Profile Blog

From Monday 6 April additional support for Early Childhood Education and Child Care Services and their families.

           

On 2 April 2020, the Australian Government announced the new Early Childhood Education and Care Relief Package. From Monday 6 April 2020 weekly payments will be made directly to early childhood education and care services in lieu of the Child Care Subsidy and the Additional Child Care Subsidy, to help them keep their doors open and employees in their jobs.

Payments will be made until the end of the 2019-20 financial year and families will not be charged fees during this time. These payments will complement the JobKeeper Payment announced by the Prime Minister on 30 March 2020.

Early childhood education and child care services do not need to apply for the payments, they will be paid automatically. 

In addition, up to and including 5 April 2020, services can now waive gap fees for families due to the impact of COVID-19. This can go back as far as 23 March 2020 and is in addition to changes already announced..

For more information:

 

 

Source:   education.gov.au

The Australian Taxation Office has responded to widespread concerns on whether SMSF landlords providing rent relief to tenants due to the financial impacts of the novel coronavirus is a contravention of the SIS Act.

         

In anticipation of the third stimulus package expected to be announced this week, Prime Minister Scott Morrison said in a press briefing on Sunday that the national cabinet has considered issues relating to commercial tenancies as well as residential tenancies.

“The most significant of those is that state and territories will be moving to put a moratorium on evictions of persons as a result of financial distress if they are unable to meet their commitments,” Mr Morrison said.

“And so there will be a moratorium on evictions for the next six months under those rental arrangements.”

The industry has been seeking clarity from the ATO around whether SMSF landlords can legally provide rent relief to tenants as a result of the impacts of COVID-19.

In response, the ATO has sought to allay concerns from SMSF trustees around whether charging a tenant rent that is less than market value contravenes the SIS Act, and whether it would take action given the impacts of COVID-19.
 

The ATO’s response is as follows:

  • “Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of COVID-19 and we understand that you may wish to do so as well.
     
  • “Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where an SMSF gives a tenant — who is also a related party — a temporary rent reduction during this period.”

SMSF administrator SuperConcepts backed the ATO announcement, saying it has been inundated with calls and emails from concerned clients who have an SMSF which owns a business premise that is being leased to a related party.

“SuperConcepts fully supports this relief measure which provides certainty and much-needed relief for a growing number of SMSFs that own a business premise, and have been caught in the economic turmoil caused by COVID-19,” said SuperConcepts general manager of technical education services Peter Burgess.

Interpreting the ATO concession

SMSF law firms have also come out with their interpretations of the ATO’s concession for landlords.

According to CGW Lawyers partner Clint Jackson, the only requirement of the ATO’s concession is that the rent reduction must be temporary.

“Given the current business challenges, the ATO’s position is that there is no need for the rent reduction provided to be justified by market evidence (the SMSF can determine the reduction in its absolute discretion),” Mr Jackson said.

“The ATO’s concession does not apply to any other lease incentives or relief — just a ‘temporary rent reduction’.”

Mr Jackson said that while the ATO concession is “extremely broad”, it is also important that landlords not abuse the concession.

“This rent reduction should be reasonable and measured to the COVID-19 impact suffered by the tenant. Best practice is that it is consistent with the approach taken by arm’s-length landlords,” he said.

“The rent reduction agreed to by the SMSF should be properly documented, as this is an amendment to the lease terms.

“It is likely that SMSF auditors will be required to report any rent reductions, although the exact parameters of what will be reported in relation any rent reductions are still being determined.”

However, Daniel Butler and Bryce Figot of DBA Lawyers said that while the ATO will not actively seek out cases where an SMSF gives a related-party tenant a temporary rent reduction during the remainder of FY2020 or FY2021, the usual position for such practical approaches previously issued by the ATO is that if it does come across contraventions from other sources through its usual data detections, reviews or auditor contravention reports (ACR), it will usually apply the legislation in the normal manner.

“In short, SMSF trustees should not rely on the ATO’s non-binding practical guidance above, given the substantial downside consequences and given these situations may be legitimately resolved with appropriate action as outlined below,” said Mr Butler and Mr Figot.

