees will make mistakes.”

Transfer Balance Cap Reporting – “I still think there’s a lot of accountants out there who don’t know that they were supposed to report by 30 June 2018, the 30 June 2017 pension balances, and they still don’t realise that they need to do regular reporting to the Tax Office of different events … a lot of the smaller accounting firms are not across a lot of that stuff yet”

To read more on this go to www.smsfadviser.com

By |November 8th, 2018|Self Managed Super Fund News, Uncategorized|Comments Off on Compliance Hotspots for SMSF 2018-19

Three-year SMSF audits: how auditors will be affected

Three-year SMSF audits: how auditors will be affected – By Alexandra Cain, – 26 Jun 2018, INTHEBLACK magazine – 26 Jun 2018 https://www.intheblack.com/articles/2018/06/26/three-year-smsf-audits

Trustees will still have every year audited, but this would be completed once every three years.

Experts says cutting audits of self-managed super funds (SMSFs) to once every three years instead of annually is unlikely to cut either costs or red tape and could have serious consequences for the SMSF audit sector.

The 2018 Federal Budget proposed allowing SMSFs to be audited every three years, rather than annually as currently required. It is not a one-year-in-every-three proposal, rather trustees would still have every year audited, but this would be completed once every three years.

“Trustees still have to verify the opening balance and reconcile and verify audit evidence over the three-year period, which may end up costing more. Any auditor will tell you it can be difficult getting clients to submit their material annually. This will be even tougher if they only have to do it every three years,” says Paul Drum, head of policy at CPA Australia.

Drum says that if trustees have made mistakes or inadvertently contravened regulations, the problem will only compound over three years. It is likely it will take more time and money to fix than if the issue had been picked up after a year.

Costs to rise for fewer SMSF audits?

There will be savings for some funds, but for many there won’t be any cost reduction at all, and for some an increase in costs is likely, says Richard Smith, managing director, ASF Audits. Smith says three-year audits may work for very simple funds, for instance those that only hold cash or managed funds.

“But even with simple funds, trustees can easily make errors with contributions and pensions,” he says.

Tenuous benefits aside, Drum argues moving to a three-year audit could threaten the integrity of the SMSF ecosystem.

“There will be an element who will take the opportunity to game the system. If you don’t regularly police it, you run the risk people will find loopholes. Trustees are also less likely to implement risky strategies in the existing annual audit system, in the knowledge the fund is regularly monitored.

“The extra checks auditors perform, especially around record-keeping for property investments and limited recourse borrowing arrangements, help support the regulator’s role,” he says.

Audit as checks for good administration

Drum says that rather than view the audit as an impost, a better approach is to see it as a useful tool to help ensure the smooth running of the fund.

“The audit gives trustees an invaluable check they are administering the fund appropriately. SMSFs are complex, so instead of looking at the annual audit as a burden they should be looking at it as a tool that supports their role.”

There are many details to be worked out should three-year audits be introduced, such as which SMSFs would be allowed to have their audits completed once every three years.

The Federal Government’s initial indication is that only funds with a good compliance and lodgement track record would be eligible, but no detail has been released about what constitutes a fund with a good record.

Serious consequences for SMSF auditors

If the proposal goes ahead it is likely to have serious consequences for the SMSF audit sector.

Smith says managing fluctuating workflows will be a concern, particularly if a large number of funds will be eligible to be audited in the same year, while a much smaller number will be audited in the other two years.

“That is going to create serious resourcing issues, which may increase costs for us and for our SMSF clients. One reason is because we may have to employ more casual staff, which comes at a higher cost compared to full-time staff.”

ASF has never outsourced any of its services, “but I am sure many firms are starting to think outsourcing is suddenly an option,” Smith says.

Who will decide audit timing?

A potential problem may be keeping auditors’ skills up-to-date and relevant in a three-year environment. Another issue is which party will drive the timing of the audit – the trustee, the auditor or the Australian Taxation Office?

CPA Australia is in discussions with Treasury about how three-year audits would work in practice.

“If the government can demonstrate this measure will meet its objectives, and it is able to be implemented, we would support it. But at the moment we have a lot of questions about how to make this work,” Drum says.

A Treasury spokesman confirms the Federal Government has started consultations with stakeholders on the proposal.

“Consultation to date has been constructive. The government will continue to progress consultation with industry and ensure stakeholder views are taken on board in the design of the measure,” he said.

Meanwhile, the SMSF audit industry is awaiting details of the proposal that has many businesses in the sector seriously concerned about how this will play out.

