Regulation Round - Up

Louise Biti Director, Aged Care Steps Aged Care Steps (AFSL 486723) specialises in the development of advice strategies to support financial planners, accountants and other service providers in relation to aged care and estate planning. For further information refer to agedcaresteps.com.au

LRBA interest rate

The safe harbour interest rates for related-party limited recourse borrowing arrangements fell by 0.84 per cent yearly on 1 July 2020.

The current rates are 5.1 per cent for real property and 7.1 per cent for listed shares or units. This is the first reduction since the 2017 financial year.

COVID-19 rental income deferrals

SPR 2020/D2

Rental relief provided by SMSF trustees to a related-party tenant due to COVID-19 are considered loans, creating an in-house asset investment.

The ATO plans to make a determination by way of a legislative instrument (LI) to exclude the asset from being an in-house asset where the rental deferral was offered on arm’s-length terms during the 2020 and 2021 financial years as a result of the impact of COVID-19. Consultation on the draft LI closed on 31 August.

Audit independence

APESB Independence Guide (Fifth Edition, May 2020)

This new guide clarifies hurdles that auditing firms need to overcome to meet independence requirements of the APES110 Code of Ethics for Professional Accountants, if performing in-house audits of SMSFs.

The guide makes it clear an auditor will not be able to audit an SMSF that is a client of the same firm that has assumed management responsibilities for the trustee. If the trustee retains management responsibilities, the firm needs to clearly document and evidence the fact.

This evidence requires more than the trustee just signing the financial statements declaration, but will require evidence that the trustee has coded fund transactions or approved trial balance entries, as well as undertaken other accounting administration actions, such as selecting accounting policies and managing compliance of the fund.

Outsourcing functions does not create a way around these rules as the accountant or auditor still retains responsibility.

The ATO has stated it will provide support and guidance to auditors on how to comply with the new code, but all audits completed from 1 July 2021 will need to comply with the amended standard. Breaches may be referred to the Australian Securities and Investments Commission for further action.

Your Future, Your Super

Federal budget 2020

The main changes to superannuation in this year’s federal budget were:

• a proposal to have superannuation follow employees when they change jobs as an attempt to avoid unintended multiple funds,

• a proposal for the ATO to develop and maintain a YourSuper comparison tool to help members compare and select funds,

• requiring MySuper funds to meet an annual objective performance test. If failed, the fund would need to inform members and may be prevented from taking on new members if the benchmark is consistently failed, and

• strengthening of trustee obligations to act in the best financial interests of members.

SMSF statistics

SMSF quarterly statistical report – June 2020

The total number of SMSFs increased to 593,375 by 30 June 2020, with a total of 1,107,268 SMSF members.

The 2020 financial year showed the largest number of net establishments since 2015/16, with 18,540 new funds set up during the most recent fiscal year. This compared to only 4694 new funds in 2018/19.

In a separate report, the ATO also revealed that as at 12 August 2020, around 35,000 applications had been approved for COVID-19 early release of funds from SMSFs. This saw almost $341 million withdrawn from SMSFs. Of concern were the 1200 members identified as withdrawing and then recontributing the money as a personal deductible contribution. The ATO has contacted these members to raise the potential for Part IVA avoidance provisions to apply.

Transfer balance caps and market-linked pensions

CRT Alert 042/202

Retrospective legislation passed in June provided a new way to calculate the transfer balance account debit for a commuted market-linked income stream.

Funds have expressed concern over the difficultly with this reporting, so updated guidance has been published by the ATO. Further guidance will be provided in November in relation to the timeline for completing the reporting.

Choice of super

Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019

This bill has passed through parliament to allow employees under workplace determinations or enterprise agreements the right to choose their superannuation fund. The choice rules apply to new workplace determinations and enterprise agreements made on or after 1 July 2020.