“We do understand, however, that some SMSF trustees or businesses may not have the time or the funding to obtain proper advice and work through the appropriate steps to soundly position themselves to minimise future risk that will simply rely on the ATO practical approach at their own risk.”

Further, Mr Butler and Mr Figot said the ATO website does not provide any express relief for an SMSF that owns property via an interposed unit trust, such as a non-geared unit trust (NGUT).

“Once a contravention of one of the criteria relating to a NGUT is triggered under reg 13.22D of SISR, the trust is ‘forever’ tainted and the SMSF must dispose of its units in that unit trust to comply with the SISR,” they said.

“In particular, if the lease is not legally enforceable or if rent owing by a related-party tenant accrues and constitutes a loan under the lease, the unit trust will cease to comply with the criteria in division 13.3A of SISR.”

 

 

Adrian Flores
30 March 2020
smsfadviser.com

 

 

Is your self-managed super fund fully compliant with the regulations governing the operation of private funds?

         

It's a question that all SMSF trustees should be asking, because the Australian Tax Office is not only watching but taking harsh action in the form of issuing penalties for non-compliance.

ATO Assistant Commissioner Dana Fleming told the SMSF Association's annual conference in February that the SMSF regulator has its sights on almost 90,000 private funds that are managing over $20 billion in assets.

These include around 24,000 SMSFs managing $1 billion in assets, which have never lodged a tax return, and another 63,000 managing $19.5 billion that have stopped lodging mandatory documents with the ATO.

The ATO definitely means business. It issued more than $3 million fines to SMSF trustees in the six months to the end of December, more than double the amount of fines levied over the full 2018-19 financial year.

Trustee ignorance is not a defence

While the ATO is most concerned with deliberate compliance breaches by SMSF trustees, the regulator has consistently made it clear that trustees need to be fully aware of their legal obligations under the Superannuation Industry Supervision Act.

Trustees also need to strictly abide by their SMSF trust deed, which can contain stipulations on the types of assets their fund is allowed to invest in. Unless read carefully, a trustee could inadvertently breach the conditions of their own fund.

Non-compliance is certainly not a new theme across Australia's SMSF population, which now totals almost 600,000 funds, 1.12 million members and $750 billion in assets.

But the difference now is that the ATO has become much more sophisticated in its capacity to track the activities of SMSF trustees, both at the individual and corporate level. The ATO's computer systems are now at a level where they can easily detect digital payment transactions at multiple points.

In December last year, the ATO warned it had identified multiple breaches of the sole purpose test applying to SMSF members involving the purchase of lifestyle assets being used for personal enjoyment by fund trustees and their beneficiaries.

These included assets such as cars, boats, holiday homes, art and other collectables, which the ATO has been able to track in a number of ways.

Do you really need an SMSF?

Most SMSFs were set up for one specific reason: to have full investment control.

Rolled into that is the ability to buy direct property assets, which is not possible within a professionally managed super fund.

Business owners with an SMSF have the ability to own a commercial property within their fund and use it for their business purposes, without breaching the sole purpose test. This can't be done with residential property.

But ATO quarterly data shows only about 9 per cent of total SMSF assets were invested in commercial property at the end of December 2019, and less than 5 per cent were invested in residential property. A further 12 per cent of assets were invested in unlisted trusts, of which some will involve having shareholdings in direct property developments.

The bulk of SMSF assets (75 per cent) are actually held in the same asset classes that members of professionally managed super funds are exposed to, such as Australian and international shares, fixed income, listed trusts and cash.

And, unless SMSF trustees are consistently outperforming the returns of the professional fund managers, one would have to question why having a SMSF is really needed.

The Productivity Commission's 2019 report Superannuation: Assessing efficiency and competitiveness found that SMSFs with balances below $500,000 produce lower returns on average, after expenses and tax, when compared to industry and retail super funds.

The Australian Securities and Investments Commission also warned in October that the decision to establish an SMSF should not be taken lightly.

“SMSFs may be an attractive option for investors wanting more control over their superannuation investment strategy, but it requires real skill, care and diligence to manage your own superannuation,” ASIC said.

“SMSFs are not for everyone simply because not everyone can meet the significant time, costs, risks and obligations associated with establishing and running one.”

