Potential Part IVA risks surfacing with TSB, COVID relief
Where the failure to properly account for rental deferrals and LRBA relief allows clients to take certain actions in relation to the total super balance, this could potentially arise in Part IVA issues, a technical expert has warned.
Smarter SMSF chief executive Aaron Dunn said with a member’s total super balance reflecting the total amount of super benefits that would have become payable if the member had voluntarily ceased a super interest at the time of calculation, the TSB is a very important consideration when dealing with any rental or LRBA deferrals.
“You need to be very conscious of understanding what the member’s total super balance is, because if a [member’s] balance remains under $1.6 million, then quite clearly there are some different actions that may be able to be taken,” Mr Dunn explained in a Smarter SMSF webcast this week.
If the decision to not account for the COVID-19 economic effect meant that a TSB remained under $1,600,000, or $500,000 for example, allowed the member to be able to undertake certain actions such as making additional non-concessional contributions or catch-up contributions, the ATO may look to apply Part IVA, he warned.
Mr Dunn said this would be similar actions to those listed in SMSFRB 2018/1, the ATO’s Regulator’s Bulletin on the use of reserves by SMSFs.
“The ATO said in [SMSFRB 2018/1] that Part IVA would apply to arrangements where the use of reserves allowed for a reduction in member’s TSB to make additional NCCs and catch-up contributions allows a member to allocate a greater amount to retirement phase or to use the segregated method to calculate ECPI for an income year,” he said.
“This isn’t to say that if didn’t account for [rent deferrals] and [loan relief] and nothing happened in the subsequent year that we would necessarily have a problem, but we would need to look at what action is taken by the member in the subsequent year based on their TSB amount.”
For example, if the attribution of the rental deferral or loan relief means that a member’s TSB would be a higher value and perhaps cross a TSB threshold and it isn’t accounted for and an action taken in that subsequent year is done as a result of trying to stay under that, then it’s arguable that the ATO would apply Part IVA, he warned.
“For instance, let’s say there was a decision to actually start a pension for the client and sell a particular asset and extinguish that loan. Maybe there is quite a substantial capital gain on that asset based upon its current value and if we try to apply a segregated approach to that fund, then in essence we may not have been otherwise eligible to do so because it may have been deemed as disregarded small fund assets,” he explained.
“So, just again be conscious of these different TSB thresholds and what impact they have in determining of how you account for these different elements inside the fund.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
