The latest ATO approach to SMSF contraventions


The ATO have recently released PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 (SISA).

SMSF Specialist Advisers do need to be warning their clients that the ATO will be enforcing these tougher penalties and there will be no forgiveness for contraventions. However good advisers should be able to guide their clients to a better outcome through the use of the SMSF early engagement and voluntary disclosure-service

This Law Administration Practice Statement provides guidelines for the administration of penalties including the circumstances they take into account when considering remission. It acts as an instruction to ATO staff and ensures a consistent and transparent approach.

Every SMSF adviser and Trustees that feel they may have straggled the line or maybe crossed it to cause a contravention should read the statement. As usual, it is the Example Appendix that is most useful and you might even read that first here 

Here are some excerpts from the Practice Statement itself:

1. What this Practice Statement is about

The purpose of this Practice Statement is to provide guidance on:

  • when an entity becomes liable to one or more administrative penalties under the Superannuation Industry (Supervision) Act 1993 (SISA)[1]
  • which entities are liable to pay the administrative penalty
  • the Commissioner’s remission considerations, and
  • objection, review and appeal rights relating to the remission decision.

The SISA sets out who is liable to the penalty, noting that the liability cannot be reimbursed from the SMSF. The penalty is imposed on the following persons:

  • a trustee of an SMSF (including an individual trustee or a corporate trustee), or
  • a director of a body corporate that is a trustee of an SMSF.[3]

2. Compliance treatments – general principles

The penalties, in conjunction with other compliance treatments under the SISA, give us effective, flexible and cost-effective mechanisms for applying appropriate sanctions.

You are not precluded from applying one or more compliance treatments within the one case. The appropriate compliance treatment depends on the circumstances of each case.

Any one or more of the following compliance treatments may also be appropriate:

  • issuing a direction to educate[5]
  • accepting an enforceable undertaking[6]
  • issuing a direction to rectify[7]
  • disqualifying an individual and prohibiting them from acting as a trustee of a super fund or as a responsible officer of a corporate trustee of a super fund[8]
  • issuing a notice of non-compliance to the fund[9]
  • seeking civil and/or criminal penalties through the courts.[10]

The following are relevant when administering these penalties (including in any review process undertaken):

  • The principles underpinning the compliance model require us to be fair to those trustees wanting to do the right thing, and being firm but fair with those choosing to disengage and avoid their taxation obligations.
  • The Taxpayers’ Charter requires us to treat a trustee as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise.
  • Decisions must be supported by the available facts and evidence. Conclusions about the trustee’s actions or behaviour should only be made where they are supported by facts, or can be reasonably inferred from those facts.
  • The trustee will be invited to explain their actions before the remission decision is finalised and they may exercise their right to object to our penalty decision.
  • We need to be mindful of our commitment to avoid or resolve disputes as early as possible in accordance with the ATO Disputes policy and annual Dispute management plan.[11]

3. Administering the penalty

There are four basic steps in administering the penalty imposed under section 166:

  • step 1 – determine if a penalty is imposed by law
  • step 2 – determine who is liable to the penalty
  • step 3 – determine if remission is appropriate
  • step 4 – notify each trustee and/or each director of the corporate trustee of the liability to pay the penalty.

Multiple provisions breached

An unjust result may also occur in situations where multiple administrative penalties are imposed when a particular event results in contraventions of more than one provision.

The following table lists examples of possible circumstances where multiple penalties could arise under more than one provision due to a particular event, noting this is not an exhaustive list:

Circumstances or event Contravening provisions Primary contravening provision
A loan to a member or relative that was greater than 5% of the fund’s assets Subsection 65(1) for the loan and subsection 84(1) for the in-house asset Subsection 65(1)
Access to member benefits without meeting a condition of release Subsection 34(1) for operating standards and subsection 65(1) for financial assistance Subsection 34(1)

If one particular event results in multiple penalties under more than one provision, we would generally remit to a level reflecting the primary contravention. The primary contravention is determined by considering the behaviour and intention of the trustees.

