SMSF TAX RETURNS

The ATO continues to indicate that it is toughening its stand with Self Managed Superannuation Funds (SMSF).

The ultimate power that the Tax office has is to make SMSF non compliant.  This is a drastic step normally reserved for only the most serious of offenses and has the impact of making the fund assets subject to penalty tax, thereby approximately halving the value of the superannuation fund.

The ATO recently confirmed it has this power under the Superannuation Supervision Act. “We can in fact make the fund non-complying because it is a contravention not to keep accounts, not to get the fund audited, and not to lodge the return with the regulator,” ATO assistant commissioner superannuation Stuart Forsyth said.

The SMSF return is now lodged as one reporting package that includes financial statements, the audit report for the fund, and the tax return.

Forsyth says that making a fund non compliant is not something they would want to do and it would seem this action would only take place after repeated warnings were ignored by the trustees.

 

SMSF AUDIT ACTIVITY

The ATO has announced that its compliance program for the next 12 months for SMSFs will focus on related party transactions.

ATO assistant commissioner superannuation Stuart Forsyth said “I have a view that most people will not have a contravention in their fund unless they have a related party transaction.” He added “It’s hard to see how you can have a significant contravention in a fund other than perhaps some of the more technical things unless you have a related party transaction.”

Related party transactions are transactions such as withdrawing money from the fund when you’re not supposed to, and lending money to yourself or a related business.

The ATO plans to perform 300 audits and 1000 reviews throughout the coming year.

It also plans another 1200 mail-outs and a follow-up program from the previous year’s tailored advice programs.

POSTED: 09-Nov-2010

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A survey commissioned by the Australian Taxation Office (ATO) has discovered what anyone in the financial planning industry could have told them at a fraction of the cost.  That is, that the government stuffed it up when it reduced the maximum contribution limits to superannuation.

Ask anyone in the street for a comment about superannuation and you are likely to get the same response “They keep changing the rules.”  This survey emphasized this, pinpointing consumer and industry concern at policy changes as well as the negative impacts of changes to contribution caps.

The survey made it clear that the Government’s tinkering had done nothing to generate certainty among those approaching retirement age or those advising them. According to the survey, “The perceived frequency of reform generates distrust and unease in planning superannuation strategies over a life cycle. Consumers are confused and disenchanted; the superannuation system seems complex enough without having to constantly monitor and understand changes to regulations.”

It also says “There are deep-seated fears that the age pension will be abolished and that there will be no safety net for those who have inadequate superannuation at the point of retirement. These concerns are compounded by changes such as the implementation of concessional caps which impact on longer term superannuation funding strategies.

“Across the consumer group there is worry and guilt about superannuation, and a strong sense of disempowerment.”

As financial planners all know, it is only later in a person’s working life that they have sufficient funds to dedicate to retirement needs.  Then the government pulls the rug out from under their feet. “This change to the system is seen to be self-defeating and to have sent the wrong message to people who require encouragement to maximise their superannuation contributions when they have sufficient disposable income to do so,” the report said.

“A lot of people actively strategise to maximise their superannuation contributions towards the end of their working life and these legislative changes have invalidated this strategy. It has resulted in some people diversifying investments away from superannuation into areas where caps do not apply, and losing the tax advantages of contributing directly into superannuation.”

If the government wants to cut down the Social security bill then it must put in place rules that will encourage the individual to accumulate funds for his or her retirement.

It is a fact that most working people don’t have enough superannuation to retire. It takes a lifetime to accumulate sufficient funds which is something that the well superannuated politicians and the fat cats of the public service who accumulate a very generous retirement benefit via a very hefty contribution from the public purse, tend to forget. They have little empathy for the rest of Australia when it comes to superannuation. They forget that compulsory superannuation is a relatively recent innovation and even at the current 9% level which has only existed for 8 years, the retirement benefit will be less than what most people need.

It is to be hoped that the government will realize its mistake early enough to rectify it. Not to do so will only increase the cost to tax payers of the future and leave many retirees much poorer in their golden years.

POSTED: 09-Nov-2010

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