Could you please advise me: Can I claim as an expense if we pay 9.5% super contribution of employees for the quarter ending 30 June 2021 before 30 June 2021? Will this be treated as a 9.5% super contribution for the period ended 30 June or previous period? Do we have to make the payment from 1 July 2021 to 28 July 2021 to be treated as a contribution for the period ended 30 June 2011?
I will appreciate your answer as soon as possible so that I can take action before 30 June.
The payment must be made prior to 30 June 2021 to secure the tax deduction in that financial year. Not only that, but it must also be received by the complying superannuation fund prior to 30 June 2021. As such do not leave it to the last two working days of the financial year.
I am trying to confirm whether or not superannuation is payable on accrued annual leave and long service leave being paid as a lump sum as a result of resignation. My research is giving me different answers. Please help.
As these payments are not included in the definition of ordinary time earnings (OTE), superannuation is not payable. Annual leave paid whilst in employment is subject to superannuation. See SGR 2009/2.
I have a question about superannuation. “Employees under 18 working not more than 30 hours per week” you as an employer do not have to provide the superannuation guarantee.
What is the case if the employees under the age of 18 years are employed on a full-time basis of 38 hours per week is superannuation then payable? If so, on the whole, 38 hours or just the 8 hours exceeding 30 hours?
Full-time employees under the age of 18 are entitled to statutory superannuation on their entire ordinary-time earnings if their monthly wage exceeds $450.
My wife and I are 69 and still employed in our own company. Our SMSF owns two residential properties suitable for redevelopment to dual occupancy. The properties are wholly owned by the fund and development costs can be comfortably provided by the fund. No borrowing is required.
1. Do super rules permit us to redevelop these properties?
2. If so, can we do so when retired and our fund is in pension mode?
- A SMSF cannot engage in business activities but on the basis, this is a “one-off” there should not be a problem.
- This really hinges on the “investment strategy”. All SMSFs should consider their investment strategy (a requirement under the S.I.S Legislation Section 52.2) before making an investment decision. The following should be considered: risk, return, diversification of fund assets, liquidity, the composition of fund members, and years to retirement.
As long as these matters have been properly considered with satisfactory answers and are properly minuted, then it will be possible to do the development.
I have a question regarding holiday leave, whether holiday leave could be cashed out? If yes, whether this holiday leave still has holiday leave accrual and super?
Payment for annual leave taken is included in the SG. If the employer allows you to “cash out”, such a benefit in an on-going employment relationship then the entitlement is taken, and it is suggested that the 9.5% SG applies.
Although the situation with leave loading should be similar, this will depend on the relevant award.
My super fund has recently entered into a contract to purchase a large residential building from an unrelated party. The Fund sold most of its share investments to make this purchase so the building will effectively represent 90% of the fund’s assets initially. The intention is to lease this property to my business (budget accommodation provider) for a fixed monthly rent. We plan to execute a residential lease between the corporate trustee of the Super Fund and the trustee of the trust that runs the business. The business would rent rooms to students on a medium to long-term basis (longer than 2 months). Would this lease arrangement contravene any of the rules relating to transactions between related parties?
- The purchase will be fine, but a minute should be prepared to show it is consistent with the investment strategy. It would be advisable to address future diversification at this minute, also addressing likely liquidity requirements of the SMSF.
- The intention to merely lease the property is correct and crucial to compliance because a SMSF is not permitted to conduct a business.
My husband and I have a self-managed Superfund and my question is: are we able to use a small amount of this to pay debt rather than entering a payment plan with the courts?
We are both over 60 and would be able to put it back later in the year. This would take a lot of stress from us at this moment.
As you are both over 60 but would appear to still be in the workforce, you will not meet a condition of release under the preservation rules until you retire.
As any loan will be an “in-house asset”, you can only access up to 5% of the SMSF assets for this loan. We hope this will suffice.
If an employee works under the $450 a week threshold but earns more in the same month, do I pay Super on all the month or only the weeks over the $450? And do I pay Super on someone who has told me they have cashed their super in and are 68 years old and working for us? What are my legal and tax situations? I need this urgently as I have a super form to fill in for a tax audit.
It’s actually $450 a month – once they exceed this amount; you pay the 9.5% super guarantee on the lot.
For the person who is 68 years old, you are still obligated by law to pay the superannuation guarantee.
This relates to a Super Fund that has around say $3,000,000 in assets which are valuable but not liquid (Property assets and investments etc).
The members want to leave their share of the fund to their respective estates in the event of death and propose to get life insurance cover in the fund, to provide the liquidity needed to pay out a death benefit to the estate trustee.
The query is, how does the SMSF treat the premiums and death benefit it receives under the policy? As far as income to the fund, is it taxed as income, and what is the effect on the members’ accounts before the balance is paid out?
In contrast to individuals making the payment, the premiums are tax-deductible in the SMSF, and therefore life insurance, wherever possible, should be taken out in a Superannuation Fund.
In the event of a SMSF member’s death, the property and investments will have to be paid out in accordance with the SMSF fund member’s binding nomination, and the suggestion here is their estate will be the beneficiary.
This could mean liquidating assets or paying in specie benefits. But how much thought has gone into this?
Leaving the SMSF assets to a deceased estate could result in two taxing points for CGT and stamp duty. Also bear in mind that death benefits paid to “non-dependents” are taxed at 16.5%.
Some detailed Estate Planning needs to be undertaken. Ideally, SMSF assets should be earmarked for ‘Dependents” if this is possible. If a SMSF member has met a condition of release and death is imminent, in the case of a terminal illness, then it may be better to get the assets out of the SMSF prior to death.’
In relation to the death benefit received by the SMSF, there is no tax payable but note the above Death Benefits Tax if paid to a non-dependent.
Do we have to pay Super and deduct Tax on Directors’ fees? There is no employment agreement only a Board Resolution ratifying the payment of Directors’ fees. The Directors are not on the monthly payroll either. One Director is based overseas in New Zealand.
For resident Directors, you should deduct statutory superannuation, currently 9.5%.
