The ATO has sent a letter titled ‘Is your SMSF investment strategy meeting diversification requirements’ to 17,700 SMSF trustees highlighting concerns with the lack of diversification and threatening an administrative penalty of $4,200 may be payable if your SMSF fails to meeting the diversification requirements under the relevant superannuation laws.
A sample of this letter is available here (opens in new window): https://www.superfundpartners.com.au/ato-investment-strategy-letter_example/
Why have you been sent the ‘Is your SMSF investment strategy meeting diversification requirements’ letter?
The ATO has used data it collects from SMSF annual tax returns to identify 17,700 or more self-managed super funds where more than 90% of the funds investments are held in a single asset or asset class.
The most common scenario where you will be sent this letter is where your SMSF has purchase direct property (with or without a loan) as part of it’s investment strategy.
In addition, the auditor of your SMSF has also been sent a copy of the letter,
The Australian Federal Budget 2017: Getting into property and getting out of property, things from left field & investment in infrastructure.
Wow, has this budget got a deal for you!
You always want what you haven’t got. When you’re young you are thinking about schemes to get your access to your super money to buy a house and when you’re old you’re looking for ways to get it back into super. Trust us, we have dealt with clients at both ends of that spectrum.
We all know these new budget measures will do nothing for actual house price affordability in Melbourne and Sydney! That will be left to the dual devices of eventual oversupply and interest rates that will rise (one day). But it is an interesting feature of the budget nonetheless.
So, how does it work. Let’s focus on the first home buyers.
First Home Buyers
Our early read on the proposal looks like this:
From 1 July 2017,
Scott Morrison has delivered his second Budget, aimed at boosting growth and the government’s flagging poll rating, declaring there are “better days ahead”. Here is a a quick recap of some of the key announcements that affect the individual.
To find out more, read our “Government delivers stability in 2017-18 Federal Budget” post or contact the team here at Superfund Partners.
Stability and confidence for superannuation is the good news coming out of the 2017-18 Federal Budget. With SMSF members still working through the wide-reaching and complex superannuation changes of the last Budget which take effect from 1 July 2017, this Budget’s minimal changes will result in a period for members to ensure they have the correct strategies in place.
The main change impacting superannuation involves allowing people aged 65 and over to downsize their home and gain exemptions to superannuation caps, a First Home Super Saver Scheme and the rounding up of minor technical changes already announced.
The key changes proposed for superannuation are:
Downsizing exemption to superannuation caps
From 1 July 2018, individuals aged 65 and over will be able to downsize their family home and place proceeds up to $300,000 per member into their superannuation fund without breaching any of the current superannuation caps, work test and age test. The measure will apply to a principal place of residence held for a minimum of 10 years.
Concessional contributions are those made with pre-tax income and can come in many forms, most commonly as
- Superannuation Guarantee contributions made by your employer,
- Salary sacrificed contributions made on your behalf, or
- Tax-deductible contributions if you are self-employed.
Below, we’ve summarised a few important considerations regarding the cap changes that became law on 29 November 2016.
A lower cap will apply from 1 July 2017
As part of the 2016 Federal Budget, the Coalition government announced plans to reduce the annual concessional contribution cap to $25,000 from 1 July 2017. The new cap will now apply to everyone regardless of age.
This will see the lowering of both the over-50s concessional (before-tax) contributions cap of $35,000 and the general concessional contributions cap (for under-50s) of $30,000. However, it’s important to note that the $35,000 and $30,000 caps still apply for the current (2016/2017) financial year.
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!
Well, I can’t say that this year’s budget was my favourite, which I’m sure is a shared sentiment among a lot of our clients. Whilst I still believe that Superannuation is a great space and retains a high degree of tax advantages, there are some changes on the table that will affect quite a few people.
For simplicity’s sake, let’s break it down into the good and the bad:
- The work test has effectively been done away with. Up until now if you were over 65 and wanted to contribute you had to meet this test. From 1 July 2017, this will be no more. One less thing to provide at audit time as well.
- Low-income spouse rebate. This has been introduced as a measure to equalise spouse super accounts – namely women. It’s a $540 offset that phases out once the recipient’s income is $40,000.
- Another initiative for the low-income earner is the rebate on contributions tax if you are earning less than $37,000.
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.
With the amount of changes to superannuation in the last five years it’s essential that your SMSF has a robust, good quality trust deed.
Although the rate of actual law changes has slowed in the last few years, there have still been numerous rulings, cases and new strategies developed which require an up to date SMSF trust deed to protect your interests and get the most from your SMSF.
The following six items are example areas where your current SMSF trust deed is likely deficient: