Presentation slides from Changing Face of SMSF webinar held on 12 March 2014.

1. Webinar:
THE CHANGING FACE OF SMSFs
March 2014
© The SMSF Academy 2014

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HOUSEKEEPING

4. This presentation provides general advice only. No direct or implicit recommendations are
given in this presentation. This means that the general advice provided has not been
prepared taking into account any individual’s financial circumstances (i.e. investment
objectives, financial situation and particular investment needs).
The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the
time of compilation but does not warrant the accuracy of that information. Save for statutory
liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss
or damage which any person may suffer from reliance on this information or any opinion,
conclusion or recommendation in this presentation whether the loss or damage is caused by
any fault or negligence on the part of presenter or otherwise.
© The SMSF Academy, 2014
GENERAL ADVICE DISCLAIMER

5. KEY RATES & THRESHOLDS
Webinar – Changing Face of SMSFs

6. CAPS ARE ON THE RISE
Indexation of concessional contribution cap to $30,000
Temporary cap remains at $35,000, but extends to those 49 and
over from 1 July 2014
Non-concessional cap = 6 times the CC cap
From 1July 2014, increases to $180,000
Bring forward rule now becomes $540,000
Existing bring forward periods do not benefit from indexation

7. LRBA LEGISLATIVE INSTRUMENT
Webinar – Changing Face of SMSFs

8. WHAT THE LAW CURRENTLY SAYS…
Subsection 71(8), SIS Act
Refers to a specific point in time, therefore requiring a
borrowing to be in place at a particular time for s. 71(8)
to apply in respect of that time.

9. LED TO UNCERTAINTY SURROUNDING:
1
2
LRBAs where borrowing has not
yet begun (e.g. OTP)
Where asset continues to be held
within holding trust after loan is
repaid

10. CLAUSE 3.1
In-house asset exemption at the commencement of an LRBA
Clause is intended apply in where the fund holds the investment prior to the
commencement of a borrowing referred to in paragraph 71(8)(b)
Can include where fund has more than one borrowing under the one LRBA
(e.g. deposit and settlement)
Once the asset is held by the holding trust, the investment will be excluded from
that time onwards through operation of subsection 71(8)
Not intended to provide permanent relief to IHA rules

11. CLAUSE 3.2
In-house asset exemption after borrowing repaid
Clause provides the fund asset that is an related trust investment is not an in-house
asset at a time after the time in which the borrowing has been repaid
Exemption will apply to arrangements where multiple borrowings exist, intending to
apply once final borrowing has been repaid
Asset can remain in the holding trust, HOWEVER it must continue to meet the
requirements of section 67A

12. EXAMPLE
ABC Super Fund (SMSF) acquired residential
property using a LRBA in November 2010.
SMSF loan balance has now been repaid in
full. As a result of this legislative
instrument, the property will not be required
to shift from the custodial trustee to the SMSF
trustee, unless the asset is to become a
different asset.
SMSF Podcast Show – Episode 11

13. ADMINISTRATIVE DIRECTIONS AND
PENALTIES
Changing Face of SMSF

14. ATO PENALTY POWERS READY TO LAND
Tax & Superannuation Laws Amendment
(2014 Measures No.1) Bill 2014
is now awaiting Royal Assent to take effect
from 1 July 2014
1
Promotion of
illegal early
release schemes
2
Administrative directions
and penalties for
contraventions relating
to SMSFs

15. Schedule 2 of the Bill
introduces administrative
directions and penalties
for contraventions by
SMSFs including:
NEW ATO POWERS
Rectification
directions
Education
directions
Administrative
penalties

16. Non-
complying
for tax
purposes
Apply to
court for
civil
penalties to
be imposed
Have
criminal
penalties
apply
Accept and
Enforceable
Undertaking
Disqualify a
trustee
THE COMMISSIONER’S EXISTING
POWERS WILL REMAIN TO DEAL WITH
NON-COMPLIANCE

17. RECTIFICATION DIRECTION
Specific action + specific timeframe
Provide evidence to the Regulator
A rectification direction can
be given to:
• Individual Trustee
• Body corporate; or
• Director of a body
corporate

18. MULTIPLE YEAR CONTRAVENTIONS
Example
Trustees of James Super Fund contravened section 67 of the SIS Act
and continued with the SMSF loan for several years. This resulted in a
breach of the borrowing provisions for:
• The year the borrowing is undertaken - s.67(1)(a); and
• Each year of income the borrowing was maintained - s.67(1)(b)
Regulator is likely to give a rectification direction to the trustee of the
SMSF specifying that the borrowing is paid off over a specified time
period, ensuring not further contravention of s.67(1)(b).

