Heffron | Australia's leading independently owned SMSF administrator


Heffron's experts provide a regular stream of thoughts, hints, tid-bits and technical articles to the SMSF industry at large. You can find these below.

ATO focusing on investment strategy diversification requirements – what do trustees and auditors need to do?

The ATO recently identified approximately 18,000 SMSFs who hold 90% or more of their assets in a single asset or a single asset class.  The ATO is concerned that these funds may not have met their investment strategy requirements and has reminded trustees that failure to do so can result in an administrative penalty of $4,200. 

So, what do these trustees and their auditor need to do to avoid penalties being applied?

My SMSF owns premises which it leases back to my business.  What do I need to do to make sure the arrangement complies with the superannuation law?

Approximately 10% of SMSFs own commercial property and often this commercial property is leased to a related party (eg a business owned by the members of the fund).  If you have employed a similar strategy with your SMSF, there are a number of rules to follow to ensure the arrangement complies with the superannuation/tax laws.

I have never worked – can I access my superannuation?

Normally any conversation about accessing superannuation is linked to retirement. But in superannuation, only people who have worked at some point can actually retire – the definition of retirement hinges on ending what’s known as “a gainful employment arrangement” (basically paid work). This quirk means that to retire, one must work first. 

Division 293 tax – when is it paid?

Division 293 tax is the name given to a special extra tax (15%) paid on some or all of the concessional superannuation contributions made for high income earners.  For this purpose, a high income earner is anyone who earns $250,000 or more and this amount includes their concessional contributions within the concessional contributions cap.

While the tax relates to superannuation contributions, it is actually levied on individuals rather than their superannuation funds.  They are, however, allowed to access money from their superannuation to pay it.

An emerging challenge for those subject to this tax is : when can money be withdrawn from superannuation to pay it?

Franking Credit Refunds

Top of mind for many SMSF trustees – particularly retirees - is the upcoming Federal Election and the Australian Labor Party (ALP) policy on refunds of excess franking credits. 

Despite a parliamentary inquiry recommending against the policy and strong backlash from various sectors, the ALP remain committed to the measure.  This means it has a reasonable chance of becoming a reality (in some form) if Labor wins the Federal election.

So what should SMSF trustees be doing now?

Watch pension payments before 30 June 2019

As we get closer to the end of the financial year, many SMSF members with pensions will be checking the amounts paid from their fund so far to make sure the minimum payment requirements will be met.  Others, who only take payments right at the end of the year, will need to double check the amount that needs to be paid from their fund and make sure it all happens before midnight, 30 June 2019.

The Audit Report for my SMSF has been qualified.  What does that mean?  Should I be worried?

All SMSFs trustees are required to appoint an approved auditor to audit the operations of their fund each year.  This annual audit must include both a financial audit and compliance audit.

The auditor is required to report their findings to the trustees in the form of an audit report.  The audit report consists of two parts, Part A and Part B.  The consequences of receiving a qualified audit report are quite different, depending on whether it is a Part A or Part B qualification.

Adding my adult children as members of my SMSF – what are the pros and cons?

As part of the 2018/19 Federal Budget announcements, the Government confirmed that they intend to legislate to increase the maximum number of members that can belong to a single SMSF from four to six. This change is to apply from 1 July 2019 but has not yet been legislated.*

This announcement has prompted many to think about whether it can be beneficial to add adult children as members of their parent’s SMSF or is this a strategy to be avoided.

A new opportunity to top up super for those over 65 – downsizer contributions

From 1 July 2017 it became much harder to build up more superannuation thanks to a tightening of the limits on contributions.  The maximum “concessional contributions” (employer, salary sacrifice contributions or contributions made by someone who claims a tax deduction for them) reduced to $25,000 pa.  At the same time caps on “non-concessional contributions” (contributions made from someone’s own money for which they do not claim a tax deduction) reduced from $180,000 pa to $100,000 pa and even $nil for anyone with more than $1.6m in superannuation.

