The annual return for new SMSFs, whether the SMSF is expecting to pay tax or receive a tax rate fund, is due on 28 February 2017. If there is tax payable, this is also due to be paid on 28 February 2017. Some issues new SMSFs need to keep in mind are:
- Does the new SMSF need to lodge?
- Establishment costs – how do we treat these?
- What does the super fund look-up ‘status not determined’ mean?
Is an annual return necessary?
SMSFs are established for a number of reasons, and according to the Treasury’s super reform package, the primary objective is to provide income in retirement to replace or top up the age pension.
SMSFs are a special type of trust. The trustee of the super fund holds assets on trust for the members, therefore a super fund only legally exists when it begins to hold an asset for the members of the fund. In most cases, this would be achieved by depositing cash into a super fund bank account. Therefore, it follows that the financial year in which this occurs will be the first year the SMSF will require financial statements and tax returns to be prepared, audited and lodged with the ATO, no matter the size of the SMSF.
All SMSFs are required to have their financial statements audited annually by a registered super fund auditor who will form an opinion as to the funds overall compliance with the SIS Act and regulations. As 28 February 2017 is just around the corner, for all those newly established super funds, getting the SMSF information to your registered SMSF auditor in time for them to complete their audit, prior to the lodgement deadline, is crucial. Important documents to send your auditor for newly established SMSFs are:
- Sign and dated super fund deed
- Sign and dated member applications
- Sign and dated trustee consents
- If corporate trustee – 201 form
- Sign and dated super fund establishment minute
- Sign and dated investment strategy with insurance considered for members
- Sign and dated ATO declaration
- Rollover statements
Always check your super fund auditor has a valid SMSF auditor number (SAN) through the ASIC professional registers, then click on the search ‘SMSF Auditor Register’ tab.
The ATO no longer processes nil returns for SMSFs and a tax agent cannot lodge a return not necessary (RNN) form for an SMSF. If an SMSF fails to begin to hold assets, the trustees should consider cancelling the SMSF registration.
Establishment costs – capital or expense – how does the ATO want us to account for them?
When a client comes to a licensed adviser to request the set-up of an SMSF, one of the first question they ask is, ‘Can I reimburse myself for the cost of establishing the super fund?’ Often, the invoice for the accountants, tax agents and/or financial advisers’ time is payable prior to the new super fund having sufficient funds to pay. Prima facie, we would think that the trust does not exist at this point in time so would be unable to pay the super fund expense. However, regulation 5.02 allows the direct cost for establishing, operating and terminating the fund and any administration insurance and taxation cost relating to the establishment operation and termination of the super fund to be charged against the members’ benefits.
The expense would be accounted for as a creditor in the super fund balance sheet. Therefore, the member should seek immediate reimbursement. If it’s not paid as soon as possible, it could be seen as an inappropriate borrowing in breach of s67 and if there is no intention to repay as discussed in SMSFR 2009/2 or a loan is forgiven, it will be considered a contribution which may breach caps.
Our office regularly fields questions about establishment costs in the financial statements and how to treat them. Quite often we find accountants capitalise these costs, placing them on the balance sheet and amortising them under the section 40 – 880 deduction (ITAA 97). However, the super fund is not carrying on a business in the usual sense and therefore is not eligible to claim these deductions under section 40 – 880. Private Binding Ruling 87019 demonstrates the ATO’s views that the formation expenses are to be treated as a non-deductible expense.
ATO – ‘status not determined’ – what does that mean?
The super fund look-up status (http://www.superfundlookup.gov.au/) for a newly established superannuation fund will say ‘status not determined’, but what does this mean?
A super fund with ‘registered – status not determined’ is eligible to receive rollovers and transfers. It is regulated by the ATO and has not been issued with a notice of non-compliance or a notice of compliance. The ATO will issue this notice under the funds compliance status after the fund has lodged its first annual return and the fund has been determined as compliant or non-compliant. Funds displaying this status will qualify for concessional tax rates. Employers may need to obtain a written statement from the SMSF that it is a resident regulated SMSF to ensure a contribution to the fund qualify as a super guarantee payment.
Catherine Price, director, TABS Super Fund Auditors