ATO cautions on deeds, outlines 12-month focus areas

ATO cautions on deeds, outlines 12-month focus areas

The ATO has drawn attention to a “surprising” number of outdated trust deeds which prevent members from establishing pensions and to its SMSF compliance program for the next 12 months.

Speaking at the CPA SMSF conference in Sydney last week, Kasey MacFarlane – the ATO's assistant commissioner, SMSF segment, superannuation – said one of the key considerations that needs to be made by practitioners when establishing a pension is whether or not the terms of the fund’s trust deed allow for the establishment of a certain type of pension.

“We’re still surprised how many older [trust] deeds we see which don’t provide for recent changes to legislation and sometimes even prohibit certain types of income streams that are otherwise now permissible by legislation,” said Ms MacFarlane.

“A particular example that comes to mind is transition-to-retirement (TRIS) pensions.”

She also stressed the importance of SMSF trustees correctly determining the value of assets that will support a pension, ensuring they reflect market value.

“Getting the valuation right ensures that trustees will not be at risk of miscalculating the required annual minimum pension drawdown for the member(s) which impacts on an SMSF’s ability to claim exempt current pension income (ECPI),” she said.

“[There can be] significant income tax consequences if minimum drawdowns are incorrectly calculated.”

She also discussed some of the other focus areas for the ATO over the next 12 months.

“We’ll be looking at circumstances where they are inexplicable and significant [as well as] out-of-pattern changes in an SMSF’s assets or income,” she said.

The ATO will also be looking at related-party transactions or arrangements that appear to be on non-commercial terms and limited recourse borrowing arrangement loans that have been incorrectly structured.

Another area of focus, Ms MacFarlane said, is the promotion of arrangements that seek to gain a present day benefit for the member, including housing benefits, cosmetic surgery and holidays.

“All of those issues are potential indicators that an SMSF may not be being used for the sole purpose of providing retirement benefits for your members,” she said

“It’s important to keep in mind that ultimately all of the obligations that apply to SMSFs are designed to protect and guard SMSFs and members' retirement savings and income.”

ATO cautions on deeds, outlines 12-month focus areas
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