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Audit & Compliance Issues Impacting SMSFsBDO PPN WEBINAR UPDATE

MARK WILKINSONPARTNER, SUPERANNUATION & PRIVATE WEALTH

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BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 2020

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COVID-19 SUPER CHANGES

AGENDA

Royal asset 24 March 2020• Changes to Minimum Pension payments• SMSF and Direct Property• COVID-19 early access to Super


PENSIONS – COVID-19

PENSIONS

Applies to:• Account Based Pensions• Market Linked Pensions• Transition to Retirement Income Streams

Does NOT apply to:• Complying Lifetime / Life Expectancy Pensions• Flexi Pensions


PENSIONS

50% Reduction in Minimum Pension Payment30 June 2020

and30 June 2021

No Change to Maximum Withdrawal


PENSIONS


Minimum Pension

PARTIAL COMMUTATIONS

Partial Commutation• The 2020 minimum pension for Peter is $50000• Paid to 24 March 2020 is $30000• Pension now reduced by 50% for 2020 and 2021• What options

o Can the $5000 be repaid? No o Can additional payments be made? Yes o Can additional payments be commutations? Yes provided documentation

in place prior to payment?


DIRECT PROPERTY – COVID-19

DIRECT PROPERTY

ATO will not undertake any compliance action where an SMSF has provided a tenant with rent relief in 2019/20 or 2020/21.

• Also applies to an underlying UT

Must be:• In response to COVID-19• Necessary – tied to the business• Temporary


DIRECT PROPERTY

• Does not alter the existing rights and obligations of tenant and landlord• Tenant should request rent relief in writing• SMSF(Landlord) agrees in writing• Provide a commercial basis of the decision, including why the arrangement is

in the best interest of the SMSF• Types of Solutions

o Deferral – to paid later o Waiver – no requirement to pay at all o Reduction of rent- say 50%


DIRECT PROPERTY

SMSFs with LRBAs• If related party ensure that you document why the altered arrangement has

been entered into- if possible reference why the arrangement is in the best interests of the SMSF

• Possible solutions o Loan repayment pauses o Repayment holidays

• ATO has confirmed that compliance action will not be taken for 2019-20 or 2020-21


EARLY ACCESS TO SUPER (COVID-19)


• Fund members will be able to access up to $10,000 of preserved benefits in both 2019/20 and 2012/21, up to 24 September 2020

• Payments are tax free and don’t affect Centrelink or Veterans Affairs• Opening application date – mid April 2020• Apply via MyGov Website • Applications are limited to 2 – one in the 2019/20 year and one is 2020/21 – so

don’t pull less out if you think you might need more • Applications must be made before 24 September• Lump sum payments will be reported in the fund annual return



$10,000 this financial year and next

• $10,000 before 1 July 2020

• $10,000 before 24 September 2020



What are the requirements?• Unemployed• JobSeeker Payment (New Start)• On or after 1 January 2020

o Made redundanto Working hours reduced by 20% or more

Caution: if salary reduced and working hours are not



On or after 1 January 2020• Business suspended (hibernation)• Reduction in turnover by 20% or more

Calculated by compared to the average of the last 6 months of last calendar year (1 July 2019 – 31 December 2019)


Self-Employed / Sole Trader

AUDIT ISSUES

INVESTMENT CHANGES – COVID-19

Investment Strategies• Has the trustee reviewed the fund investment strategy – is it still appropriate?• Do the fund’s current investments comply with the current investment strategy?

Cash Management• Has the trustee determined the fund’s cash flow for the next two years?• Does the fund hold sufficient cash to fund outflows in the short to medium term?• Has the fund adopted a positive cash management position – is it making the

maximum return from cash investments?


