ATO warns SMSF trustees to be wary of risky retirement planning arrangements

The Australian Taxation Office (ATO) is self-managed superannuation fund (SMSF) trustees and retirees about the risks of some emerging retirement planning arrangements that they may be considering, or be approached about. Some emerging arrangements the ATO warns affected entities of include:

·       Artificial arrangements involving SMSFs and related-party property development ventures.

·       Arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF. This results in the rental income from the property being diverted to the SMSF and taxed at lower rates whilst the individual or related entity retains legal ownership of the property.

·       Arrangements where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.

Further information on these arrangements has been released through the .

Concession for SMSF event-based reporting

The ATO has its position on SMSF event-based reporting following consultation. From 1 July 2018, event-based reporting for those SMSFs with members with a total superannuation account balance of AUD1 million or more will be required to report events impacting members’ transfer balances within 28 days after the end of the quarter in which the event occurs. An SMSF whose members’ total superannuation balances are less than AUD1 million can choose to report events which impact members’ transfer balances at the same time that it lodges its SMSF annual return.

Reporting can be done more frequently but is only required when and if an event that impacts a member’s transfer balance cap actually occurs.

Senate Economics Legislation Committee endorses Bills introduced to Senate

The Senate Economics Legislation Committee tabled reports on 23 October 2017 recommending that the following Bills, all introduced to the Senate on 14 September 2017, be passed:

·       Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2017, which amends the Superannuation Industry (Supervision) Act 1993, the Corporations Act 2001 and the Financial Services (Collection of Data) Act 2001 so as to modernise and increase confidence within the superannuation system.

·       Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017, which proposes amendments to strengthen trustee arrangements for registrable superannuation entities.

·       Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 2) Bill 2017, amends to the Superannuation Guarantee (Administration) Act 1992 regarding choice of funds and the integrity of salary sacrifice arrangements.

·       Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 1) Bill 2017, which proposes to establish the First Home Super Saver Scheme (in conjunction with the First Home Super Saver Tax Bill 2017), and to allow individuals aged 65 years and over to use the proceeds from the sale of their main residence to make ‘downsizer contributions’ of up to AUD300,000 to their superannuation.

These Bills are expected to be debated in the remaining sitting weeks of the current Spring session of Parliament.

Proposed US tax reform affects funds

On 2 November 2017, the United States (US) House Republicans introduced a Bill proposing an extensive overhaul of the US tax code. The Tax Cuts and Jobs Act, which is a 429-page Bill, has now been passed with amendments by the House of Representatives (see PwC Global’s for further detail). In addition, the Senate Finance Committee has also approved a Senate version of tax reform legislation (see PwC Global’s for detail).

The relevant items in the Bill which, if passed, could impact the post-tax return of superannuation funds investing into US investments are as follows:

·       Reduction in the headline US corporate tax rate from 35 per cent to 20 per cent for tax years beginning after 2017.

·       A 20 per cent excise tax to US entities on imports from related parties, which is not expected to be covered by double tax agreements.

·       Taxing of ‘foreign high returns’, meaning that high earning foreign subsidiaries of US groups may have 50 per cent of their ‘excess profits’ taxed in the US.

·       Interest deductibility limited to 110 per cent of foreign-owned US companies’ share of the worldwide interest expense for the group.

·       Deemed assessability of unrepatriated foreign earnings, with incentives for companies to repatriate income back to the US.

·       Immediate capital write-offs for qualified property put in place by US entities between 27 September 2017 and 1 January 2023.

New process for adjusting unclaimed super

There is a new lodgment process for correcting mistakes on unclaimed super money statements with the ATO. A new template will be released on 11 December 2017, which seeks to simplify resolutions for mistakes such as adjustments for incorrectly reporting an amount, forgetting to include a member and incorrectly reporting a member.