Be careful not to exceed the 10% limit when paying a TRIS!
The main advantage of paying a transition to retirement income stream (‘TRIS’) is that a TRIS (unlike a standard account based pension (‘ABP’)) can commence to be paid as soon as the member has reached their preservation age, even if the member is still working.
However, the disadvantage of paying a TRIS is that, unlike an ABP, a TRIS is subject to a maximum annual draw down limit, which is basically 10% of the member’s pension account balance as at 1 July (or the commencement day of the TRIS for the income year in which the TRIS commences).
This 10% maximum annual limit should be observed when paying a TRIS, because if this limit is exceeded in any income year, then the following key consequences will arise:
- Pension entitlements rolled-back to accumulation phase – the member’s pension interest (or capital) is effectively “rolled-back” into accumulation phase, and the tax-free and taxable components of the member’s accumulation entitlements would need to be effectively recalculated (according to the type of benefit subsequently paid from the fund).
- Tax treatment of benefit payments – Any benefits paid to the member during the year will generally be fully assessable to the member and taxed at their marginal tax rates (e.g., any payment made to a member aged 60 or more will not be tax free as it otherwise would be under the superannuation legislation).
The above consequences are similar to those that arise where an SMSF fails to pay the correct minimum annual pension amount (for an ABP or a TRIS).
Once a member receiving a TRIS satisfies another condition of release (such as ‘retiring’ for the purposes of the superannuation legislation or reaching the age of 65), the 10% payment limit restriction (and the commutation restriction) that normally applies to a TRIS ceases to apply.
ATO SMSF STATISTICAL REPORT
Are you interested in the asset allocation held by other self-managed superannuation funds?
The ATO releases a quarterly summary, which can be found on their website; the highlights for the September 2017 report are as follows:
- total number of SMSFs has increased to 598,620
- total members of SMSFs is 1,130,721
- total value of estimated SMSF assets is $701.6 billion
- top asset types held by SMSFs by value are: listed shares 29%, cash and term deposits 23%, non-residential real property and unlisted trusts 11%.
You can view the value of assets held in the various asset classes over the quarters since June 2013. As expected, the relative percentage of assets subject to Limited Recourse Borrowings has steadily increased.
To view the data tables refer to https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Statistics/Quarterly-reports/Self-managed-super-fund-statistical-report---September-2017/
ATO Confirms Extended Lodgment Date
ATO Confirms Extended Lodgment Date
The ATO have recently confirmed that the lodgment date for 2017 SMSF Annual Returns will again be extended this year to 30 JUNE 2018.
If you did not meet the lodgment date for the 2016 Annual Return, then your 2017 Return is already overdue.
Please contact your accountant to ensure that you are able to meet the lodgement
deadlines, as penalties apply for late lodgements.
ATO Launches Super Scheme Smart
In November 2017 the ATO launched project Super Scheme Smart to educate taxpayers and advisors about tax schemes involving SMSFs.
“Each year we discover complex tax schemes and arrangements designed by promoters solely for the purpose of helping people avoid tax,” says the ATO.
The ATO says it is currently seeing a number of schemes targeting Australians planning for retirement, with these people being encouraged to “inappropriately” channel money through SMSFs.
“The penalties are substantial for those involved in deliberate tax avoidance schemes,” said the ATO.
“And the penalties aren’t just financial; an individual may well lose their right to be a trustee of their own superannuation fund; or in some cases they could go to jail. Promoters of these schemes are also on our watch list.”
These schemes have some common features, they:
are artificially contrived with complex structures usually connecting with an existing or newly created SMSF
involve a significant amount of paper shuffling
are designed to give the taxpayer minimal or zero tax, or even a tax refund
aim to give a present-day tax benefit by adopting the arrangement.
I will provide more information on these schemes in the next few updates; however, a tell-tale sign of these schemes is that they will invariably sound ‘too good to be true’, and as such they generally are.
An unsent text message is upheld in court as the equivalent of the deceased’s will!
A recent case in the Queensland Supreme Court has accepted an unsent text message as an official Will. Whilst this may seem highly unusual, it is a good reminder for all of us to ensure that our
affairs are in order, and the proper documentation is in place.
Did you know that a Will does not necessarily determine where your superannuation benefit will be paid in the event of your death?
The Trustees of a self-managed superannuation fund (SMSF) are actually bound by the Trust Deed and the legislation governing SMSF’s, rather than the wishes of the deceased as set out in their Will.
It is therefore prudent to ensure that the Trustees are informed in writing as to a member’s wishes as to how their death benefit will be paid. This can take the form of a Binding Death Benefit Nomination, provided that is allowed under the SMSF Trust Deed.
If you are unsure as to whether you have communicated your wishes to your SMSF as to how to pay your death benefit, you should consider getting some advice from a professional in this area.
Lodgement Dates for Super Funds – 31 October is nearly here!
Generally, the lodgement date for an SMSF is 15th May of the following year, if the Fund is lodged through a tax agent.
However, this date is brought forward to 31 October if the Fund is lodged by the member or if it was late the previous year.
So, a Fund that missed the 15 May 2017 lodgement date for the 2016 Annual Return will generally be required to be lodged by 31 October 2017.
If your Fund is new, then the date is 28 February of the following year.
It is a good idea to check with your accountant to make sure that you have all your information available so that you meet the Fund deadline to avoid late lodgement fines!
New Requirements for the 2017 SMSF Annual (Tax) Return
New Requirements for the 2017 SMSF Annual (Tax) Return - Funds with Limited Recourse Borrowing Arrangements
There are new disclosures requirements for the Fund’s 2017 Return that will affect your Fund if it has entered in to a Limited Recourse Borrowing Arrangement (LRBA) at any time before 1 July 2017.
The 2017 Return now requires specific disclosure of any related party borrowings, and also of any personal guarantees given by fund members to their lenders in entering the LRBA.
As this is the first time that I have been required to report on member guarantees, if they apply to your Fund please provide these documents to your accountant or directly to me in time for the Fund’s 2017 audit.