INVESTMENT STRATEGIES – WHAT IS THE AUDITOR LOOKING FOR?• Was the strategy in place at 30 June 2020• Should the strategy have been reviewed post – Covid 19• Refers to all the SIS requirements• Gives effect to:

o Focus on investment return and diversification o Has the trustee given effect to the strategy o Does the strategy identify the risks of a lack of diversity


INVESTMENT STRATEGY – AUDIT ISSUES

When will the Auditor need to lodge an ACR• The auditor has identified the same breach in a previous income year and it

has been repeated in the current year• It is a breach from a previous year that remains unrectified at the time of

audit• Possibly if the fund is less than 15 months old and the value of any single

breach exceeds $2000What will the ATO require:• Request that the breach be rectified – or penalties of $4200


INVESTMENTS – IN-HOUSE ASSET


Requirements As a result of movements in investment values the value of existing in-house assets now exceeds 5% of fund market value.

As a result the trustee needs to implement a plan that is executed prior to the end of the next financial year, that reduces the level of in-house assets to 5% or less

Solutions If a breach of the 5% threshold occurs during the year ended 30 June 2020, then a plan must be prepared and executed before 30 June 2021.

Note the ATO will not take action if the plan had not be executed because the markets have failed to recover.

The ATO will not take action if the plan is not implemented because markets have recovered

NOTES TO ACCOUNTS – AUDIT ISSUES

What happens if there is a material reduction in market value after 30 June 2019?• Events Subsequent to Balance Date is required!• A disclosure in the notes recognising that the full impact of the “Pandemic” is

not known at the date of the report, should be included in the notes to the funds financial accounts.


OPPORTUNITIES FROM FALLING MARKETS

SHOULD I TRANSFER MY BENEFITS TO ANOTHER FUND


What I lose on Transfer?• Components of a super interest are

taxable and tax free• If the value of an interest falls – it

reduces the taxable component first.• So:

• Interest has a higher tax free component

• Don’t transfer benefits out of a fund if interest have fallen!!

Example:Bill is 55 years of age• He has a Super interest of $1.0 mill

• Taxable Component - $350,000• Tax Free Component - $650,000

• His interest falls to $500,000• If he transfer interest to new fund – his

tax free interest is capped at $500,000• If interest remains in existing fund –

growth and contributions will add to tax free component

CONTRIBUTION STRATEGIES


Eligibility to contribution split• 85% of concessional contributions can be split• Recipient spouse must not have turned 65 or retired

Benefit of contribution splitting• Equalising the Total Superannuation Balance enables:

o Carry forward concessional contributions o Maximises non-concessional opportunitieso Segregation of assets o Annual reporting of TBAR o Maximises the full Transfer Balance Cap for pension purposes o Maximizes retention of benefits in a fund following death



Case Study – Contributions Splitting Strategy

Jake (60)$1.4m in TTR pension

Split 85% of previous year CC ($25,000)

Jake$1,378,750

Rose (55)$500K in

Accumulation $21,250

Rose$521,250



Cash Out and Re-contribution Strategy

Strategies

– Withdraw unrestricted benefits and recontribute

– Commence a TRIS and recontribute

Equalisation of balances

– Spouse splitting of contributions

– Cash out and spouse contributions

– TRIS payments and spouse contributions

– Align future contributions

Aids in:

− Ability to make non-concessional contributions

− Ability to segregate pension assets

− Ability to utilize the 5 year bring forward

− Ability to leave death benefits in a fund



Case Study – Equalising Member Balances

Jake (60)$1.6m in TTR

pension

Withdraw Max 10%pension

Jake$1,440,000

Rose (55)$1.2m in

Accumulation

Contribute$160,000

Rose$1,360,000

QUESTIONS?


Mark WilkinsonPartner, SuperannuationPhone: +61 2 9240 9781Email: [email protected]

mailto:[email protected]

DISCLAIMER

This presentation has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The presentation cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this presentation or for any decision based on it.

BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.

BDO is the brand name for the BDO network and for each of the BDO member firms.

© 2020 BDO Australia Ltd. All rights reserved.

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