This article sets out the key issues relating to superannuation, trusts and companies which accountants should discuss with their colleagues and clients before 30 June 2016. In particular, accountants should ensure that their clients are aware of new business regulations, annual statutory reporting obligations and tax planning opportunities arising from the end of financial year. The key issues to discuss are:
- Discretionary trusts;
- Division 7A loans;
- Death benefit nominations or agreements, or other succession planning in relation to superannuation;
- Superannuation pensions;
- Reporting obligations in relation to public companies limited by guarantee and charities;
- Accountants who provide services and advice in relation to superannuation funds.
Accountants need to ensure that any of their clients who are trustees of a discretionary trust pass and record resolutions distributing income, and streaming capital gains and franked dividends to beneficiaries, on or before 30 June. This ensures that they meet their trustee duties and avoid adverse tax implications.
- the trustee does not pass a resolution making appropriate distributions by 30 June (or passes a resolution after 30 June); or
- one or more of the distributions determined by the resolution are ineffective (for example, because a determination was made to distribute income to someone who was not an eligible beneficiary);
then the trust's income may be:
- deemed to have been accumulated, and assessed to the trustee at the highest marginal rate; or
- deemed to have been distributed to the trust's default beneficiaries (if any).
Default beneficiaries will only be deemed to receive a distribution — and be taxed on that distribution — if there is a clause to that effect in the trust deed. Often these clauses state that if no resolution is effectively made, then beneficiaries X and Y are automatically presently entitled to the trust income (possibly in combination with other beneficiaries) in equal proportions. Those beneficiaries are then taxed accordingly at their own personal rates.
In order to properly plan for year-end distributions, we suggest you review the resolution checklist in this earlier ClearLaw article.
Division 7A loans
Accountants should ensure that their clients who are lenders or borrowers under a Division 7A loan agreement have attended to minimum repayments before June 30 in order to avoid unfavourable tax consequences under Division 7A of the Income Tax Assessment Act 1936 (Cth). Failure to make the annual repayments of amounts under Division 7A loans can mean the loans are deemed to be dividends, with the borrower taxed accordingly.
The benchmark interest rate for the 2015-16 tax year relevant to calculating the interest component of the annual minimum repayment is 5.45% as per Taxation Determination TD 2015/15.
Advisers to self-managed superannuation fund (SMSF) trustees with limited recourse loans on foot should also check compliance with Division 7A requirements if the loan qualifies as a Division 7A loan (as well as a limited recourse loan under superannuation law).
Superannuation death benefit arrangements
Although 30 June has no specific relevance to succession planning and superannuation, it is a sensible time to review these arrangements and their ongoing validity and suitability. Accountants should ensure that their clients have reviewed all death benefit agreements, non-binding death benefit nominations and binding nominations.
Further, as binding death benefit nominations expire by law after 3 years, any existing binding death benefit nominations should be reviewed to ensure they have not expired, that they are not soon to expire and that they otherwise remain suitable.
A member with a superannuation account-based pension (or transition to retirement income stream) must withdraw a minimum amount each financial year on or before 30 June to preserve the tax exemption for the investment earnings on the fund assets financing the pension.
The minimum pension payment amount is based on the age of the member and the size of that member's account balance.
Accountants should ensure that their clients have satisfied this minimum requirement each year comfortably in advance of 30 June.
ATO 'safe harbours' for related party borrowing in superannuation
The ATO has released new practical compliance guidelines outlining two 'safe harbour' provisions which help SMSF trustees ensure that — in certain circumstances — the acquisition of real property or stock exchange-listed shares will not attract the potential application of the non-arm's length income provisions of the Income Tax Assessment Act 1936 (Cth).
In light of this, accountants should ensure that clients who are SMSF trustees review their limited recourse borrowing arrangements before 30 June to consider updating the loan terms to take advantage of the protection afforded by the safe harbour provisions.
Accountants who advise in relation to superannuation — limited Australian financial services licence
Accountants wishing to provide SMSF advice (or any superannuation advice) after 30 June 2016 will need to ensure that they have obtained an Australian financial services licence (AFSL) (or entered into an appropriate authorised representative agreement).
From 1 July 2016 the 'accountants' exemption' under the Corporations Regulations 2001 — which accountants have long relied on to provide clients with the SMSF advice they need — ceases to have effect.
Further details on changes to AFSL requirements can be found in this earlier ClearLaw article.
Public companies limited by guarantee
Depending on its size and revenue, a public company limited by guarantee may be required to submit directors' and/or financial reports referable to the financial year ending 30 June.
A company limited by guarantee must prepare audited financial reports and a directors' report unless it is a small company limited by guarantee.
A company is a small company limited by guarantee in a financial year to 30 June if:
- it is a company limited by guarantee for the whole of the financial year;
- it is not a deductible gift recipient at any time during the financial year; and
- its revenue (or consolidated revenue if that applies) for the financial year is less than $250,000.
Also, a small company limited by guarantee will be required to prepare audited financial reports and a directors' report if directed by a member of the company or ASIC.
Accountants with clients operating as public companies limited by guarantee should:
- assess whether the company falls into the categories above as at 30 June; and
- ensure the relevant reports are prepared, audited and lodged with ASIC within 4 months of the end of the financial year (29 October 2016).
Charities have an ongoing obligation to report to the Australian Charities and Not-for-profits Commission (ACNC) each financial year. Charities report to the ACNC by submitting an Annual Information Statement and an annual financial report (if medium or large in size) for the year ended June 30.
Accountants should ensure that their clients have fulfilled these reporting obligations by 31 December 2016 pursuant to the Australian Charities and Non-for-profits Commission Act 2012.
More information from Maddocks
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial Team.
 Regulation 7.1.29A.