Take care to deduct PAYG and note the New Zealand-based Director will be taxable at non-resident rates (from 1 July 2012, starting at 32.5% on dollar one – no tax-free threshold).
Note that the superannuation guarantee only applies to residents of Australia.
We have a Mixed Veterinary Practice. A professional groomer approached us to operate out of our premises. She is paid a percentage of what we charge the client. Is it legal for me to pay her as a contract worker and not worry about PAYG tax?
So long as the professional groomer has other clients on an ABN this should not be a problem. If this lady operates as a sole trader i.e., holds the ABN in her own name, then make sure you include the Superannuation Guarantee (9.5%) within the percentage you pay her.
Where an individual contractor has a labour component in the contract that exceeds 50%, statutory super is payable.
Regarding superannuation payable to a casual employee in the construction industry ,do I pay super based on 38 hours or all hours worked for the week?
Be very careful – some awards stipulate the super guarantee is payable on actual hours worked. For casual employees who don’t have set hours, it is usually actual hours worked. For instance, the worker may work 45 hours one week, then 20 the next…
I have started a self-funded super fund approximately three years ago and I have been given conflicting information regarding audits of the fund.
My existing accountant has told me as we do your company tax it must be audited by an independent auditing firm as it would be a conflict of interest and incur heavy fines.
Another accountant has told me they could audit my super fund and do the company accounts and that this would not be an issue with the Tax office. It depends on whether the accountant is registered with the ATO or APRA.
Could you qualify the auditing requirements of a self-managed super fund for me?
This is an area that continues to be of interest to the ATO. Generally smaller accounting firms will need to arrange for an audit to be undertaken by a third party, as an accountant that performs the audit and prepares financial accounts cannot be independent.
Larger firms will typically have structures and procedures in place that enable these two functions to be independent of each other.
My husband and I are trustees of our SMSF. We also have an electrical contracting business. The SMSF has purchased a block of land. The SMSF has contracted a builder to build premises which will be leased from the SMSF by our electrical contracting business. We have been told that we are unable to do the electrical on the new building under Section 66 of the SIS act. We cannot find any rulings specific to our situation. Our electrical contracting business would carry out the work and invoice the SMSF just like any other contractor. Can you help?
If you are careful, there would not be a contravention of section 66 of SIS.
SMSF’s are indeed prohibited from intentionally acquiring assets from related parties. A recent NTLG Superannuation Technical Sub-Group meeting confirmed that in cases where an SMSF engaged a related party to construct a building on land owned by the SMSF, it must be made apparent that the related party provides building services only and not any materials if a section 66 breach is to be avoided.
During the December 2010 meeting, the question was raised whether the supply of goods and materials from a related party agent would avoid a breach of section 66.
The appointment of an agent would more often than not involve the SMSF trustees appointing the related party as their agent by a variation to the building contract of under a deed of agency agreement.
The agent would acquire the goods and materials, then invoice the trustee for the cost of the purchase either on a progressive basis or once the work was completed.
The cost of services provided may be invoiced separately or together with the cost of goods and materials.
The invoiced cost of the goods and materials may then be increased by a profit margin charged by the related party builder.
Alternatively, a new bank account could be opened in the name of the builder and the builder executes a deed of bare trust, which would confirm that it holds the bank account on bare trust for the SMSF trustee and that all things purchased with said bank account’s proceeds belong to the SMSF.
Funds are then transferred from the SMSF to the bank account and neither the builder nor any other entity puts any money in the bank account.
The builder buys building supplies using the bank account as directed by the SMSF trustee and those supplies are then affixed to the SMSF land.
The questions which the ATO considered in its December 2011 meeting were:
- A) Will the trustees of an SMSF breach section 66 of the SIS Act if the trustees appoint as their agent, a related party to purchase the goods and materials on behalf of the trustee and those goods and materials are used in the construction of a building on land owned by the SMSF?
- B) Will the trustees of an SMSF breach section 66 of the SIS Act if the trustees execute a deed of trust to finance the purchase of goods and materials used by a related party in the construction of a building on land owned by the SMSF?
- A) The ATO stated that, where a related party only acts as an agent, arranging for the acquisition of building materials on behalf of the SMSF trustee from an unrelated vendor, and the related party at no time holds legal title to the building materials, the SMSF trustees have acquired the materials from that vendor, not the related party
- B) The ATO does not consider that payment for the building materials out of a bank account which is held by the related party on bare trust will, of itself, cause a contravention of section 66 in respect of the acquisition of those materials.
As discussed in the first question above, the application of section 66 will depend on whether the building materials are acquired by the SMSF trustee from the original suppliers, with the related party only acting as an agent, or whether the related party acquires the building materials in their own right, which are then supplied to the SMSF trustee.
My question relates to an employment disability insurance policy payment.
A person is diagnosed with an illness that renders that person incapable of actively participating in their current employment.
As a result, time out is taken, accumulated sick leave and long service leave entitlements are claimed to the point they are exhausted.
The subject formally resigns from employment. A death and/or disability employment insurance policy has been maintained by the subject during the tenure of employment.
Eventually, the policymaker agrees to make good the claim and the entitlement is paid to the subject.
My question is does the receipt of this money need to be declared?
A payment by an individual on a death benefits insurance policy is not tax-deductible but it is if the policyholder is a superannuation fund. This is the reason many decide to contribute to Superannuation (tax-deductible) and then have the superannuation hold the policy.
A disability employment policy is generally tax-deductible. Payments on such policies are usually made monthly and are fully assessable.
My client has a SMSF. Trustees of SMSF decided to purchase an investment property in SMSF hence they had set up a bare trust themselves through an online law firm and purchased property.
a. Trustees of SMSF are also Trustees of Bare Trust. Is this correct?
b. If not, how to correct this error as they have already purchased a property in bare trust?
- The fund trustee is not allowed to be the legal owner of the asset however, it must be the beneficial owner of the asset. For that reason, a SEPARATE ENTITY must hold the asset on trust for the Fund Trustee such as a separate trustee company (not the corporate trustee of the fund).
- To rectify this matter, take legal advice this will include a proper conveyance to a separate entity.