Says Smith, “When more details are released we will be able to make a better assessment of any potential savings or costs. Until then, we can’t work out what the real impact will be.”

 

By |August 21st, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Three-year SMSF audits: how auditors will be affected

Pension Loan Scheme

The pension loans scheme, From Tax & Super Australia Newsroom – https://taxandsupernewsroom.com.au/pension-loans-scheme/

To help pensioners who are asset rich but income poor, the government launched its own version of a financial product that has been commercially available for some time, the reverse mortgage.

A reverse mortgage is a type of home loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

Interest is charged like any other loan, except you don't have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.

You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.

While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan.

The government’s answer is its pension loans scheme (PLS), whereby a pensioner can apply for a non-taxable loan using some form of real property as security. The PLS does not provide a lump sum, but a regular fortnightly payment.

The scheme is administered by the Department of Human Services (DHS).

At present the scheme is only open to those on a full pension, but the 2018 Federal Budget announced the government intends to open the PLS to all pension-age retirees (not just those who qualify for the Age Pension). A date has not been set for this yet.

Also (from 1 July 2019) the maximum allowable income stream (combined Age Pension and PLS) will increase to be 50% higher than the full pension, including supplements.

A full age pensioner may be able to apply if:

  • they or their partner are of Age Pension age
  • they own real estate in Australia that can be used as security for the loan (home or investment)
  • they or their partner receive a rate of payment that is less than the maximum pension amount or nothing (due to either the income or assets test, but not both)
  • they meet Age Pension residence rules.

There are costs associated with the scheme, which DHS will determine and send to the person seeking the loan. The current rate of interest is 5.25%, which DHS adds to the outstanding loan balance each fortnight until the loan is repaid.

The loan recipient can repay the PLS loan in part or in full at any time. If the loan recipient wants to sell a property they need to inform DHS, and they can either transfer the loan to another property including a new home or they can repay the loan on the date of settlement.

If there is an outstanding amount upon the loan recipient’s death, the estate or in some cases the surviving partner’s estate can make repayments.

The total loan available depends on the:

  • equity in the property offered as security
  • equity kept in the property, and
  • the age of the recipient or their partner, whoever is younger.

Applicants can get a loan up to the maximum rate of income support payment they qualify for. Loan recipients may also use real estate owned by a private company or trust as security for the loan, if they are a controller of that company or trust. If there is more than one property, they can choose which to use as security for the loan.

DHS will register a charge with the Land Titles Office on the title deed of the property used as security, with recipients paying any costs associated with this charge. A licensed valuer will value the property; however this is done at no cost to the loan recipient.

Any person seeking a PLS should contact the DHS first to ensure they are eligible and to confirm the amount they can seek.

By |August 20th, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Pension Loan Scheme

Insurance under SMSF

Important tax time decision flagged for SMSF insurance

Reported in SMSFAdviser News by Miranda Brownlee 16 July 2018 https://www.smsfadviser.com/news/16751-bt-flags-important-tax-time-decision-for-smsf-insurance.

Instead of claiming tax deductions for life insurance premiums, SMSFs may want to claim a deduction for the future liability to pay death or disability benefits instead, according to a technical expert.

BT senior manager, product technical Crissy Demanuele said by claiming the future liability tax deduction, rather than deductions for the premiums paid for life insurance premiums, in some cases SMSFs can be "significantly better off". 

Ms Demanuele reminded SMSF practitioners that an SMSF will only be able to claim this deduction if the fund has paid an insurance premium in the year in which a death or disability benefit is paid, the fund had also been claiming tax deductions for the insurance premiums previously, and the member ceased work as a result of the disability or death.

“The future liability deduction may be available to funds when they pay a benefit to a member as a result of death, terminal illness, total and permanent disability or temporary disability,” she said.

“Once this election is made however, the fund cannot claim future tax deductions for the cost of insurance, so the SMSF trustees need to carefully consider which tax deduction may be more beneficial for their fund.”

Ms Demanuele used the example of David and Julia who are both aged 55 and have an SMSF. Each member is insured for $1.4 million of term life and TPD insurance cover. On 1 March 2018, David suddenly passed away. At the time of his death, he had been a member of the SMSF for 10 years, she explained.

“The SMSF received a death benefit insurance payout of $1.4 million which was added to his accumulation balance of $500,000. The SMSF paid the insurance premium of $2,000 on 1 February 2018,” she continued.

