The information in this presentation has been prepared by Accurium Pty Ltd ABN 13 009 492 219 (Accurium). It is general information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. Whilst all care is taken in the preparation of this presentation, no warranty is given with respect to the information provided and Accurium is not liable for any loss arising from reliance on this information. Scenarios, examples and comparisons are shown for illustrative purposes only and should not be relied on by individuals when they make investment decisions. We recommend that individuals seek professional advice before making any financial decisions. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author.

2020 SMSF Annual ReturnWhat’s new + areas of focus

New label – Property Count

Label removed – Anti-Detriment/Death Benefit Increase Deduction

Change to auditor qualification question

Reporting COVID-19 early access to super benefit payments

Change to Trustee Declaration + issue of when to sign

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2020 SMSF Annual Return

What’s new?

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Property Count

How many LRBAs?

1. LRBA – Limited Recourse Borrowing Arrangements

Only for ‘real property’ held under an LRBA

- Amounts reported at J1, J2 or J3

Fractional interest in real property to be counted as 1

Do not include in count (J7):

- shares or other assets under LRBA

- ‘real property’ held directly by the SMSF

Value of the asset held under the LRBA

- Loan is reported at item V1 of question 16 (all loans combined)

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Property count

Property held under an LRBA - Question 15b – item J7 “Property count”

Applied from 2018-19 SMSF Annual Return

Amount to be reported at label Y in Section F: Member Information for each member, where:

- New LRBA entered into on or after 1 July 20181; AND

- Lender to the LRBA is an associate; or

- Member has met a condition of release with nil cashing restrictions

Note:

1. Refinancing pre 1 July 2018 LRBA not included unless refinance amount great than outstanding balance of original LRBA or acquire different assets

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SMSF with LRBA

Additional reporting for total super balance

The amount is a proportion of the total outstanding balance based on the member’s share of the super interests supported by the LRBA.

The proportion is calculated by determining the ratio of the total super interests supported by the borrowing that are attributable to the member.

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SMSF with LRBA

Reporting attributable loan amount

Attributable member amount (if required to be reported)

Deduction removed for member deaths from 1 July 2017

Transitional period 1 July 2017 to 30 June 2019

- Member died pre 1 July 2017

- Anti-detriment payment made by 30 June 2019

No further claims for this deduction from 1 July 2019

Not to be confused with Future Service Liability Deduction

- Continues to be available.

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Anti-Detriment/Death Benefit Increase Deduction

No longer applies

Reporting rectification of audit qualifications only applies to Part B qualifications

Part A qualifications still reported

- No requirement to report rectification of Part A qualification

- E.g. qualification in respect of opening balances.

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Auditor qualification question

Change to rectification

Section F: Member information

TEAS is form of release of benefits on compassionate ground

Reported as member lump sum benefit payment – label R1

- Use code ‘F’

Refer Accurium TechHub Fact Sheet “COVID-19 Early access to superannuation benefits – an SMSF perspective”

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Temporary early release of Super (TEAS)

Reporting code for Coronavirus super release

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2020 SMSF Annual Return

Due date for lodgement

No Tax Agent Tax Agent

First year return – 31 October 2020 First year return – 28 February 2021

Prior year returns not lodged on time – 31 October 2020

First year return + reviewed by ATO at registration – 31 October 2020

General lodgement deadline – 28 February 2021 One or more prior year returns outstanding – 31 October 2020

General lodgement deadline – 15 May 2021

Prior year return non taxable or received a credit assessment + 2020 year – 5 June 2021

SMSF not considered legally established until it has assets

ATO system will not accept annual return for SMSF with nil assets & no member balances

- Except for SMSF wind-up final return

Options:

1. Cancel the fund’s registration

2. Flag the fund’s record as return not necessary (RNN) – confirm in writing:

- No contributions or rollovers received in first income year

- Documentary evidence of date first held assets & commenced operating

- That it will be lodging future returns

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2020 SMSF Annual Return

First year returns – no assets

1st return lodged - subject to first

return lodgement deadline

SMSF is more than 2 weeks overdue on any annual return lodgement date + no extension request

- Status on Super Fund Lookup (SFLU) will be changed to ‘Regulation details removed’

- Status will remain until overdue lodgements have been brought up to date

What does status of ‘Regulation details removed’ mean?

- APRA funds won't roll over any member benefits to the SMSF

- employers won't make any super guarantee contribution payments for members of the SMSF

- + penalties for late lodgement

- Indication to ATO that retirement savings maybe at risk or a compliance issue.

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2020 SMSF Annual Return

Consequences for not lodging on time

“I have received a copy of the audit report and are aware of any matters raised therein”.

[2019 version “I have received a copy of the audit report (if required) and are aware of any matters raised therein”]

Signing declaration before sighting signed audit report could be considered intentionally making a false or misleading statement

- 60 penalty units = $13,320 (60 x $222) [$210 prior to 1 July 2020]

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Trustee declaration

When to sign?

