SMSF News 0913

HIGHLIGHTS UP TO SEPTEMBER 2013:

• Reduced Tax Concession for very high income earners……,read more 
• SMSF Supervisory Levy…………Read More> 
• Low Income Contribution Payment removal …….read more 
• Auditor update…….Read More
• Liberal Parties Super Policies. minimum pension payments, SGC moving to 12%, …….Read More 
• SMSF compliance breaches 2012 – report now released shows main contraventions being loans to members/financial assistance, in-house assets, administrative type contraventions and separation of assets . <see ATO link>. 
• Age Pension: September 2013. Rates now available. <Read more> 
• Same Sex Couples: If you’re part of a same-sex couple, a reminder that your relationship is now considered legitimate, and equal, in terms of your super entitlements <read more>. 
• Franked dividends and the Liberal policies <read more
• Market Valuation of Assets – Valuations <read more> 
• Personal Use Assets – a reminder about the PUA transitionall rules ……read more 
• Investment Strategy – what needs to be in it as a minimum ……read more

SMSF Supervisory Levy

Up to 1 July 2013, the annual SMSF supervisory levy is payable for the financial year to which the self-managed super fund annual return (SAR) relates.

From 1 July 2013, the SMSF supervisory levy is payable for the financial year in which the SAR is due – for example, when you lodge your 2015 SAR, you will pay the levy for the 2015–16 financial year. This is consistent with payment of the supervisory levy by Australian Prudential Regulation Authority (APRA) regulated funds.

To implement the bring-forward arrangement, levy payments for the 2013–14 financial year will be collected in installments upon lodgment of the 2013 and 2014 SAR. The change in the timing of the collection of the levy is being phased in over two years to give SMSFs time to adjust.

In addition, the levy will increase from $191 in 2012–13 to $259 per annum from 2013–14 onwards.

Auditor Update

You now need to appoint an approved auditor no later than 45 days before the due date for lodgment of your SMSF annual return (previously the time was no later than 30 days before the auditor had to give their audit report to the trustees) From 1 July 2013, all SMSF auditors are required to be registered with the ASIC and quote their SAN on the SMSF independent auditor’s report (revised for 2013) and entered on the SMSF annual return for 2013 and quoted by auditors when lodging contravention reports.

Liberal party’s Super Policies

The incoming government’s plan for superannuation has nine elements. These are:

1. Certainty and stability 9 – 12% SGC The Coalition states that it will not make any unexpected detrimental changes to superannuation and that it will not move the goalposts. The superannuation guarantee will increase from nine to 12 per cent – but the gradual increase will be delayed by two years.

2. Taxation There will be a better process to addresses all inadvertent breaches of the contribution caps where an individual can show that their mistake was genuine and the error would result in a disproportionate penalty (partly addressed by the ALP). The penalty may be as high as an effective tax rate of 93 per cent and can be due to actions and mistakes on the part of others, whether the employer or the superannuation fund administrator. Under the policy the Coalition will also revisit concessional contribution caps and incentives, such as super co-contributions, for lower income earners once the Budget is back in a strong surplus – clearly not time defined.

3. Pay superannuation on Paid Parental Leave The paid parental leave scheme will pay superannuation contributions at the compulsory superannuation rate based on a woman’s actual wage for 26 weeks.You might remember this was being funded by a 1.5% levy on large companies ($5M in Taxable Income) with a sweetener of an intended reduction to the company tax rate from 1 July 2015 thought to be also 1.5%. A woman earning the average full-time female salary of $65,000 who has a child at 26 years of age and another at 29 years of age will be around $50,000 better off in retirement than if she had not received superannuation payments.

4. Minimum withdrawal amounts from account based pensions The turbulence in financial markets over the past five years has placed the capital value of account based pensions under significant pressure, which the current mandated annual minimum withdrawals from such pensions has increased. Minimum payment levels will be reviewed to assess their adequacy and appropriateness in light of current financial market conditions to provide self-funded retirees confidence that their funds will not run out because of inappropriate forced withdrawals from their pension products.

5. Removal or silence on certain super measures

• Removal of the low income super contribution.
• Retain tax free super for over 60’s, but will this change in the future? The ALP proposed 15% tax on pension earnings above $100,000 has not been commented upon by the Liberal government which history shows means it could be introduced at a later stage. The liberals have been silent on the concessional cap increases, it has been suggested they might support the $35K cap increase from 1 July 13 for over 60’s and then for the over 50’s from 1 July 14, see ATO link
• The liberals have been silent on the ALP intention to introduce the deeming rules that apply to the aged pension to super pensions, again history shows the Lib’s may support it

6. Governance in superannuation To improve standards and better manage conflicts of interest, the policy proposes will align corporate governance in superannuation more closely with the corporate governance principles applicable to ASX listed companies. This includes ensuring that the appropriate provision for independent directors on superannuation fund boards mandatory disclosure of conflicts of interest requirement for specific advice to APRA by those who intend to sit on multiple superannuation fund boards that there is no potential for conflicts of interest.

7. Transparency of information  In conjunction with the industry and APRA the policy proposes industry-wide definitions and performance benchmarks to enhance comparability and competition, including:standard reporting of fees standard reporting for gross and net returns on individual investment options and comparable definitions for asset classes and investments.

