What you need to know – Upcoming Changes to Self Managed Superannuation Funds (SMSFs)
From 1 July 2014, the Australian Taxation Office (ATO) will have new powers to improve SMSF standards and prevent the system from being manipulated.
The ATO will introduce compulsory education courses for advisors and fines worth up to $10,200 per trustee for illegal funds.
Common SMSF contraventions include:
- Inappropriate loans and borrowings
- Related party dealings (in-house assets)
- Incorrect use of limited recourse borrowing arrangements to buy property
Check your compliance:
- SMSF trustees need to make sure that their investment strategies are current and reflect the assets of the SMSF
- It is also a legislative requirement that SMSF Trustees consider whether the Fund should take out insurance on the lives of one or more of its members
- Trustees can substantiate their consideration of insurance by documenting decisions in the SMSF investment strategy or in minutes of Trustee meetings.
Contribution Caps on the Rise
The ATO has updated a number of superannuation thresholds for the 2014/15 financial year.
The standard concessional contributions cap will increase from $25,000 to $30,000. The higher concessional contributions cap for members aged 49 or over on 30 June 2014 will remain at $35,000 for 2014/15.
|Type of contribution||2013/14||2014/15|
|Standard concessional contribution under age 50||$25,000||$30,000|
|Standard concessional contribution over age 50 but under age 60||$25,000||$35,000|
|Standard concessional contribution over age 60||$35,000||$35,000|
|Standard non-concessional contribution||$150,000||$180,000|
|Non-concessional contributions three-year rule||$450,000||$540,000|
Related Party SMSF Loans
The ATO has released a Private Binding Ruling which is relevant to SMSF trustees intending to borrow from a related party to acquire an asset under a limited recourse borrowing component (LRBA).
The ruling relates to an SMSF that entered into an arrangement by borrowing money from a related party at a reduced interest rate; with no guarantees and an LVR of 100%.
The ATO deemed that parties not be dealing at arm’s length and the SMSF was obtaining a benefit from the arrangement. This conclusion reached by the ATO, meant that the interest received by the SMSF was classed as special income and was taxed at punitive rates rather than concessional rates.
Our advices are that any SMSF Trustee entering into a limited recourse borrowing arrangement with a related party should ensure that the terms of the LRBA are as commercial as possible.
For more information or a review of your individual situation please contact Archer Gowland on 07 3002 2699. We appreciate you sending this article to fellow business owners who could also benefit from such assistance.