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June 2011 Tax Update

Stronger Super

This program is being introduced by the Government in response to the Super System Review whic was announced in December 2010.

A SMSF Working Group has been established to introduce reforms in the following areas;

• Registration of SMSF auditors;
• ATO penalties;
• Measures to improve information available on the sector; and
• New processes and penalties to deter the use of SMSF's for illegal activities.

The main area of concern is the illegal early release of funds, and improving auditor compliance.  The reform also aims to imtrduce;

• a sliding scale of administrative penalties payable by the trustee and not from the funds assets;
• to provide the ATO with the power to direct trustees to rectify conventions within a specific time frame;
• in the event of less serious non-compliance, enforce mandatory education for trustees to reinforce awareness of their obligations.

Approved Auditor Registration

These changes were released in March 2011 by the SMSF Working Group.  The proposals include the following bodies to implement and administer the registration of SMSF Approved Auditors;

• that ASIC will be responsible for working out the eligibility and competency requirements for registration of a SMSF approved auditor; and
• the ATO will police the requirements and reporting any contraventions to ASIC for action.

These proposed registration options are much more stringent than the current procedures for SMSF auditors.  This is as a result of the various issues that the ATO have identified in recent years including the following;

• little or no evidence that an audit was performed;
• failing to adequately deal with independence; and
• lack of knowledge in relation to the Superannuation Industry (Supervision) Act 1993 (SIS Act) and professional obligations.

These changes are proposed to commence from July 2012.

Other Points of Note

Winding up and liquidating a company reduces the likelihood of the ATO requesting that ASIC reinstate the company under section 601AH(2) to pursue outstanding tax debts.  It is much easier for the ATO to reinstate a company that has simply been voluntarily wound up.

Lodging a Return Not Necessary for a taxpayer does not then allow them to qualify for a 2-year amendment period.  To ensure that the amendment period is applicable, a Nil Income Tax Return should be lodged.

The benchmark interest rate (applicable to fringe benefits tax and company loans) for the year commenced 1 April 2011 is 7.80%.

Applications for Commissioner's discretion regarding a taxpayer who exceeds their concessional or non-concessional contributions caps must be made witin 60 days of receiving the excess contributions notice of assessment.

There are proposed changes regarding SMSF investments in collectables and personal use assets.  New measures have been stated to tighten the rules so that these investments are genuinely made for retirement income purposes and not for the enjoyment of SMSF trustees.

The draft regulations state that SMSF trustees will commit an offence if an investment in a section 62A item is;

• involved in a lease or lease arrangement with a related party; or
• stored in the private residence of a related party; or
• stored and the SMSF trustee does not keep a record of the reasons for the decision of where to store the section 62A item; or
• not insured in the name of the SMSF within 7 days of acquisition; or
• an item of jewellery, a car, a recreational boat or a membership of a sporting club or social club held by the SMSF and a related party uses it; or
• disposed of to a related party at a price other than the market price determined by a qualified independent valuer.

Each of the above rules is an offence of "strict liability" and will attract a penalty of $1,100 for each individual offence.

Directors liabilities will from 1 July 2011 be modified to;

• make company directors personally liable for unpaid superannuation guarantee amounts;
• provide the ATO with certain power to commence recovery actin against directors for certain unpaid company liabilities that remain unreported after 3 months of becoming due; and
• in certain circumstances, directors and associates of directors will be unable to utilise personal PAYG withholding amounts that are owing to the ATO.