My client has a SMSF. There are 2 members in the fund. The fund has a bank account, a Term Deposit, and residential property.
Members’ account balances are as follows:
Member 1 = $800,000
Member 2 = $130,000
The asset balance is as follows:
Term Deposit: $102,000
Residential Property: $750,000
Bank account: $78,000
Both members have started a working pension on 01/07/2012. Member 1 is currently under 60 but he will turn 60 in May 2013 and will retire permanently on his birthday. They will rent out the residential property until Member 1 turns 60 and they want to move into the residential property in June 2013 (that is when member 1 has turned 60 and retired).
Member 2 is 58 and she will turn 60 in June 2014. She has no plan to retire yet.
Here are my questions:
1. In order for the super fund to pay out an in-specie commutation to member 1, the fund will need to roll back member 1’s pension into the accumulation phase as the fund is not allowed to make any in-specie pension payment to its member.
The in-specie commutation will trigger a CGT event and capital gains tax will be payable since member 1 is no longer in the pension phase at the time of transfer. (let us assume the transfer will happen on 1 June 2013) As member 1 is still working between July 2012 and May 2013, He will still be receiving employer contributions during 2013. His employer pays Superannuation Guarantee to the fund on a weekly basis, and we plan to start a new pension for him at the end of each month so the fund’s tax-exempt percentage can be maintained at a higher rate.
Assuming member 1 has a member balance of $805,000 as at 1 June 2012, his account balance will be reduced to $55,000 after the transfer (assuming the market value of the residential property is $750K). If member 1 starts a new pension on 1 June 2012 (i.e., on the same date as the in-specie commutation is made to member 1), does this mean the fund can maintain its high tax-exempt percentage and will only be liable to pay a small amount of tax on the capital gain?
2. Please confirm if stamp duty is payable on the transfer?
3. In your opinion, what would be the best way to handle this type of transfer in order to minimise CGT and stamp duty?
- Be very careful to ensure that member 1 has genuinely retired to meet a condition of release. For assets to be largely CGT exempt the SMSF should be in pension mode. For assets to be available for an in-specie lump sum payment, the property has obviously lost this status.
- Each state has its own legislation. Generally, yes, stamp duty is payable if there is a change in beneficial ownership.
- You will need to seek legal advice. The above comments are general in nature.
My wife and I have a SMSF. With this, we would like to purchase a property that is currently run as a B&B. Once purchased, we would change the use of it into a student accommodation on a yearly basis.
1. Can a SMSF buy a B&B as it cannot operate a business?
2. What are the GST implications for the purchase and if applicable for the future operation as a rental property?
- The SMSF can purchase the property. It will also need to set up a separate entity that will run the B&B business and pay rent to the SMSF. There must be a proper lease agreement drawn up between the SMSF and the other entity and rent must be at market value. GST will be paid by the SMSF and Input Tax Credits claimed by the B&B entity.
- The B&B is classed as Commercial Residential Premises. If the SMSF is registered for GST it can claim the GST included in the purchase price unless either of the following applies:
- The seller used the margin scheme to work out the GST included in the price.
- The B&B business was sold to the SMSF as a GST-free sale of a going concern and the seller was registered or required to be registered for GST.
On the sale of the property, you are generally making a taxable sale and are liable for GST of one-eleventh of the sale price. You may also sell under the margin scheme or as a going concern. For more information on these matters refer to our annual publication
Clients are starting to buy gold and silver as investments in the SMSF. Are the storage expenses tax-deductible or treated as increases to the cost base? No income is earned, only a potential capital gain when sold.
The fundamental test for deductibility is “expenses incurred in earning assessable income” or losses and outgoings incurred in operating a business. You appear to be aware of this and your concern is warranted. I would not claim a tax deduction but add it to the cost base.
This is a personal enquiry, regarding Superannuation. When a person retires, can we use all or most of the superannuation money to pay the balance of our house mortgage? Once this is done, will we be able to then receive the age pension? Is this allowed?
There is nothing wrong with doing this. We refer you to the Centrelink website regarding the eligibility of age pension. Normally, you need to pass an age test, income test, and asset test to be able to receive an age pension.
With a SMSF, can the SMSF lend cash to the members at all? Is there a limit?
No, this is a breach of Section 65 of the SIS Act 1993. This would be classified as an in-house asset.
In-house assets are investments, loans, or leases to Fund Members and related parties of the SMSF. You are restricted from lending to, investing in, or leasing to a related party of the Fund for investments totalling more than 5% of the SMSF’s assets. There are some exceptions, including for business real property that is subject to a lease between the Fund and a related party of the Fund.
At the end of each financial year, you must apply the ‘in-house asset rule’ using market values to make sure the level of in-house assets held is still less than 5% of the Fund. If the market value of an in-house asset increases or the value of the Fund’s assets falls, you will need to dispose of some of the SMSF’s in-house assets to ensure the SMSF is compliant.
Definition of an in-house asset
The basic definition of an in-house asset is one of the following:
- a loan to or investment in a related party of the fund
- an investment in a related trust of the fund
- an asset subject to a lease arrangement between the trustee and a related party of the SMSF.
There are a number of exemptions from the definition of an in-house asset, and these are:
- Commercial property that is leased to a related party on an arms-length basis.
- Investments in non-general related unit trusts or companies that meet a range of strict requirements.
- Loans to a related party and investments in related unit trusts and companies that were set up prior to 11 August 1999.
- Assets owned by an SMSF with a related party as tenants in common will not be an in-house asset simply because the SMSF and its related party share ownership. In this case, it will depend on whether the asset owned is itself, an in-house asset.
I was wondering if you could clarify your answer in the questions and answers section in Issue 0064 question 4 regarding superannuation payments to a person with an ABN.
I have been advised by the ATO that is the responsibility of the employer to pay superannuation, and if the person does not pay their own then it would be up to the employer to pay maybe twice in their pay rate as well superannuation.
You are correct. It is the responsibility of the business to pay an individual contractor’s statutory superannuation where there is a labour component in the contract exceeding 50 per cent. The one exception is where it can be established the contractor is independent, but this is rare as in nearly all these cases the “contractor” is a de-facto employee.
