Presentation slides from the Changing Face of SMSFs webinar held on 12 December 2013. This session looked at the latest technical and regulatory issues impacting self-managed super funds.

1. Webinar:
Changing Face of SMSFs
THE CHANGING FACE OF SMSFs
December 2013
© The SMSF Academy 2013

2. HOUSEKEEPING
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• Webinar recording
•
•
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3. GENERAL ADVICE WARNING
This presentation provides general advice only. No direct or implicit recommendations are
given in this presentation. This means that the general advice provided has not been
prepared taking into account any individual’s financial circumstances (i.e. investment
objectives, financial situation and particular investment needs).
The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the
time of compilation but does not warrant the accuracy of that information. Save for statutory
liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss
or damage which any person may suffer from reliance on this information or any opinion,
conclusion or recommendation in this presentation whether the loss or damage is caused by
any fault or negligence on the part of presenter or otherwise.
© The SMSF Academy, 2013

4. Webinar – Changing Face of SMSFs
GOVERNMENT MEASURES

5. CENTRELINK DEEMING OF PENSIONS
• Federal Budget measure announced on 5 April 2013 to make changes
to deeming provisions to align income streams with other financial
assets for Centrelink/DVA entitlements
• Social Services and Other Legislation Bill (2013) currently before the
Senate will extend the deeming provisions to any asset-tested income
stream that is an account-based pension or equivalent annuity
product
• Measure to treat people with similar financial assets consistently under
the income support system
• Amendments to take effect from 1 January 2015

6. GRANDFATHERING PROVISIONS
• Account-Based Pensions held by income support recipients
immediately before 1 January 2015 will continue to be assessed under
the current rules
• Can choose to change product to be assessed under new rules
• To qualify:
1. The person was receiving income support payment immediately prior to 1
January 2015;
2. The person was receiving asset-tested income stream (i.e. accountbased pension) immediately prior to 1 January 2015;
3. The person has been continuously receiving an income support payment
since 1 January 2015; and
4. That income stream has continued to be provided to that person since 1
January 2015

7. IF PENSION CEASES…
• Where the income ceases to be payable
and subsequently recommenced, individual
will be subject to new deeming rules from
the day of the cessation of the pension
• A pension may cease in several ways that
could impact an income support payment,
including:
− Failure to comply with the pension rules (e.g.
not meeting the minimum pension payment)
− Full commutation of the income stream
− Death of a member
Active role required in
managing pension
payment obligations

8. REVERSIONARY INCOME STREAMS
• Where an individual is already in receipt of an account-based pension,
these amendments will not apply to a reversionary beneficiary where:
− the primary beneficiary died during a time while the amendments were
being made having satisfied the grandfathering provisions;
− the qualifying income stream (grandfathered) reverts to the reversionary
beneficiary on the primary beneficiary’s death;
− at the time of that reversion, the reversionary beneficiary is receiving an
income support payment;
− the reversionary beneficiary has been continuously receiving an income
support payment since the time of that reversion; and
− that income stream has been provided to the reversionary beneficiary
since the time of that reversion.

9. CENTRELINK DEEMING OF PENSIONS
Source: IOOF, July 2013

10. TAX ON SUPER PENSION EARNINGS
Coalition Government announced on 6 November 2013 that they will
not be proceeding with the measure to tax earnings on superannuation
assets supporting retirement income streams
Media Release
“The complexity and compliance costs associated with this initiative are extreme and
essentially undeliverable. This is a demonstration of the Government's commitment to
provide certainty for superannuation fund members by making no adverse unexpected
changes to superannuation during our first term. The Government acknowledges that not
proceeding with these and other measures will negatively impact on the underlying cash
balance by $2.4 billion over the current forward estimates period.”
Assistant Treasurer, Senator Arthur Sinodinos

11. Webinar – Changing Face of SMSFs
ATO RULINGS & DETERMINATIONS

12. CONTRIBUTION RESERVING
• Release of TD 2013/22 considers timing of allocation of concessional
contributions after the end of financial year in which contributions
were made
• Follows application of ATOID 2012/16 and use of unallocated
contributions holding account (contribution reserving)
• Benefit of a public ruling, providing greater certainty in adopting
strategy for clients
• Updated guidance reflects changes in Superannuation Data &
Payment Standards, plus operation of Division 291 of the ITAA 1997

13. CONTRIBUTION RESERVING
• Ruling confirms that amounts paid in June can be ‘held over’
and remain unallocated at 30 June – amount to be allocated
to member by 28 July
− APRA Regulated Funds in complying with Data & Payment Standards must
now allocate to a member within 3 business days after receiving the
contribution
• Contribution is not counted twice for contribution cap
purposes, rather it will count once on the effective date of the
allocation
Concessional contributions are assessable in year made – allocation to be grossedup for member contribution reporting purposes in following income year

