ATO letters issued recently to SMSF trustees examining their investment strategies regarding diversification should be used as a starting point by auditors and advisers to educate trustees on their responsibilities in this area. Although the trustees are intimately responsible for their SMSF investment strategies and should be the ones to write it, the financial planners, SMSF specialists and accountants should assist the trustees with this exercise.

I also believe that the investment strategies must be customized, and the trustees need to be involved, rather than using widely held “standard template” for SMSF investment strategies.

The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 which lapsed on the calling of the Federal election, was reintroduced into the House of Reps on 23 October 2019 (with slightly changed name) – with one major amendment.

The original bill contained measures to deny the CGT main residence exemption to foreign residents which, controversially, also captured “Australian expats”.

For example, Jack and Jill purchase a home in Perth in 1998. They live there until they leave Australia in 2019 to live in Singapore. They become foreign residents for tax purposes. In 2022, they sell their Australian home. The proposed law will include the full capital gain, subject to the extent of the availability of the 50% discount, made on the sale in their Australian tax returns.

Proposed amendment
The proposed amendment will provide an exception to the original “denial” measures where a “life event” occurs during the period that a person is a foreign resident — provided the person has only been a foreign resident for a continuous period of six years or less.

These defined “life events” are:

• Terminal medical condition — which requires that during the period of a person’s foreign residency, either they, their spouse or their child who was under 18 years of age is certified with a “terminal medical condition” (in terms of the relevant requirements in the Income Tax Assessment Regulations 1997).
• Death — which covers the death of a person who is a foreign resident, their spouse or a child under 18 years of age during the period of the person’s foreign residency.
• Divorce or separation — which requires a disposal or dealing in the main residence between the foreign resident and their spouse  in the event of divorce or separation or similar maintenance agreements (but only where such dealing would be entitled to CGT marriage or breakdown roll-over relief under Subdiv 126-A).

However, the original measures will continue to apply to a person who has been a foreign resident for more than six years (that is, an “excluded foreign resident”), even if such a “life event” happens to that person during their period of foreign residency.

Date of effect: The measures apply to CGT events happening at or after their announcement at 7.30 pm, by legal time in the ACT, on 9 May 2017. However, under grandfathering provisions, properties held prior to this date will only be affected by the measures if subject to a CGT event after 30 June 2020.

Principal asset test and TARP
The bill also contains measures to address an integrity issue in relation to a foreign resident’s CGT liability on “taxable Australian real property” in terms of the “principal asset” test. The measures will require a foreign resident to consider interests held by its associates, if it disposes of an indirect interest in Australian real property. The measure is aimed at preventing circumvention of the principal asset test by any disaggregation of holdings of membership interests.

Date of effect: The measures apply to foreign residents that hold indirect interests in Australian real property from 7.30 pm Australian EST on 9 May 2017.

CGT incentives for affordable housing
The bill contains measures to allow resident investors in “eligible affordable rental housing” to obtain an additional 10% CGT discount (on top of the existing 50% discount). The additional CGT discount will be available to resident investors who hold affordable housing directly or through certain trusts.

However, to qualify for the additional discount, the affordable housing must be held for a period of at least three years from the start date of the measure and be managed through a registered community housing provider in accordance with state and territory housing policies and registration requirements.

Date of effect: This measure applies to capital gains realised by investors from CGT events occurring from 1 January 2018 for affordable housing tenancies that start before, on or after 1 January 2018.

Near new dwelling interests
The bill also contains a technical amendment that enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a “near new dwelling exemption certificate”.

Note that this amendment operates in conjunction with measures contained in the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near new Dwelling Interests) Bill 2019 (which was also introduced into the House of Reps on 23 October 2019) to create a reconciliation mechanism to ensure that where a near-new dwelling is sold by a developer to a foreign person, the developer provides a reconciliation payment in respect of that sale.

Date of effect: This amendment applies from 1 July 2017.

The ATO’s Deputy Commissioner, Superannuation and Employer Obligations, James O’Halloran, has announced in a speech to the Australian Institute of Superannuation Trustees (AIST) that with the ATO’s new STP-enabled “unprecedented level of visibility” of transactional data, especially on super information, that it is focusing on using this capability to rein in SG non-payments.
“We have recently completed an examination of SG contributions of some 75 million payment transactions for quarters one, two and three of 2018-19 for some 400,000 employers,” O’Halloran said. “We’re currently examining the payment transactions and patterns for quarter four of 2018-19. As you would know, this was only an aspiration few years ago.”
The data revealed that 90% to 92% of contribution transactions, by volume, were paid on time, and that 85% to 90% of transaction by dollar value were also paid on time.
O’Halloran said that the ATO, as of this month, about to contact around 2,500 employers that have not met their SG contribution payments in a timely manner during 2018-19. A further 4,000 employers will receive “due-date” reminders.
The action is touted by the ATO as the first direct use of STP-sourced data. “It’s a tangible action which demonstrates our increasing ability to effectively follow up in relative real time apparent late or non-payment of SG.”
The ATO also announced that its SG compliance activities has seen it issue about 5,000 individual director penalty notices (DPNs) for 3,600 companies. These had a combined value of $283 million, which was able to be collected due to the wider net that is now cast under the director penalty regime.

