Tax with Max: SMSF paperwork

This week we look at the introduction of SuperStream for SMSFs, changing trustees and moving shares to super.

Summary: From July 1 2016 all small businesses and SMSFs will be required to process superannuation payments via the SuperStream system – if SMSF accountholders previously paid their super from a business bank account directly to am SMSF this will have to cease in FY17. There is a six month time frame to appoint a new trustee to a DIY fund if one of the individual trustees passes away, though it may be better to plan in advance and appoint a corporate trustee while both individual trustees are still living.

Key take out: Moving shares into a super fund can be done either through an in specie transfer or by selling the shares and moving the cash into super to repurchase the investments – each way has capital gains tax implications, and account holders should consider how contribution limits will affect them when transferring assets into super.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Tax and superannuation.

Superstream is coming - what do I do?

As yet I haven’t set up SuperStream or any electronic service addresses for the business or our superfund. I thought I should get on to it, as we need to be compliant by June 30, 2016. Would you know if I need to set one up for our super contributions which are payments made from our business account directly into our superannuation account?

Answer: You are right about the requirement that will apply to all contributions received by superannuation funds from July 1, 2016. The ATO has commenced an advertising campaign advising small employers and SMSF trustees of the new requirement that commences from the start of the 2017 financial year.

Large employers have been required since July 1, 2015 to have all superannuation contributions for employees processed through SuperStream. Employers with less than 20 employees, classed as small employers, will be required to process all super contributions this way from July 1, 2016.

SuperStream, mainly aimed at the large industry and commercial super funds, was introduced so that the administration of superannuation could be more efficient with regard to processing employer superannuation contributions. It is an electronic system for transferring employee superannuation contributions from employers to their super funds.

All employers and superannuation funds are covered by the new regulations. However, there is an exception if you are a sole trader making payments to your super fund directly, or if you are a related-party employer - for instance, if you are an employee of a family business and make payments directly from your business to your SMSF - payments can continue to be made as usual - see this note from the ATO on SuperStream FAQs - click here

Replacing a trustee

Is it correct that a surviving trustee has six months to appoint a corporate trustee, without any penalty, following the death of the second trustee?

Answer: You are correct about the six month timeframe required for appointing either another individual trustee or a corporate trustee after the death of an individual trustee. Where unexpected difficulties arise in relation to appointing a new individual or corporate trustee, an application can be made to the ATO to extend the six-month deadline.

Once the corporate trustee has been appointed, or a new individual trustee is appointed to take over from the deceased member/trustee, there is a great deal of administration work required to reflect the change. Due to the member dying, the ownership of all assets of the SMSF should be altered to reflect their death and the change in trustee.

Rather than waiting until an individual member dies, it makes sense to appoint a corporate trustee to take over now. In this situation the two individual trustees will become directors of the SMSF trustee company. When one of the individual directors dies nothing needs to happen with regard to the super fund or the ownership of the assets of the fund.

When the trustee is changed to a company and the member/trustee has not died, despite what the ATO and various websites state, there is no superannuation requirement to change the name on all investments held by an SMSF to reflect the name of the new trustee. However the ownership name for all bank accounts, shares, and property should be altered to reflect the change in trustee.

With regard to other investments including unlisted unit trusts and term deposits, that in many cases have an investment term that will expire in the next few years, it is not necessary to change the name for those investments. There should however be documentation prepared that states these investments will continue to be held in the old trustees’ names in their capacity as custodians for the super fund and the new trustee.\

The best way to transfer shares to super

I am 66, retired, but fulfilled the 40 hour work test this financial year. I understand I can transfer shares that are valued at $182,000 into super this year as a result. Do I do this by way of an off-market transfer? If not, how is it done?

Answer: You are able to make an in specie contribution by transferring the shares in your name into your SMSF. This can be done by way of an off market transfer, but this will require many forms to completed and in some cases cost depending on whether you do all of the work yourself.

In some cases it can actually be easier, where a low cost share trading service is used, for the shares to be sold by the individual, the cash produced made as a contribution to the super fund, and then the super fund purchases the shares on the ASX.

In both cases, the in specie transfer or sale, there will be a capital gains tax event with regard to the change in ownership of the shares. If you are doing this as an in specie off market transfer, you need to keep evidence of the market value of the shares at the time of the transfer for income tax and SMSF purposes.

For income tax, the value will be used to calculate whether you have made an assessable capital gain or loss on the transfer of the shares. From an SMSF point of view it will be important to establish the market value of the shares to arrive at the value of the in specie contribution being made.

In addition to the income tax ramifications of what you are proposing you will also need to comply with all of the super contribution rules. From what you have stated, someone over 65 will have met the work test that enables them to make both concessional deductible contributions and non-concessional after tax contributions.

On the basis of the shares being worth $182,000 there could possibly have a problem with regard to the non-concessional contribution limits that apply. When someone is under 65 they can use the bring forward rule to contribute up to $540,000 as a non-concessional contribution, as long as they have not exceeded the annual non-concessional contribution limit of $180,000 in the previous three years.

Once a person turns 65, only the $180,000 non-concessional limit applies. You may however be able to class some of the contribution as a self employed tax-deductible super contribution. By doing this you would not exceed the non-concessional contribution limit, and also reduce tax payable on any capital gain made by using the self-employed super contribution tax deduction.

You should seek professional advice before taking any action as there are a number of rules relating to being making self employed super contributions that must be considered.



Editor's note: a previous version of this article (published April 27, 2016) stated that sole traders contributing to their own super funds and employees of family businesses contributing to their own SMSFs from those business were required to use SuperStream. According to an ATO memo, these groups are not required to use SuperStream and can continue to process payments as they have previously. 

Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au.