Tag Archives: SMSF

New ATO Penalties for SMSFs

The ATO have a new arsenal of weapons for SMSFs that fail to follow the rules.

For contraventions that occur after 1 July 2013, the table below shows the (massive) fines applicable PER trustee. That is if you have two individuals as trustees you can double the amounts shown.

A huge incentive to get your paperwork up to scratch, and avoid accidental payments into or out of your SMSF bank account.

 

Section & Rule

Administrative Penalty

s.35B – failure to prepare Financial Statements

$1,700

s.65 – prohibition on lending or providing financial assistance to members & their relatives

$10,200

s.67 – prohibition on super fund borrowing, except as permitted, eg limited recourse borrowing arrangement

$10,200

s.84 – contravention of In-House Asset rules

$10,200

s.103(1) & (2) – failing to keep trustee minutes for at least 10 years

$1,700

s.103(2A) – failure to maintain a s.71E election, where applicable, in relation to a fund with an investment in a pre 11/8/99 related unit trust

$1,700

s.104 – failing to keep records of change of trustees for at least 10 years

$1,700

s.104A – failing to sign Trustee Declaration within 21 days of appointment and keeping for at least 10 years

$1,700

s.105 – failing to keep member reports for 10 years

$1,700

s.106 – failing to notify ATO of an event that has significant adverse effect on the fund’s financial position

$10,200

s.106A – failing to notify ATO of change of status of SMSF, eg fund ceasing to be a SMSF

$3,400

s.124 – where an Investment Manager is appointed, failing to make the appointment in writing

$850

s.160 – failing to comply with ATO Education directive

$850

s.254(1) – Failing to provide the Regulator with information on the approved form within the prescribed time upon establishment of the fund

$850

s.347A(5) – Failing to complete a form with requested information provided by the Regulator as part of the Regulator’s Statistical Program

$850

Article: 23AG Explained

Prior to 1 July 2009, section 23AG ensured foreign employment income derived by an Australian tax resident in respect of overseas work assignments, which were longer than 91 days in duration and taxed in the overseas country, were exempt from Australian tax.

Note that the exemption was only ever available for those who were Australian tax resident. Such income needed to be included in the taxpayer’s return as exempt income, thereby ensuring any additional income was taxed at the tax payer’s top marginal rate and that Centrelink benefits were calculated taking the exempt earnings into account.

Then, without much in the way of consultation or warning, the rules were changed on 1 July 2009 to restrict the exemption to those working for overseas aid and charitable organisations and certain government workers (for example, defence and police force personnel deployed overseas).

This means that for all other Australian residents working overseas, foreign employment income will be fully taxable in Australia at resident tax rates from 1 July 2009. This will generally result in a considerable reduction to the taxpayer’s net income and is going to be a huge issue for hundreds of airline pilots, yacht crew, mining consultants and those employed in a range of other international businesses.

Unfortunately many taxpayers may well not be aware of their additional liabilities until filing their 2010 tax return sometime in 2011, when they may receive a large and unexpected tax bill from the ATO. Commuters who make regular visits back to Australia to visit their spouse or children are particularly at risk.

Due to the way in which the changes were brought in, many of the more technical implications are yet to be solved. However there are important ramifications for both individuals and foreign employers which are relevant now.

Can I become Non-Resident?

Only Australian tax residents are taxed on their foreign employment income, and those who are classified as tax non-resident are only taxed on Australian sourced income. So the rather extreme measure of leaving the country for good will save you tax!

However, rest assured that all those changing their residency status on the 1 July 2009 will come under intense scrutiny from the ATO, and proving that you have become non-resident is not as simple as just hopping on an aircraft. Neither is it as simple as just staying out of the country for 183 days; another popular myth!

You need to establish a “permanent place of abode” overseas and leave Australia with “no intention of returning”.

Don’t Forget your Spouse

The ATO will also take into consideration factors such as the intended and actual length of your stay overseas (you must generally be away for at least 2 years), and the maintaining of association with Australia.

This means that if you leave your family in Australia, or retain your accommodation without renting it out as an investment property (and potentially paying land tax), you may be seen to have not fully broken the connection with Australia.

Additionally if you have a pattern of regularly returning to Australia for holidays or days off, once again you are more likely to be deemed resident. Note the ATO have the power to look at your passport records if they believe there is reason to do so.

