Super Snippets: June 2016
- Budget announcements on super
- Extension of related party loan deadline
- 30 June deadline for new collectible rules approaching
- Taxpayer Alert on personal services income diverted to SMSFs
- ATO launches new SMSF early engagement and voluntary disclosure service
This month’s Super Snippets is later than usual as we’ve changed the timing to line up more neatly with both the calendar months and our eMonthly newsletter that is normally emailed in the second week of each month. Starting this month we’ll publish Super Snippets in the first week of each month, covering the previous month’s self-managed super developments.
Let’s turn to the developments of the past month and a half.
As foreshadowed in our last Super Snippets, the May Federal Budget saw a wave of significant announcements on the superannuation front. You can read about the changes in Budget 2016: A quick snapshot.
Since budget night a number of concerns have been raised about the operation of the new rules, particularly in relation to the $500,000 lifetime 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., so there’s the potential for some changes to be made from what was announced. But we’ll have to wait and see, firstly if the Coalition retain office in the July election, and if they do, what’s contained in the draft legislation when released.
We’ll continue to keep an eye on developments and report back to Eviser members.
Delay to related party 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) deadline
In previous Super Snippets articles (November 2015 and January, March and April 2016) we discussed the looming 30 June 2016 deadline for related party LRBAs to be on arm’s length (commercial) terms and conditions and the recent guidance published by the ATO (Practical Compliance Guideline PCG 2016/5).
After granting a number of individual extensions to the deadline, the ATO announced on 30 May that the deadline has been extended to 31 January 2017 for all SMSFs. The ATO has also said that it expects to publish additional guidance between now and January.
Deadline for collectibles
On the subject of looming deadlines, this is our last chance to remind members that the new rules for collectibles kick in after 30 June 2016 (see Super Snippets: March 2016 for details). You must take action immediately if you haven’t already as the ATO has indicated that it doesn’t expect to show any leniency given the time SMSF trustees have had to act.
Taxpayer Alert on personal services income being diverted to SMSFs
In late April, the ATO issued a Taxpayer Alert (TA 2016/6) on arrangements where individuals divert income from personal services to their SMSF to minimise or avoid tax on the income. The ATO advised that it has a number of concerns about these arrangements including the potential application of the anti-avoidance provisions of the Tax Act (Part IVA), the possibility that the income is non-arm’s length income (NALI) of the super fund and potential breaches of the SIS ActThe Superannuation Industry (Supervision) Act 1993. It is the main piece of law governing the operation of superannuation funds (including SMSFs)..
The typical arrangement involves a person performing services for a client, who then pays funds in respect of the services to a company, trust or other entity. That other entity then distributes income to an SMSF associated with the person (or distributes through a chain of other entities).
The ATO is asking those who have entered into these types of arrangements to voluntarily disclose the arrangement to the ATO to reduce the potential penalties that may apply.
Action point: If you have entered into an arrangement of the type set out in TA 2016/6 we recommend seeking professional tax advice immediately.
SMSF early engagement and voluntary disclosure service
The intention of the service is to provide a single entry point for SMSF trustees and advisers to engage early with the ATO on unrectified contraventions, rather than waiting to report contraventions (which may or may not have already been fixed) as part of the annual audit process. The ATO has undertaken to take the voluntary disclosure into account in deciding whether to remit penalties and that it won't undertake an audit based on an auditor contravention report (ACR) if the matter has been resolved through the voluntary disclosure process.
Other developments and reading material
Eviser members may also be interested in the following:
- Self-managed super fund statistical report. The ATO has published the statistical report for the SMSF market for the quarter ended 31 March 2016, 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. and the SMSF population.
- Don’t chase unrewarded risk. An article by Simon Stevenson, Head of Strategy, Multi-Asset at Schroders, reminding investors to remain patient in our low return world and wait for opportunities to present themselves.
- What is good, what is great. An article by Amit Lodha, Portfolio Manager of the Fidelity Global Equities Fund, on what distinguishes a great company from a good company.
- The Australian residential real estate market. A newsletter from Newgate Funds looking at the state of the Australian residential property market.
- Stock picking among chronic low rates – lessons from Japan. An edited extract from a presentation given by Clay Smolinski, a Portfolio Manager at Platinum Asset Management, on the investing lessons that have been learned from the last two decades of investing in Japan.
- Cash isn’t trash. An article by Nathan Bell, Head of Research at Peters MacGregor Capital Management on the benefits of holding cash.
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