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SMSF areas being monitored by the ATO

Self-managed super funds are closely monitored by the ATO to ensure regulations are being met across all areas. As SMSF are run by members, it is their responsibility to comply with all related super and tax laws. The independent nature of an SMSF creates an environment that people are confused by or can attempt to exploit.

One area of concern for the ATO regarding SMSFs is that these types of funds are being used to gain access to super before preservation age. Preservation age is dictated by the year in which you were born, super cannot legally be accessed before you reach this age. A growing number of investors in their 30s, far off from their preservation age, are moving their super into an SMSF in an attempt to gain access to their super early. The ATO has noticed an increase in this strategy in the last five years. If found to be doing this, penalties can include funds being wound up, a 45% tax impost being applied, administrative penalties which have a cost attached, or being disqualified from running a fund.

The ATO is also looking into possible problem areas in relation to SMSF contraventions. Loans to SMSF members, in-house assets, investing in related-party assets and failure to keep assets separated account for the bulk of the contravention reports. With that being said, the ATO lists administrative errors, sole purpose breaches, borrowings, operating standards and acquisitions of assets from related parties as categories also seen in contravention reports. To avoid these issues in relation to your funds, make sure your SMSF is accessible in regards to your assets and keep detailed records to help substantiate transactions.

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News

Ineligible downsizer contributions and how they are administered

August 12, 2019

When a downsizer contribution is ineligible, the fund must re-assess the amount in accordance with the Superannuation Industry (Supervision) Regulations 1994 and the trust deed. This is to determine if the amount can be retained as a non-concessional contribution.

Provided the trust deed allows so, the fund can return the contribution to the member or adjust the prior downsizing contributions to nil and report this amount as a non-concessional contribution when the member meets the age and work tests.

When a contribution can’t be returned or returned in full:
Members who no longer have a super interest with the fund, or an insufficient return amount, must have their contribution re-reported as non-concessional, even if the contribution was returned because the member did not meet the age/work tests. Some of the contribution may be an excess non-concessional contribution (ENCC). Regardless of the age of the member, if this is the case the member will receive an ENCC determination or when the fund can’t return the full amount. Members will continue to have access to all review rights under the ENCC scheme. Even if the member is in pension phase, the funds will still need to return an ineligible downsizer contribution if it cannot be accepted.

When a fund receives a release authority:
An amount released under these circumstances is treated as a super lump sum as it is a portion of the member’s super interest. Being in pension phase doesn’t prevent a fund from complying with the release authority although it may mean the full amount can’t be released, as the available balance may be lower than the amount stated in the release authority. Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.

The ATO monitors the rectification of this contribution reporting. Where funds don’t act within legislative timeframes, the Australian Prudential Regulation Authority (APRA) may be contacted.