FSI Submissions – Preservation Age

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, several of them have raised the issue of increasing the superannuation Preservation Age and aligning it with the Age Pension age. The Financial Services Council recommends “the superannuation preservation age be increased”, noting the findings of the Grattan Institute that increasing both the… Read More »FSI Submissions – Preservation Age

SuperStream: Important Dates

Update: the ATO has announced ‘compliance flexibility’ for small businesses which miss the SuperStream deadline.

SuperStream is part of the Stronger Super reforms designed to improve administrative efficiency in the superannuation system and reduce costs, partly by moving from paper-based records to electronic transactions. In stages, beginning 1 July 2013, APRA super funds, SMSFs and large and small employers will transition to using SuperStream for exchanging information regarding superannuation contributions and rollovers. The following important SuperStream dates come from the Superannuation Data and Payment Standards 2012 and ATO publications:

 

Important Dates for SuperStream

 

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ATO exemption – LRBAs and In-House Assets

SMSF borrowing property - limited recourse borrowing arrangement LRBAThe ATO recently issued a Determination so resolve an issue where the In-House Asset rules could apply to an Limited Recourse Borrowing Arrangement (LRBA) which was otherwise complying with both the SIS Act/Regulations and ordinary practice.

The Determination, the Legislative Instrument Self Managed Superannuation Funds (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014 (2014/SPR/0008), is issued under s71(f) of the SIS Act, which empowers the regulator to make determinations that an asset is not an In-House Asset.

At issue is the exemption provided by s71(8) of the SIS Act. This sub-section provides an exemption from the In-House Asset rules where an SMSF has an investment in a Custodian Trust (or Holding Trust as it is referred to by the ATO) as part of an LRBA. However, as set out in the Explanatory Statement, this exemption does not cover certain circumstances:

  • Where a contract has been entered into but the borrowing has yet to commence (Paragraph 19)
  • Where a borrowing has been entered into, but the custodian trust does not yet hold the asset – such as where a deposit it made for an off-the-plan unit (Paragraph 21)

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SMSF LRBA: 0% Interest can equal 45% Tax

PercentThe 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.”

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FSI Submissions – SMSF Borrowing and LRBAs

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, many of them make recommendations about SMSF borrowing and Limited-Recourse Borrowing Arrangements (LRBAs). The Financial Planning Association (FPA), noting that SMSF borrowing has been a ‘controversial issue’ with implications for the residential property market, recommends ‘the Government follows… Read More »FSI Submissions – SMSF Borrowing and LRBAs

FSI Submissions – SMSF Regulation

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received. Several industry bodies have used their submissions to argue that changes to how SMSFs are regulated is not required. CPA  ‘ believes there is no evidence to suggest significant change is necessary regarding the structure, operation and/or regulation… Read More »FSI Submissions – SMSF Regulation

Derivatives Risk Statement and Reserve Strategy

Superannuation & SMSF StrategyUnder some circumstances the SIS Act and Regulations require a SMSF to have strategies other that the Investment Strategy, including a Derivatives Risk Statement and a Reserve Strategy:

Derivatives

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.

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