Audit & Compliance Issues Impacting SMSFsBDO PPN WEBINAR UPDATE
MARK WILKINSONPARTNER, SUPERANNUATION & PRIVATE WEALTH
Questions You can submit questions in the ‘questions’ pane - all submitted questions
will be responded to via email after the session concludes - we will try as much as possible to answer as many questions as we can during the session
Presentation Slides The presentation slides are loaded into the webinar as a handout for you to
accessTechnical Difficulties If you are experiencing technical difficulties, please click ‘support’, or
visit: https://support.goto.com/webinarPost-Session You will be sent a follow up email containing:
The presentation slides A link to the recorded session Access to past/future webinars Our contact details
HOUSEKEEPING
2
Automatically muted
Raise your hand
Ask a question
Access handouts
Access support
Full screen
Leave the webinar
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 2020
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 20204
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 20206
PENSIONS
50% Reduction in Minimum Pension Payment30 June 2020
and30 June 2021
No Change to Maximum Withdrawal
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 20207
PENSIONS
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 20208
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?
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 20209
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202011
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%
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202012
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202013
EARLY ACCESS TO SUPER (COVID-19)
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202015
EARLY ACCESS TO SUPER (COVID-19)
$10,000 this financial year and next
• $10,000 before 1 July 2020
• $10,000 before 24 September 2020
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202016
EARLY ACCESS TO SUPER (COVID-19)
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202017
EARLY ACCESS TO SUPER (COVID-19)
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)
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202018
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?
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202020
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202021
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202022
INVESTMENTS – IN-HOUSE ASSET
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202023
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.
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202024
OPPORTUNITIES FROM FALLING MARKETS
SHOULD I TRANSFER MY BENEFITS TO ANOTHER FUND
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202026
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
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202027
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
CONTRIBUTION STRATEGIES
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202028
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
CONTRIBUTION STRATEGIES
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202029
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
CONTRIBUTION STRATEGIES
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202030
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?
BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 202031
Mark WilkinsonPartner, SuperannuationPhone: +61 2 9240 9781Email: [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.
32 BDO PPN Webinar Update - Audit & Compliance Issues Impacting SMSFs - 5 May 2020