ATO Decisions, Rulings, & Updates
In the ATO’s NTLG Super Technical Sub group December 2012 meeting, an interesting question was raised regarding payments made for a house and land package under a limited recourse borrowing arrangement.
The question related to an example in SMSFR 2012/1, which concerns the purchase of a house and land package by a SMSF under a LRBA. The ATO had said in that example that “because the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA.”
OK, great. The question then is – in this situation, can there be only two payments – a deposit and a settlement payment ?
The ATO has recently issued an alert that applies to SMSF members receiving income streams (otherwise known as pensions). In particular, it highlights where the ATO will provide some leniency where SMSFs have not met their minimum pension payments.
Background: Click Here To Read More
The ATO have recently issued a tax payer alert (TA 2012/7) which alerts SMSF trustees to some problems they are seeing with regard to limited recourse borrowing arrangements to invest in property.
Essentially, the arrangements they describe are those that the ATO are coming across that do NOT comply with superannuation law.
Property investments using a LRBA
The first situation the ATO alert us to is the simple case of buying property in a SMSF using a LRBA.
The following are the key problems that ATO are finding:
Well, we can honestly say we were not expecting this one, but we are glad it’s happened.
Last year the ATO issued a draft ruling on its view of when pensions started and finished which caused a bit of consternation at the time given the potential for adverse consequences for beneficiaries on the death of a member in the pension phase.
In a nutshell, it stated that a pension will cease on the death of a member, and hence the tax exemption on the earnings from these pension assets will also cease at that point.
The Government have announced an increase in the SMSF levy from $191 to $259 per annum from 2013-14 onwards. They say that this due to the fact that the current levy is not fully covering the costs of regulating the sector.
While they were at it, they also announced that the collection of the SMSF levy will change, in that it will be paid in the relevant financial year, rather than the following financial year. This brings consistency with how APRA regulated funds pay the Superannuation Supervisory Levy in the same financial year.
The change in the SMSF levy collection timing will be phased in over the two years 2013‑14 and 2014-15 to give SMSFs time to adjust.
As many of you will be aware, if you make a single non-concessional contribution that is in excess on the cap limit, you can have the excess amount refunded to you without any excess contributions tax issues. In fact, the trustee must not accept the excess contribution. This is known as “fund capped” contributions.
However, what if you make in-specie contributions on the same day of 3 parcels of shares in 3 different companies. Is this treated as one aggregated contribution for the purpose of “fund capped contributions”, or is it treated as 3 separate contributions ?
In ATO ID 2012/79, the ATO provide us with the answer.
The ATO have recently released an Interpretative Decision (ATO ID 2012/84) which deals with a situation where concessional contributions can be counted when a Complying lifetime pension has been rolled over and there are reserves involved.
The situation specifically addressed is where a Complying lifetime pension has been commuted and:
- The amount standing to the credit of the ‘pension account’ was rolled over and a ‘market linked pension’ (also known as a term allocated pension) was commenced, and;
- The amount that was in the ‘reserve account’ in relation to the complying lifetime pension was rolled over to an ‘account based pension’ which was commenced for the member.
At the end of July 2012, I had the opportunity to spend a morning with Stuart Forsyth, Assistant Commissioner and the head of SMSFs at the ATO. This was part of the ATO’s annual program of engaging with a small number of people in the SMSF industry to discuss and get feedback on the issues of the day.
We had a very robust two way discussion and went way over our allotted time (I missed my train but I didn’t care – it was worth it). Stuart is a very easy guy to talk to. Whilst he’s obviously very knowledgeable about his subject matter, what I enjoy most is his ability to be very direct and not leave you in two minds. You’ll know where you stand.
Whilst we covered a lot of ground, the following is a summary of those issues I felt were the most important for trustees to be aware of, and what the ATO are doing in terms of current activity:
We reported back in September of last year on a draft ruling that the ATO had released around a number of key concepts to do with SMSF limited recourse borrowing arrangements (LRBA’s). Submissions were invited and the ATO has now come out with its final ruling (SMSFR 2012/1). They key issues that the ruling addresses are:
- defining a single acquirable asset
- distinguishing between improvements vs repairs
- improving an asset to the extent if becomes a replacement asset
- property development and off-the-plan purchases.
The ATO have recently released an interpretative decision (ATO ID 2012/27) around the issue of taxation of transfers of foreign pension plans (like our super funds) to an Australian super fund.
To be more specific, they have ruled on the ability to change your mind as to which entity can pay the tax that applies on the rollover where it has happened 6 months after becoming a resident here.
To understand this one, we need to just summarise some background information, and we’ll do it in the form of an example to make it a bit easier to understand.