19. SPECIFY TIME PERIOD
RECTIFICATION DIRECTION MUST SPECIFY A TIME
PERIOD IN WHICH TO COMPLY
The Regulator is not prevented from giving a rectification
direction in additional to an administrative penalty
Regulator can impose or apply other sanctions for a
contravention, such as educational direction or notice of non-
compliance, if rectification direction is not complied with.
Failure to comply with the direction is a strict liability offence and
is liable for a maximum of 10 penalty units

20. EDUCATION DIRECTION
PERSON WILL BE REQUIRED TO UNDERTAKE A SPECIFIED
COURSE, WITHIN A SPECIFIED TIMEFRAME AND EVIDENCE
COMPLETION
Trustee/Director must also re-sign the Trustee Declaration form
Can be applied in addition to other sanctions
(e.g. administrative penalty)
Failure to comply with the direction is a strict liability
offence and is liable for a maximum of 10 penalty units

21. EDUCATION DIRECTION
NO FEE CAN BE CHARGED FOR AN APPROVED
COURSE
Trustees may incur costs in complying with the
education direction, however none of the costs may
be paid or reimbursed from the assets of the fund.

22. A PERSON WILL BE LIABLE TO AN
ADMINISTRATIVE PENALTY IF CERTAIN
PROVISIONS OF THE SIS ACT ARE
CONTRAVENED IN RELATION TO AN SMSF
ADMINISTRATIVE PENALTIES

23. Provision of SIS Act SIS Act Details Administrative penalty
Subsection 34(1) Prescribed operating standards must be complied with by each trustee 20 penalty units
Section 35B Accounts and Statements 10 penalty units
Subsection 65(1) Lending to members prohibited 60 penalty units
Subsection 67(1) Borrowing 60 penalty units
Subsection 84(1) In-house asset rules 60 penalty units
Subsection 103(1) Duty to keep minutes & records – individual trustees 10 penalty units
Subsection 103(2) Duty to keep minutes & records – corporate trustee 10 penalty units
Subsection 103(2A) Retain election under 71E 10 penalty units
Subsection 104(1) Duty to keep records of change of trustees 10 penalty units
Subsection 104A(2) Sign and retain trustee declaration 10 penalty units
Subsection 105(1) Duty to keep reports 10 penalty units
Subsection 106(1) Duty to notify the Regulator of significant adverse events 60 penalty units
Subsection 106A(1) Duty to notify Commissioner of Taxation of change in fund status 20 penalty units
Subsection 124(1) Written appointment of investment managers 5 penalty units
Subsection 160(4) Education direction 5 penalty units
Subsection 254(1) Information to be given to Regulator 5 penalty units
Subsection 347A(5) Obligation for trustee to participate in Regulator’s statistics program 5 penalty units

24. Administrative penalties can be imposed on:
Individual Trustees OR Directors of the
Corporate Trustee

25. EXAMPLE
Jill and Merryn are members and individual
trustees of Yellow SMSF. Jill and Merryn fail to
ensure that accounts and statements for Yellow
SMSF are prepared for the 2014-15 income year.
As a result, each individual trustee has
contravened section 35B.
An administrative penalty of 10 penalty units is
imposed on each individual trustee of Yellow
SMSF in their personal capacity. Jill and Merryn
are each liable to an administrative penalty of 10
penalty units ($1,700 each).
INDIVIDUAL TRUSTEES

26. EXAMPLE
Stuart and Alison are members and the directors of a
body corporate that is the trustee of Green SMSF.
Stuart and Alison fail to ensure that accounts and
statements for Green SMSF are prepared for the 2014-15
income year. As a result, the corporate trustee has
contravened section 35B.
An administrative penalty of 10 penalty units is imposed
on the body corporate that is the trustee of the Green
SMSF. Stuart and Alison as directors of the body
corporate become jointly and severally liable to an
administrative penalty of 10 penalty units imposed on
the body corporate ($1,700 total or $850 per director)
CORPORATE TRUSTEE

27. SUPERSTREAM & SMSFs
Changing Face of SMSF

28. SUPERSTREAM MEASURES
Employers must make super contributions for employees by
submitting data and payments electronically in accordance with
the Superstream standard
From 1 July 2014:
• Employers with 20 or more employees start using the standard to send
contribution data electronically
• All super funds (including SMSFs) must receive an employer
contribution sent to their fund within the Superstream standard
From 1 July 2015, employees with less than 20 employees must comply.
They may choose to adopt the standard earlier.

