|Summary: As the ATO cranks up its regulation of SMSFs, the cost of compliance is rising and many accountants are suggesting their clients take out audit insurance. But if customers don’t want the extra cost they could either deal directly with ATO on any audits should they occur – or risk paying more if and when they do.|
|Key take-out: SMSF holders should consider whether it is worth-while taking out audit insurance.|
|Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation and Tax.|
Should I take out Audit Shield Insurance?
My accountant wants us to take out Audit Shield Insurance at an annual fee of $305) to cover his costs in case the ATO wants to audit our SMSF. I already pay over $500 to have my books independently audited. The books and returns are prepared in detail by the accountant.
Our fund is very straight forward with assets allocated between Australian shares, fixed term deposits and cash. In the case of an audit am I able to deal directly with the ATO or will they only deal with the accountant? The accountant indicates the process could cost many thousands of dollars. With a straight-forward fund like ours I fail to see why this would be. Can you shed some light on the pros and cons of Audit shield insurance and in particular how you think it applies to us.
Answer: Due to the increased compliance activity by the ATO for all tax payers, and more specifically in relation to the regulation of SMSF's, accountants have been faced with the dilemma of what they do with the time and cost of dealing with ATO correspondence.
In our practice we had to recognise that we could not continue to do this work and not charge for it. As a result we have also signed on for audit insurance for our clients. Clients were given the choice of taking out the insurance or recognising that any work performed by our firm in dealing with ATO correspondence would be billed to them.
The audit insurance that your accountant is asking you to pay may in fact be a waste of money for you, but you must make the choice in the knowledge that if you don't take out the insurance your accountant will have to bill you for any time taken in looking after your file.
You could mitigate the risk of not taking out this insurance by advising your accountant that any correspondence received from the ATO, that will require them to spend time in dealing with it, should be forwarded to you and you will handle it.
If you take this option you will need to be careful. This is because if you provide information to the ATO, that inadvertently strengthens a case that they may make against your SMSF, it will be hard to take back what has been said. You could have an each way bet by drawing up a reply to any correspondence received from the ATO and asking your accountant to review it.
Minimum pension details
The ATO website says there is no requirement for a minimum pension payment if you start the pension in the month of June. In a recent answer you state that you should not commence the account-based pension on 30 June as you would need to receive a minimum pension payment. Who is right?
Answer: Sometimes in my answers I take an overly conservative approach, I can't totally escape the fact that I am an accountant. The answer I gave to the question was based on information I had received some years ago about the ATO's practice in this area.
As is often the case the ATO starts out with a very hard line attitude to enforcing superannuation regulations and, after a period, relaxes this attitude. The question in relation to whether the minimum pension needs to be taken, where it is started in June of a year, is evidence of this.
Before the ATO released the current policy the considered opinion was that it was best not to start a pension in June in case a minimum payment needed to be taken. With the ATO acknowledging that no minimum payment needs to be paid for any pension started in June means there is no risk in not taking a payment.
However it is interesting to note that the ATO website does state that when calculating the minimum annual payment required, when a pension is started partway through a year, you must divide the minimum payment amount by 365 and multiply by the number of days that the pension was paid. This formula is however followed by the statement that no minimum payment needs to be taken when a pension is started in June of that year.
I am on a disability pension - can I withdraw my super to buy a house?
I have $110,000 in super, I am 56 this June and I am on a disability pension. I want to buy a place to live and want to use the super to get into the housing market. If I take my super and use it for the purchase of a home will this affect my pension?
Answer: From what you have described you will be able to meet the retirement condition of release to access your superannuation. Under the retirement condition, for someone who is under 60, a member must intend not to work more than 10 hours a week.
Under the Centrelink assets test, a person’s home is not counted as an asset. This means you could take the $110,000 from superannuation, use it to purchase a home, and you will not be affected by the assets test. Interestingly, a person’s superannuation when they are under pension age is also not counted as an asset.
Before taking any action you should seek advice from a professional who specialises in Centrelink. This is because if you are paying rent currently you are possibly receiving an increased disability pension as a result, this would cease once you are a homeowner.
Shedding light on exemptions to allocated pension rules
I have retired and started an allocated pension, but at 58 am still quite a few years off age pension age. The Centrelink website suggests that although my allocated pension clearly pre-dates 2015, because I will not be an existing Aged Pension recipient at that time, my allocated pension will not be exempted from the new rules. I rang Centrelink only to be told that there "is an awareness of this issue, but advisors are yet to be briefed on the legislation". The favourable treatment of allocated pensions was a factor in my pre-retirement decision to commute part of my defined benefit pension to a lump sum. I was well aware of legislative risk when making my retirement plan, but didn't expect inability to obtain the legislation to be the issue! Are you able to shed any further light?
Answer: The problem you encountered when you phoned Centrelink does not surprise me. At the present time I don’t believe the legislation to change the treatment by Centrelink of account based pensions has been passed. I have however been able to find out from the responsible minister’s office how the new legislation will work.
For the current treatment of account-based pensions to apply a person must be in receipt of not only the superannuation pension, but also an income benefit from Centrelink as at 31 December 2014. This means your account-based pension will have the deeming rates applied under the new income test once you qualify for the Age pension.
You should seek professional advice before taking any action as, even though the value of your account-based pension will be deemed to earn an income under the income test, you may not be any worse off depending on how the assets test affects you.
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.
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