Investment strategies
New regulations for SMSF investment strategies took effect on 7 August 2012, requiring trustees to:
- regularly review the investment strategy,
- consider insurance for members as part of the strategy, and
- report the value of assets at market value.
The Australian Taxation Office (ATO) also now has the power to enforce the requirement for SMSF assets to be held separately from those of the trustees or standard employer sponsors.
New trustee declaration
The ATO released a new trustee declaration form to take into account the new trustee responsibilities for investment strategies.
All new SMSF trustees (or directors of a new corporate trustee) must complete and sign the trustee declaration (NAT 71128), verifying they understand the responsibilities and duties of an SMSF trustee.
This declaration must also be signed by a legal personal representative who takes over the trustee role for a member:
- under an enduring power of attorney,
- under a legal disability (for example, under age 18),
- who is deceased.
The new form is available at www.ato.gov.au/content/86106.htm and paper copies can be ordered from early 2013.
SMSF auditor registration
Auditor registrations were able to be commenced from 31 January 2013. Existing auditors who register before 1 July 2013 may qualify for transitional arrangements on the experience and educational requirements.
The Australian Securities and Investments Commission (ASIC) has released a dedicated web page for SMSF auditors at www.asic.gov.au/smsf-auditor, with news and details on how to register.
In-specie transfers in/out of an SMSF
Draft legislation, in the form of Exposure Draft: Tax Laws Amendment (2013 Measures 3 No 1) Bill 2013: Self managed superannuation funds and related parties, has finally been released to outline the new rules for in-specie transfers in/out of an SMSF that involve a related party. The restrictions are proposed to apply from 1 July 2013 and include a ban on off-market share transfers. A market valuation from a qualified independent valuer will be required for transfers of other allowable assets, both in and out of the SMSF.
Breaches may incur administrative and civil penalties.
Fund-capped contributions
Under ATO ID 2012/79, SMSF trustees need to return any contributions that exceed the fund capped contribution limit (SISR 7.04(3)). This limit is $450,000 for a member under the age of 65 on 1 July or $150,000 over the age of 65.
The limit applies separately to each contribution and not to the aggregated contributions over the year.
The ATO ID considered the impact of three parcels of shares contributed in specie on the same day to an SMSF. The total of the three parcels exceeded the cap, but each parcel individually did not. The ATO determined that the transfers constituted three separate contributions, so the cap was not breached.
Winding up defined benefit pensions
ATO ID 2012/84 considers the wind-up process for defined benefit pensions and the impact on contribution caps.
When the defined benefit pension commenced, the fund in question split the funds into:
- pension account – actuary’s best estimate of amounts required to pay the pension, and
- pension reserve account – to guarantee pension payments in the event of poor performance or the member’s mortality.
The defined benefit pension was commuted and the pension account was used to start a term-allocated pension (TAP) while the pension reserve account was used to start an account-based pension (ABP).
The question raised was whether the amounts from either account counted against the concessional contribution cap. The ATO determined that exemptions in paragraph 292-25.01(4)(b) of the Income Tax Assessment Regulations 1997 did not apply if amounts are used to start an ABP. The result was that the pension account used to start a TAP was not counted against the cap, but the pension reserve account used to start an ABP was assessed against the concessional contribution cap. This has the potential to create a significant excess contribution.
Taxpayer alert for property (Taxpayer Alert 2012/7)
The ATO is focusing on investment decisions made by SMSFs to acquire property using a limited recourse borrowing arrangement (LRBA) or through a related trust.
Taxpayer Alert 2012/7 highlights structural aspects that may, in the ATO’s opinion, indicate a breach of the rules. These include:
- not registering the title of assets subject to an LRBA in the custodial trustee’s name,
- signing purchase contracts before setting up the holding trust for an LRBA,
- breaching single acquirable asset restrictions,
- using an LRBA to buy vacant land with the intention of building on that land,
- a related trust allowing assets to be used as security for a member’s loan to buy units, and
- a related trust acquiring non-business real property from related parties or leasing residential property to related parties.
Careful structuring of these arrangements is required.