Click here for access to the full PS LA 2020/3 statement

If you have read this far then I also highly recommend reading about the SMSF early engagement and voluntary disclosure-service

I applaud the ATO for giving this comprehensive guidance as so much of the concern around contraventions is not knowing how they will be dealt with and therefore people err on the side of trying to hide them!

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends or your tax agent! Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser
Follow SMSFCoach on Twitter
Liam Shorte on Linkedin
Verante on Facebook
Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002, NORWEST NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

How to elect to pay Division 293 Notice from your SMSF or Super


Div 293 Tax

So you have received a notice from the ATO called “Additional tax on concessional contribution (Div 293) notice for 20XX – 20XX.” In my previous article, I explain what this is all about and your options Options when you receive your new Division 293 Tax Notice for Superannuation Contributions

However, some people are still struggling with the process for implementing the option to release the funds from your SMSF.  So here is a quick guide.

Firstly, Don’t ignore the notice or leave it aside to deal with later. You have 60 days to respond and if paying from your super then you must allow time to submit that election and have the ATO write to your fund with instructions to release the payment.

Complete election form online via MyGov

To complete an election form online you need to have registered for myGov and linked to the ATO Online Services.

If you are not already registered for myGov or your account is not linked to the ATO, go to online services.

If you are correctly linked to the ATO you should see the Australian Taxation Office listed under Your services when you log in to myGov. This is your starting point to make an election.

To make your election:

  • Login to myGov here myGov (make sure you have your mobile phone handy)
  • Click on the ATO image to access our ATO Online Services.
  • Select the Super tab from the top menu. (usually the second tab)
  • Scroll down to Manage and click on that to get sub-menu.
  • Click on Division 293 election (you may have other elections available – it is essential that you select Division 293 election).

myGov 293 Election

  • View your available elections. You may have elections for a due and payable account and/or a deferred account. You may also have elections available for different years.
  • Choose which super fund you want to pay the Div 293 Tax from (Your SMSF should be listed, if not contact your SMSF administrator).
  • Select your SMSF and complete the declaration and Lodge for the election that you would like to complete.

Div 293 ATO confirmation

  • Then wait for the ATO to send you as trustee of your superfund a Notice to pay and remember this may go to your SMSF tax agent or administrator so drop them a quick email to let them know to expect it as you are still on a 60 day deadline!. Do not use the BPAY details on the form that came to you in your personal name

P.S. If you have suddenly discovered you have some other superannuation accounts DO NOT CONSOLIDATE. Check with your advisor first as you may lose insurances, tax deductions, or other benefits you were not aware of that cannot be replaced. Get the full details from the fund first.

Alternative – Complete paper form

If you are unable to complete your election online

Using ATO online services is the easiest and quickest way to make your election and will ensure there is no delay.

However, if you are unable to complete your election online, you have two options:

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends or your tax agent! Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002, NORWEST NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Be Prepared with these 9 SMSF Audit tips


 

There is no doubt that additional emphasis was being placed on the annual SMSF Audit before Covid-19 and I believe we need to be prepared for more extensive requirements from fund auditors going forward for them to be able to complete the work they do to satisfy the ATO and best practice.

This blog has been prepared by the the Audit team at Super Records and I am grateful for them for some good advice on what additional information/documentation SMSF Trustees and their advisers will be required to provide their Auditor this year. This is not meant to be an exhaustive list but it’s pretty damn good. Not all the requirements listed are obligatory but do reflect best practice so discuss these with your accountant or administrator.

Address: PO Box 236, Parramatta, NSW 2124
ABN: 76 153 889 215 I Phone: 02 8892 3777 I Email: audit@superrecords.com.au I Website: http://www.superrecords.com.au

 

1. Early Release of Superannuation – In the case where the lump sum payment made from an SMSF due to the receipt by the Trustee of a copy of a “Coronavirus – early release of super benefits” approval letter issued by the ATO, we will require below documents for audit:

• A copy of the letter received from ATO
• A copy of the signed application made to the super fund by members for lump sum withdrawal
• A copy of the signed minutes of the meeting of trustees approving the lump sum payment
• A copy of the signed confirmation letter sent to members by trustees.