“After David’s death, Julia’s son Michael joined the fund and also became a trustee of the fund. As trustees, Julia and Michael seek tax advice and are informed that they could choose to claim the premium paid of $2,000 as a tax deduction or claim a future liability deduction instead for the 2017/18 financial year.”

If the SMSF claims a deduction for the premium paid, Ms Demanuele explained it will receive a tax deduction of $2,000.

“If instead Julia and Michael choose not to claim a deduction for insurance premiums paid by the fund in 2017/18, the fund can instead claim a tax deduction under provisions for the future liability to pay benefits,” she said.

The deduction, she explained, will be calculated as follows:

Benefit amount x Future Service Period/Total Service Period

= $1.9 million x 10 years/20 years

= $950,000

“By claiming the future liability tax deduction, an SMSF could be significantly better off,” she said.

By |July 18th, 2018|Self Managed Super Fund News|Comments Off on Insurance under SMSF

SMSFs to be required to have Retirement Income Strategy

SMSFs to be required to have Retirement Income Strategy from www.solepurposetest.com/news MAY 21, 2018 BY LUKE SMITH

SMSFs would be required to develop a Retirement Income Strategy under changes to superannuation being developed by the Government.

The Government has released a position paper on the Retirement Income Covenant, which would require super funds – including SMSFs – to develop a Retirement Income Strategy for members.

“For too long superannuation has been focused only on accumulating savings. A retirement income framework is a pivotal part of the Government’s reform agenda for superannuation – an agenda squarely focused on protecting and improving outcomes for superannuation members,” said Minister for Revenue and Financial Services Kelly O’Dwyer.

“To fulfil the overarching purpose of superannuation, it is essential that trustees develop a retirement income strategy and consider the retirement income needs of their members.” 

This follows from an announcement in the 2018 Budget that the Government intends to amend the SIS Act to “introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members”.

The Retirement Income Covenant is part of the Comprehensive Income Product for Retirement (CIPR), which was a recommendation of the Financial System Inquiry (FSI) to require super funds to pre-select a retirement income option for members. The Government has been slowly progressing CIPR since it was recommended by the FSI in 2014.

According to the position paper the only part of the Retirement Income Covenant that would apply to SMSFs is the requirement for a Retirement Income Strategy.

In terms of the broader Retirement Income Framework, the Government plans to prioritise progress of the Retirement Income Covenant, followed by simplified and standardised disclosures for retirement products, then retirement income projections and finally the regulatory framework.

The superannuation industry has criticised CIPR as “neither necessary nor sufficient”, as currently designed, to meet its goals.

 

By |May 22nd, 2018|budget, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on SMSFs to be required to have Retirement Income Strategy

2018 Budget measure proposes annual audit change to once every three years

SMSF Association Media Release – 8 May 2018 – Audits.

The 2018 Budget measure that proposes a reduction in the annual audit requirement to once every three years for self-managed super funds (SMSFs) with a good compliance history has been welcomed by the SMSF Association.

SMSF Association CEO John Maroney says this proposal, which will cut red tape for the SMSF sector, is a fitting reward for trustees who strictly adhere to the regulatory regime.

However, Maroney adds that it’s a strongly held Association position that an independent audit is essential to the integrity of the sector, and as such “we keenly await the implementation details of the proposal”.

This proposed change in auditing procedure for SMSFs, when coupled with the expansion of SMSFs from four to six members and the digital rollover measure announced by the Minister for Revenue and Financial Services, Kelly O’Dwyer, at last month’s inaugural SMSF Expo, help to cut red tape and improve flexibility for SMSFs.

Maroney says these positive measures, in line with a 2018-19 Budget that largely left superannuation alone, will come as an “enormous relief” to SMSFs and their advisers.

“This continued regulatory stability for SMSFs is welcomed by the Association and is sorely needed as trustees still come to grips with the superannuation tax changes that took effect on 1 July 2017.

“We look forward to a much-needed period of stability for superannuation and working through the implementation of the superannuation changes with the Government and regulators.”

He says the Association is pleased that the Government has acted to ensure the efficiency and integrity of the broader superannuation system.

“Capping fees on low balance superannuation accounts and introducing opt-in requirements for insurance in superannuation for certain fund members are positive measures that will ensure younger superannuation fund members do not have their account balances eroded unnecessarily.”

Older Australians were also beneficiaries of the Budget via an expanded Pension Work Bonus program, the enlarging of the Pension Loans Scheme to include people on the full-age pension and self-funded retirees, and granting a one-year superannuation work test exemption for recent retirees with balances under $300,000.

