SuperStream is the new data and payments standard that came into effect on 1 October 2021. Many SuperStream teething problems have resulted in the ATO providing an alternative temporary solution to ensure SMSFs continue to comply. The measure was announced on March 16, 2022, where rollovers are allowed outside of SuperStream when the transfer is between SMSFs or from an SMSF to an APRA Fund.
It only applies to these situations, and SMSF trustees must seek approval from the ATO by requesting a Call Reference Number before the transaction occurs.
Ensuring that every aspect of the Fund’s digital data has been updated on the ATO database is critical to ensure rollovers occur within the required three business day timeframe.
A Payment Reference Number generated from an SMSF administration system can be used for multiple payments as many banks limit the amount that can be transferred out of a fund.
For further details and the audit requirements, download our SuperStream Fact Sheet
2. Illegal Early Access
The increased number of scams and fraudulent behaviour has resulted in new SMSF registrants being risk assessed and heavily scrutinised by the ATO. Setting up a new fund takes longer while the ATO ensures that the purpose is not illegal early access.
The ATO is taking firmer action when SMSF trustees don’t engage after reaching out and have started a new “3 strikes, and you’re out” campaign. SMSF trustees have three opportunities to contact the ATO before they are disqualified on Superfund Lookup.
Illegal early access is a breach of r6.17 SISR but can be disguised as a breach of s65 – loan to member. Penalties apply for both contraventions in line with the ATO’s approach to applying administrative penalties.
3. Work Test Removed
The work test has been removed for those in the 67 to 75 age bracket effective 1 July 2022. Not only does this reduce SMSF administration red tape, but it also means that 74-year-olds can access the bring-forward rule to make NCCs of up to $330,000 in the same way that 66-year-olds currently can.
The only difference is that members can still make personal NCC contributions until 28 days after the end of the month they turn 75.
The other consideration is that the work test now effectively comes under the tax regime.
When a member in this age group wants to make a personal concessional contribution, they must pass the work test to claim a tax deduction. A signed and dated notice of intent to claim form will still be required at audit where a deduction is being claimed.
4. COVID-19 Update
All ATO deferrals previously provided to SMSF trustees due to COVID expired on 30 June this year. Loan repayment relief, rental relief, residency relief and IHA relief for non-geared unit trusts has ended and have not been extended to the 2023 FY.
Some SMSF trustees may require assistance returning to a regular routine after such a long period of compliance relief.
However, the reduced pension minimum drawdown has been extended to the 2023 FY, meaning that the minimum has been halved again for another year.
5. Director ID Applications
Penalties of up to $1.1 million for non-compliance can apply if SMSF trustee’s Director ID Applications are not processed by 30 November 2022. The application must be done through myGovID, which older clients may find confronting if they are not technologically literate.
Unfortunately, Director ID Applications are an individual registration process that can’t be undertaken by a tax agent or someone authorised to deal with client matters.
Other individuals will also be required to register for a Director ID when acting as an LPR, EPOA, or in situations of incapacity and overseas absence.
Under these circumstances, some forward planning is required when the director of the corporate trustee is appointed. The reason is that from 5 April 2022, it needs to be applied for before the appointment. Otherwise, there could be a breach of s17A – definition of an SMSF.
The ATO announced an extension to its transitional compliance approach as outlined in PCG 2020/5, which applies to non-arm’s length expenditure (NALE) of a general nature.
Previously finishing at the end of the 2022 financial year, the ATO has said it will not be allocating compliance resources to NALE on or before 30 June 2023.
The extension will allow the ATO time to work on the industry’s concerns and provide greater certainty on its administrative approach.
An updated PCG 2020/5 was released on Friday, 10 June, and LCR 2021/2 was also updated to reflect the extension.
SMSF practitioners should know that NALI and NALE relating to specific assets can still apply to SMSFs from the 2019 financial year onwards.
The ATO’s approach to applying compliance resources to general NALE can be currently found in paragraph 92 of the Appendix in LCR 2021/2. It states that any compliance resources for general fund expenses applied after 1 July 2023 will be directed towards whether the parties have made a general attempt to engage in a commercial activity.
Where the service looks like it’s been provided for free or less than what would be expected, then the entire income of the fund will be at risk of being taxed at 45%.
It means the ATO will be looking for documentation, such as a bona fide discount policy or evidence of providing a quote for a service with a loyalty discount, to demonstrate that the service has been provided on commercial terms.
Access all articles about NALI here
7. Valuing Property
The ATO’s position on property is that if the latest valuation has become materially inaccurate or a significant event has affected the value, it is time to get a new valuation.
A significant event could be an extensive capital improvement, renovations, a natural disaster, pandemic or a change in market conditions (like we saw with the GFC). Of course, where property is purchased during the year being audited, the cost price of the property is acceptable audit evidence.
The ATO’s guidelines for kerbside property valuations is one of the most significant impacts on SMSF audit because it requires comparable sales to be included in the kerbside valuation to be accepted.
But what happens when no comparable sales are included in the kerbside valuation?
In line with our audit procedures, we will ask for more information and accept examples of a minimum of 3 comparable sales from the trustee to confirm the valuation.
To find out more, read our latest article on property valuations.
8. Timing of In-Specie Transfers
The off-market share transfer forms (OMTF) date is critical for timing purposes when listed shares are transferred from the member personally to the fund via Non-Concessional Contributions.
The reason is that the date on the OMTF is the date that the transfer occurs, regardless of the date when the share registry finally transfers the shares across to the fund.
The transfer also needs to be done on a timely basis. We expect to see the transfer happening within about four weeks of the date of the OMTF. Any longer and you can expect some queries about why there is a delay.
9. Changing Trustee Name
The ATO has seen an increase in the number of r4.09A contraventions reported, which is that money and other assets must be kept separate and held in the name of the fund. One of the reasons is that a change of trustee name is not being recorded correctly on fund assets.
The first step is to check the trust deed, which will stipulate what is required to change the fund’s trustee legally. Otherwise, the removal and appointment may not be valid and result in a breach of s17A.
Some trust deeds require a deed upgrade and others a minute or resolution. Most importantly, the title of ALL the fund assets needs to be updated to reflect the new trustee structure.
The ATO requires all trustee names to be included, which means each individual trustee’s name must be on all assets as trustees for the fund.