Lodging annual returns
When SMSF trustees are getting ready to lodge their 2012/13 SMSF returns, changes to note include:
- assets should be valued at market value,
- the appointed auditor needs to be registered with the Australian Securities and Investments Commission (ASIC), and
- the SMSF levy has increased and is in transition to being paid during the relevant year – when the 2012/13 return is lodged the fee payable is $321.
Advice on SMSFs: disclosure and fees
ASIC Consultation Paper 216
With the growing dominance of the SMSF sector, ASIC is placing greater scrutiny on the quality and appropriateness of advice.
ASIC has released “Consultation Paper 216 Advice on self-managed superannuation funds: Specific disclosure requirements and SMSF costs”, which contains proposals for disclosure obligations when providing advice on SMSFs.
The areas that particularly concern ASIC include:
- Warnings to SMSF clients that they do not have access to the compensation arrangements under the Superannuation Industry (Supervision) (SIS) Act following theft or fraud.
- Adequate explanation of matters that may influence the decision to set up an SMSF.
- The minimum balance needed to make an SMSF cost effective.
ASIC is proposing to amend legislation for mandatory disclosure requirements.
The regulator also continues to be concerned about SMSFs being opened with relatively small balances due to perceived cost inefficiencies compared with Australian Prudential Regulation Authority (APRA) funds and aims to provide guidance on the assessment of cost comparisons.
Research conducted by Rice Warner for ASIC indicates an SMSF on a full-service basis is not cost effective (compared to an APRA-regulated fund) unless it has a balance of $500,000 or more.
Commutation and minimum payments
ATO SMSF Determination 2013/2
This determination provides clarification on whether a lump sum withdrawal (commutation) from an account-based pension counts towards the minimum income payment.
The Australian Taxation Office (ATO) view is:
- partial commutations (except from transition-to-retirement (TTR) pensions) count towards the income level required,
- full commutations do not count because the income stream is deemed to have ceased before the payment is made, so trustees need to ensure the minimum has been paid before closing the account, and
- commutations from a TTR pension (rolled back to super) do not count as minimum income.
Segregated pension assets
ATO Taxation Determination 2013/D7
Earnings on assets supporting pension obligations are exempt from income tax under either a segregation or apportionment approach.
This draft ruling considers the issues for when an asset is deemed to be a segregated pension asset, and in particular whether a single asset can be segregated through accounting records.
The view put forward by the ATO is that single assets cannot be split between accumulation and pension phase under the segregation approach, despite accounting records that might indicate otherwise.
If this ruling is applied to use the segregation approach, trustees will need to hold physically separate assets in each phase, including separate bank accounts for pension and accumulation phase assets.
When an income stream commences and ceases
ATO Taxation Ruling 2013/5
Determining when a pension starts and stops is important for calculating fund taxation. After a two-year debate, this final ruling has been released with application from 1 July 2007.
As a general rule, the pension commences on the date of request by the member unless wording in the trust deed deems a different start date. The pension is deemed to cease when the balance falls to zero, at the date of requested termination or at the date of death, unless an automatic reversionary pension applies.
The view for cessation at death is at odds with business practice, so tax regulations have been amended so pension tax exemptions apply until the deceased member’s benefit has been paid out of the fund, provided this occurs as soon as practicable.
The SMSF market
The SMSF market continues to grow, with 509,362 funds as at 30 June 2013 and $500 billion in assets, according to APRA. This translates to an average fund size of almost $1 million.
The member demographics are closely split between those over and under the age of 55, with 41.5 per cent of members under 55.
