Super Snippets: January 2016
- Investors in dividend stripping arrangements have until 15 February to act on ATO offer
- SMSF trustees have until 30 June 2016 to restructure related party loans
- ATO increases focus on compliance by pension mode SMSFs
- Private binding tax ruling issued on transition to retirement strategy
- AMP resumes investment property lending
- ATO publishes information on consolidating super accounts
Happy New Year to all of our members. Things have been relatively quiet since our last Super Snippets in November 2015, although there’s been plenty of new reading material published.
Let’s take a look at recent developments.
ATO announcement on dividend stripping arrangements
In Super Snippets: May 2015 we discussed Taxpayer Alert TA 2015/1 relating to dividend stripping arrangements. These arrangements typically involved the transfer of shares in a private company to an SMSF (or a trust from which an SMSF is entitled to receive distributions), with the subsequent payment of a franked dividend.
The ATO has announced that funds have until 15 February 2016 to self-amend tax returns to reverse the tax effects of such arrangements or to voluntary disclose them to the ATO. It has also said that funds taking up this offer will only have to repay any tax savings and pay the general interest charge – they won’t be subjected to administrative penalties.
Action point: If your SMSF has entered into a transaction to enable it to receive franked dividends from a private company (either directly or indirectly) you should seek professional advice immediately on the impact of TA 2015/1 and the ATO offer.
Related party loans
As indicated in Super Snippets: November 2015, the ATO is giving SMSF trustees until 30 June 2016 to restructure existing related party lending arrangements to ensure they are on commercial terms. Details of the ATO’s position have now been published on the ATO’s website.
Action point: If you have a related party loan arrangement you need to ensure it is on commercial (arm's length) terms. We recommend seeking a review of your arrangements from a professional adviser.
ATO focus on pensions
It has been reported that the ATO intends to increase its focus on pensions over the upcoming year. In particular it intends to target non-compliance with the pension rules and inappropriately claimed income tax deductions when a fund is in pension phase.
The ATO is concerned that many SMSF trustees are incorrectly calculating the minimum pension amount required to be paid each year, or haven’t ensured the fund has sufficient liquidityAn asset is ‘liquid’ when it can be easily converted to cash. Bank deposits, short term bonds and large listed shares are very liquid. Investments such as property and art aren’t. An investor is also said to be ‘liquid’ when they have plenty of cash and other liquid assets in their portfolio or spare borrowing capacity which allows them to make investments at short notice. Liquidity is a reference to how liquid an asset (or investor) is. to meet the minimum pension payment.
Private binding ruling on payments from transition to retirement (TTR) pension account
If someone is between preservation ageThe age at which you can generally access your super (subject to satisfying a condition of release). A person's preservation age depends on their date of birth. For those born before 1 July 1960 it's 55, but it will gradually increase to 60 over coming years. See the ATO website for more information. and 60, then generally TTR pension payments are taxable to the recipient. The exception is where the account has unrestricted unpreserved amounts, allowing the pension to be partially commuted and taken as a lump sum. Being taxed as a lump sum enables the member to access the low rate cap amount (currently $195,000), effectively ensuring the payment is tax-free (up to the cap).
However, even where a member has no unrestricted amounts (that is, the account consists entirely of preserved benefits) there is a strategy that allows an SMSF to make a payment to a member that is taxed as a lump sum, but also satisfies the minimum payment obligations (and is also subject to the 10 per cent maximum cap). In essence, the member gets to treat the payment as a lump sum, while the fund treats it as a pension payment.
The strategy requires the member to request a payment from their SMSF (not a partial commutation) and make a written election before the payment is made (under Regulation 995-1.03 of the Income Tax Regulations) that the payment be taxed as a lump sum.
Previously there had been some doubts over whether the strategy was effective. However, it was reported in late 2015 that the ATO issued a Private Binding Ruling to an SMSF confirming this approach, even though the TTR pension account consisted entirely of preserved benefits.
Action point: A PBR is only binding on the ATO in relation to the taxpayer to whom the ruling was issued. If you are interested in pursuing this strategy, we recommend obtaining tax advice and probably your own PBR before implementation. We will keep an eye on developments with this strategy and keep you updated.
AMP Bank resumes investment property lending
Earlier in the year (see Super Snippets: August 2015) AMP Bank announced that it was freezing all new investment property lending, including loans to SMSFs. In November, AMP Bank announced that it will resume accepting investment property loan applications (except loans to SMSFs) and in December it announced that it would once again accept loan applications from SMSFs.
Consolidate your super
According to the ATO, more than a quarter of SMSF trustees have multiple super accounts and it is recommending that they consider consolidating them into one account (although you should seek personal financial advice as whether this is a suitably strategy in your circumstances).
If you’ve lost track of your super, the ATO website provides instructions on how to search for your super accounts (see ‘Check your super’). To roll your super into your SMSF you must first complete a ‘rollover initiation request’ form (NAT 74662).
Other developments and reading material
Eviser members may also be interested in the following:
- Self-managed super funds: A statistical overview 2013–14. The ATO has published its latest annual guide containing detailed statistics on the SMSF market.
- SMSF statistical report September 2015. The ATO has published the latest statistics for the SMSF market, including information on asset allocationThe way you spread your portfolio among different types of investments (asset classes). For example, if you had $10,000 to invest you might decide on an asset allocation consisting of 50% term deposits and 50% shares., population and establishments.
- ATO case study. The ATO has published a new case study explaining the payment of a lump sum benefit from an SMSF and its tax implications.
- SMSF Insights Report. UBS and the Financial Services Council recently published their second annual report on the state of SMSF growth in Australia.
- Discussion paper: the future interaction of superannuation with aged care and health care. The Association of Superannuation Funds of Australia (ASFA) has released a discussion paper on the role of superannuation in ensuring adequate aged and health care provision in retirement.
- ASFA Retirement Standard September Quarter. ASFA has published its latest standard (for the September 2015 quarter) for a ‘comfortable’ and ‘moderate’ lifestyle in retirement.
- Super tax targeting. A report by the Grattan Institute recommending a range of reforms to Australia’s superannuation system.
- Dangers of comfortable investing. An article by Auscap Asset Management Limited, from the November 2015 Newsletter for the Auscap Long Short Australian Equities Fund.
- Winners and losers. An article by Simon Doyle, Head of Fixed Income & Multi-Asset at Schroders, reviewing the year 2015.
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