2. Minimum Pension Withdrawal – Any additional documents are not required to be prepared and provided for this. However, we will be reviewing and making sure that if a pensioner has already drawn more than their reduced minimum, it was not returned to super fund as there is no mechanism to return surplus pension payments. However, if the member was eligible for a contribution, it is possible to contribute additional pensions as contributions.

3. Rent Relief provided by SMSF – In the case where SMSF provides rent relief, as an auditor we need to make sure that the rent relief looks reasonable. We will be using the National Cabinet’s Mandatory Code of Conduct – Commercial Leasing Principles to verify the reasonableness for commercial properties. The code provides that:

• The amount of relief should be proportionate to the tenant’s loss in turnover.
• Rent relief can take the form of:

a. a rent waiver which must be at least 50% of the total rent relief and cannot recouped by the landlord over the lease term and/or
b. a rent deferral for the remaining rent relief with this amount amortised over the remaining lease term or at least 24 months (whichever is greater).

We will require the following documents for audit purpose for all type of properties

• A written request by tenant to SMSF for a rent relief listing the adverse economic effects of COVID-19.
• A minute of meeting of SMSF trustees for the relief to be provided and reasons or basis on which the relief to be provided.
• If the arrangement is not as per above mentioned code and if tenant is a related party, the commercial justification based on which the alternate arrangement was negotiated.
• A lease variation document to confirm the agreed updated lease terms.

4. Loan relief provided by SMSF to borrower – In the case where SMSF provides loan relief to a borrower, as an auditor we need to make sure that the loan relief looks reasonable. We will be using the relief offered by commercial lenders to business as per https://www.ausbanking.org.au/covid-19/the-business-relief-package/. This provides that:

• If your business or not-for-profit has been adversely impacted by COVID-19 your bank will allow you to defer principal and interest repayments for all loans attached to the business for a period of six months. While the interest will be capitalised and paid off over the life of the loan.

We will require the following documents for audit purpose

• A written request by borrower to SMSF for a variation of the loan terms listing the adverse economic effects of COVID-19.
• A minute of meeting of SMSF trustees for the relief to be provided and reasons or basis based on which the relief to be provided.
• A loan variation document to confirm the agreed updated loan terms.

5. LRBA relief provided to SMSF by lender – In the case where SMSF receives loan relief from a third party lender, we will require document related to loan relief offered by lender and new accepted loan terms agreed by SMSF and Lender.

In case where SMSF received loan relief from a related party lender, as an auditor we need to make sure that the loan relief looks reasonable. We will be using the relief offered by commercial lenders to business as per https://www.ausbanking.org.au/covid-19/the-business-relief-package/. This provides that:

• If your business or not-for-profit has been adversely impacted by COVID-19 your bank will allow you to defer principal and interest repayments for all loans attached to the business for a period of six months. While the interest will be capitalised and paid off over the life of the loan.

We will require the following documents for audit purpose:

• A written request by SMSF to lender for a variation of the loan terms listing the adverse economic effects of COVID-19.
• A loan variation document to confirm the agreed updated loan terms.

6. In-house asset exceeding 5% due to current market fall – The downturn in the share market may result in the fund’s in-house assets being more than 5% of the fund’s total assets.

We will require the following documents for audit purpose:

• A written plan by trustee setting out the amount of the excess and the steps trustee proposes to take to reduce the market ratio of in-house assets to 5% or below.
• This plan must be prepared before the end of the next following year of income. If an SMSF exceeds the 5% in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021 to make sure that excess is removed by 30 June 2021.

Provided the in-house asset limit was not exceeded at “acquisition” time, this situation in itself will not cause a breach of SIS. If we are provided with above mentioned information, we as an auditor will not be taking any actions for FY 2020.

