CPA releases guidance notes for advising on SMSFs

CPA guidance notes - advising on set up of SMSFs, investing in property with SMSFsCPA Australia has released a set of guidance notes for CPA public practitioners advising SMSFs on set up and investing in property.

Advising on set up of SMSFs

CPA notes that “accountants are the dominant source of structuring advice on SMSFs and have proved to be strong proponents of their advantages”, and as such CPA provides the guidance note as a checklist for advising clients.

CPA points out that SMSFs are not only a financial product, but also a structure to hold financial products and so both financial and structuring aspects need to be considered. Some of the advantages listed by CPA of SMSFs are:

  • control over retirement savings
  • flexibility of choosing investments
  • opportunities for estate planning

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Current State of Superannuation Changes – July 2014

Superannuation Changes - July 2014

Pending Superannuation Changes – July 2014

Minerals Resource Rent Tax

Slower increase in Superannuation Guarantee

The Government had intended the  Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2] to slow the rate of the Superannuation Guarantee and repeal the Low Income Superannuation Contribution (LISC), among other changes. However as the Government hadn’t changed the Superannuation Guarantee rates in the bill from March, when it was first submitted, it did not reflect the SG rates  announced in the 2014 Budget. When the Government tried to amend the SG rates in the bill it was blocked by the Senate. Instead the Senate passed amendments stripping out the changes to the Super Guarantee – meaning it would stay at the currently legislated rates.

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Overseas first home buyers access to retirement savings

Nick Xenophon’s announcement that he intends to introduce legislation to allow Australians to withdraw some of their superannuation to put towards a first home is likely to result in a debate over both the superannuation system and housing affordability. With this in mind, it might be helpful to look at some of the overseas retirement schemes which allow members to withdraw money to put towards property – starting with the Canadian scheme mentioned by Senator Xenophon.

Canadian first home buyers

Canada’s Home Buyers’ Plan (HBP) allows first home buyers to withdraw up to $ 25,000 (Canadian dollars) from a ‘registered retirement savings plans’ (RRSPs) to buy or build a house.

The amount withdrawn is to be repaid over 15 years, though it can be repaid quicker. Repayments start in the second year after the withdrawal and are calculated at 1/15th of the amount withdrawn. Failing to make the minimum repayment can result in the shortfall being included in taxable income.

The HBP also has special rules allowing a person to withdraw some of their retirement savings to buy or build a home for a relative with a disability

More information is available on the Canadian Revenue Agency website .

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ATO releases SuperStream video for tax professionals

The ATO has released a video for tax professionals with advice for implementing SuperStream for clients, including businesses, SMSFs and as part of a SMSF administration service.

Some important things covered in the video:

  • Employers can start using SuperStream from 1 July 2014
  • The ATO expects most employers will be using SuperStream by December 2014
  • SuperStream standardises contributions data “so whether contributions are being sent to a default fund, a major choice fund or an employee’s self-managed super fund (SMSF), super contributions are treated in a similar way”
  • The ATO encourages all employers to have a plan to implement SuperStream – “the earlier a business transitions in to SuperStream, the earlier it will see the benefits and the less chance it will get caught short for time”
  • The ATO is committed to raising awareness and educating in the first two years of the SuperStream process

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SPAA announces SMSF LRBA lender & adviser guidelines

SPAA SMSF Limited Recourse Borrowing Arrangements (LRBAs) guidelines - advisers and lendersSPAA has released guidelines for lenders and advisers working with SMSF Limited Recourse Borrowing Arrangements (LRBAs), with NAB the first bank to sign up to use the guidelines and other major lenders in the “pipeline”.

SPAA CEO Andrea Slattery says that, with the release of the guidelines, “Government and regulators can have a high degree of confidence that LRBAs are being used appropriately and that the industry has best practice guidelines for lending and advice in place.”

