SMSF Alert: September 2014

It’s been another slow month in the world of superannuation, although for super members and trustees that’s good news.

Let’s take a look at the significant developments.

More on dividend washing

In SMSF Alert: March 2014 we said that the Tax Office had issued letters to those involved in dividend washing (see Franking credits: Don’t push the envelope) requesting they amend their past tax returns and cough up additional tax.

The Tax Office recently announced that they’ve sent letters to an additional 1,500 taxpayers and a reminder to 500 who didn’t respond the first time around. If you received a letter, you should seek tax advice and (if necessary) act in accordance with the Tax Office’s instructions.

Anyone who hasn’t received a letter from the Tax Office, but has participated in a dividend washing trade, has until 22 September to amend the relevant tax returns before the Tax Office will seek to impose penalties on top of the additional tax.

When is an SMSF a ‘wholesale client’?

ASIC has released a statement (14-191MR) explaining how they will apply the ‘wholesale investor’ test to SMSF trustees. This test is relevant for many investment products and accounts that are only available to wholesale (as opposed to retail) investors.

The confusion arises because there’s a ‘general test’ that applies to individuals and their associated entities and another more specific (and more onerous) test that applies to superannuation funds.

ASIC’s view is that the specific test should apply in the context of superannuation products (although it’s not entirely clear when this would apply to existing SMSFs). In that case, an SMSF needs net assets of $10m or more to qualify as a wholesale investor.

But where an existing SMSF invests in a general financial product (for example, wholesale bonds not intended for retail distribution) ASIC will seek to apply the ‘general test’. This requires the value of the investment to be at least $500,000 or an accountant’s certificate confirming the trustee has net assets of $2.5m or more.

Recent law changes

During negotiations to repeal the mining tax, the Government agreed to stall further Superannuation Guarantee (SG) increases and extend, but ultimately axe, the Low Income Super Contribution (LISC).

The SG rate will increase to 9.5% per annum from 1 July 2014, but stay at that level until July 2021 (when it will increase to 10%). It will then rise in 0.5% increments until it reaches 12% in July 2025.

The LISC is a refund of tax on super contributions that applies to those earning less than $37,000. The Government had intended to scrap the LISC immediately but has now agreed to extend it until the year ending 30 June 2017.

Finally, legislation has also been passed to index the thresholds for the Commonwealth Seniors Health Card (see the Department of Human Services website for more details). This is good news for seniors but is offset by potential recipients of the card having to include any superannuation pension in their income from 1 January next year.

Other recent developments

Members may also be interested in the following Tax Office guidance:

1. No-TFN tax offsets – Explains when a SMSF can claim tax offsets for tax withheld due to a Tax File Number not being provided.
    
2. Individual vs corporate trustees – A table explaining the differences between an SMSF having individual or corporate trustees. Remember that we’re big fans of corporate trustees (see Why your SMSF needs a corporate trustee).
    
3. Bitcoin transactions – Tax rulings and guidance on how transactions using Bitcoin should be treated for income tax, FBT and GST purposes.
    
4. Two new educational videos – These videos provide guidance for SMSF trustees on loans, early access and SMSF investment strategies.
    
5. ATO-held super money – The Tax Office currently holds $19.1m on behalf of 37,000 SMSF members. Make sure you’ve checked with their online service to see if any is held on your behalf.

Note: Liam Shorte is an SMSF Specialist Advisor™ with Verante Financial Planning and author of The SMSF Coach.