My accountant says I have erred in purchasing a unit from my daughter for our super fund. I do not believe I am in breach.
My daughter purchased a one-bed unit back in 1996. She moved in, then went overseas and rented the unit. She returned, lived in the unit for a year, then moved and rented the unit during 2010. The unit was to be sold in 2011. We obtained a couple of valuations and purchased it in June 2011. The property has been managed continuously since 2010 by one Real Estate Agent and has only had one tenant in that time. If I am in breach what are my options?
Unfortunately, your Accountant is correct. A SMSF must not purchase an asset owned by a fund member or associate. Your daughter meets the definition of associate.
There are only two exceptions to the rule:
- Shares listed on the ASX or an equivalent approved overseas stock exchange.
- Business Real Property. “Business Real Property” broadly means real estate used in the course and conduct of a business.
As the investment property is residential this clearly does not apply. To rectify the breach, the investment property should be sold by the SMSF.
Is there a deadline for salary sacrifice superannuation to be paid upon termination?
You cannot really defer this at all because it is salary sacrifice, as such it should be paid in tandem with normal salary. However, some delays do occur as these additional amounts are sometimes paid at the same time as statutory superannuation (Super Guarantee) which is normally quarterly.
If the person is no longer your employee our advice would be to pay the Super as soon as possible.
We have recently refinanced our Self-Managed Super Fund debt and Family Trust debt from CBA to Suncorp Bank. We have received a fee from our solicitors for the preparation of a new deed, a deed variation, and the set-up of a new Bare Trust for our Self-Managed Super Fund. We were wondering if this can be paid from our Self-Managed Superannuation account or if it has to be paid from our Family Trust account?
The Family Trust rents the property from the Superannuation Fund. The property is solely owned in the SMSF and the business is owned by the Family Trust.
The bill needs to be properly dissected with the Bare Trust and any deed of variation (for the SMSF) to be paid by the SMSF.
If the Family Trust had its deed varied, then it must pay for this.
With reference to your last newsletter and unpaid director’s bonuses, what is the position with superannuation? When does this become payable? Is there any way that the bonus could be linked to overtime hours and therefore no Superannuation needs to be paid? Is there any basis for a ‘one-off’ being paid and because it is not a bonus paid annually then no superannuation is necessary?
Superannuation – This is only a tax deduction in the year it is paid i.e., in the relevant superannuation funds’ account. In fact, for year end tax planning, it is important to pay the super prior to 30 June and not in July.
Bonus – If the payment is in the nature of a bonus, then superannuation applies – the Act is very clear on this. Allow for superannuation in the bonus payment and this should not be a problem.
We are a residential aged care facility (Public Benevolent Institution). Our staff take advantage of $30,000 p.a. benefits (grossed up).
For payroll purposes, we are using the gross salary, prior to the deduction of the salary benefit amount for calculating SGC. I have read that fringe benefits are not considered to be ordinary times earnings for SGC purposes. If we now exclude the benefits portion of our employees’ wages the contribution, we make to their super will drop significantly.
Normally PBI’s and not for profits in this situation pay statutory superannuation on the gross amount. Nothing is preventing you from doing this, and this is just part of the salary packaging negotiations with each staff member.
I would like to implement the following strategy for some of my SMSF clients (who have realised a capital gain during the year and/or are planning on reducing working hours/income earned during the next financial year) in order to increase their retirement funds and save them some tax. Strategy: Contribute $50,000 to their SMSF during June. Classify $25,000 as a concessional contribution and allocate the remaining $25,000 to the SMSF’s reserve account. Then, at the start of the next financial year, reallocate the funds in the reserve account to concessional contributions. In other words: Contribute $50,000 to super and claim the full amount as a tax deduction this year. However, only half of this amount will count towards this year’s concessional contribution cap and the other half to next year’s cap.
My questions are:
- What legal documents are needed to do this?
- How do you satisfy ATO’s requirements regarding allocating these funds to a reserve account?
- Is this strategy sound?
- Are there any pitfalls?
We refer you to Interpretative Decision ATO ID 2012/16 which confirms that a contribution reserving strategy may be effective and gives some guidance.
We recommend you exercise caution and seek legal advice regarding the documents required.
We have a SMSF and want to purchase an industrial unit. The unit we have seen is more than the cash in our super fund and we wanted to borrow about $350,000. The purchase price of the property is $750,000. I need some advice on how to go about the borrowing and also advice on the entities we need to buy the purchase. Can the SMSF buy the property directly or is it best to do this through a trustee Company or other entity? I understand that I may need to get the Lawyers involved also.
Here you will need to enter a Limited Recourse Borrowing Arrangement using a new Corporate Trustee as trustee for a Property Trust which will in essence be a Bare Trust holding the asset on behalf of the SMSF. To ensure compliance you should speak to your lawyer or accountant. You will need to ensure the Corporate Trustee, the Bare Trust, and the borrowing arrangement is done properly. When the loan is repaid, the SMSF will assume ownership of the property.
My wife and I own a small café. In the past year or so we have changed from a Family Trust to a Company. Can we salary sacrifice and what are the benefits? We also are heavily involved in racing speedway. Our business name is all over the cars, how much of the maintenance side of things can be claimed as advertising?
For a closely held “Mum and Dad” business salary sacrifice means maximising superannuation contributions – $25,000 each… and keeping detailed, legitimate logbooks to maximise motor vehicle claims.
Regarding the speedway sponsorship, we refer you to Interpretative Decision ATO ID 2005/284 which holds that such expenditure on motorcycle sponsorship can be deductible in certain circumstances. However, if you are racing the vehicles yourself then there may be a private expenditure component.
If that is the case, you may wish to consider requesting a private ruling from the ATO.
My question is about Superannuation. Our law firm has employed a consultant solicitor under a contract for the past four or so years. He provides the firm with a tax invoice with his ABN, for a percentage payment of costs only on each of his files when a tax invoice is issued to his client, usually 50 or 60%. When the client pays our firm, we then pay the consultant’s invoice. His contract is such that he is to pay his own superannuation. Recent ‘general’ correspondence from the ATO suggests the firm could be liable for the consultant’s super. Are we fully protected by a written contract?
