Finance related professionals are often described as analytical, detail focused and often good with numbers. Historically, people assume this is because their brain is geared more towards using the “left side”, the side of the brain that is apparently responsible for logical tasks. Neuroscientists, however, have long proclaimed that this view of “right and left” is, in fact, a myth.
By default, the right side of the brain is creative, artistic and perhaps free spirited. Apparently, as the myth goes, it’s got to do with which side of the brain is more active.
What do the experts say?
Recent research by The University of Utah has found no evidence that people preferentially use their left or right side of the brain. The University undertook an analysis of 1000 brains and found that each person used their entire brain equally.
Further still, the team found that all brain regions enable people to be both creative and analytical,
On issuance of the Practical Guidance in June this year for related party borrowings, the ATO acknowledged that further information was needed.
Recently, the ATO released Tax Determination 2016/16 which dealt with the subject of when a limited recourse borrowing arrangement has not been entered into on arm’s length terms.
The core principal at the heart of the release of the information from the ATO is that all dealings between a related party of the SMSF and the SMSF must be on ‘commercial terms’, or ‘arm’s length’. The meaning of commercial terms or arm’s length in relation to obtaining a loan in an SMSF, is that the terms of the loan, ie the interest rate, amount borrowed and term of the loan, must reflect what can be obtained from a third party such as a banking institution.
An example taken directly from the ATO tax determination compares a non arm’s length LRBA and an Arm’s Length LRBA, provides the following example:
The SMSF purchased a commercial property;
Effective from July 1, 2017, the government intends to place a $1.6 million cap on the amount of superannuation that you can retain in, or transfer to, a super pension account. The government released an exposure draft of the proposed legislation for this measure on 27 September 2016. Final legislation is expected to be passed before the end of 2016. This proposed budget change capping pension balances (and therefore limiting the corresponding tax exemption available) to $1.6 million has caused major concern to impacted SMSF trustees – but it may not be all bad news!
The Changes Explained
There are 5 areas in which the new changes impact.
1. Cap on tax-free super accounts
Currently: No limit on the amount of money in superannuation that is tax-free in retirement mode.
Proposed: From July 1, 2017, a limit of $1.6 million can be transferred into a tax-free super account.
We all understand that sometimes it’s, well, annoying to be asked for a document you didn’t think you would have to provide. Numero uno… the bank statement request when we already had you sign the data feed authorisation to allow Superfund Partners to download the bank transactions.
So, what we will address today is when we will request copies of bank statements, and when we will not.
The 2 Types of Data Feeds
There are two types of data feeds available to us; the Class data feed, and Banklink. While Class has a large number of banks agreeing to the data feeds, some data feeds are not available, however, they may be accessible on Banklink. Other banking institutions, such as some credit unions, are not yet available on either Class or Banklink.
The Rule of Thumb
Generally, for bank statements, the rule of thumb is:
- If we can access Class data feeds and we have had the data feed with no interruptions for the full financial year = no request for bank statements!
One of the key concepts with having an SMSF, is that as trustee you must preserve the assets of the SMSF for your retirement. With that in mind, the ATO is exceptionally clear that as trustee you must not treat the assets or income of the SMSF as your own – it’s not, it belongs to your future self in the form of retirement income.
With that in mind, it’s important to remember that when the SMSF owns a commercial property and you in your capacity of operating a business, lease the property, it must be treated as though you were in fact leasing the premises from someone else. This is what is referred to as Arms Length transactions.
Arms length transactions are the type of transaction where two independent strangers are making an agreement, neither one wants to get the worse end of the deal. These type of transactions are generally determined by the current market situations. Take Rent for example, if you were in an area that had surplus office spaces which high levels of vacant offices,
Collectibles and changes from 1 July 2016
Does your SMSF own artwork, jewellery, coins, vintage cars, wine collections or antiques to name a few of the major items deemed collectibles? If these items were purchased before 1 July 2011 you might not be aware that significant changes are taking effect from 1 July 2016.
From 1 July 2016, any collectible owned by an SMSF must adhere to the new rules:
- The collectibles are not to be stored at the SMSF trustees residence;
- SMSF trustee or a related party is not permitted to lease or use any of the collectibles;
- The collectible MUST be insured by its’ own separate policy;
- Document and minute the storage decision by the trustees;
- If the collectible is to be sold to an SMSF trustee or related party then a valuation by a qualified independent valuer must be sought to determine the market value.