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SMSF Monthly Update - July 2009

ATO

06/07/2009

 

July 2009 Blueprint SMSF Info Email Welcome to Blueprint Planning's monthly Self Managed Super Fund Monthly Email. Each month we will send out an email with a selection from the latest information  issued by the Australian Taxation Office (ATO) and/or the Australian Securities & Investments Commission (ASIC). We’re not intending that you should remember all these things, but as Trustees, to be aware of the need to research whenever you make changes to your fund investments or strategies. If you have questions about any of these issues, by all means, give your financial adviser a call.

SMSFs a big part of the super scene

 

The size of the SMSF market, and the rate at which the sector is growing, underlines the significance of SMSFs in the overall superannuation market.

 

When the ATO  assumed responsibility for regulation of SMSFs in October 1999 there were 187,000 funds. There are now more than 400,000 funds in existence.

 

This means about three-quarters of a million Australians are currently providing for their retirement by means of an SMSF and the sector currently accounts for about one-third of all superannuation funds under management in Australia.

 

Total assets held in SMSFs are approximately $326 billion, with average assets per fund more than $900,000. The average member holding is about $490,000. These figures are based on the situation prior to the current global financial crisis.

 

SMSFs are largely a retirement savings vehicle for couples in the older-aged brackets, with 69% having two members and 51% of members being aged 55 years or older. Less than 6% are aged under 35. However, there are some early indications that the number of younger people choosing SMSFs to manage their retirement incomes is increasing.

 

The SMSF sector is continuing to grow, with new registrations this financial year up approximately 9% on the same period last year. The growth in fund numbers has been generally steady, with a consistent increase each year – apart from the 2006-07 year, when changes to superannuation laws saw a significant jump in registration of new funds.

 

Despite the ATO's concerted education program, including an extensive early intervention program aimed at assisting new trustees, there has been little change in the top regulatory contraventions reported through Auditor Contravention Reports. The major reasons for contraventions reported to 30 June 2008 were:

·         loans to members or relations (19.08%)

·         breaches of in-house asset rules (15.62%)

·         assets not in the name of the fund (13.56%)

·         documents requested by auditors were not provided (10.49%)

·         breaches of the sole purpose test (7.82%)

·         borrowings by SMSF for purposes not allowed by the legislation (7.34%).

The ATO active compliance program will continue to target these contraventions as well as other emerging risks.

 

 

Tax exemptions on pension assets

Some tax agents and SMSF trustees are incorrectly calculating exempt current pension income (ECPI) in the Self-managed superannuation fund annual return 2008 (NAT 71226). ECPI is the exempt ordinary income and statutory income a complying SMSF earns from assets it holds to provide for super income stream benefits.

 

As ECPI forms part of an SMSF’s assessable income, you need to include all income at the relevant labels in section B of the SMSF annual return. You can claim a deduction for ECPI in section C at label K, as the income that supports paying income streams is exempt income.

 

The ECPI exemption applies to all complying super funds (including SMSFs) currently paying super income stream benefits, provided they meet certain other conditions.

The most common mistakes in calculating ECPI include:

·         not having current valuations – all the SMSF’s assets must be re-valued to the current market value before it starts paying a pension

·         not obtaining an actuarial certificate – an SMSF may need an actuarial certificate to determine how much exempt income it can claim.

·         incorrectly apportioning expenses – where you incur an expense that relates to both accumulation and pension-based income, you must apportion the expense so that you only claim the part of the expense that relates to producing assessable income

·         not offsetting losses – if an SMSF has income tax losses (that is, not capital losses), you should reduce:

·         the loss amount by the net ECPI amount

·         any remaining tax losses by offsetting them against the SMSF’s assessable income.

 

 

Loans from fund must meet strict rules

Results of the ATO recent compliance work indicate that a number of trustees have acted contrary to the rules set out in the super laws that prohibit using the fund’s resources to lend money or provide financial assistance to a fund member or their relatives.

 

If you have made a loan from your fund, you may wish to review the circumstances of the loan and consider whether:

       the loan complies with both the lending to member and in-house asset provisions of super laws

       the loan complies with the non-arm’s length transaction provisions

       your SMSF has an investment strategy

       the loan is in line with the investment strategy

       you have assessed the risk and returns delivered by the loan

       the loan is appropriately secured, and

       income from the loan has been appropriately reported.

You may wish to seek professional advice in reviewing any loans that have been made.

 

If you consider that the loan or financial assistance provided may contravene super laws, you may wish to make a voluntary disclosure and take appropriate steps to rectify the contravention.

 

Information on making a voluntary disclosure can be accessed on the ATO website by searching for Voluntary disclosures – approved form. Your voluntary disclosure should be forwarded to:   Australian Taxation Office GPO Box 9977 Sydney NSW 2001

 

Residency of SMSFs

 

For your SMSF to receive tax concessions, it must be a complying super fund. To do this it must satisfy the residency test, which enables it to meet the definition of an Australian superannuation fund.

 

What is the residency test?

 

As a trustee, you must make sure your fund meets all conditions of the residency test, which has three elements:

·         your fund was established in Australia, or at least one of the fund’s assets is located in Australia;

·         the central management and control of your fund is ordinarily in Australia;

·         your fund must have no active members or else have active members who are Australian residents and who hold at least 50% of the total market value of your fund’s assets attributable to super interests, or

·         the sum of the amounts that would be payable to active members if they decided to leave the fund.

 

If you wish to discuss any of the issues above please contact your financial planner on a number below.

 

South Perth:      (08) 9423 0300

Albany:             (08) 9898 0725

Mandurah:         (08) 9500 6506

 

Regards,

 

The Blueprint Planning Team

 

 

 

 

 

 

 

 

What you need to know

 

This document contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

 

Blueprint Planning Pty Ltd, trading as Blueprint Planning is an Authorised Representative of AMP Financial Planning Pty Limited

 

Source: ATO Self Managed Super funds website  

http://www.ato.gov.au/superfunds/content.asp?doc=/content/00198347.htm&page=18&H18=&pc=001/149/005/002/001&mnu=46092&mfp=001/149&st=&cy=1

http://www.ato.gov.au/superfunds/content.asp?doc=/content/00198347.htm&page=11&H11=&pc=001/149/005/002/001&mnu=46092&mfp=001/149&st=&cy=1

http://www.ato.gov.au/superfunds/content.asp?doc=/content/00198347.htm&page=15&H15=&pc=001/149/005/002/001&mnu=46092&mfp=001/149&st=&cy=1

http://www.ato.gov.au/superfunds/content.asp?doc=/content/00198347.htm&page=17&H17=&pc=001/149/005/002/001&mnu=46092&mfp=001/149&st=&cy=1

ATO Self Managed Super funds website - http://www.ato.gov.au/superfunds/content.asp?doc=/content/00165481.htm&pc=001/149/005/001/001&mnu=46091&mfp=001/149&st=&cy=1