14. APPORTIONMENT OF EXPENSES
• Release of draft ruling, TR 2013/D7
• Considers apportionment for purposes
of section 8-1 of the ITAA 1997 in
respect to a loss or outgoing incurred
by a super fund in gaining or producing
assessable income and partly in
gaining or producing non-assessable
income
• Distinct & severable expenses,
indifferent expenses
• Similar views expressed previously within
ATOID 2012/47

15. INDIFFERENT EXPENSE
Geoff (56) and Jenny (54) members of SMSF
Following transactions within fund for FY2012-13:
•
•
•
•
•
rollovers of $460,000
concessional contributions (CC) of $45,000
non-concessional contributions (NCC) of $170,000
fund investment income of $38,000
general expenses of $4,700
During year, Geoff started a transition to retirement income
stream (TRIS)
At end of year, fund obtained actuarial tax certificate which
outlined tax exemption of 56%

16. INDIFFERENT EXPENSES
•
Based on Commissioner’s draft views in TR 2013/D7 and consistent with ATOID
2012/47, the fund is entitled to following tax deduction:
$4,700 x ($713,000 – $21,280)/$713,000 = $4,560
•
Where non-assessable amounts are not included, a lower level of tax
deduction would be claimed
$4,700 x ($83,000 – $21,280)/$83,000 = $3,495
(NB. $21,280 is the tax exempt amount (56%) on fund investment income of
$38,000)

17. Webinar – Changing Face of SMSFs
ATO PRIVATE RULINGS

18. LRBA & NON-ARMS LENGTH INCOME
Authorisation Number: 1012369819768
Lender willing to reduce
interest charged to nil in
order to take pressure off
meeting minimum pensions
Lenders
Related Party loan
More than 10 years
> RBA Cash Rate
Member
X
Member
Y
Limited Recourse
Member
Z
Holding Trust
SMSF
Retired – under
65
Beneficial
interest
Under 50
Commercial rate of
rent paid to SMSF
3rd party tenant

19. NON-ARMS LENGTH INCOME
Question:
Is there a breach of the non-arm’s length provisions (NALI) where no interest is
charged by the lender on the limited recourse loan?
Answer:
No
Why:
Subsection 295-550(1) of ITAA 1997 considers schemes whereby parties are not
dealing with each other at arm’s length and the amount is more than the
amount the entity might have been expected to derive if those parties were
dealing with each other at arm’s length.
The scheme must inflate the level of ordinary or statutory income derived –
subsection 295-550(1) does not consider the impact of an inflated level taxable
income derived from a lower rate of interest.

20. RELATED PARTY LRBA
Authorisation Number: 1012396819768
Questions:
Answer
Will a discounted amount of interest be considered a
contribution?
No
Will the annual rental derived be considered non-arm’s length
income?
No
Will any capital gain realised by the fund on the sale of the
property be considered non-arm’s length income?
No
Is a 0% interest rate deemed to be a scheme with dominant
purpose of gaining a tax benefit under Part IVA of ITAA 1936?
No

21. DISCOUNTED INTEREST AS A CONTRIBUTION
Question:
Will a discounted amount of interest be considered a contribution?
Answer:
No
Why:
No increase in the capital of the fund (unless debt is forgiven or extinguishment of
a liability is involved) – TR 2010/1
ATO initial response in NTLG Super technical sub-group expressed view that
absence of interest does not increase capital of Fund. Interest is a common, but
not necessary feature of a loan.

22. NON-ARMS LENGTH INCOME
Question:
Will the annual rental income derived be considered non-arm’s length income
(NALI)?
Answer:
No
Why:
The purchase value of the Property was determined on arm’s length dealings
between the Corporate Trustee and the unrelated vendor;
The dealing between the Corporate Trustee and the members involves a loan of
a certain amount for a specified number of years to the Fund by the members at
a rate agreed to by the parties (or otherwise specified by the ATO); and
The Corporate Trustee intends to rent the Property to an unrelated party on arm’s
length terms

23. CAPITAL GAINS & NALI
Question:
Will any capital gain realised by the fund on the sale of the property be considered
non-arm’s length income?
Answer:
No
Why:
The rental income to be received by the Fund will be no more than the amount that
the Fund might be expected to receive if the Fund and the unrelated party dealt
with each other at arm’s length.
No indication that the terms and conditions of the loan are more favourable to the
Members as the Lender. In this context, any capital gain made will be no more than
the amount the Fund might be expected to make if the Corporate Trustee and
members were dealing with each other at arm’s length in relation to the loan.

24. PART IVA
Question:
Is a 0% interest rate deemed to be a scheme with dominant purpose of gaining a
tax benefit under Part IVA of ITAA 1936?
Answer:
No
Why:
The ‘scheme’ for the purposes of subsection 295-550(1) of the ITAA 1997 does not
indicate that the arrangement will result in any person involved is obtaining a tax
benefit, nor that the sole or dominant purpose is to obtain a tax benefit.

