SMSFs - growth and audit issues post-1 July 2017

Linda Farmer, CTA (Grant Thornton) 
Two filmed sessions from The Tax Institute's 2017 National Convention illustrate different sides of the same coin:
  • How the recent changes to superannuation affect the ability to grow an SMSF
  • Implications for auditors of an SMSF.
In her session, ‘Growing your SMSF – the current state of play’, Linda Farmer CTA (Grant Thornton) outlined how the $1.6m 'transfer balance cap' (TBC) will effectively mean that, from 1 July 2017, the amount of assets supporting pensions that are currently tax exempt is no longer limitless. 

Further, assets that are currently tax exempt because they support pensions will be subject to capital gains tax. Transitional CGT relief has been provided which is intended to ensure no one is adversely impacted by this change. 

A number of the reforms were aimed at reducing amounts entering the superannuation system, including reducing the concessional contribution and non-concessional contribution limits, as well as restricting non-concessional contributions to those with a 'total superannuation balance' of less than $1.6 million.

Additionally, a number of other reforms were aimed at improving the integrity of the system and ensuring it is not used for the purpose of achieving tax advantages. These include the removal of pension exemption under s295-385 and s295-390 for transition to retirement income streams, the removal of the ability to segregate pension assets from accumulation assets in an SMSF where there is at least one member with a total superannuation balance that exceeds the TBC, and the removal of the ability to treat a lump sum payment towards the minimum pension requirements.

The other area that has been targeted in these reforms is around the payment of death benefits. 

There are, however, still a number of actions that can be taken to maximise the benefits of superannuation both pre and post 1 July 2017. These include in areas such as:
  • Contributions
  • Re-contribution strategies
  • Reserving
  • Segregation strategies
  • Estate planning strategies
  • Limited recourse borrowing arrangements
  • Property development in super.
Linda’s session was filmed as part of the 2017 National Convention video package. You can watch a five-minute preview of it here.

Shirley Schaefer (BDO)
Auditors, on the other hand, have a responsibility to form an opinion on the fair presentation of the financial statements (assets, liabilities, income and expenses) of the SMSF, as outlined by Shirley Schaefer (BDO) in her session at the 2017 National Convention, ‘SMSF audit risks – tax vs SIS’.

This includes the calculation of income tax liabilities and therefore requires a thorough understanding of the Income Tax Assessment Act 1997 [ITAA] as it applies to SMSFs. In addition, the SMSF auditor has an obligation to form an opinion on the SMSF’s compliance with specified sections of the Superannuation Industry (Supervision) Act 1993 & Regulations 1994 [SISA & SISR].

While both the ITAA & SISA are administered by the ATO, in relation to SMSFs there are often conflicting interactions between the two pieces of legislation. In addition, there are often conflicting ATO interpretations in relation to specified elements of either SISA or the ITAA.

In this video, also filmed as part of the 2017 National Convention video package, Shirley sets out three areas where the SMSF auditor must be aware of the application of the ITAA rules and the SISA rules and where different reporting requirements may result, namely in the areas of contributions; payment of benefits and limited recourse borrowing arrangements.

You can watch a five-minute preview of Shirley's session here.

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