If you are paying him as an individual for his services, then there clearly is a greater than 50% labour component to his services and your firm is liable to pay him the superannuation guarantee. A written contract does not change this exposure.
Quote: ‘The work test can be satisfied when “employment” involves any endeavor where you receive remuneration for your efforts, including farming, babysitting, cleaning, lawn mowing, gardening, consulting, and paid employment.’ Does this mean I can still be “self-employed” as such, mowing lawns, etc? How do I show the Government/Centrelink my earnings and hours? I have worked for myself for 40 years and don’t want to work for a part-time paycheque.
Yes, mowing lawns would qualify as “self-employed.” Just keep an invoice book that shows your earnings. Deduct expenses incurred in earning this income.
Can a SBE claim a contribution reserve amount for 2 family directors of $50,000 this financial year for their SMSF?
You need to be very careful when doing this. It depends on the SMSF deed and the timing. Professional advice must be sought.
Can an SMSF hold livestock as an investment?
Not a good idea. You would have to consider the sole purpose and investment standards and I strongly suggest such an investment would fail on both counts.
There is also a prohibition on SMSFs buying assets owned by fund members or associates – the only exceptions being “business real property” and listed ASC (or equivalent) shares.
Livestock by definition cannot be an investment.
Our SMSF has a loan and security agreement in a property development. Due to the GFC, the developed property did not sell as expected and the Bank called in the receivers. We are considered to be unsecured investors and the Bank a secured investor.
The Receivers wrote to us as follows: “XYZ Pty Ltd (Receivers and Managers Appointed) (as trustee of the XYZ Unit Trust) (‘the Company’) ACN 097 074 532 Re: The XYZ Family Superannuation Fund – We refer to your email dated 26 April 2014 to Ms ABC of this office and the appointment of SD and CR as Receivers and Managers of the Company on 15 November 2012. Our view is that there will be insufficient funds to pay the secured creditor in full. It is unlikely that a dividend will be paid to unsecured creditors however I am unable to confirm such as a liquidator deals with this issue. At this stage, a liquidator has not been appointed to the Company. If you have any further queries, please contact MA.”
The auditor has requested our accountant to write the investment down to a Zero value when our tax return for the SMSF was attended to for the financial year 2013/14. The superfund also owns some land. If we sell this and make a capital gain may we offset this against the capital loss of the Loan and Security agreement investment even though it has not been liquidated and finalised yet (and it is unlikely to for quite some time yet? In addition, we also invested in our own name under a separate agreement. Would the above advice hold for this investment as well if we sold our rental property for a profit?
First of all, if the SMSF is in pension mode there will not be any tax payable. If not then if the land has been held longer than 12 months, then a one-third discount applies and the SMSF will pay tax on the capital gain at 10%.
However, you should do all you can to obtain a statement from the Liquidator in the same year you make the capital gain stating that no dividend will be paid – if you obtain this then you can offset the capital loss.
Could you please consider the following and advise me on what action is appropriate regarding the SIS Act?
- A client has formed a SMSF with a Corporate Trustee and a Bare Trust also with a Corporate Trustee. The Bare Trust would like to acquire a vacant block of land for cash and borrow to construct a residential dwelling for rental to an unrelated party.
- The construction of the dwelling will be completed within 12 months from the date of settlement of the property purchase. The property purchase is due for settlement in late March 2014.
- The cost of the land with legals and S/D is $155,000
- The cost of construction of the dwelling is estimated at $300,000
- Please advise if this situation is in accordance with the provision of the SIS Act.
This is not in accordance with the SIS Act 1993 sections 67 and 67(4) A.
The borrowing rules require the asset to be the original asset and prevent a change of asset except in limited circumstances.
The trustee of the Bare Trust cannot generally buy new assets once established.
The trustee of the bare trust also cannot change the existing asset so that it is a fundamentally different asset. For example building on a vacant block of land.
My client is 61 years of age (male), works part-time (20 hours/week), and earns $30k per year. Is he able to access some of his super and if so, how much?
Yes. He should be able to access a transition to retirement pension. Broadly this pension could be paid at 4 to 10 % of his super fund balance.
I am a 58-year-old builder, Sole trader, and no superannuation. I have a block of land I am currently building on and its sole purpose is being my retirement fund. I sold a speckie this year and a lot of those funds are being funnelled into this project. My question is, can I structure this property and construction as my industry super fund because this is its sole purpose? Also, is there a benefit in my structuring as a company or family trust?
As you are a sole trader, the land is clearly in your name. The only way to structure this as super would be to set up a self-managed super fund (SMSF) but this is problematic.
Firstly, if we are looking at a residence you are building then this is not possible. There is a prohibition on SMSFs acquiring assets from fund members or associates.
There are two exceptions to this rule being ASX (or approved equivalent) shares or business real property.
In the event the build is commercial then to meet the definition of business real property there will need to be business being conducted from the premises.
This will mean there must be a commercial lease in place. As the transfer would have to be at market value, there would be capital gains tax payable by you, as the vendor, and stamp duty by the SMSF as the purchaser.
That assumes that the commercial property had been held for some time… at least 2-3 years and been properly segregated from your main activities as a builder… i.e., not trading stock.
If it is trading stock… then we are dealing with income according to normal concepts with no capital gains tax 50% discount.
- In the event you claim GST input tax credits on purchases along the way, then it will be very difficult to justify the investment position regarding the CGT 50% discount.
- In the event you wanted the SMSF to do the build, then we would advise that this is a bit of a minefield when an associated party is involved, and specialist legal advice would be necessary.
We would not recommend it and in any case, to set up a SMSF you would need to take independent financial advice.
If it sounds all too hard then that’s because it is. However, at your age, you are right to focus on Super and you should consult with a reputable, independent financial planner.
As outlined in our asset protection bonus edition there is no harm in getting second opinions and seeing more than one financial planner.
A new client has contacted us.
