A senior sector executive has suggested practitioners will need to review how the SMSF annual return (SAR) is completed for their clients in order to allow the ATO to properly assess whether the proposed Division 296 tax will be applied to the relevant member.
Accurium head of SMSF education Mark Ellem noted the standard practice adopted when filling out the SAR member section is to use the items S1, accumulated phase account balance, and S2, retirement phase account balance, and have them prepopulated by the administration software servicing the fund.
However, Ellem pointed out this process could be flawed when applied to the total super balance information relevant to the Division 296 tax measure.
“Basically [the prepopulated data] will be the value that’s on the member statements, [which is] the value that’s in the financial statements. Now what we need to consider is [whether] the member balance in the financial statements actually equals the [individual’s] total super balance,” he told attendees of a technical webinar held today.
“Think about what total super balance is and what the definition of total super balance is. It’s the amount the person would receive if they voluntarily ceased their interest in the superannuation fund.
“So just because a member’s statement says their [benefit] value is ‘x’, is that the amount they would receive [if they withdrew their assets from the fund]? Well that will depend upon how the accounts are prepared.
“[For example], if a fund bought an asset for $100 and it’s now worth $1000 at 30 June, are you going to get $1000 if it’s sold and you withdraw [the sale proceeds]? No, [because] there’s going to be tax applicable to that [amount].
“So your member account balance value may not be your total super balance.”
According to Ellem, practitioners and trustees will have to make an assessment as to the accuracy of the values in fields S1 and S2 on the SAR and if it is determined the amounts do not reflect the member’s real total super balance, fields X1, accumulation phase value, and X2, retirement phase value, will need to be used.
“If you complete X1 and X2, that will replace S1 and S2 and that is what the ATO will use for the purposes of calculating total super balance.”
He noted this approach to providing SAR member information is relevant for all superannuation measures linked with a member’s total super balance and not just for determining Division 296 tax liabilities.