Time and money

Operating an SMSF comes with two unavoidable components: the time involved in ongoing management and compliance, and the costs involved in accounting, auditing and other professional services.

Another often overlooked aspect is the cost of insurance. Where large super funds are able to use their size to negotiate competitive pricing for insurance, such as life and total and permanent disablement coverage for members, SMSF trustees sourcing cover will invariably pay a higher cost.

ASIC calculates that, on average, SMSF trustees spend more than 100 hours a year managing their SMSF. This includes the time taken when investing and managing investments, and in preparing documentation.

The bottom line on SMSFs

SMSFs remain an important component of the Australian superannuation landscape, and by total assets under management represent the biggest segment of the industry.

However, it's clear on a range of compliance levels that some trustees operating a SMSF are failing to invest within the parameters of the law and are not meeting their management obligations.

In addition, many SMSF trustees – while having more investment flexibility than professionally managed super funds –are largely investing their retirement savings in the same asset classes as the professional fund managers.

ATO data on SMSF asset allocations shows many private funds are not well diversified, with very high allocations to cash.

ASIC notes that SMSFs are not an appropriate investment option for people who want a simple superannuation solution, particularly if they have a low level of financial literacy or limited time to manage their own financial affairs.

“Where people have limited investment decision-making experience or prefer to delegate decision-making to someone else, they should carefully consider if an SMSF is right for them,” the regulator says.

“As the trustees of their own fund, SMSF investors must remember that they are responsible for their fund's compliance with the law, even if they pay a professional to help.”

 

 

Tony Kaye
Personal Finance Writer
16-3-2020
vanguardinvestments.com.au

 

 

A law firm has warned trustees to consider several factors to ensure they’re complying with the Superannuation Industry (Supervision) Regulations 1994 (SISR) before deciding to access the government’s early access to super scheme.

NB:  Beware also scams surrounding the early release of super funds, they are on the increase.

         

The temporary early access to super (TEAS) scheme was one of several major changes to superannuation in the government’s second stimulus package in response to the economic effects of the COVID-19 outbreak.

The maximum amount that a member can access is $20,000 in the following increments, noting that a separate application is to be made on each occasion:

  • Up to $10,000 in the financial year ending 30 June 2020
  • Up to $10,000 in the financial year ending 30 June 2021

But according to Daniel Butler and Allison Murphy of DBA Lawyers, trustees should consider a range of other factors before accessing the scheme, including:

  • Whether the SMSF deed requires updating to enable a TEAS withdrawal, given this is a new condition of release that many SMSF deeds may not authorise.
  • The financial impact that any TEAS withdrawal will have on the member’s overall superannuation retirement nest egg over the long term.
  • Ensuring the fund has sufficient cash flow to fund any TEAS withdrawal together with its ongoing operations in view of any financial stress on the fund resulting from the coronavirus.
  • Preparing relevant trustee resolutions and updating the fund’s records.

As for members currently being paid an account-based pension or a transition to retirement income (TRIS) in retirement phase, Mr Butler and Ms Murphy said the amount required to fund the TEAS payment should first be commuted to accumulation before being paid to the member as a TEAS amount.

However, if a member is being paid a TRIS that is not in retirement phase, they said the amount should also first be commuted to accumulation before being paid as a TEAS amount, noting that a TRIS amount generally cannot be commuted, but new reg 6.19B of SISR authorises a payment of preserved money (after a TRIS is commuted).

“If the payment is not appropriately managed, a contravention of [SISR] could occur, resulting in potential penalties and the amount forming part of the member’s assessable income rather than being tax-free,” Mr Butler and Ms Murphy said.

“You should ensure the SMSF deed authorises this payment and prepare appropriate trustee resolutions.”

 

 

Adrian Flores
02 April 2020
smsfadviser.com

 

 

 

The following website gives the running totals for many everyday categories and the numbers are almost, if not, overwhelming when seen on a global scale.

         

Click on the image below to go to a website that collects data from sources all over the globe and simply counts the numbers.  Global births and deaths, for example.  How much is spent on health and public education.  Be prepared though for how much is spent on illegal drugs or how many cigarettes are smoked every day.  Included is a link to the latest Coronavirus statistics as well. 

Mind blowing stuff.

 

 

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