Two Federal Court decisions from 2014, DCT v Lyons and DCT v Graham Family Superannuation Pty Ltd have demonstrated the Court’s relatively lenient approach to applying penalties under the Superannuation Industry (Supervision) Act 1993 (SIS Act) for cases involving multiple numbers of very serious breaches.

Further to the recent Australian Taxation Office (ATO) release of two ATO Interpretative Decisions, ATO ID 2014/39 and ATO ID 2014/40, as outlined in a recent Sladen Snippet, the ATO has released further information on what factors will be considered when applying the non-arm’s length income (NALI) rules to non-commercial limited recourse borrowing arrangements (LRBAs).

The ATO has released two ATO Interpretative Decisions (ATO IDs), being ATO ID 2014/39 and ATO ID 2014/40 on the application of the non-arm’s length income rules (NALI) to non-commercial limited recourse borrowing arrangements (LRBAs).

Sladen Legal had two recent successful applications to disregard or reallocate excess non-concessional contributions, with the result that significant excess contributions assessments were extinguished or reduced to a nominal amount.

In the first case the client inadvertently triggered the bring forward rule by paying what she thought was an insurance premium, but was in fact a contribution to a retail superannuation fund (that in turn funded an insurance policy held by the fund). The client also made a $150K non-concessional contribution in that year followed by a $450K in the following year (causing excess non-concessional contributions of over $150K). The Commissioner of Taxation agreed that special circumstances existed and agreed to reallocate the “insurance” contribution to the second year reducing the excess contributions tax from over $70K to approximately $1,500.

Based on the principle of the separation of legal entities, it would not be expected that the actions of the trustee of a unit trust (or other trust) would be imputed on its unit holders. But does that hold true under the superannuation system? For instance, can the actions of a unit trust trustee cause its unit holding superannuation fund trustee to breach the superannuation laws? Or, to put it more succinctly, does the “look-through approach” exist?

This paper was presented by Phil Broderick on SMSFs Engaging in Property Developments, at the Ninth Annual SMSF Conference of the Television Education Network, on 4-5 September, 2014.

Self managed superannuation funds (SMSFs) have been carrying on property development activities ever since they came into existence. Yet despite that, there is still a common concern that such activities will cause the SMSF to become non-compliant, or subject to penalties, on the basis that such activities, and in particular undertaking a property development business, are prohibited.

When superannuation funds consider structuring through, or investing in, another private entity, the choice is generally between a company and a unit trust. When the decision is made to invest in a unit trust, it is primarily made in order to take advantage of a unit trust’s “flow-through” nature under the current tax laws. However, this flow through nature will be lost if the unit trust is deemed to be a public trading trust.

This paper was presented by Phil Broderick at the Legalwise Seminar on Will Drafting and Estate Planning, held on 12 August, 2014.

Superannuation benefits do not automatically form part of a member’s estate upon the death of the member. As such, a member’s will cannot deal with their super benefits, unless the benefits are paid to the estate of the member.

Consequently, a person’s super benefits must be dealt with separately in the estate planning process. Rather than dealing with super in a person’s will the tools for dealing with super death benefits are binding death benefit nominations (BDBNs), reversionary pensions, and the control of the decision making process through the control of the super fund trustee.

The Australian Taxation Office (ATO) has confirmed in ATOID 2014/23 that a loan from a self managed superannuation fund (SMSF) to a unit trust, where the SMSF and its related entities held less than 10% of the units in the unit trust, and did not otherwise ‘control’ the unit trust, will not be treated as an in-house asset.

The Australian Taxation Office has confirmed in ATOID 2014/22 that an adult child can be a death benefits dependant under the superannuation laws. In the particular facts of the ATOID, the adult child had given up work to care for a terminally ill parent and received no financial support from anyone, other than the parent, during that time. The child was found to be both financially dependent on, and an interdependent of, the child’s mother. Consequently, any death benefits paid to the adult child would be tax free.

The Government has released a media release confirming that super funds (including SMSFs) and employers now have up to 1 July 2015 (rather than 1 July 2014) to comply with the new SuperStream obligations. 

Many people in the super industry approach each budget with some trepidation given the number of changes to the superannuation system over the years. This year, however, the industry received a pleasant surprise with only two changes, one being the ability to withdraw excess non-concessional contributions and the second being changes to the increases to the super guarantee rate.

Moving business real property into a self managed superannuation fund (SMSF) can have significant tax advantages. These include concessional tax treatment to the SMSF on rental income of 15%, and capital gains tax on the sale of the property at the rate of 10% (if the property is held for 12 months or more). While if the SMSF is in “pension phase”, the income tax and capital gains tax rates can drop to 0%.  In addition, if the member is aged 60+ any payments from the SMSF to the member will be tax free.

The Australian Taxation Office (ATO) has released a private binding ruling extract in which it found that a nil interest limited recourse borrowing arrangement (LRBA) loan triggered the non-arm’s length income rules. 

This paper was presented by Phil Broderick to The Eighth Annual Estate Planning Conference Television Education Network, held on 21 March, 2014.

This paper addresses the use of BDBNs and reversionary pensions and the interaction between the two. It also examines a number of strategies relating to their use.

This paper concentrates on the use of BDBNs and reversionary pensions in relation to self managed superannuation funds (SMSFs), although other superannuation funds are looked at, including public offer super funds.

This paper was presented by Phil Broderick on the Television Education Network Webinar held on 12 February, 2014.

The purpose of this paper is to give a broad overview of the law in relation to super fund borrowing (also referred to as limited recourse borrowing arrangements and LRBAs). After a brief review of the background to the introduction to the New Law, this paper will broadly look at the lifecycle of a LRBA.

The Federal Court has overturned one of the few AAT cases that found special circumstances exist for an excess contribution assessment. In FCT v Dowling there were two relevant contributions. First, a non-concessional contribution of $156,142 made by the taxpayer’s husband in the 2009 year for the purposes of increasing his age pension entitlement. This contribution was made as a result of free advice from Centrelink and a public offer super fund. The contribution triggered the bring forward rule for the taxpayer. Second, a $200,000 non-concessional contribution in the 2011 year under a recontribution strategy which caused the taxpayer to exceed her non-concessional cap under the bring forward rule.

The SMSF administrative penalties, rectification directions and education directions regime is now law (via the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Act 2014). From 1 July 2014, the ATO will have the power to: - issue scaled penalties to SMSF trustees for breaches of the SIS Act (in addition to the power to make a SMSF non-compliant); - order SMSF trustees/directors to attend education courses if they have breached the SIS Act; and - order SMSF trustees to rectify breaches of the SIS Act. The Bill also introduces penalties to deter and penalise persons who promote illegal early release schemes from regulated superannuation funds.

As we previously identified (see http://tinyurl.com/mgl5z7b) the operating standard compelling SMSF trustees to hold their assets separately is a limited obligation due to the wording of the standard in regulation 4.09A of the SIS Regs. The obligation only prevents mixing of the trustee’s personal assets or those held by a standard employer sponsor (or associate of the employer sponsor).

In our previous articles on Stronger Super and SMSFs, we outlined how the SuperStream measures would affect SMSFs and that some of those obligations would commence from 1 July 2014. Subsequently, the Australian Taxation Office (ATO) has released further information, including a letter to SMSF trustees, outlining the SuperStream compliance obligations for SMSF trustees.