New ATO guidance
SMSF Regulator’s Bulletin
The ATO has started a new publication, the SMSF Regulator’s Bulletin (SMSFRB), to provide advice and guidance for SMSFs. The bulletin aims to highlight new or emerging strategies that are regarded by the ATO as potential compliance risks. They can be issued more quickly than tax office rulings or determinations to provide warnings to advisers and trustees.
Use of reserves
The ATO is concerned some SMSFs may use reserves to circumvent the new transfer balance cap rules.
A major concern is reserves may be used to reduce member balances so additional contributions can be made. As such, the ATO has indicated it will closely examine arrangements that either set up new reserves or increase existing reserves from 1 July 2017.
Also highlighted is a shift in ATO policy in relation to allocations of reserves to a pension account. From 1 July 2017, all allocations from reserves can only be added to an accumulation interest and no longer to a pension account. An intentional use of reserves to adjust a member’s total superannuation balance may trigger Part IVA provisions of the Income Tax Assessment Act.
Review of release under compassionate grounds
Treasury has conducted a review of the compassionate grounds for early release of superannuation conditions to determine whether changes should be recommended to expand the range of appropriate circumstances.
Areas of consideration included:
- the increase in applications for release to pay for medical treatment,
- extension of criteria to prevent rental eviction (not just mortgage foreclosure),
- the need to balance simplicity and consistency against fairness, and
- access to an offender’s superannuation to pay compensation to victims of crime.
- Public consultation closed on 12 February and Treasury was due to report to government by the end of March.
The government has also announced that administration of the early release benefits under compassionate grounds will be transferred from the Department of Human Services to the ATO in 2018.
Transfer balance cap and LRBAs
Consultation paper Superannuation Tax Integrity Measures and exposure draft legislation
Treasury has released a consultation paper and draft legislation aimed at amending the Income Tax Assessment Act to count an SMSF member’s share of an outstanding limited recourse borrowing arrangement (LRBA) as part of their total superannuation balance. The change is to prevent a member using an LRBA to reduce their balance to enable them to make further non-concessional contributions. If passed, the changes will apply to LRBAs entered into from 1 July 2018.
Also included is a measure to ensure non-arm’s-length expenditure is considered when determining whether non-arm’s-length income tax rules apply.
Under current rules a transition-to-retirement income stream (TRIS) cannot automatically revert to a dependant if that person has not met a condition of release.
Lobbying by the industry has led to the release of exposure draft legislation to amend the legislation to allow a TRIS to automatically revert instead of requiring a commutation and commencement of a new income stream. This is in line with the treatment of other reversionary income streams and allows the beneficiary a 12-month time frame to plan if their transfer balance cap will be exceeded.
Guidance on transitional CGT relief
ATO Guidance Note 6
The ATO has issued guidance on claiming the transitional capital gains tax relief. The information includes how the relief operates and its application to an SMSF paying a TRIS. It also includes examples of how the relief applies for the methods of calculating exempt pension income. Trustees who wish to claim the relief need to make an election before lodging the annual return. With the annual return lodgement date extended to 30 June 2018, trustees have additional time to make this election.
Action on dividend-stripping arrangements
The ATO has previously issued taxpayer alerts with warnings on dividend-stripping arrangements that are used to transfer large amounts into superannuation and is now taking action.
Over the past two years, there have been 61 cases, with 25 taken to the ATO General Anti-Avoidance Rules panel. In 19 of these cases, it was found reasonable for Part IVA provisions of the Income Tax Assessment Act to be applied. The ATO has agreed to settlement terms in 13 cases.