The recent confirmation of the budget changes to superannuation law — and the increased funding for scrutiny of SMSFs — suggest that now is a suitable time for SMSF trustees and their advisors to review their funds. Any review should:
- check that all records are up to date,
- check that the fund complies with the current laws, and
- check that the trustees will be in a position to comply with the new laws once they are passed.
New contribution caps confirmed
As announced in the federal Budget, the Government will introduce two contribution caps effective from 1 July 2007:
- a $50,000 cap for concessional contributions (that is, contributions drawn from a person's pre-tax income, which will be taxed at 15% on the way in to the fund); and
- a $150,000 cap for post-tax contributions (which will be tax free on the way in into the fund).
However, it is the increased levels of regulation that were surprising in the recent announcement.
Increased funding for regulation scrutiny
To improve the regulation of SMSFs, the Government proposes to increase ATO funding by $112 million. The extra funds will be spent on a range of measures to strengthen the ATOs capacity to regulate the SMSF sector.
The Government has increased the funding because:
- it believes that approximately 50 per cent of superannuation contributions currently being made above the proposed caps are going into SMSFs;
- it is concerned about the level of compliance (or non-compliance) by SMSFs with superannuation law; and
- it is concerned about the level of trustee education and understanding of their responsibilities.
Proposed changes to the regulation of the SMSF sector
The measures proposed by the Government include:
- increasing the supervisory levy from $45 to $150 to ensure that the ATO can recover its costs in regulating the SMSF sector;
- clarifying the reporting obligations for independent auditors of SMSFs to ensure that they are properly informed of what they are required to report to the ATO;
- providing additional information products, standard forms and other tools to strengthen the education and assistance provided to trustees of SMSFs;
- introducing a single SMSF annual return which will include an annual regulatory return, income tax return, member contribution statement (the Government suggests this will save SMSFs approximately $80 a year in compliance costs);
- removing fringe benefits tax from in specie employer contributions to funds; and
- introducing administrative penalties for failing to lodge returns and for making false or misleading statements.
Trustees of SMSFs and their advisors should be conscious of — and act on — these proposed changes and the prospect of tighter scrutiny by the ATO.
These changes and increased funding are part of the Government's "A Plan to Simplify and Streamline Superannuation‚?? Outcomes of Consultation" which was released on 5 September 2006, see www.simplersuper.treasury.gov.au
You can call Julian Smith at Maddocks on 03 9288 0555 for more information.