There is a raft of SMSF rule changes you need to know in order to avoid being hit by penalties. Here is a guide to the major changes underway, and those to watch out for in the year ahead.
Contribution caps have changed again1, with the maximum co-contribution halved to $500 and the income cut-out threshold reduced to $46,920 from $61,920 previously. Indexation of the low income threshold has also been frozen at $31,920. For high income earners, the tax on concessional super contributions has increased to 30 per cent from 15 per cent for taxpayers earning more than $300,000 per annum. The general concessional contribution cap has also been frozen at $25,000 p.a., with no indexation applying for fiscal 2014.
There has, however, been an increase in the concessional contribution cap for certain taxpayers. From July 1, the cap was raised for people aged 59 and over to $35,000 p.a., while the cap is slated to similarly increase on July 1, 2014 for people aged 49 and over. In addition, instead of the previous harsh penalties, excess concessional contributions can now be withdrawn and taxed at the individual's marginal tax rate, although an interest charge applies.
Trustees are now required to use an approved SMSF auditor registered with the Australian Securities and Investments Commission (ASIC) to audit their fund. This is particularly important given the Australian Taxation Office's announcement that it intends to increase monitoring of the sector, targeting prohibited loans, related party transactions and fund returns, with an estimated 75,000 funds currently non-compliant.
Insurance, investment strategies
Trustees are now required to have insurance strategies in place for all fund members. A written investment strategy is required, which should be reviewed on a regular basis at least once a year or at any time there is a major change in assets.
"Auditors are being much stricter this year and are not accepting pro-forma one-page efforts with little or no detail," says Liam Shorte, SMSF Specialist Advisor at Verante Financial Planning. "Any detail must also match the actual investment holdings."
Mark to market
Fund assets must now be revalued at market value in funds' financial accounts. Previously, it was only necessary to reassess the market value of fund assets when a pension started or was recalculated, or if the fund had invested in related-party assets.
Separation of personal and fund assets
A fine of up to $11,000 is now payable for any breaches of the requirement that trustees keep fund assets separate from other assets held by trustees, members or related parties.
New rollover benefits statement
Introduced on July 1, the new rollover benefits statement (RBS) requires all contributions received by a fund during the financial year to be reported to the ATO by that particular fund when the contributions are transferred in a rollover. This also affects information reported in the annual return (SAR).
Any contributions received for a fund member this fiscal year must be reported in the 2014 member contributions statement (MCS), even if some contributions are rolled out to another fund before the end of the financial year. The RBS is no longer used to provide contributions information to another fund with a rollover.
Higher supervisory levy
SMSFs have been hit with higher charges, with the ATO increasing the annual supervisory levy to $259 from fiscal 2014, up from $191 the previous financial year. The levy is also now payable for the financial year in which the annual return is due, which means this year's levy is $321 ($191 for fiscal 2013, plus 50 per cent of the levy for fiscal 2014).
More changes ahead?
Trustees need to keep a close eye on further proposed changes that are yet to be passed into legislation, although subject to potential revision:
Ban on off-market transfers.
New civil and criminal sanctions, proposed penalty regime and power to enforce rectification.
Tax on pension earnings over $100,000.
ASIC has also flagged plans to introduce new disclosure rules for SMSF advisors, among other reforms2. By keeping advised of SMSF rule changes you need to know, it is possible to avoid the regulatory pit holes.
1 Key legislative contribution changes. Chartered Accountants (2013). http://www.charteredaccountants.com.au/Industry-Topics/Superannuation/Current-Issues/New-and-updates/230412-Key-Legislative-Contribution-Changes.aspx
2 ASIC proposes new SMSF disclosure rules. Investor Daily (2013). http://www.investordaily.com.au/34254-asic-proposes-new-smsf-disclosure-rules
This article represents the views of the author only and not those of American Express.
Anthony is a communication consultant at BWH Communication and a freelance writer with 15 years' experience in the stockbroking and media industries of Australia and Asia. He is a regular writer on business and other issues for publications in Australia and Japan. He consults on communication strategy to businesses ranging from private enterprises to professional service firms and publicly listed companies, with a particular interest in entrepreneurship in all its forms.