The policy measures outlined in today’s Federal Budget are what the Coalition Government believes will pull our nation out of its first recession in nearly 30 years.

But the nation is now facing a $214 billion deficit, the highest deficit since World War II.

2020 Budget Winners

The Government is bringing forward tax cuts originally scheduled for July 2021 in a $17.8 billion move.

This is one phase of the Government’s three-step tax overhaul plan, announced in the 2019 Budget.

• The first stage delivered tax offsets of up to $1,080 to average income earners.
• The second stage, originally scheduled for July 2022, sees the 19 per cent threshold increase from $41,000 to $45,000 and the 32.5 per cent threshold jump from $90,000 to $120,000.

This stage is being brought forward, to begin immediately. The tax cuts will be backdated to 1 July 2020.

Additionally, the Government plans to keep the low- and middle-income tax offset for another year.

That means Australians earning $120,000 or more will get $2,745 back, those making $80,000 will get $2,160 back and those earning $40,000 will get $1,060 back.

• The third stage is still due to come into place from July 2024 and sees the 32.5 per cent threshold increased all the way up to those earning $200,000.

With over 1.1
million Australians choosing to manage their own Self-Managed Super Fund, it
has become a popular option for those wanting more control over their
retirement savings.

A Self-Managed
Super Fund gives you, as the Trustee, the ability to put retirement planning
into your own hands. The long-standing debate when comparing an SMSF to a
traditional superannuation fund is typically restricted to a simple analysis of
cost and returns; but in reality, it’s never that simple. It also comes down to
your motivations, your desire for control and your own personal retirement
goals. Yes, an SMSF is not right for everyone – it must be considered on a case
by case basis – but it’s important to have all the facts and information at
hand so you can make the right decision.

“Lower fees,
More control, Better choice, More Flexibility”

WHY CHOOSE
AN SMSF?

Control

SMSFs enable
you to take control of your financial future. The desire to gain greater
control over superannuation assets and investments is the leading motivation
for the establishment of SMSFs. As a trustee, you are responsible for making
decisions on where your money is invested. Control lies in
your hands. Your money. Your choice. You control the fees, and you control the
ability to achieve higher returns. It is this sense of comfort, confidence, and
security in managing your own affairs that cannot be measured.

Flexible
investment choices

SMSFs provide
the ultimate level of investment flexibility and choice. In addition to shares,
fixed interest, and managed funds, SMSFs can offer increased flexibility,
enabling you to invest directly into property, commodities, unlisted companies,
and unlisted managed funds and trusts.This can even
include your own small business property. This ability to create a diverse,
tailored portfolio is unmatched when compared to institutional superannuation
funds.

Dissatisfaction
with your existing fund

Taking control
of an SMSF also means that trustees always have oversight of their
superannuation savings. Many people decide to set-up an SMSF because they are
dissatisfied with the performance of their existing superannuation fund. The
fees may be too high or the investment options too restrictive. They may want
more transparency over the fees they are paying or have more control over
things like corporate actions.

Plan your tax

SMSFs can also
provide additional flexibility to manage the tax paid by your fund. The
flexibility of an SMSF allows individuals to control the timing of
contributions and the purchase and sale of investments to achieve the best
retirement savings outcome for members. SMSFs also provide for a seamless
transition from accumulation to pension phase.

Plan your
estate

With proper
planning, and if structured correctly, an SMSF can provide additionally
flexibility and certainty regarding when, and to whom, death benefits are paid
from your retirement assets.

‘8 out of 10
trustees believe their SMSF is good value for money.

DID YOU KNOW?

1. Around half of all SMSF trustees own or have owned
   a small business
2. 9 out of 10 trustees believe managing and engaging
   with their own SMSF provides them with a level of satisfaction
3. The median “operating expense” of SMSFs is $3,923 a
   year
4. The majority of SMSF trustees spend between 1 to 5
   hours a month administering their SMSF
5. The most common age range for establishing an SMSF
   is between 35 and 44
6. SMSFs can be cost effective at balances of $200,000
   or more
7. Over 50% of SMSF members have had their SMSF for
   over 10 years
8. There are strict regulations surrounding SMSFs.
   Aside from the annual audit of your SMSF, which must be done by an
   independent Approved SMSF auditor, you can choose the level of compliance
   and administration work you outsource to others – but as the trustee of
   your SMSF you remain ultimately responsible for ensuring your SMSF
   complies with the superannuation and taxation laws

The ATO, a
specialist SMSF adviser and an experienced SMSF Accountant are there to help
you with your success.