The ATO has recently issued a Private Binding Ruling which casts some doubt on 0% interest-rate limited-recourse borrowing arrangements (LRBAs). Should this interpretation be correct SMSFs with LRBAs at 0%, or indeed below-market rates of interest, could owe 45% tax on income relating to the LRBA Investment. Since 2010, based on a number of binding and non-binding ATO sources, there has been increasing comfort with the SIS compliance of related-party LRBAs, including at below-market rates of interest. This broader interest came as a result of minutes of the National Tax Liaison Group (NTLG) Superannuation Technical Sub-group meeting in June 2012, where the ATO said that such an arrangement could be consistent with s67A and s109:
“Yes. A lower than market interest rate or the absence of a requirement to pay interest on money loaned to the trustee by a related party will not prevent the arrangement from being a borrowing for the purposes of section 67A of the SISA”
“a fact that the borrowing is interest free does not cause a contravention of paragraph 109(1)(b) of the SISA as that fact does not make the terms and conditions of the borrowing more favorable to the related party lender than would be reasonably expected if the parties were dealing with each other at arm’s length in the same circumstances.”
SIS regulation 13.14 prohibits SMSFs from allowing charges to be created over fund assets, however as this is Superannuation there are a number of exceptions. The one of interest to this discussion is contained in regulation 13.15A. Broadly, this regulation allows a charge to be created over fund assets in relations to a derivatives contract, however there are a number of requirements.
Recent Update: As announced by the Government, there will be some delay allowed in the implementation timetable for SuperStream.
The ATO is encouraging SMSFs to get ready for SuperStream.
From 1 July 2014 SMSFs will be required to be capable of receiving Employer Contributions information electronically through SuperStream. SuperStream is part of the Stronger Super reforms with the goal of improving the administrative efficiency of the Superannuation system. Up to now SuperStream has largely only been relevant for APRA funds, however from 1 July 2014 part of it will start to apply to SMSFs by requiring them to be able to received contributions information from employers. Integrating SMSFs into the SuperStream system will likely require the use of an SMSF Messaging Provider to act as an intermediary:
Since 30 June 2007 it has been a requirement for new trustees of SMSFs, or directors of the corporate trustee of a SMSF, to sign the Trustee Declaration. The trustee declaration summarises many of the duties and restrictions of a SMSF trustee and should be read carefully and understood, along with the ATOs ‘Self-managed super funds – key messages for trustees‘.
s104A of the Superannuation Industry (Supervision) Act 1993 requires that if a person becomes a trustee of an SMSF, or the director of a corporate trustee of an SMSF, they must:
- Sign the Trustee Declaration within 21 days of becoming a trustee/director
- Ensure the Declaration is kept for at least 10 years
- Present the Declaration to the Regulator if requested
From 1 July 2014 SMSFs will not be allowed to provide new insurance cover in respect of a member where the insurance definition is not in line with one of the following Conditions of Release under SIS:
- Terminal Medical Condition
- Permanent Incapacity
- Temporary Incapacity
SMSFs are required under the SIS Operating Standards (SIS Regulation 4.09, under SIS Act 31(1)) to ‘formulate, review regularly and give effect’ an Investment Strategy. Under s34 of the SIS Act contravening the Operating Standards can result in a fine of 100 penalty units, currently $ 17,000.
Under the Regulations the Investment Strategy must consider at least the following (para-phrased):
- Risk and Return
- Liquidity and Solvency
- Insurance cover for members