“These measures are welcomed by the SMSF Association for providing more flexibility for older Australians to manage their retirement.”

By |May 12th, 2018|budget, Self Managed Super Fund News, Uncategorized|Comments Off on 2018 Budget measure proposes annual audit change to once every three years

News from the Budget 2018

BUDGET 2018

SUPERANNUATION

Big changes in superannuation in the Budget 2018 are designed to secure the retirement incomes of Australians.

A 3 per cent annual cap on fees for accounts with less than $6,000 will be applied.

Exit fees on all superannuation accounts will be banned.

In addition, all inactive super accounts with balances less than $6,000 will be transferred to the Australian Taxation Office, which will then "proactively" reunite these inactive accounts.

VACANT LAND

People who own vacant blocks of land will no longer be able to claim tax deductions against them from July next year.

The restriction won't apply to any expenses incurred after construction begins on the vacant block or any land being used by owners to carry out business, such as farmers' crops.

The Government estimates for this in Budget 2018 will save the budget $50 million over the forward estimates.

OLDER AUSTRALIANS

With Budget 2018 pensioners will be able to earn more money without impacting their pension under the Pension Work Bonus scheme. The program will be expanded to include the self-employed.

Overall, the cost to the budget is $227 million.

The Pensions Loan Scheme will be boosted to enable everyone over pension age to effectively mortgage their home to the Government to access fortnightly payments.

These payments are now as much as one-and-a-half times the pension rate.

An additional 14,000 high-level home care support packages will also be introduced over the next four years.

SMALL BUSINESS

Small businesses in Budget 2018 will have longer to write off business purchases.

The Government extended the $20,000 instant asset write-off for another 12 months to June 30, 2019.

The initiative was initially introduced in the 2015-16 budget and has been kicked along at a cost of $350 million over the forward estimates.

TAXPAYERS

Budget 2018 and the Givernment are pitching a plan to deliver tax relief to lower and middle-income Australians, which it says will benefit more than 10 million people.

The most immediate measure will be changing the low-income tax offset (LITO) — essentially a lump sum on your tax return.

From next July, those who earn up to $37,000 will see their tax bill reduce by $200.

The offset increases incrementally for those earning between $37,000 and $48,000, before the maximum offset of $530 is applied to those earning between $48,000 and $90,000.

The benefit then gradually decreases to zero at a taxable income of about $125,000.

There will also be a measure to combat bracket creep, introduced in stages.

From July next year, people earning between $87,000 and $90,000 will move back into the lower tax bracket and pay 32.5 per cent instead of 37 per cent in tax on those earnings.

In 2022, the top threshold of the lower tax bracket will be increased from $37,000 to $41,000, meaning more earners will fall inside the 19 per cent tax rate bracket.

Treasurer Scott Morrison says the plan will mean 94 per cent of Australian taxpayers will pay no more than 32.5 cents in the dollar.

 

By |May 9th, 2018|budget, Self Managed Super Fund News|Comments Off on News from the Budget 2018

Budget to be released 8th May 2018 – tipped to see aged care policy changes

Budget tipped to see aged care policy changes From SAMSFAdviser, 23 APRIL 2018 By: Miranda Brownlee

With the aged care space having undergone a number of major reviews recently, one aged care advice specialist predicts the government may introduce new policies for aged care services in the budget.

Aged Care Steps director Louise Biti said there were seven major reviews done on aged care last year, and there are still some reviews in process this year.

“The government is yet to release any policies from any of those yet because they are still formulating that,” said Ms Biti.

Ms Biti said there will be further changes in the future in this space, and some of these may appear in the upcoming May budget.

“I don't know what they're going to come up with, but there are a few changes I would take a punt on but all of them will be focused on greater contribution by the user or at least a more equitable contribution by some consumers,” she explained.

“I would bet on there being a couple of small things in this years' budget. There may be some reforms around helping the aged care sector have better visibility on how they manage their businesses and the viability of their businesses.”

Ms Biti predicts that the government will continue to shift its allocation of funds towards home care, because for every person that they fund in residential care, they can fund around two to three home care packages.

“So they can get a much better reach, it's more flexible, because you don't have to have people all in one location, they can be anywhere in Australia. There is still a lot of work to be done on the home care side,” she said.

Ms Biti said there are currently 50,000 home care packages in the market, and there’s roughly another 50,000 people on the waiting list with no packages and another 35,000 on that waiting list with a package lower than they would like and need.