SPAA LRBA Lenders Guidelines

According to SPAA the LRBA guidelines for lenders are “intended to establish banking industry standards” to work with other lending policies. The guidelines include items such as:

  • Seeking acknowledgement from the SMSF trustees that they were recommended to seek expert advice
  • SMSF trustee to certify the SMSF is complying with SIS requirements
  • Lenders to provide information to trustees, including:
    • Details of the LRBA structure
    • “Advantages/risks of LRBAs”

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SMSFs and Share Trading – CGT and Trading Stock

SMSF share trading, trading stock - CGTEvery so often there is a discussion of whether a SMSF can be in the business of share trading. There are two reasons for this discussion,

  • 1 – if the SMSF is in business does this breach the Sole Purpose Test, and
  • 2 – if the SMSF is in the business of share trading as opposed to investing in shares can the fund claim deductions for losses against other income

The Sole Purpose question is a topic for another day, however there is an answer to the second question, or really the answer is moot as the legislation does not allow (with some exceptions) SMSFs to claim deductions for losses on investments on revenue account.

Section 295.85 of the ITAA 97 applies to SMSFs, along with other types of superannuation funds. The effect of this section is to exclude a number of other sections from applying to a CGT event, including:

  • s6.5 – Ordinary Income
  • s8.1 – General Deductions

However the excluded sections can still apply to the event if it meets one of the exceptions – it is “attributable to currency exchange rate fluctuations” or the asset is one of the following:

  • “debenture stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security;”
  • “a deposit with a bank, building society or other financial institution;”
  • “a loan (secured or not);”
  • “some other contract under which an entity is liable to pay an amount (whether the liability is secured or not)”
  • or the event is disregarded because of one of the sections contained in the table in s295.85:

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SMSFs choosing individual trustees over corporate trustees

When people set up an SMSF they are increasingly choosing individual trustees over corporate trustees, despite the advantages of a corporate trustee structure.

The Super System Review, also called the Cooper Review, was concerned about the number of new SMSFs set up with individual trustees in the years leading up to the release of the report in 2010. The cooper review panel was “attracted to the potential benefits provided by the corporate trustee structure” and also noted that it is “widely accepted by professionals and the ATO that a corporate trustee is superior”.

While unable to establish a cause for this trend, the review panel thought it could be the result of “limited advice or understanding of the benefits”, or the higher set up costs of a corporate trustee structure.

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Dividend Washing for double franking credits & SMSFs

Dividend WashingConcern by two successive governments over dividend washing by SMSFs and other taxpayers has lead to two consultation processes, many announcement and now legislation which some have argued has increased complexity and created issues of retrospective legislation.

What is Dividend Washing?

A dividend washing scheme was described in a recent speech by Matt Bambrick, Assistant ATO Commissioner:

“Dividend washing is a share trading strategy that enables a taxpayer to access double the franking credits attached to fully franked dividends even though the taxpayer effectively holds only one parcel of shares. The shares are purchased in a special market that allows the taxpayer, often an SMSF, to re-acquire shares with a dividend attached, after the ex-dividend date, allowing them to take advantage of the additional franking credits to offset their tax liability or receive a refund of the excess imputation credits.”

Dividend Washing Legislation

In May 2014 the bill Tax and Superannuation Laws Amendment (2014 Measures No. 2) Bill 2014 was introduced to the Parliament, passed both houses in June and received Royal Assent on 30 June 2014 – however the effect of the dividend washing rules apply from 1 July 2013.

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Industry vs retail fight over default super funds to continue

The fight over which funds will be default super funds is set to continue, despite a ruling by the Federal Court of Australia.

Federal Court – FSC v Industry Super Australia

The Federal Court of Australia has published the reasons for ruling that the expert panel to determine default super funds under modern awards was improperly constituted, in the case of Financial Services Council Ltd v Industry Super Australia Pty Limited [2014] FCAFC 92.

This Expert Panel of the Fair Work Commission (FWC) was tasked with conducting a review of the default super funds in modern awards, as part of the MySuper changes. The panel is required to comprise either the President of the FWC or someone appointed in the presidents place; at least three experts in the subjects of superannuation, finance or investment management; and three other members of the Commission, who don’t need to be experts.

For this panel the President chose to appoint the Deputy President to sit in his place, and appointed the other members. The issue arose when two of the three expert members of the panel were disqualified due to a conflict of interest and in their place the President appointed another expert and himself to sit on the panel.

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