News 07/08

Super Concepts e-SuperUpdate provides you with technical tips and updates on Self Managed Superannuation Fund topics of interest.

Changes to SMSF Administration and Preservation Issues

In this e-SuperUpdate we look at some new reporting requirements which are part of the Simpler Super rules, and also, preservation of benefits between the age of 55 and 65.

New Reporting Requirements

The Simple Super legislation not only affected contributions and introduced a new pension – the account based pension, it also changed the reporting requirements for trustees and auditors as well as changes to tax file numbers.

Trustee Declarations

A Trustee Declaration has been published by the ATO to explain the obligations and responsibilities for trustees of a SMSF.

From 1 July this year all new trustees are required to sign a Trustee Declaration within 21 days of becoming a trustee or director of a company which acts as a trustee of a self managed fund.  This applies to newly established funds and where a new trustee is appointed to an existing fund.

In addition, if there is a change to existing trustees it is necessary to advise the ATO within 28 days of the change.

All declarations are required to be retained in the fund records for at least 10 years and there is no requirement to send the declaration to the ATO unless specifically requested. For a newly established fund, the best time to sign the declaration is at the same time all other documents such as the trust deed and ATO registration for the fund is completed.

Super Concepts provides a copy of a Trustee Declaration in its new fund establishment documentation.

Example 1

Ron and Margaret are individual trustees of their self managed superannuation fund.  Ron passes away and their son, Scott becomes a trustee of the fund. Scott is required to complete a Trustee Declaration within 21 days of becoming trustee. It would be usual to record the appointment of Scott as trustee in the minutes in the fund.

Example 2

Tracey and Paul are individual trustees of their self managed superannuation fund.  They decide to change from individual trustees and use a company to act as trustee of their fund. As they have resigned as trustees and have become directors of a corporate trustee they are each required to complete a Trustee Declaration. They will also need to notify the ATO within 21 days of the change of trustee.

Tax File Numbers

If you self managed fund does not have your tax file number (TFN) then it may not be able to accept some contributions and in other cases the contribution will be taxed in total at a maximum rate of up to 46.5%.

Where a SMSF was established prior to 1 July 2007 and the members have not provided their TFN, contributions made after 1 July 2007 will be taxed at 46.5% once those contributions exceed $1,000 in an income year.  This includes the first $1,000.

Where a SMSF was established after 1 July 2007 and the members have not provided their TFN, all contributions made will be taxed at 46.5%.

If you do not quote your TFN then personal contributions and spouse contributions cannot be accepted by the fund. You may also miss out on the co-contribution if you are eligible.

If the member quotes their TFN within three years of the contribution then the fund is able to claim a tax offset to correct the position.

In addition, an employer is required to pass the TFN of an employee to their super fund with 14 days of receipt. Make sure you pass on your employee’s TFN to avoid penalties.

Reporting to the ATO

New penalties have been introduced for superannuation funds that fail to:

• lodge returns on time;
• provide false and misleading statements to the Commissioner;
• keep and retain records of the fund; and
• notify a change of fund trustee or other change to the fund.

The ATO has advised that it has significantly increased its compliance activities for self managed funds. They have indicated they will be auditing up to 7% of funds each year for the next three years. This means that about one in every five funds can be expected to be audited over the three year period. It is expected that the audits will concentrate on certain types of breaches that are identified by the ATO’s system.

Audit Reports

Each year  a superannuation fund is required to be audited by a qualified auditor.  Where a breach of the superannuation rules is identified by the auditor the more serious cases are required to be notified to the ATO. In the past it has been acceptable to use either a contravention report available from the ATO or write a letter to the Commissioner setting out the circumstances of the breach.

However, from 1 July 2007 it is a requirement that any contravention is to be included in the approved Auditor Contravention Report Form. The ATO will publish a list of breaches and the level of severity that are required to be reported.

For funds, established on or after 1 July 2007 an auditor will be required to report any contraventions within the first 12 months of operation.

Preservation - Devil in the Detail

One thing that wasn't made crystal clear with Simpler Super was that the preservation rules continue to apply even after you reach age 60.

Once you have reached your preservation age, currently 55, you can commence a transition to retirement pension. However, you cannot drawdown a lump sum from your preserved superannuation benefit until you have met a condition of release such as retirement or reached age 65, whichever occurs first.

For anyone between preservation age and age 60, retirement means ceasing work and not intending to return to work for more than 10 hours each week. This doesn't stop you from returning to work at a time in the future. It means at the time you cease work you do not intend at that time to return to work for more than 10 hours each week.

For anyone 60 or older retirement means ceasing gainful employment in any work that the person is employed or self-employed. This means if a person 60 or older, works in a number of jobs at the same time then ceasing just one of those jobs is considered to be retired under the super rules.

What does that mean for your superannuation?

(1) you are unable to draw down a lump sum from your preserved superannuation benefits if you continue to work after reaching age 55.

(2) if you are intending to contribute to super and draw down a lump sum tax free after reaching age 60 make sure you have satisfied a condition of release such as retirement or reached age 65.

(3) if you draw down a lump sum in breach of the superannuation rules tax at the maximum personal rate of 46.5% can be applied irrespective of your age.

We recommend you seek professional financial planning advice to ensure that you are able to obrain your preserved superannuation benefits without falling foul of the rules.