The ATO has reminded trustees that additional reporting requirements around non-arm’s length income (NALI) and limited recourse borrowing arrangements (LRBA) will be required in this year’s SMSF annual return following recent legislative changes.
The regulator flagged the changes earlier this year but with the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 receiving royal assent on 2 October, and with an effective date of 1 July 2018, SMSFs will need to report NALI and LRBA amounts for 2018-19.
The Bill includes an expansion to the definition of NALI, to which the ATO has released a draft law companion ruling to clarify the amendments to tax legislation, and also includes – in certain circumstances – outstanding LRBA amounts in a member’s total superannuation balance (TSB).
In an online update the ATO released current SMSF annual return instructions and pointed out if a trustee had already lodged the fund return and were affected by the new measures, they will be required to amend the return. However the regulator confirmed it would contact them to confirm this.
SMSF trustees with an LRBA would, however, not be receiving additional information about the level of their TSB with the ATO stating, “your TSB on ATO online services may be inaccurate. We’re updating our systems and your TSB will be accurate at the earliest by March 2020. If you’re affected [by the legislative changes] you’ll need to calculate your own TSB.”
The specific changes to the annual return including having to answer whether Part A of the audit report, which covers whether the fund’s financial statements are fairly presented, was qualified. The question around whether Part B – which provides the auditor’s opinion on the fund’s compliance with super laws – is qualified, remains unchanged.
The ATO said, “this information will help us build a more complete risk profile of the SMSF population” but highlighted it was only one factor it would take into account when making a risk assessment of a fund.
Trustees were encouraged to address any issues that may arise in a qualified Part A or B or make a voluntary disclosure to the ATO, which added, “if we do commence an audit, we will take your disclosure into account in determining any enforcement action and the appropriate level of remission of administrative penalties”.
Other specific reporting requirements around outstanding LRBA amounts will include a new label within the member sections of the annual return to report the outstanding LRBA amounts under all relevant LRBAs for each applicable member, which will be used to calculate a member’s TSB.
The reporting is limited to:
- a new LRBA entered into on or after 1 July 2018, or
- the refinancing of an existing LRBA and the refinanced amount increases on or after 1 July 2018, or
- the refinancing of an existing LRBA to acquire different assets on or after 1 July 2018.
The regulator has also made provision for cryptocurrency to be reported under its own label instead of the previously used ‘Other overseas assets’ label and for downsizer contributions to be reported in the member sections of the annual return.