25. Webinar – Changing Face of SMSFs
NTLG SUPER TECHNICAL SUB-GROUP
SEPTEMBER 2013

26. LRBA & TWO LENDERS
If an acquirable asset is financed by two lenders under a LRBA and one or both
lenders are granted a charge over the SAA will this breach paragraph 67A(1)(f) of
the SISA?
•
ATO confirmed in June 2012 NTLG minutes that two lenders are acceptable
without breaching 67A(1)(d) and 67A(1)(e)
•
Initial response ATO’s confirms 67A(1)(f) will not be contravened merely because
there are two borrowings where one or more are subjecting the acquirable asset
to a charge that satisfies paragraph 67A(1)(d)

27. UPE BETWEEN SMSF & UNIT TRUST
Where a SMSF has a present entitlement to a distribution from a trust that is unpaid
(UPE), will the UPE be an in-house asset?
•
•
•
•
•
SMSFR 2009/3 sets out the Commissioner’s views about when an unpaid trust
distribution will give rise to a loan for the purposes of Part 8 of the SISA
Paragraphs 6 – 8 of the Ruling considers the characterisation of the UPE as a
‘loan’ – where amount is a loan-back or seen as provision of credit or financial
assistance with the related trust, the unpaid amount will be included as an inhouse asset of the SMSF
Paragraphs 9 – 13 of the Ruling suggest that the unpaid trust distribution may
give rise to being an ‘investment’ – where the application of the asset is for
income, interest, profit or gain
Trustee may also enter into an agreement to acquire further units (investment)
Where trust is a related trust of the SMSF, the amount of ‘investment’ in that
trust will be an in-house asset of the SMSF (unless exclusions in sections 71 to 71E
apply)

28. CONTRIBUTIONS & PROPERTY IMPROVEMENTS
What constitutes a contribution and what is the value of that contribution when a
related party improves real property owned by the fund?
Materials
$12,000
$540,000
SMSF
Labour at no cost
$13,000
Member/Trustee
$500,000
ATO considers that the value of the contribution
would be equal to the improvement
How much is the
contribution?
$40,000

29. ANTI-DETRIMENT AND MULTIPLE DEATH BENEFITS
Is it possible to pay a death benefit in two separate payments (an interim and
final benefit) if the value of the death benefit can be ascertained at the time of
the interim payment?
No, where amount can be ascertained by the time the first lump sum is paid, sub
paragraph 6.21(2)(a)(ii) does not permit more than one lump sum to be paid in
respect of the deceased.
Is it possible for an anti-detriment payment to be attached to only one of the
payments?
Interim payment
Final payment
Tax saving amount can be increased
on either or both payments, but not
calculated and applied to only one
of the payments

30. Webinar – Changing Face of SMSFs
RECENT CASES

31. WOOSTER V MORRIS [2013] VSC 594
• Blended family case
• Second wife of deceased (married for 20 years) sought advice about
validity of Binding Death Benefit Nomination as dissatisfied that
benefits were left to two daughters of previous marriage
• Sought independent legal advice and was advised BDBN was not
valid and therefore died without a valid nomination in place – death
benefit at discretion of the Trustee
• Deceased’s daughters instigated proceedings in Supreme Court of
Victoria to enforce validity of BDBN
• Court referred matter to a special referee (Senior Barrister)to
investigate and report back with findings

32. WOOSTER V MORRIS [2013] VSC 594
•
Special Referee on all points found in favour of the daughters that BDBN was in
fact valid
•
Judge McMillan upheld these findings – costs for the entire matter were
awarded against Mrs Morris, inclusive of her SMSF account balance (the Fund)
Lessons to learn:
•
If there is any possibility of dispute between members/trustees about the
payment of a death benefit and validity of any nomination, the Trustee should
apply to the Court for a Declaration as to the matters in dispute
•
The trustee must act in the best interest of present and future beneficiaries
(covenant contained within SIS Act)

33. XU AND COMMISSIONER [2013] AAT 855
• Illegal early access case
• Trustee/member of SMSF during 2010 withdrew from the fund over
90% of the assets
• Individual failed to include $62,500 in the applicants personal
income tax return as assessable income
• ATO imposed a 25% administrative penalty and interest charge to
shortfall
• Applicant sought review of decision by AAT, arguing amounts were
a loan, not benefit withdrawals
• Commissioner disallowed as no agreement for repayment, loan was
not genuine and withdrawal cannot be characterised as loan
(section 65(1) of SISA)
• Tribunal upheld decision based on failure by taxpayer to take
reasonable care

34. HOT OFF THE PRESS!
ATO has withdrawn TD 2013/D7
Ruling explained Commissioner’s initial views
about segregation of pension assets for
purposes of section 295-385 of ITAA 1997
Following submissions, it became clear to ATO
that approaches vary materially across the
industry.
New determination to deal with bank
account issues to be prepared and ATO to
consult on balance of matters in public ruling

35. Webinar Q&A
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www.thesmsfacademy.com.au/webinar-survey

36. Aaron Dunn
The SMSF Academy
www.thesmsfacademy.com.au
SMSF Dunn Right,
http://thedunnthing.com
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