ATO’s SMSF Update

ATO’s SMSF Update

The government has announced that it will proceed with law changes that give the ATO greater powers in dealing with SMSF trustees who breach super law. These new powers will apply to contraventions occurring form 1st July 2014 and cover:

• administrative penalties
• education directions; and
• rectification directions

They will also apply to contraventions that were made prior to 1 July 2014 and continue after that date. For example, if a fund has lent money to a member or relative and the loan still exists on or after 1 July 2014, the trustee will be liable for a penalty. The loan should be immediately repaid to the fund with the appropriate commercial interest. Under the proposed measures, penalties will vary according to the type of breach. In the example above:

• each individual trustee would be personally liable for a penalty of $10,200; or
• for an SMSF with a corporate trustee, each director would be jointly and severally liable for a penalty of $10,200.

The penalty cannot be paid using the resources of the SMSF, and doing so would be considered a serious breach subject to more significant penalties from the ATO. If trustees are making progress in resolving contravention(s) by 1 July 2014, the ATO says it would consider these circumstances in any request to remit imposed administrative penalties.

Do more with ‘Super Seeker’

There are billions of dollars lost in super dollars and some of it could be your clients. With the super seeker tool, taxpayers can:

• check all their super accounts
• find lost or ATO held super; and
• transfer their super to their preferred super fund (if this is a fund to fund transfer it will generally be actioned within 3 working days).

Minimum pension payment requirements

The finalisation of TR2013/5 Income tax: when a superannuation fund income stream commences and ceases, generated much discussion in the media industry on the ATO’s view that a pension ceases when a fund does not pay the required annual minimum pension amount. The ATO subsequently considered circumstances that warrant granting an exemption that would allow super income stream to continue, so the fund can claim exempt current position income (ECPI), even though the annual minimum pension payment requirements have not been met. The ATO published a Q&A on its website some months ago to highlight the conditions that need to be satisfied to allow a fund to continue to claim ECPI. Generally, if a catch up payment is made as soon as practicable, the fund may be able to continue to treat the pension as continuing, when:

• the pension underpayment is less than one twelfth of the minimum pension payment required; or
• the failure to pay the minimum pension payment was because of matters outside the control of the trustee

Some of the common circumstances when this exemption has been granted are:

• The trustee of a fund had a serious ongoing medical condition that was supported by documented medical certificates
• Genuine bank errors when the error was on the part of the bank and not the trustee (supported by evidence form the bank).

The ATO is currently updating its web material to provide further guidance on when the exemption applies (for example, the new material will confirm that the exemption can also apply to an allocated pension).

The work test and making contributions

If a taxpayer is 65 years old or over, but under 75, they will need to satisfy the work test in each financial year a contribution is made to their super account. To satisfy the work test, the taxpayer must be gainfully employed for at least 40 hours during a consecutive 30 day period each financial year when the contributions are made. The ‘work test’ requirement must be satisfied for they year when the contributions are made rather than when contributions are allocated to their super account.