IN THIS ISSUE
- Deadline looms for SMSFs and collectibles
- Non arm’s length limited recourse borrowing arrangements (LRBAs) – safe harbour guidelines
- ATO releases latest SMSF statistics
- Pension payments 2016
- Superannuation rates and thresholds for 2016-17
Deadline looms for SMSFs and collectibles
Does your self-managed superannuation fund (SMSF) own a motor vehicle, artwork, wine, coins, jewellery or other collectibles?
More stringent rules for how these collectible and personal use assets are managed come into effect for all funds from 30 June 2016. While it’s important for all SMSFs to ensure that they are compliant with the rules, funds with collectibles purchased before 1 July 2011 have had a grace period to get their house in order. This grace period ends on 30 June 2016.
There is around $407 million worth of these collectible and personal use assets sitting in SMSFs in Australia. The Tax Office’s main concern is that it’s really easy for fund members to forget that these assets – like artwork and cars – are owned by the fund and must be held for retirement purposes. That means members of the fund (or anyone related to them) can’t use or enjoy that asset.
If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:
- The asset must not be leased to a related party – a related party includes a member of the fund, their relatives, business partners, the spouse or child of these businesspartners, or any company or trust that the fund members control or influence.
- The asset must not be stored in the private residence of the related party – this includes sheds and garages etc.
- The trustees must keep a written record of where, how, and why the asset is to be stored.
- The asset must be insured in the fund (trustees) name. If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!
- The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.
- If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.
A few issues come out of these requirements. Sometimes insurance is difficult or impossible to get for collectible assets. If you can’t secure insurance, the asset may need to be sold. If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.
Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.
Non arm’s length limited recourse borrowing arrangements (LRBAs) – safe harbour guidelines
The Australian Taxation Office have issued a Practical Compliance Guideline (PCG 2016/5) in relation to related party limited recourse borrowing arrangements.
The guideline lays out some ‘safe harbour’ terms that if followed will ensure that a related party loan will not be treated as non-arm’s length.
The ATO’s view on what makes a loan commercial;
- Interest rate (RBA Indicator Lending Rates for banks should be used for property, an additional 2% for shares)
- Fixed interest can be used (maximum of 5 years)
- Term of the loan (15 year maximum for property, 7 year maximum for shares)
- LVR (maximum 70% for property, maximum 50% for shares)
- Security (a mortgage must be registered for property)
- Repayments (must be monthly)
- Interest only loans are not allowed
- The loan agreement must be written.
Although a related party loan may not encompass all of the safe harbour terms this will not automatically cause the loan to be treated as non-arm’s length. However if a related party loan does incorporate all of the safe harbour terms the Commissioner will conclude that the non-arm’s length income provisions will not apply.
ATO releases latest SMSF statistics
The ATO has released its latest statistics on the SMSF sector.
- in the five years to 2014/15, the number of SMSFs has grown by 27% to 557,000, with total assets worth $590 billion – an average of over $1 million per fund;
- in 2013/14, SMSFs also experienced a positive return on assets of 9.8%;
- as at the September 2015 quarter, SMSF assets held under LRBAs are estimated at approximately $18 billion, representing approximately 3% of total SMSF assets.
Pension payments 2016
If you are a member in pension phase, you must ensure your pension amount is withdrawn from the fund before 30th June 2016.
The minimum 2016 pension amounts are calculated as a percentage of the members opening balance.
Age Percentage of account balance
Under 65 4%
95 or more 14%
Superannuation rates and thresholds for 2016-17
The ATO has released the key superannuation rates and thresholds for 2016-17. The rates apply to contributions and benefits, employment termination payments, super guarantee and co-contributions and include the following:
- Concessional contributions cap: The general concessional contributions cap is $30,000 for those aged under 49 years old. A higher cap of $35,000 applies to those aged 49 years or over on 30 June 2015.
- Non-concessional contributions cap: The non-concessional contributions cap is $180,000. People aged under 65 years may be able to make non-concessional contributions of up to 3 times their non-concessional contributions cap for the year, over a three-year period. This is known as the “bring-forward” option.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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