8. Cutting red tape  Red tape will be cut by implementing a superannuation clearing house through the Australian Taxation Office. Small business would report superannuation payments to the agency that already collects their PAYG payments, instead of having to submit additional forms to Medicare, which they currently must do. The Cooper Review-recommended efficiency reforms ‘SuperStream’ will allow the consolidation of superannuation and help employers make superannuation contributions by integrating superannuation with other payments (such as for salaries and creditors).

9. Risk management  Product innovation and increased choice in retirement products can provide options to better manage the financial risks which is faced in retirement, such as market risk, inflation risk and the risk that people may outlive their retirement savings. The policy proposes work with the financial services sector and regulators to encourage the development of innovative products whilst ensuring that appropriate safeguards are in place to protect consumers.

10. Indexation of military superannuation Recipients of the Defence Forces Retirement Benefits (DFRB) and the Defence Force Retirement and Death Benefits (DFRDB) military superannuation pensions will see their payments indexed in the same way as aged and service pensions.

Franked Dividends and Liberal policies

Franked dividends franking credits cannot be claimed by the recipient of the dividend unless either the franking credits are less than $5,000 or the shares were held for 45 days for individuals. Super-funds however must hold the shares for 45 days regardless. The liberals policies to reduce the company tax rate to 28.5% will dilute the franking credits available to recipients therefore you might see some companies paying out dividends before the changes come in to avoid the dilution, however we expect most will not change dividend payment policy.

Market Value of Assets – Valuations

The trustees have an obligation to record assets at market value – SISR Reg 8.02B.(Also refer to the definition of market value in SISR s10(1)). The ATO have released a guideline regarding the valuation process. See <ATO-link

The ATO recommend the following valuation principals:

General Valuation Principles

You must be able to demonstrate that the valuation has been arrived at using a ‘fair and reasonable’ process. Generally, a valuation is considered fair and reasonable where it meets all the following:

• I take into account all relevant factors and considerations likely to affect the value of the asset.
• I have been undertaken in good faith.
• It uses a rational and reasoned process.
• It is capable of explanation to a third party

The ATO also states:

We will generally accept your determination of an asset’s value, as long as:

• it does not conflict with the ATO guide or Market valuation for tax purposes
• there is no evidence that a different value was used for the corresponding capital gains tax event it was based on objective and supportable data.

The ATO states in the guidelines that a valuation from a ‘person without formal valuation qualifications but who has specific experience or knowledge in a particular area’ may be acceptable.

We therefore recommend a valuation from a real estate agent to be the quickest and cheapest option for trustee’s who have property in their SMSF.

Also, the super laws require a valuation by a qualified independent valuer in the following circumstances

• From 1 July 2011 for any collectables and personal use assets that were acquired on or after 1 July 2011 and disposed of to a related party
• From 1 July 2016 for any collectables or personal use assets that were acquired by the SMSF before 1 July 2011 and disposed of to a related party after 30 June 2016.

Personal Use Assets

The rules apply to all new investments in these assets made on or after 1 July 2011.

For assets acquired before 1 July 2011, you have until 1 July 2016 to make sure they are being kept by the fund in accordance with the rules. If by 1 July 2016 the assets do not comply with the regulations, penalties may be imposed.

The regulations require that:

• collectables and personal use assets must not be leased to any related party of the funds
• collectables and personal use assets must not be stored or displayed in the private residence of any related party of the fund
• trustees must make a written record of the reasons for the decisions on where to store the collectables and personal use assets and keep the record for 10 years.
• trustees must ensure that collectables and personal use assets (other than a membership of a sporting or social club) are insured in the name of the fund within seven days of acquisition
• collectables and personal use assets cannot be used by any related party of the fund
• the transfer of ownership of collectables and personal use assets to a related party of the self-managed super fund must be done at a market price determined by a qualified independent valuer.

A question & answer page about collectables/personal use assets on the ATO website may be helpful for your client see <ATO-link>.

Therefore, when new personal use assets such as artwork/Jewellery etc are purchased after 1/7/11, we will request the following:

1. Copy of the insurance certificate for the new personal use asset that was obtained within 7 days from the purchase of the asset
2. Copy of the trustee minute detailing the ‘reasons for the decisions on where to store the collectables and personal use assets’ as per above.
3. Proof the personal use asset is not stored at a related party’s residence and copy of any lease agreement in place.

Show in the tax return the value of the collectables/personal use assets – there should be a separate box for collectables/personal use assets

Investment Strategy – what needs to be in it as a minimum

The trustees will be required to consider whether to hold insurance for their members when they formulate, regularly review and give effect to the fund’s investment strategy – SIS Reg 4.09. As the requirement to consider the insurance needs of fund members will now essentially form part of an SMSF’s investment strategy, a trustee will need to consider whether insurance is required when developing a fund’s investment strategy, as well as during any regular review of the investment strategy.

The fund’s full investment strategy, which now includes the requirement to consider insurance, should typically also be reviewed following the occurrence of other significant events such as when a new member joins or leaves the fund, or when the fund commences to pay a pension. Importantly, the new regulations do not impose a requirement that an SMSF actually obtains an insurance policy. SMSF trustees will simply need to consider the personal circumstances of fund members when preparing or reviewing the fund’s investment strategy. In doing so, the trustees will need to determine whether the fund should hold an insurance policy that provides insurance cover for some or all of its members.

<Read More>