They have brought to our attention their self-managed superannuation fund. The SMSF had a trustee company “something Pty Ltd”. “Something Pty Ltd” was an operating company that ran a shop. The “something Pty Ltd” went into liquidation and was liquidated. Has been wound up quite some time ago circa 4 years.
The superannuation fund has a property in it. 500 acres of farmland. Worth $650,000. There is no debt and the members pay the rates on the property each quarter. The trust deed is unable to be located. Where should we start in remedying this situation? Given that the SMSF has no trustee.
Given there are property title and potential conveyancing issues along with trust law and SISA compliance issues, there is no quick fix.
The services of a reputable law firm with expertise in all the above areas will be required.
Clearly, the SMSF is well behind in its lodgements – otherwise, the independent auditor would have picked this up… along with the missing deed.
A new trustee will need to be chosen by the members and a corporate trustee is recommended.
A trust deed of variation will need to be done for the SMSF… trust deed or no trust deed – you could check with the bank and/or last known SMSF auditor to see if they have a copy.
We suspect a raft of compliance issues will come into play when the SMSF’s compliance obligations are being updated.
These will not be limited to:
- The trustee issues
- Possible investment standards
- In-house/personal use assets
- Sole purpose test
Steps need to be taken to get this SMSF into compliance mode as soon as possible and it cannot be done on the cheap – some professional fees will be involved.
I have been a member of the bO2 Tax Essentials (TSA) for a number of years. Could you please assist me with information regarding “Transition in Retirement Pension”?
My wife and I are the owners of a small business (XYZ Group Pty Ltd and also a SMSF. I am currently 67 years old and my wife is 63 years old.
We wish to activate a “Transition in Retirement Pension/income stream.
Our objective is to have a net income of $80,000 p.a. say $50000 for me and $30000 for my wife for the coming 3- 4 years…
Can you advise what procedures need to be implemented both within “XYZ Group Pty Ltd ” and the SMSF in order to satisfy the ATO?
As we are both in our 60’s and still working, are there any special provisions/tax benefits available under current tax law?
I understand we can salary sacrifice $25000 for each of us which will be taxed at 15% in the super fund- however, what is the tax applicable on the balance of $5000 for my wife and $15000 for me?
As you are already over 65 you should have already commenced receiving a normal pension from your SMSF, which would be tax-free. Broadly SMSF income that supports such a pension is also tax-free.
This could be a compliance issue for your SMSF, and you should seek specialist advice.
Regarding the pensions – the achievement of your income requirements will depend on your fund balance and investment income.
While you are tidying up your pension issue, seek specialist advice – for instance does your SMSF trust deed allow for the payment of a transition to retirement pension?
There are also changes to transition to retirement pensions that apply from 1.7.2017.
Your employer is eligible to continue to make contributions to super up to 25k per annum.
I have a family trust to run the business. My accountant advised that I need to draw some wages out, so the business can contribute the guarantee super. Then I can also contribute personal super to the fund as well. Is it correct? I cannot contribute super without drawing any wages.
Your accountant may be just attempting to formalise things if your super arrangements have been set up that way.
That is the normal way of doing things for those in small businesses. It may well be that your Accountant wants to formalise some salary/super arrangement for budgeting and planning.
However, there have been changes from 1 July 2017.
It is possible for you personally to make tax-deductible contributions into super up to the maximum of $25,000 per year.
This would be $25k less any employer contributions. So, it is possible for you to receive an annual trust distribution and make contributions into super.
Talk to your accountant again.
We have a client that has a trust with a corporate trustee.
The business is a family business, with father and son and their spouses working in the business.
The father is 76. He works in the business, full time, and gets a wage.
I believe the employer can only claim a deduction for superannuation up to 9.5% (SGC). The amount that is salary sacrificed is not deductible to the employer.
Is this correct?
You are correct about the employer, mandated (9.5%) superannuation contributions.
Regarding salary sacrifice contributions, it is true that the employer should not claim a tax deduction.
Furthermore, the super fund should not be accepting these contributions as the member’s age exceeds 75.
If it is a SMSF there could be a compliance issue here.
My question is about Super contributions & Director fees.
Super contribution: – My accountant has suggested we salary sacrifice contributions to the super limit of 25,000. Can I make the personal contribution of $25,000 direct into a SMSF account as we use a family trust (my husband is a director – he does not work in the business) to operate the business? We use another family trust (myself is a director- I work in the business) to own the property.
Will this save me having to pay more workers compo? Am I just required to complete the” notice of intent to claim or vary deductions for personal super contributions ” and send it to the SMSF so it is received by SMSF before 30/6 each year?
Director Fees: – Can my husband be paid for Director fees when the resolution is passed close to the end of each financial year, and the fees are paid the next financial year. My husband is liable for PAYG tax & super guarantee for the next financial year. Could we claim the directors’ fees as the current financial year deductions?
I would be guided by your Accountant and make the contribution by way of salary sacrifice. This deals with the statutory superannuation (Super Guarantee) on the director’s fees and ensures that the total contributions stay under the $25k limit.
It is true that from 1.7.2017 that individuals can make tax-deductible contributions into super – in the event the worker’s compensation saving is significant then ensure that the super guarantee payments are made by the employer on the directors’ fees and then top this up with a personal superannuation payment to the $25k limit. The danger here is that a $25k contribution is made in your own name and then the Trust has a liability for 9.5% statutory super which must be paid placing you into an excess contributions’ situation.
The tax deferral you suggest is quite possible, but it must be genuine… the director’s fee must be paid within a reasonable time and PAYG must be deducted and paid.
We refer you to Taxpayer Alert TA 2011/4 which deals with the deductibility of unpaid directors’ fees and sham arrangements.
I have property held under a unit trust. 100 %of the units in the trust now belongs to SMSF, (my personal 0%), as any income from the unit trust is distributed to SMSF, so I tried to transfer the title of the property to SMSF as the beneficiary of unit trust and SMSF are the same, but state revenue of NSW still wants to charge stamp duty, can you advise how can I do it without paying stamp duty for transferring?
It is the lawyer doing the conveyance who should advise you on this.