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Taxable income

Two components of a complying superannuation fund

1. NALI – Non-arm’s Length Income

2. MTR – Marginal tax rate

Non-arm’s length

component

Low tax component

Taxable income

NALI1 less attributable deductions – taxed at

top MTR2 (45%)

Remaining part –concessionally taxed

(15%)

Expenses attributable to NALI are not included anywhere in section C (question 12)

Deduct attributable expenses from NALI and disclose at item U1, U2 or U3 as applicable

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Taxable income

Two components

Refer Accurium TechHub for recent webinar recording on NALI rules + Q & A

Must satisfy ‘Australian superannuation fund’ definition

- S.295-95(2) Tax Act 1997

3 Tests (all 3 must be satisfied at all times):

1. Establishment Test or owns an Australian asset; AND

2. Central Management & Control Test; AND

3. Active Member Test

Fail to satisfy all 3 tests at all times → non-complying fund

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Affect of residency status on SMSF

Non-Australian fund = non-complying

Refer TR 2008/9 + search QC 23312

Year fund becomes non-complying:

Income includes “ordinary income and statutory income from previous years” in the year of change of status

- Asset value (at start of year) less tax free portion of the fund

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Change to residency status

Year of change of status

Cannot be claimed as

exempt under ECPI1 rules

1. ECPI – Exempt current pension income

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Change to residency status

COVID-19 relief measure

Question: After temporarily residing overseas for less than two years, we were about to return to Australia but became stranded overseas because of the COVID-19 health crisis. This forced absence means we will be out of Australia for more than two years. What will this mean for our SMSF?

Answer: An SMSF must be an Australian super fund to be a complying fund and receive concessional tax treatment.

To be an Australian super fund an SMSF must meet three residency conditions, see Check your fund is an Australian super fund (QC 23312). The second and third conditions are relevant in this case.

The COVID-19 health crisis has resulted in many countries imposing travel bans and restrictions and a high degree of uncertainty generally around international travel.

If the individual trustees of an SMSF or directors of its corporate trustee are stranded overseas due to COVID-19, in the absence of any other changes in the SMSF or the trustees’ circumstances affecting the other conditions, we will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions.

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Reporting a member’s total super balance (TSB)

Member statement balance v withdrawal value

Equals the member’s balance per member statements & disclose in SMSF financial statementsFinancial statements based on gross market value

of assets per requirement of SISR 8.02BDoes not take into consideration asset selling costs

TSB1 = amount that could be voluntarily withdrawn at a particular time

Withdrawal value = Member balance per SMSF financial statements, reduced by:

- Asset selling costs (cannot account for in SMSF financial statements)

- Tax applicable to asset disposal , if not recorded in the financial statements

- Tax affect accounting (can adopt for disclosure in SMSF financial statements)

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Reporting a member’s total super balance

Total super balance calculation

X1 replaces S1X2 replaces S2

for TSB caln

1. TSB – Total superannuation balance

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Claiming ECPI

Applying the correct method

SMSF with ‘disregarded small fund assets’

Proportionate method for entire income year

Cannot use segregated method

SMSF with no ‘disregarded small fund assets’

Must use segregated method for period consisting 100% retirement phase pensions; or

Has segregated pension assets

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Claiming ECPI

Does the SMSF need an actuarial certificate

Accurium Tech Hub“Actuarial certificates & ECPI”

Reducing red tape measures for superannuation funds:

1. Super fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating ECPI:

- Current methodology: Applying segregated method during period where fund consists wholly of retirement phase pensions (no disregarded small fund assets); or

- Pre 1 July 2017 industry method: Apply proportionate method (ECPI % from actuarial certificate) to all eligible income for the entire income year.

Choice only applicable to SMSFs without ‘disregarded small fund assets’.

2. Remove requirement to obtain 100% ECPI actuarial certificate for SMSF consisting wholly of retirement phase pensions + ‘disregarded small fund assets’

Both were to apply from 1 July 2020 – deferred to 1 July 2021 (announced 30 June 2020).

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Change to ECPI calculation

Budget announcement deferred

1. ECPI – Exempt current pension income

SMSF claims deductible expenses on an ‘incurred’ basis

Refer TR 93/17 “Income tax deductions available to superannuation funds” (last updated 17 May 2017).

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SMSF deductions

What can be claimed & apportionment

CGT relief applied 2016-17 – reset cost base of eligible CGT assets to market value

Notional capital gain: market value at date of cost base reset less original cost base (apply ECPI%)

SMSF applied using proportionate method

Elected to defer assessable notional capital gain until relevant tax parcel has been disposed

Total deferred notional gain for SMSF reported in 2016-17 CGT Schedule

Recorded for each eligible asset CGT relief applied:

- Date CGT relief applied;

- If using unsegregated method – if notional gain was deferred + amount of deferred notional gain

- New CGT cost base for the asset.

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CGT Relief

30 June 2017 CG deferred amounts

1. CGT – Capital Gains Tax

1. Was asset or tax parcel held prior to 1 July 2017?

- If yes, consider impact of CGT relief

2. Look at records to identify if CGT relief was applied

- Confirm the cost base – this should reflect the market value at the date CGT relief was applied

3. Identify if asset or tax parcel has a deferred notional capital gain attached to it

- Deferred gain (realised) will be reported in the CGT schedule

4. Deal with realised deferred notional gain

- Cannot be claimed as ECPI

- Consider application of current year & brought forward capital losses to realised deferred capital gain

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CGT event post 1 July 2017

Checklist

Refer recording Accurium TechHub webinar “Implications of COVID-19 on SMSF property investments” + Q & A

Rent waived

- Not brought to account in financial statements

Rent deferred

- Not brought to account in financial statements until paid

Disclose in Summary of significant accounting policy notes

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COVID-19 rent relief measures

SMSF annual return issues

ATO COVID-19 FAQs (QC 62150) for signing financial statements:

- Signing scanned copy of financial statements

- Secure digital signature

- Post, sign and return

Acknowledgement of financial statements over phone or by email will not meet signature requirements.

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Signature requirements

SMSF Financial Statements & SMSF annual return

The information on this article is provided by Mark Ellem ABN 69 989 271 960 and Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. The information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Mark Ellem ABN 69 989 271 960 and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions. Links to third-party websites are inserted for your convenience, but do not constitute endorsement of material on those sites.

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