29. Related Party employers have an exemption to comply with the data
and payment standard (SIS Reg. 7.07F)
To comply with the Superstream obligations, fund members must provide
their employer with:
• The fund’s ABN
• The fund’s bank account details (BSB & Account No.)
• An Electronic Service Address for receipt of a contribution data
message
A member working for an employer with 20 or more employees
need to provide details with their employer by 31 May 2014.
SUPERSTREAM MEASURES

30. ATO INTERPRETATIVE DECISIONS
Changing Face of SMSF

31. ATO ID 2014/6
Death benefit dependants – adult child on youth allowance
Tax dependant?
Receiving Youth Allowance at
lower ‘home’ rate as opposed
to higher independent rate
Indicates substantially financially
dependant
Interdependency relationship?
X

32. ATO ID 2014/7
Keeping money and other assets separate from those of other parties
SMSF
Standard
Employer
Sponsor
Unit Trust
Unit Trust
Unit Trust
$
Unit trusts both jointly and solely
owned by SMSF
For cost savings and simplicity, only
one bank (held in SMSF name)
Do we have an issue complying
with SIS Reg. 4.09A?
Individual Trustees

33. ATO ID 2014/7
(b)
Issue arising from
employer-sponsor
arrangement within
SMSF
(a)
Only raises a concern for
individual
trustees, requiring assets
to be held separately
from trustee’s personal
assets

34. CASE LAW
Changing Face of SMSF

35. IOPPOLO & HESFORD v. CONTI [2013]
1
2
Is it compulsory for the surviving Member/Trustee of SMSF to
appoint a deceased Member’s Legal Personal
Representative (LPR) as a trustee of the fund for the
purposes of paying a death benefit?
Is the surviving Member/Trustee of a fund compelled to pay
the deceased Member’s death benefit as specified in the
deceased Member’s Will?
Western Australia Supreme Court Case that make two distinct rulings:

36. IOPPOLO & HESFORD v. CONTI [2013]
Augusto & Francesca
both trustees and
members
X
BEFORE AFTER
Corporate Trustee
Augusto sole member
and director

37. IOPPOLO & HESFORD v. CONTI [2013]
2002
BDBN to Augusto
2006
BDBN to Augusto
2005
Will provided super death
benefit to be paid equally to
children
2010
Francesca died
Lapsed after 3 years
Augusto paid death
benefit to himself
Lapsed after
3 years

38. IOPPOLO & HESFORD v. CONTI [2013]
AFTER
Corporate Trustee
Augusto sole member
and director
Should Francesca’s Executors have
been appointed as additional Trustees
to the Fund for the purposes of paying
the death benefit?
Court found in favour of Augusto

39. LESSON TO BE LEARNED?
Ensure the Fund’s trust deed enables a
member to nominate who will be their
replacement trustee of the Fund when they
die; and
Make sure that the member has a valid and
up-to-date Death Benefit Nomination
1
2

40. Webinar Q&A
Podcast in follow-
up email
Follow up email
with survey for your
valuable feedback
Any final questions?
http://thesmsfacademy.polldaddy.com/s/2014-03-changing-face-of-smsf

41. SMSF TAX PLANNING
• Ideas and strategies for SMSF
trustees leading up to 30 June
• Included for members
• Non-members: $99 (incl. GST)
– Keep an eye out for special
offers!
Tuesday, 8th March 2014
11:00am, AEST
9:00am
11:00am
11:00am
11:00am
10:30am
11:00am
 Proficient
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42. Aaron Dunn
The SMSF Academy
www.thesmsfacademy.com.au
SMSF Dunn Right,
http://thedunnthing.com
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