You need to be able to clearly demonstrate there is no change in beneficial ownership on the change in title.
You say “the SMSF now owns 100% of the units” – this indicates to us there has been a recent change in beneficial ownership.
If the SMSF did not always own 100% of the issued units there is an issue.
If the transfer has been from yourself personally to the SMSF then there is little doubt that there has been a change in beneficial ownership meaning stamp duty is payable.
You should be guided by your lawyer on this matter as State Revenue Law is normally handled by lawyers.
There is only one possible suggestion…. That if you are the sole member (beneficiary) of the SMSF, then it may be possible to argue “no change in beneficial ownership,” but once again your lawyer will advise on this.
As we don’t have the full story and documentation this really is a matter you need to take legal advice on.
I have a client DOB 1947 retired from the public service in receipt of a Com Super Pension comprising the following elements Total tax withheld $5,122.00 Label 7 Tax-free component $19,172.00 Taxable component – taxed element $14,520.00 Taxable component – untaxed element $55,388.00 Label 7N Reversionary income stream indicator No Based on the information disclosed in his return the taxable components of this income comprise $55438 + $9586 from capped defined benefit income stream. It would be appreciated if you could confirm this calculation as I’m having difficulty determining how the $9586 is calculated. There is also no entitlement to the 10% offset on the untaxed element.
Your client has turned 60 and the Commonwealth has automatically applied the 10% tax offset on the untaxed element to the amount deducted from the fortnightly payment.
We will send you a fact sheet that explains the operation of Commonwealth pensions.
My client has requested information on how to best protect TPD Money paid out.
They are 63 years old; the insurer paid the TPD as a lump sum into his super fund and gave him the option to withdraw or leave it in the superfund.
He wants to know which would have the best outcome, leaving it in the super fund as a total Lump Sum or get out of super and re-contribute, or is there some other option?
This question really is a financial advice question (assuming the client is in a retail/industry fund they have financial planners that can assist if they do not which to engage a private planner).
We can comment on the client’s options from a taxation perspective.
- Withdraw the entire balance;
- Leave all in super;
- Make a partial withdrawal;
- Commence an income stream.
Given your client is over 60 and receiving a TPD payment, we can assume that they are retired from the workforce. In this case, a lump sum withdrawal would not attract tax.
The client’s overall financial position really needs to be considered by a financial planner (including) taking into account future Centrelink entitlements.
We have a client who will be receiving funds for a sale of an investment property, which is in his family trust. The family trust has a company trustee, and the land and building were bought way back in 1988.
I am aware of recent changes the government has made in relation to downgrading your family home and allowing up to $300,000 to be put in your super fund.
My questions are: Are there options or concessions that may apply to my client, in this case, to avoid paying CGT?
And because the property was purchased in a family trust with a company trustee, will the client be entitled to claim the 50% CGT discount?
Any other advice or information would be appreciated.
The property is owned by a family trust. Generally, a trustee is not eligible for a main residence exemption.
The new rule concerning downsizing and super contribution is only relevant to taxpayers aged 65 years or older and the property being sold must be the taxpayer’s home.
The 50% CGT general discount is available to the trustee and the beneficiary as the property’s been held for more than 12 months.
I just wanted clarification on the new Tax requirements concerning Superfund member’s accounts where their member balance is approaching $1.6m.
The member in a SMSF has already taken advantage of the 3 year Bring Forward Rule back when the balance was still $540,000. These funds were all paid into the fund within the year 2015-2016.
The member now aged 62, is still working and is limited in making contributions to the ATO set limit of $25,000 per year.
By the end of 30 June 2020, the member’s fund account balance may hit just over $1.6m. The increase is represented by normal employer contributions and earnings from investments after tax.
What happens if the balance goes over $1.6m?
Should the member be looking [if it is possible] to “clawback” some for the $540,000 non-concessional contributions previously paid into the fund thereby maintaining their members account below the $1.6m? Or does the non-concessional contribution not form part of the funds making up the $1.6m balance?
Can you please advise how this Legislation will affect members’ super account balance in this situation? [i.e., Total Superannuation Balance].
If the total superannuation balance (TSB) goes over $1.6 million then no more non-concessional contributions are allowed.
Options to keep the SMSF member’s TSB under $1.6 million include:
- Superannuation contribution splitting with the member’s spouse if applicable.
- Given the member is 62, satisfying the “retirement” condition of release (payment) if possible. This means his employment arrangement will come to an end if he controls his own business.
- Applying tax effect accounting which expenses expected future tax liabilities.
- Consideration of realisation costs for real estate or other similar assets leading to a reduction in value.
In addition, it may be possible to pay some SMSF overheads prior to 30 June including:
- Accounting fees
- Actuarial services
- Annual review fees for a corporate trustee
- Audit fees
- Investment expenses including brokerage and bank fees
- Legal fees
- Management and admin fees
- The SMSF supervisory levy.
Details on these issues are included in this edition’s superannuation update.
Also note that if the client’s TSB is let’s say $1.55 million after applying the above options, then a bring forward contribution of $300k is not possible.
Rather this means a non-concessional contribution of up to only $100k as this alone takes the TSB over $1.6 million.
I have been a member for almost ten years and your booklet is quite informative therefore I have not needed to ask any questions in the past. This is my first time so if you need any further information please do not hesitate to contact me.
This question is regarding superannuation.
- I am on an account-based pension for almost ten years.
- Have a self-managed super fund.
- Was not charged Tax on my income until the last couple of years.
- Have a couple of investment properties in my self-managed super fund.
As mentioned above I was not paying any tax on these properties until the new law came in that we had to pay 15% tax on this income.
The tenant was behind in paying the rent for a few months due to personal circumstances. Eventually paid the rent owing, but this rent belonged to a period where there was no tax on the income as l was in a pension phase.
My Question is: …
Since the income belonged to a period when l was not supposed to pay any tax but received it after the new law. (Even though this income belonged to the period when there was no tax on the income). Will l have to pay tax on this income?
It is quite possible for a SMSF to use the accruals basis of accounting for revenue and expense recognition.
However, it is a question of fact as to what has occurred in the past – note the SMSF auditor has signed off on the accounts.