You should also ensure that you have left all sporting clubs, taken yourself off the electoral roll, closed bank accounts and stopped contributing to Australian super. (Not much point in doing this if you don’t intend to retire in Australia!)

Sort Out your SMSF & CGT Before you Leave

There are significant ramifications for your SMSF if a member becomes non-resident. If not dealt with correctly, these can be as punitive as the ATO declaring your fund non-complying and taking half the value of the fund as a penalty. Make sure you get advice before you leave on how to either maintain your SMSF or roll it into a suitable public offer fund.

Leaving Australia is also a capital gains tax event and elections may need to be made for any investment assets you hold, other than Australian real estate. With the removal of the 50% discount for non-residents proposed in the 2012 budget, the case for paying CGT on departure is stronger than ever.

How Do I Pay Australian Tax?

Technically, as your foreign employment income is no longer exempt from Australian tax, it is also now not exempt from Australian withholding tax obligations. Ludicrous as this may seem, it means that your overseas employer should be withholding income tax and remitting it to the ATO!

The ATO has even produced a special form for overseas employers with a connection with Australia to complete (NAT 73297), although I am not sure how they intend to police this process. It is more likely that it will be the taxpayer’s responsibility to finalise their tax affairs with the ATO each year and, once the relevant tax return is lodged, be subject to paying quarterly installments.

You will generally receive a credit for foreign tax paid, therefore it should be possible to complete a PAYG withholding variation which will allow a smaller amount of Australian tax to be withheld from your salary each month.

Overseas employers may also now be subject to fringe benefits tax and the ATO reporting requirements that entails. The following draft determination goes into the withholding and FBT issues in quite some detail. TD2010/D1 along with the TD 2011/1EC.

Those working temporarily overseas may be able to negotiate a living away from home allowance with their employer which is both fringe benefit and tax exempt. Again, further advice should be sought on this issue as the 2012 budget has reduced the availability of LAFHA substantially.

To discuss further contact me – Lindsay@LindsayBridgland.com.au

 

 

October Reflect: Loads of News

Dear All,

Since the last “reflect” life has continued to be very busy as we start to enjoy the fabulous sunny weather.

Kelly is in yet another show – South of Broadway – playing this weekend & next at Berowra – free tax return for all clients that attend!

As you all know I recently made it through to the semi finals of the female financial adviser of the year award, but alas that was to be as far as I was to go. Still a great achievement and I certainly learned a lot in the selection process. A huge thanks goes to all those kind enough to nominate me. We are now looking for testimonials for the website – so feel free to send them on in.

We have a new blog up and running which you can access here. If you have any tax or finance questions that you think others might be interested in, let me know and I’ll write them up. There is lots on there already.

I won another spring board diving competition – in the over 40’s ladies division – and have another competition in November, and during all this the dog was sick – very sick! It would appear that the ticks were also enjoying the recent sunny weather and unfortunately chose widget as a host. After 4 days at the vet and a bill over $2k he is back at home, apparently totally unaware of the upset caused, shaved and looking suspiciously like a grey hound, not the German shepherd he purports to be.

Luckily, as a person who likes to mitigate financial risk (as opposed to my attitude to trying to learn the reverse dive, where there is significant head whacking risk), puppy was insured, so no $ harm done. Yes in-case you are wondering, all the family are insured and yes the 10 year old already has a superfund!

Continuing on the theme of keeping financial risks low, on the low risk investment side, the Flexi 100 December offering is now open. This is a twice a year opportunity to take a punt on the market being higher in either two and a half or five and a half years time (your choice) than it is now. If the market goes up you take the profit, if the market goes down you walk away. Honestly, that simple no need for credit checks or for you to arrange a loans – it’s all done for you. If you are interested then please get in touch to discuss further – applications close 23rd November.

For those that are happier investing without protection for downside risk, check out the returns on our recommended direct share dividend yield portfolio which have just published a result for the year of 26%. Of course this may never be repeated, and the value of investments can go down as well as up, but this is a great professionally managed direct share investment (ie not units in a fund) option available to all (minimum $20k). Just call to discuss.

New things in the newsletter this month include the difference between a SMSF and a SAF, moving overseas and the CGT small business exemptions. Click here with a cup of tea to enjoy.

So there we have it – rather a long one this month, but there is so much to tell you all.

Please feel free to forward to family and friends, and call me if you want to discuss any of these further. 02 8090 4112 or 07 3103 0771.