“If the government was to say well we'll just throw enough money to fund all of those, they'd need over another billion dollars. There's no way they're going to do that,” she said.

“So some of the things the government will need to do is look at how do we shift more of that cost back to consumers, how do we make sure that the packages that consumers have got aren't just being stripped out with fees, and getting more competition in the space as well.”

By |May 1st, 2018|aged care, budget, Self Managed Super Fund News|Comments Off on Budget to be released 8th May 2018 – tipped to see aged care policy changes

Total super balance key transfer balance account report (TBAR) timing factor

Total super balance key to transfer balance account report (TBAR) timing factorSelf Managed Super Magazine – 16 Jan 2018 By Darin Tyson-Chan

The total super balance of the individual members of an SMSF is the determining factor of how often a particular fund will have to complete a transfer balance account report (TBAR), rather than the total super balance of the member who is drawing a pension.

“So if you had mum and dad in a fund and they’re both in accumulation phase but then dad decides to start a pension, and he’s the first one to start, then you have to determine what the total super balance of each member in that fund at 30 June prior to the commencement of that pension is,” SuperConcepts technical services executive manager Mark Ellem said.

“Does one member at least have a total super balance of $1 million? If yes, the SMSF’s TBAR will be done quarterly, if no, then the SMSF’s TBAR will be done annually.

“Importantly, it’s not about looking at the total super balance of the member starting the pension. 

So if dad starts the pension, and he’s only got a total super balance of $600,000, but mum doesn’t start a pension but she’s got a total super balance of $1.2 million, that fund will be a quarterly reporter.”

Ellem pointed out the initial determination of the TBAR frequency will never change.

“Once an SMSF is determined to be an annual or quarterly reporter, it will forever be an annual or quarterly reporter no matter what happens after that,” he noted.

“You will not have to reassess the reporting status and you can’t change.”

Late last year the ATO announced SMSFs with at least one member in pension phase but with all members having a total super balance of less than $1 million would be able to report events affecting their transfer balance accounts as part of the fund’s annual return.

The regulator also stipulated funds with at least one member drawing a pension and at least one member with a total super balance of $1 million or more would have to report any transfer balance account event within 28 days of the end of the quarter in which the event took place.

By |February 6th, 2018|Self Managed Super Fund News|Comments Off on Total super balance key transfer balance account report (TBAR) timing factor

Asset test changes hit middle-income earners

Asset test changes – Self Managed Super Magazine – 15 Jan 2018 By Malavika Santhebennur

Changes to the asset test rules for the age pension have had “significantly adverse and presumably unintended consequences” and dissuade middle-income wage earners from saving, according to the SMSF Association.

Chief executive John Maroney said changes to the means test taper rate and thresholds, which decrease the entitlement to the age pension as a person or couple’s assets increase and which took effect from 1 January, were not appropriately aligned with the larger retirement income system.

“We believe having the superannuation and social security systems properly integrated is a key facet to achieve an efficient and sustainable retirement income system, and that the current siloed approach to policy-making in these areas is creating perverse outcomes for individuals and couples,” Maroney said.

He added changes to the taper rate for the age pension assets means test hit middle-income earners who had moderate superannuation balances and benefited from a part age pension payment that supplemented their superannuation income.

“For home-owning couples who have a superannuation balance between $500,000 and $800,000, the increased taper rate creates a ‘black hole’ where their assets above the asset test free amount cause them to be worse off in terms of income,” he said.

“This is caused by the taper rate of the equivalent of 7.8 per cent a year, reducing their pension entitlement at a rate exceeding the income they earn from their superannuation balance above the asset-free area. This is especially so in a low interest rate and investment return environment.”

This leads to harmful behavioural effects, including encouraging middle-income earners to move investments from assets that are included in the means test, such as superannuation, to those that are excluded, such as the family home.

A simpler method to integrate superannuation and the age pension means test would be to shift to a single means test that applies a deeming rate to financial and non-financial assets, removing the assets test.

“The Australia’s Future Tax System Review recommended that a single comprehensive means test should be pursued to ensure that assets are fairly accounted for to remove distortions based on the form of savings and to ensure that appropriate incentives to save and use savings effectively remain, and the association concurs,” Maroney said.

 

Self Managed Super Fund Magazine Welcome 2018

By |January 16th, 2018|Self Managed Super Fund News|Comments Off on Asset test changes hit middle-income earners

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