Talk to your SMSF administrator/accountant and see if they are willing to amend the past taxation return to account on an accruals basis.
The complication here is that accruals accounting will now have to apply to all transactions.
The next set of financial statements may then include prior period adjustments.
Of course, there will be a cost to all this, and you may wish to consider the costs/benefits and whether this is worthwhile.
This issue is related to the tax-deductibility of FY2019 voluntary super contribution for sole trader/individual.
My client is a sole trader owner and made the voluntary super contribution payment (after tax) of $25k to ABC complying super fund company with the notice of intent form for FY2019 and claimed for a tax deduction in FY2019 income tax return as for the concessional super contribution.
After the lodgement of the FY2019 income tax return, the client received a letter from ATO that they did not receive the notification from the super fund company regarding the above, so tax-deductibility of $25k was denied.
The following chronological order of events is based on the information received from complying super fund company (final email received from super fund company at 31st July 2020 after formal complaint was made by my client) and based on the client’s records.
- The client received a letter from ABC Superfund for the confirmation of receipt of their personal contributions.
- The client was informed by the super fund company that the client received a small super payment from casual employment during FY2019. So, my client requested ABC Superfund company to refund $159.05 to avoid higher tax (because the total super contribution amount became $25,159.05 for FY2019 including a voluntary super contribution of $25k). If the super fund company notified my client about a small super amount earlier or at the initial phone discussion(s), my client would pay only the remained balance to match the $25,000.
- The client sent the revised notice of intent form with the revised amount of $24,840.95 (=$25,000 – $159.05) to the super fund company. In addition, ABC’s complying super fund company never explained to my client that the refund request was subject to approval.
- The client fully relied on the acknowledgment letter he /she received in August 2020 about the deductibility of voluntary super contribution ($24,840.95).
- The client did not receive the letter or any phone call from ABC super fund company that the tax deduction of $24,840.95 was reversed.
- The client received a simple email from ABC super fund company that a refund of $159.05 was declined, but it did not mention that the tax deduction of $24,840.95 was no longer valid. All I believed was the earlier confirmation of $24,840.95.
- The client decided to change the super fund company to XYZ Super and finally did so on 12/12/2020.
- After the client received the letter from ATO regarding the denial of a tax deduction for FY2019 voluntary super contribution of $24,840.95, the client asked Superfund company to check, and they advised everything is good as above. Again, ABC Super never advised that a tax deduction of $25,000 or $24,840.95 was cancelled/reversed in prior communications.
- XYZ Superfund company is saying that they cannot do anything but telling my client to complain to AFAC. We notified the ATO, but they just advised us to contact ABC super fund company.
- ABC Superfund company accepts their miscommunication (but not specifically) and my client is facing a denial of tax deduction of $24,840.95 that she/he made for FY2019 income tax return and at the risk of a big tax bill due to the above.
The Old super fund made a serious mistake/miscommunication which resulted in not being taken as a tax-deductible super contribution.
I understand it is complicated because the super balance was rolled over to other super funds later time. That is why the client is submitting the complaint to AFAC.
If the client wins the case, will or can super fund be made responsible for their mistake and rectify the issue?
Will the ATO do anything regarding the mistake of the super fund company?
Is there anything a tax agent can do to support their client in relation to dealing with the ATO?
The change of super funds is the complicating factor because if:
- The 15% contributions tax was not deducted by the former super fund.
- XYZ super cannot rectify the error as it relates to 2019 because they did not receive the contribution.
- It now is a case of what has actually transpired.
- Was the contribution dealt with by the old super fund as an allowable deduction with 15% tax being deducted?
- If not, then the error and/or miscommunication cannot be rectified.
Not a great outcome for your client and we are very sorry. The ATO is bound by the law.
While we are not willing to speculate on your client’s prospects with their complaint to the AFAC … if it is found your client has sustained an economic loss through the negligence of the super fund they may be entitled to receive compensation.
The facts of the matter are as follows:
- Commercial property owned by SMSF,
- SMSF is in full pension,
- SMSF has engaged a real estate agent for the management of the property for a percentage of the rent.
My questions are:
- Is it okay for the lessee to pay the rent into the account of the real estate agent company?
- In other words, is it legal for the real estate agent company (engaged by the SMSF), to collect the money on behalf of the SMSF and once they have taken their commission, they transfer the remaining balance into the account of the SMSF?
We take it that the Real Estate is not an associated party.
This means any relative or business partner of SMSF’s members and/or their families.
On the basis these are arms’ length, commercial dealings then there should not be a problem.
Of course, you would want to establish that you are dealing with a properly licenced real estate agent and that their trust account is independently audited annually.
I was checking the published information from the bO2 site but could not find the content about the summary regarding the “Tax on super death benefits – Paid to estate vs beneficiary”, which can be very useful.
Would you please advise if you already have this topic covered in any of the past published documents? If yes, please forward it to me or advise me which one it is.
If we do not have one, it will be great to have the summary or table explaining the “Tax on super death benefits – Paid to estate vs beneficiary (i.e., adult)” with current tax rates.
This is a very timely and helpful question ahead of bonus issue 108 due in December.
We cover binding nominations, superannuation death taxes, and estate planning on pages 39 and 42-43 in bonus issue 102.
However, we only cover the tax implications of the superannuation benefits going to a dependent (generally nil)) versus nondependent (generally 17% or 32%).
This rate of tax is determined as to whether the payment is from the taxed element (17%) or the untaxed element (32%).
We also outline the opportunity to pay out the benefit to the fund member while he/she is still alive in the event of terminal illness which should not attract tax.
The safest way to avoid death taxes may be to leave your super to your Estate and put a Superannuation Testamentary Trust in your Will.
We think this what you are driving at and we will cover this is in detail in issue 108.
I have a question re a Sole Trader…
If he chooses to pay a superannuation contribution for himself, is he entitled to an income tax deduction?
A tax deduction may be claimed up to the annual limit of $25k.
Of course, this assumes no other contributions have been made in the year by the sole trader and that no employer contributions have been made on his behalf.