Regulation Round ups

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Regulation Round-up: Quarter IV, 2017

Transfer balance cap report

NAT 74923-09.2017

SMSFs do not need to report any information relevant to the transfer balance cap until 1 July 2018, but they can choose to start reporting from 1 October 2017 with the release of the transfer balance cap report.

The ATO has provided a paper report on its website and plans to introduce an electronic lodgement option in January 2018. Instructions on how to complete the form are also available on the ATO website.

Binding nomination documentation

Perry v Nicholson [2017] QSC 163

Perry v Nicholson [2017] QSC 163 is an interesting case to demonstrate the importance of following precisely (and literally) the trust deed rules for making a binding death benefit nomination (BDBN).
In this case, the SMSF rules required a BDBN to be provided to a trustee to be valid. After the death of a member, a dispute arose over whether an earlier change to trustees had been validly made and, therefore, whether the BDBN had in fact been provided to a valid trustee. If not, the BDBN would have been invalidated.

The change in trustee was ruled to have been valid and so the BDBN was also valid. But it provides a good warning and reminder to advisers and trustees to check that the specific requirements are followed for each individual SMSF.

Warnings on reserves

The ATO has issued a warning on the use of reserves through a new question added to the Super Changes FAQs on the ATO website.This question discussed the use of reserves to avoid transfer balance cap issues. The opinion from the ATO is that reserves are only appropriate in limited circumstances and it has warned it is currently monitoring the use of reserves. Guidance may be issued in the future.

ATO clarifies ECPI method

The ATO has clarified that SMSFs with all assets in retirement-phase pensions will need to use the segregated method to determine exempt current pension income. An actuarial certificate is not required in this case.For any period during which the fund holds both accumulation and pension balances, the fund will need to use the proportionate method unless assets are segregated. An actuarial certificate is required for these periods.

This view may contradict previous industry practice, so penalties may not be applied where calculations in previous years were based on the industry practice.

LRBA and the transfer balance cap

Treasury Laws Amendment (2017 Measures No 2) Act

Legislation was passed in June 2017 to create a credit in a member’s transfer balance account if limited recourse borrowing arrangement (LRBA) repayments are paid from accumulation phase, but the asset is held in pension phase. This change affects segregated funds that enter into an LRBA on or after 1 July 2017.

The act also included a measure to allow a transition-to-retirement (TTR) pension to be converted to an ordinary account-based pension (and subject to the transfer balance cap at that point) when a condition of release is met. This avoids the need to commute the TTR pension and roll over to a new income stream to access the tax-free status on earnings. It is, however, subject to the trust deed terms.

As a result of these changes, three Law Companion Guidelines (LCG) are being updated:

•  LCG 2016/8: transfer balance cap and TTR reforms,
•  LCG 2016/9: transfer balance cap, and
•  LCG 2016/12: total superannuation balance.

Consultation on changes to these LCGs closed at the end of October.

SMSF complaints

FOS annual report 2016/17The 2017 financial year was a record year for complaints to the Financial Ombudsman Service, with a total of 39,479 complaints received.

From this total, 1292 complaints related to investments and advice, with 347 specifically related to superannuation. Almost half (43 per cent) of the superannuation complaints concerned SMSFs.

The most common cause of disputes involved inappropriate advice. This serves as a warning to advisers to ensure the motives for setting up an SMSF are appropriate to client needs and circumstances.

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