15 Mar 2016

Super Snippets: March 2016

The Eviser Team highlight the key developments affecting self-managed super fund trustees over the past month.

Snapshot

  • 30 June is the deadline for SMSFs that own collectibles to comply with new rules
  • SMSFs with related party loans must ensure they were on commercial terms for year ended 30 June 2016
  • ATO consulting on a proposed tax ruling on property investments
  • A reminder that poor record keeping in an SMSF can cause significant financial damage
  • SMSFs using limited recourse borrowing arrangements to purchase shares may lose franking credits
  • Updated superannuation caps, amounts and rates for 2016/17 released

It’s been a busy period for the ATO, which has been reminding people of upcoming deadlines and highlighting a range of issues for SMSFs. Let’s take a look.

30 June deadline for collectibles

The ATO has reminded SMSF trustees of the looming deadline for funds that owned collectibles and personal use assets (for example, art, wine and antiques) prior to the rule changes on 1 July 2011. Owners of these assets were given a five year ‘transitional period’ before needing to comply with the new rules on leasing, usage, storage and insurance.

Come 1 July 2016 this year, SMSFs with assets in this category will have to comply with the current rules, including that:

  • the assets can’t be leased to or used by a related party, nor stored or displayed in a private residence of a related party;
  • decisions about storage must be documented and records kept;
  • items must be insured in the fund’s name within seven days of being acquired; and
  • transfers to a related party require an independent valuation.

Further details on the new rules can be found on the ATO website.

The ATO made it clear via its website and comments at the recent SMSF Association annual conference, it believes SMSF trustees have had plenty of time to comply with the new rules. As a result, we don’t expect the ATO to show any leniency on those that don’t have their house in order by 30 June 2016.

Action point: If your SMSF owns art, wine, jewellery, antiques or similar collectibles you must comply with the new rules by 30 June 2016. If you are in any doubt as to whether the new rules apply to assets owned by your SMSF, seek personal advice.

Related party loans deadline

In Super Snippets: November 2015 we explained that the ATO was giving SMSF trustees until 30 June 2016 to ensure that loans from related parties to the SMSF were on arms length, commercial terms. Click here to see the ATO’s published statement on the matter.

The ATO has subsequently clarified what it intended when it said that loans should be on terms consistent with arms length dealing by 30 June 2016. According to the reports, the ATO expects the interest rate, repayments and other terms of the loan, to be on commercial terms during the financial year ended 30 June 2016. If, for example, payments have been too low, it expects catch up payments to be made by financial year end.

We’ll continue to keep an eye on developments on this issue.

Action point: If you have a related party loan to your SMSF that is not on commercial terms (for example, interest free) speak to your tax adviser as soon as possible. You may need to restructure the loan and make additional payments prior to 30 June 2016.

Proposed tax ruling on property owned by SMSFs

The ATO is currently consulting with the SMSF industry on a proposed tax ruling on what constitutes an ‘alteration, extension or improvement’ to a property.

There‘s concern that the new ruling might narrow the definition of what constitutes a ‘single acquirable asset’ and negatively impact on limited recourseA loan is said to be ‘limited recourse’ when the claim of the lender is limited to the value of the assets used to secure the loan. This prevents the lender having any further ability to claim against the borrower. SMSF property loans are an example of a limited recourse loan (the law requires these loans to be limited recourse). borrowing arrangements (LRBAs).

Action point: If your SMSF owns a property subject to an LRBA and you have made, or intend to make, additions or changes, speak with your tax adviser and consider whether they should make a submission on your behalf if there’s a risk you might be negatively affected.

Poor record keeping by SMSF trustees

At the recent SMSF Association annual conference, Deputy Commissioner of the ATO, Kasey Macfarlane, reminded attendees of the importance of clearly distinguishing SMSF assets. The ATO has seen recent examples of fund’s losing assets to personal lenders because they were not clearly identified as belonging to the SMSF.

Not only does this cause a loss of retirement savings but it exposes the SMSF trustees to substantial penalties for breaching the superannuation laws.

The risk of accidentally co-mingling fund and personal assets is one of the reasons why we recommend using a corporate trustee for your SMSF (see Give your SMSF a corporate trustee).

Denial of franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'. under limited recourseA loan is said to be ‘limited recourse’ when the claim of the lender is limited to the value of the assets used to secure the loan. This prevents the lender having any further ability to claim against the borrower. SMSF property loans are an example of a limited recourse loan (the law requires these loans to be limited recourse). borrowing arrangements

It has been reported that the ATO has issued a private binding tax ruling denying imputation (franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'.) to an SMSF that entered into a limited recourseA loan is said to be ‘limited recourse’ when the claim of the lender is limited to the value of the assets used to secure the loan. This prevents the lender having any further ability to claim against the borrower. SMSF property loans are an example of a limited recourse loan (the law requires these loans to be limited recourse). borrowing agreement (LRBA) to purchase shares.

The ATO apparently argues that where a limited recourseA loan is said to be ‘limited recourse’ when the claim of the lender is limited to the value of the assets used to secure the loan. This prevents the lender having any further ability to claim against the borrower. SMSF property loans are an example of a limited recourse loan (the law requires these loans to be limited recourse). loan funds more than 70 per cent of the purchase price of the shares, the ’45 day rule’ (an anti-avoidance rule relating to franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'.) has been breached, due to the SMSF not being sufficiently ‘at risk’ in relation to the shares.

Action point: If your SMSF has entered into an LRBA to purchase shares we recommend speaking to your tax adviser to confirm whether your fund will be able to claim franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'..

Updated caps, amounts and rates for 2016/17

The ATO has published updated superannuation caps, amounts and rates for the year ended 30 June 2017. Details of the various amounts can be found on the ATO website.

There was no change to the various contributions caps, with the annual limit on concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information. remaining at $30,000 ($35,000 for those 49 years or older) and the cap on non-concessional contributionsVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information. staying at $180,000 per year (or $540,000 using the bring forward ruleThe colloquial term for the rule that allows you to accelerate (bring forward) three years worth of non-concessional contributions to super. See the ATO website for details.).

Other developments and reading material

Eviser members may also be interested in the following:

  1. Money for nothing. A report by Four Corners into CommInsure and its tactics for denying claims payouts. If you’re a member of an external super fund (retail or industry fund) make sure you check the underwriter of your fund’s insurance – you could be a CommInsure client without realising it.
  2. ATO webinars. The ATO has published details of upcoming webinars for SMSF trustees. Topics include; setting up and running an SMSF, accepting contributions, managing investments and paying benefits to members.
  3. SMSF statistical report December 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.
  4. APRA annual superannuation statistics. The superannuation regulator, APRA, has released its 30 June 2015 superannuation industry statistics.
  5. ASFA retirement standard. ASFA has published its latest standard (for the December 2015 quarter) for a ‘comfortable’ and ‘moderate’ lifestyle in retirement.
  6. Market slumps happen. An article by Fidelity listing ten things to remind yourself when markets fall.
  7. The crystal ball is cloudy. An article by Simon Doyle, Head of Fixed Income & Multi-Asset at Schroders, on the outlook for 2016.
  8. Crash calls for the Australian property market – how valid are they? An article by Dr Shane Oliver, Chief Economist at AMP Capital, on the Australian property market and the potential for a crash in prices.

 

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