Keeping your New Year’s Resolutions?
For most people they go out the window within the first few weeks no matter how good their intentions. Yet when it comes to our clients there is one fundamental tenet we must keep – taking care of their best interests.
In the complex ever changing world of SMSFs there are many things to be mindful of: to get the year underway let’s look at our top three SMSF resolutions.
1. Collectibles ** Urgent Action Needed **
New rules affect all SMSF’s with collectibles and personal use assets from 1 July 2016.
Accordingly, Trustees should ensure that compliance with the new regulation is in place by 30 June. If the assets will be maintained, then insurance, leasing and storage requirements need to be considered. Disposal to a related party may require a formal valuation.
A more detailed discussion can be found in our recent blog on the topic.
2. Account Based Pensions
Review the pension strategies available for your client. At a minimum you should ensure for existing pensions the trustees meet the minimum yearly pension standards, with the main focus being on meeting the minimum/maximum payment amount. Significant adverse consequences can result from an under or over yearly pension payment.
Each year we also consider each client’s individual situation. Some examples include:
- Has a member of a SMSF recently reached their preservation age? Can they (and the Fund) benefit from starting an income stream?
- Has a member both a pension and accumulation account? Should they be combined to start a new pension?
- And this year, due to recent changes in Centrelink rules, could the member restructure their income stream to receive/increase an age pension payment?
As we noted in October, the ATO is now focusing on compliance with pension standards. So please recognise the importance of dotting the i’s with this ever growing area of complexity. If uncertain please just give us a call…
- Non-Commercial Transactions with related parties
We continue to come across situation where trustees and related parties don’t deal at arm’s length. Common examples include:
- Over/underpayment of market value rent on commercial premises
- LRBA arrangement not on commercial terms – blog
- Payment of excessive franked dividends and trust distributions from related entities.
The top marginal rate can apply (even in pension phase) to income deemed to be excessive when compared to what may be expected in an arm’s length dealing. Penalties can also apply for arrangements that leave the Fund worse off.
As an example we believe that in the instance of a commercial property lease, the ATO would be looking for the following:
- A registered lease in place with personal guarantees if the lessee is a corporate entity.
- Third party evidence backing the market value of the lease
- Terms of lease on commercial terms
- Appropriate action taken if the terms of the lease are not met.
As far-fetched as it may seem, the trustees of the Fund should be willing to take legal action against themselves (as individual guarantees) in the event of default.
This area can be a minefield and is being actively targeted by the ATO target so you need to carefully address it.
If you would like help with any of these issues, please contact Joel Curry directly on
1300 TRISUP
or 02 4961 2788