SMSF Alert: June 2014

After the excitement of May’s budget, the past month has been relatively low key. July is fast approaching and we’ve recently covered some important changes, such as SIS Act, the insurance proceeds may only be paid to a member who has already satisfied a standard ‘condition of release’ or who meets specific conditions of release relating to insurance – death, permanent incapacity, temporary incapacity or terminal medical condition.

The practical effect is that there are differences between when an insurance claim can be made and when the funds can be paid to the member. For instance, a claim under a trauma policy generally won’t match up with a condition of release. The funds remain ‘stuck’ in the super fund (but can be paid out when a condition of release is subsequently met).

New policies taken out from 1 July will be required to only have claims which are consistent with a condition of release. This will make it difficult to take out a trauma policy inside super and will cause problems for many ancillary benefits and claim definitions. For instance, ‘own occupation’ income protection cover (see binding death benefit nominations in place.

In this case, a mother was appointed as the administrator of her deceased son’s estate (he died without a will), which required her to collect her son’s assets and divide them equally between herself and his father (divorced from the mother).

The mother, who lived with the son, was also the named beneficiary of the son’s super (via a non-binding death benefit nomination). The bulk of his assets were in his super accounts.

Whilst the mother applied for, and was paid, the super death benefits (by the trustees of three large external super funds), the court ordered that this money be paid across to the estate and shared equally with the father. The court held that her fiduciary duty, as administrator of the estate, required her to maximise its value, contrary to her personal interests.

There are indications that the decision might have been different if the son had made a will, or a binding death benefit nomination had been in place.

Mistakes and poor advice not special circumstances

While the recent changes to excess contributions alleviate some of the sting, a recent Administrative Appeals Tribunal decision (Thomson and Federal Commissioner of Taxation [2014] AATA 339) serves as a reminder that there is little tolerance when it comes to mistakes on contributions.

In this case, the taxpayer had withdrawn money from her super, paid it into a personal account, and later made contributions to super. The total contribution in the 2010 financial year was $205,000, of which she claimed a deduction for $23,905. The remainder ($181,095) was held to be a non-concessional contribution, in breach of the cap.

The taxpayer argued that she had received incorrect advice, which amounted to a ‘special circumstance’ in which the Tax Office could disregard the breach. But the tribunal disagreed, finding there was nothing special about wrong advice.

Other recent developments

Members may also be interested in the following:

1. Tax Office guidance on tax avoidance schemes – The Tax Office has updated its website with a list of tax avoidance schemes targeting SMSF trustees.
    
2. Tax Office educational videos – The Tax Office has released two more videos in its series explaining SMSF obligations. The videos are available in the most recent SMSF News.
    
3. White paper on Australians approaching retirement – REST have produced a white paper which provides an insight into the attitudes of Australians aged 50 plus, approaching retirement

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