SMSF Alert: October 2015

The ATO is looking closely at income from discretionary trusts. Elsewhere, the rules have changed for anyone hoping to access pension funds accrued in the UK, and trustees must be sure they comply with Her Majesty’s requests.

Key Points

  • Mistakes on non-arm’s length income can cost you
  • UK pulls the purse strings on early-release pensions
  • Ticking the SuperStream communications box

ATO warns on discretionary trust income

The Australian Taxation Office (ATO) has put the word out for trustees to take extra care when reporting distributions from discretionary trusts, where income is distributed to beneficiaries at the trustees’ discretion.

Because of this apparent freedom around who gets how much, distributions from discretionary trusts are thought of as non-arm’s length income, which is taxed at the highest marginal rate.

The ATO has recommended trustees preparing their annual returns should check the deed of any distributing trust to work out whether reported gross trust distributions are non-arm’s length income.

If they are, they should be reported at label U2 of the income section on the SMSF annual return.

No quick fix to tighter UK early-release rules

Members of self-managed superannuation funds (SMSF) with retirement savings in the UK will know it’s not a simple process to transfer funds from one side of the world to the other. Trustees in Australia need to deal with Her Majesty’s Revenue and Customs to register as a Qualifying Recognised Overseas Pension Scheme before approval can be granted to access funds locked in the British pension system.

In April, the regulations at the UK end were tightened so that benefits won’t be paid to SMSF members in Australia younger than 55 unless that person is leaving the workforce due to ill-health as defined by the UK rules.

The UK rules for payments to under-55s are far tighter than here, where the Superannuation Industry (Supervision) Regulations 1994 state that a member younger than 55 may be paid a benefit if deemed to be suffering severe financial hardship, if temporarily incapacitated or on compassionate grounds.

The deadline has passed for Australian DIY super funds to assure Her Majesty’s Revenue and Customs they understood the new regulation, and those who haven’t risk being dropped from the Qualifying Recognised Overseas Pension Scheme register.

As a result of all this, UK pension transfers to some SMSFs have been put on hold.

However, funds with members older than 55 needn’t be too concerned. Dealing with any government body takes patience more than anything else, and SMSFs with members older than 55 that fill in all the relevant forms should qualify for the Recognised Overseas Pension Scheme register without too many problems.

Where members are younger than 55, the more stringent release requirements of Her Majesty’s Revenue and Customs will need to be observed, at least for the time being.

Are you at the right SuperStream address?

All DIY super trustees should be up to speed with the SuperStream rules, which aim to introduce long-overdue standards about data collection in superannuation.

An important requirement of SuperStream has been that SMSFs must use an electronic service delivery address, so a fund can receive confirmation of contributions in an approved format.

Unless a service delivery address is active, however, contributions may be redirected to the default fund of a member’s employer.

An electronic service delivery address can be obtained for free but it is not the same as an email address.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles