New ATO form for contribution reserving
ATO form NAT 74851
If contributions are made in June, the SMSF trustee has the ability to leave these amounts in a contributions reserve so assessment is made against the following financial year’s contributions caps. These contributions need to be allocated to a member’s account by 28 July.
However, reporting mechanisms have not operated effectively. The contributions were assessed by the ATO in the year of contribution and may have created an excess. Members then had to go through a formal objection process to have this corrected.
The ATO has released a new form called Request to adjust concessional contributions (NAT 74851) to rectify this issue.
The form allows trustees to notify the ATO that concessional contributions were made in one financial year but not allocated to the member account until the next financial year.
Reserves and concessional caps
ATO Interpretative Decision (ID) 2015/21 & 2015/22
When allocating amounts from a reserve account to a member’s account, the amount may be treated as a concessional contribution under section 291-25(3) of the Income Tax Assessment Act 1997, unless an exception applies, for example, if the allocation is less than 5 per cent of a member’s interest and allocations are made fairly across all members (or in a particular class).
Two relevant IDs have been reissued. There is no change in policy, but they were reissued to confirm the application in light of other legislative changes.
ATO ID 2015/21 confirms benefits paid from a self-insurance reserve may be counted against the concessional cap. SMSFs can only use self-insurance reserves until 30 June 2016 provided they were self-insuring as at 30 June 2013.
ATO ID 2015/22 confirms if a complying lifetime pension is commuted and pension reserves are not used to start another complying pension, allocated amounts may be assessed under the concessional cap.
Death benefits can’t be journal entries
ATO ID 2015/23
The ATO has confirmed a physical transfer must be made to pay lump sum death benefits. A mere journal entry is insufficient. This updates previous IDs 2015/2 and 2015/3.
This issue is particularly important for funds where a death benefit is to be paid to a member of the fund who wants to recontribute to super. SMSFs need to ensure sufficient liquidity to pay the physical transfer of death benefits.
Supervisory levy and penalty rates
The transitional provisions for increasing the supervisory levy have ended. Only the 2015/16 levy of $259 needs to be paid when the 2015 tax return is lodged.
Breaches of legislation are now more expensive. The value of each penalty unit increased by $10 to $180 from 31 July 2015. Royal assent has been granted to effect the change.
UK pension transfers in limbo
If a United Kingdom pension scheme is transferred to an Australian super fund that is not a qualifying recognised overseas pension scheme (QROPS), penalty tax up to 55 per cent of the amount transferred can apply.
Recent UK legislative changes have put in doubt the ability for SMSFs and other Australian funds to be classified as a QROPS. Funds may now only qualify if no access is allowed before age 55, under any circumstances. The difficulty is that Australian law allows some limited access, for example, disability or hardship.
Her Majesty’s Revenue & Customs (HRMC) previously indicated no Australian fund (except one local government fund) would be able to comply. But some hope has arisen. An SMSF has recently been added to the QROPS list. It appears this fund may only accept members who are already over 55, thereby eliminating the UK concerns on early release.
Legal advice may be needed before transferring any UK pension funds to Australia. Treasury and Australian industry bodies continue to liaise with HRMC to resolve the issue.
Look-through provisions
Tax and Superannuation Laws Amendment (2015 Measures No 2) Bill 2015
This bill has now been passed and given royal assent. Trustees of SMSFs who have set up limited recourse borrowing arrangements since 1 July 2007 can now be certain that look-through provisions will apply to treat the SMSF as the owner of the bare trust asset for taxation purposes.