Quirkily, at the same time, legislation was underway to introduce a brand new type of contribution that provides far more freedom for older Australians to make contributions.  These new contributions are known as “downsizer contributions” and they started from 1 July 2018.

Work Test Exemption for Recent Retirees – Who Will Benefit?

In the May 2018 Federal Budget, the Government announced plans to extend the ability for recent retires to make contributions to superannuation from 1 July 2019.  This change has now been legislated.

In a nutshell, the rules in the current year only allow superannuation contributions for someone over 65 if:

  • the contributions are legally compulsory (eg required by an award or the Superannuation Guarantee rules), or
  • the member has met a “work test”.  (The work test is, broadly speaking, completing 40 hours of paid work over no more than 30 consecutive days at any time in the financial year and before the contribution is made).

What’s the change?

Event Based Reporting

With the 1 July 2017 introduction of the $1.6m Transfer Balance Cap (or “pension cap” as some people call it) came a new obligation on superannuation fund trustees to report certain member “events” to the ATO.  These events are reported using a “Transfer Balance Account Report” or TBAR. 

Re-think Treatment of Amounts in Excess of Minimum

Prior to 1 July 2017, as a general rule, where an individual was age 60 or over and wanted to draw monies from their pension account in excess of their minimum pension requirements, the excess was simply treated as an additional pension payment.  This is because, whilst the payment was tax free regardless of whether the amount was treated as a pension payment or a lump sum commutation, pension payments didn’t necessitate any additional paperwork whereas lump sum commutations did.

Three Yearly Audit Proposal

In the May 2018 Federal Budget, the Government proposed that SMSFs with three years of clean audit reports and returns lodged in a timely manner would be eligible to move to a three-yearly audit cycle rather than being audited every year. 

Not unexpectedly, this announcement led to a number of questions by SMSF trustees and their auditors.  Thankfully, the Government has now released a discussion paper on this proposed change which gives us a bit more of an idea of how it may work.

A new year, what happens with pension balances that have grown?

A great many retired SMSF members with large superannuation balances adjusted their pension accounts back to $1.6 million on 30 June 2017.  This was done to reflect new rules at the time that placed a limit, called the Transfer Balance Cap, on pension accounts.

Twelve months on, at least some of these pension accounts have grown above $1.6 million.  It’s a natural consequence of taking as little as possible out of the pension account and investing in assets that produce a lot of income, growth or both.  Particularly for younger retirees, it is entirely possible that the combination of income and growth can be enough to completely replace (and more) the amounts that have been drawn out as pension payments.

Could children in the fund help beat the ALP proposal to remove franking credit refunds?

As the Bank Inquiry dominated news headlines in recent days the government announced a change that will certainly be very welcome for some families with Self Managed Super Funds (SMFS). Until now the most people allowed in an SMSF fund was four – the government has announced it intends to allow the limit move to six people.  The timing is especially useful since some families are reviewing their SMSF arrangements in the light of the ALP plans to scrap cash refunds for franked dividends.

One way to mitigate the impact of the ALP proposal is to include adult children in the SMSF so that the franking credits generated by the parents’ share portfolio can at least be used to pay the tax generated by the children’s super rather than being wasted.

But there are some problems with this idea

SMSF. Crypto. Bitcoin.  What’s all the fuss?

Why is there so much focus on SMSFs and Bitcoin?

Mainly because it’s new and sexy.  Whenever there is a new and exciting investment, early movers want to get started.  These days, the largest pot of potential investment cash is often an individual’s superannuation.  Thanks to compulsory superannuation at a relatively high level for a long time now, even youngsters in their 30s and 40s potentially have large sums locked up for retirement.

(Did you know that someone with a salary of $50,000 ten years ago who has experienced wage increases of only 3% each year could have grown their superannuation to around $50,000 today if their fund earned even just 2% more (ie 5% pa) over that period?)

But how does one invest superannuation money in Bitcoin?