Tim Miller, head of education and technical at Smarter SMSF, said in a recent compliance webinar that all transactions – including pension commencements, deduction notices before pensions start, and contributions – must be fully documented and verified as part of the preparation process.
“It’s making sure you’re ticking off the belt and braces when it comes to the completion of the financials for the year,” he said.
“You have to make sure that the trail around total super balance, including all concessional and non-concessional contributions, is all lined up and is consistent with the steps that have happened.”
Miller said one area that should be thoroughly checked is whether there are any in-specie contributions into the fund.
“Prior to the NALI rule change the industry had a fairly comfortable approach to in-specie transfers where you basically just make things work. From a valuation point of view, you get your documents done, if the values aren’t right, you would adjust that to make sure that the contributions match,” he said.
“So, one of the first things that we need to do from a preparation point of view is we want to make sure there’s alignment between the contribution documentation, the off-market transfer forms and the consideration there, plus what’s needed to be matched up in the financial statements.”
He added that the “synergy” between these two key issues must be addressed; otherwise, as highlighted in the draft ruling updating the contribution rule in TR 2010/1, it could result in a NALI situation.
“And if you create a NALI situation with, say, shares at acquisition, then you’re tarnishing those shares forever, and that’s problematic,” he said.
This could pose an issue for a couple transferring shares at or near the pension stage, as income that would normally be considered exempt current pension income may become irrelevant from a non-arm’s-length perspective.
“Most importantly, that’s not only in respect to the ordinary income such as dividends, but it’s statutory income as well. It comes down to the capital gain as well and we’ve seen the ATO issue the tax determination that deals with NALI and CGT, so that is one of the key things to look at as part of preparing those financials,” Miller said.
