Here are five items which should be added to your client’s end of financial year SMSF checklist.
1. Rectify outstanding breaches
From 1 July 2014, the ATO will have the power to give rectification and education directions where it reasonably believes that a trustee or director of a corporate trustee of an SMSF has contravened a provision of superannuation law. The ATO will also have the power to impose administrative penalties for certain contraventions of the superannuation laws.
These new penalty powers will apply to contraventions that occur on or after 1 July 2014. However, it is important to note that these new penalties may also apply to contraventions that occurred before 1 July 2014 if they have not been previously rectified. An example of this may be where an SMSF lends to a member in the 2013/2014 financial year and the loan remains outstanding as at 1 July 2014. As this contravention has not been rectified by 1 July 2014, it may be subject to the new penalty regime even though the contravention first occurred prior to this.
The existence of more proportionate powers means it is more likely the ATO will be taking enforcement action from 1 July 2014.
2. Approved SMSF auditor appointed
A new requirement for 2013/2014 and for future years is the need for SMSF trustees to appoint an auditor who is registered with ASIC as an approved SMSF auditor. ASIC maintains a register of approved SMSF auditors on their website and SMSF trustees should check this register to ensure the auditor appointed for their fund is registered with ASIC as an approved SMSF auditor.
3. Insurance policies
Also from 1 July 2014, new rules come into effect that will prohibit superannuation fund trustees from providing an “insured benefit” in relation to a member unless the insured event is entirely consistent with a superannuation condition of release. This means that trauma policies and own occupation Total and Permanent Disability (TPD) policies will not be permitted. However, it is important to note these new rules will not apply to policies taken out prior to 1 July 2014.
If an SMSF member intends to take out a trauma policy or an own occupation TPD policy in their SMSF, they should do so before 1 July 2014. There are many advantages and disadvantages in holding these types of polices in an SMSF so being able to provide clients with professional advice on these matters is important.
4. SuperStream ready
New regulations, which are part of the SuperStream reforms are coming into effect soon. These new regulations will standardise the way all superannuation funds, including SMSFs receive employer contributions.
To comply with these rules, an SMSF which receives employer contributions from an unrelated employer with 20 or more employees will need an Electronic Service Address (ESA) for their fund. This address must be provided to the employer who will then use this address to forward electronic information to the SMSF in accordance with the new regulations.
SMSF trustees should firstly assess whether or not they will need an ESA for their fund. If they do, they will then need to obtain this address and provide it to the relevant employer. The ATO maintains a register of ESA providers called the SMSF messaging service provider register which can assist SMSF trustees to find an ESA for their fund.
5. Review contribution arrangements
Lastly, the standard concessional contribution cap will increase from $25,000 to $30,000 on 1 July. For clients making salary sacrifice superannuation contributions, it may be prudent to review their salary sacrifice arrangements and if appropriate increase their salary sacrifice contributions in 2014/2015. Similarly for clients who are 49 or over on 30 June 2014, their concessional contribution cap will increase from $25,000 to $35,000 in 2014/2015 so an increase in their salary sacrifice superannuation contributions may be in order.
For clients who intend on making a large non-concessional superannuation contribution in the near future, in some situations, they may be better off deferring that contribution until the 2014/2015 financial year. As the standard concessional contribution cap is being increased to $30,000 from 1 July 2014, it means the standard non-concessional cap will increase from $150,000 to $180,000. The total non-concessional contribution which can then be made under the “bring-forward rule” (which is equal to six times the standard non-concessional cap), will then increase from $450,000 to $540,000. However, the higher bring forward amount in 2014/2015 does not apply if the client triggers the bring-forward period before 1 July 2014 and that bring forward period has not yet ended.
Attending to these additional end-of-year requirements, as well as the usual checks to ensure contribution caps will not be exceeded, and minimum pension payment rules will be satisfied, should ensure your client’s SMSF is well prepared for the new financial year.
Peter Burgess, head of policy, technical and educational services, AMP SMSF