7. Financial Statement Disclosure – For SMSFs who have not yet completed financial statements for FY 2019 and if the value of the assets of an SMSF at the time of issue of financial statements is materially lower than the asset value reported in FY 2019 financial statement, please add Subsequent Events Notes to the financial statement regarding FY 2019.

If asset values continue to fall, a similar disclosure may be required in financial statements of FY 2020.

8. Effect on investment strategy due to current market fall – The downturn in the share market may result in the fund investing outside the asset allocation ranges outlined in the strategy. For audit purpose we will require either an updated investment strategy or a minute for review of investment strategy stating reasons for investments outside the ranges and reasons for not changing the investment strategy.

9. New Investment Strategy Guidelines issued by ATO – ATO has released a new investment strategy guideline this year. As an auditor we will review the investment strategy to make sure that on top of the existing requirements of an investment strategy, investment strategy also covers below mentioned guidelines of ATO.

• Investment strategy should be based on the relevant circumstances of the fund. Relevant circumstances may include (but are not limited to) personal circumstances of the members such as their age, employment status, and retirement needs, which influence your risk appetite. Your strategy should explain how your investments meet each member’s retirement objectives.
• When formulating your investment strategy, it is not a valid approach to merely specify investment ranges of 0 to 100% for each class of investment. You also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements.
• Investing the predominant share of your retirement savings in one asset or asset class can lead to concentration risk. In this situation, your investment strategy should document that you considered the risks associated with a lack of diversification. It should include how you still think the investment will meet your fund’s investment objectives including your fund’s return objectives and cash flow requirements.

Please find below the ATO guideline link for guidance.

https://www.ato.gov.au/super/self-managed-super-funds/investing/your-investment-strategy/ 

If investment strategy provided is not as per the guidelines, we may need to qualify the audit report and lodge the contravention with the ATO. Also, in that case each trustee/director may face a penalty upwards of $4,200 from the ATO for a breach of the investment strategy requirements.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! Make 2019 the year to get organised or it will be 2029 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

COVID-19 Providing rental relief for the tenant in an SMSF property


SMSF Rent Relief

 

Todays blog has been prepared by the SMSF Association and I am grateful for their technical input to a strategy that has to be treated very carefully if used.

The economic impacts of the COVID-19 crisis are causing significant financial distress for many businesses and individuals.

If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party or yourself. i.e You or your business are your SMSF’s tenant. Learn more about this strategy here

Ordinarily, charging a tenant a price that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in or waiver of rent because of the financial impacts of the COVID-19.

For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.

What do you need to do?

There are some important things you should ensure are in place when you are providing a rent reduction to a tenant, especially when this is a related party.

  • Ensure the relief only applies to rent.
    • Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
  • Ensure that the reduction in rent is only temporary.
    • This means it should have an agreed period of time or agreed date where the rent is reviewed in light of the economic circumstances.
  • The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19.
    • Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant.
  • Clear arrangements which detail the amount of discount, waiver or deferral of the rent.
    • In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.
  • Ensure you have proper documentation which allows your independent auditor to be satisfied that the temporary rent relief satisfies all of the above.
    • This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily.
    • Even if you are both the tenant and landlord, the above should all be documented.

These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile.

If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.

How can we help?

If you need assistance providing rental relief or whether this is the right action for you and your specific circumstances, please feel free to give me a call so that we can discuss in more detail. Alternatively, you can refer to the SMSF Association’s trustee education platform, SMSF Connect.

LASTLY BUT IMPORTANTLY PLEASE BE CAREFUL ABOUT CLICKING ON LINKS IN SMS MESSAGES OR EMAILS. IF YOU WANT TO CHECK ANY ATO/CENTRELINK/Government OFFER THEN GO TO YOUR ADVISER/TAX AGENT OR THE ATO/CENTRELINK/GOVERNMENT WEBSITE DIRECTLY TO VERIFY IT.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! Make 2019 the year to get organised or it will be 2029 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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