SMSF trustee housekeeping checklist for 2020/21

Source: SIS Act

SMSF trustees also need to ensure there is formal documentation between the member and the trustee if a member requests a reduction in their minimum pension withdrawal. This can be in the form of a minute or other contemporaneous documentation.

2. Watch for early release applications

As a result of COVID-19, in 2020/21 the government is again allowing eligible SMSF members to apply for early access to some of their super benefit, so SMSF trustees may receive additional release determinations from the ATO this financial year.

Under the temporary access rules, SMSF members can access up to $10,000 of their super savings during 2020/21. Applications must be made between 1 July 2020 and 24 September 2020 and are only available to members in accumulation phase, not retirement phase.

The ATO is responsible for issuing a determination advising the member they are eligible to release an amount from their super account and the SMSF is not authorised to make a payment until this is received. Prior to releasing the money, SMSF trustees should ensure the SMSF’s trust deed permits these withdrawals.

3. Expect SG amnesty payments

SMSF trustees may find themselves receiving additional Super Guarantee (SG) payments due to employers choosing to take advantage of the current one-off SG amnesty.

Employers have a six-month window (until 7 September 2020) to disclose, lodge and correct any unpaid SG amounts for their employees. If employers take advantage of the amnesty provisions offered by the ATO, they can claim deductions and not incur administration charges or penalties when they correct any SG shortfalls.

The amnesty permits employers to lodge and pay SG contribution shortfalls for employees relating to any quarter from 1 July 1992 and 31 March 2018.

4. Removal of work test to age 67

SMSF can expect to receive additional contributions from older fund members following the introduction of new regulations permitting fund members aged 65 and 66 to add to their super account without needing to meet the requirements of the work test.

The amendments to the SIS Regulations commence on 1 July 2020 and increase the age at which fund members can make personal super contributions without having to worry about the work test.

5. Extension of bring-forward rules to age 67

Following removal of the work test requirements for personal contributions made by fund members aged 65 and 66, SMSF trustees will need to be on the lookout for the passage through Parliament of accompanying legislation covering the bring-forward arrangements.

Announced as part of the 2019/20 Budget, this legislation will allow SMSF members aged 65 or 66 to use the existing bring-forward rules for non-concessional contributions. Once the legislation is enacted, SMSF members aged under 67 can make up to three years of non-concessional contributions (3 x $100,000 = $300,000 in 2020/21) in a single financial year.

At the time of writing, the legislation is currently before the House of Representatives, but is yet to be passed and come into effect.

6. Increase in age limit for spouse contributions

As part of recent amendments to the SIS Regulations, the maximum age at which an SMSF member can receive a spouse contribution has been lifted.

From 1 July 2020, SMSF trustees will be permitted to accept a spouse contribution for a fund member until they reach age 75 (a rise from the current limit of age 69). Receiving spouses aged between 67 and 75 will still need to meet the requirements of the work test.

The new rule means older members will be able to receive a spouse contribution to top up their super account for an additional five years.

7. Review temporary COVID-19 measures

Under normal circumstances, when an SMSF owns property leased to a related party, the rent must be at the market rate, but during the COVID-19 crisis the ATO has taken a more relaxed approach.

The ATO announced where a landlord provided tenants with a reduction in, or waiver of, rent due the financial impacts of COVID-19, its compliance approach for 2020/21 would be to not take action. Despite this, if your SMSF provided rent relief to a tenant, it’s wise to ensure details of the relief and the reasoning behind the trustee decision are fully documented.

Trustees should also note the regulator relaxed compliance with the 5% in-house asset limit during the COVID-19 downturn. Under the current rule, if the 5% limit is exceeded, trustees must prepare a written plan to reduce in-house assets to less than 5% before the end of the following financial year. However, the ATO has announced it will not undertake compliance activity if the rectification plan is unable to be executed by 30 June 2021 due to market conditions, or because the market has recovered and the 5% test is satisfied at the end of the financial year.

8. Prepare for greater auditor vigilance

SMSF trustees can expect to find themselves under more scrutiny from their auditor during 2020/21. Several court cases involving SMSF auditors are resulting in more checking of SMSF accounts and records. Trustees may find their auditors asking to see more copies of documents relating to specific transactions.

Following the recent investment market turmoil, trustees are also likely to find auditors checking the fund’s investment valuations, the risk level associated with various investments and the likelihood of recovery if the fund has incurred significant investment losses.

The ATO expects an SMSF’s investment strategy to be reviewed at least annually or after a significant financial event, so auditors will be checking this has been done. During the COVID-19 downturn, the ATO accepted short-term variations to an SMSF’s investment approach were to be expected and didn’t represent a variation to their investment strategy, but this approach is unlikely to continue throughout 2020/21.

9. New accounting standard for SMSFs

An amended accounting standard released by the Australian Accounting Standards Board (AASB 2020-2) comes into effect from 1 July 2021 and will affect the reporting of some SMSFs. The changes affect all for-profit private sector entities that self-assess their financial reporting requirements and prepare special purpose financial statements (SPFS).

Although most SMSF trust deeds refer to their financial statements as being prepared in accordance with the super laws not the AAS, there are some SMSF trust deeds that do refer to the AAS.

New SMSFs set up after 1 July 2021 (or those amending their trust deed after that date) wishing to prepare SPFS will need to ensure they don’t have a clause in their trust deeds requiring their financial statements to be prepared in accordance with AAS. More information is available on the ATO website.

A few more things to watch for in 2020/21

After the turmoil of COVID-19, several significant proposals relating to the super system did not make it through Parliament or are awaiting regulatory action. These include:

• Increase in the number of SMSF fund members from four to six
• Allowing SMSFs with a “history of good record-keeping and compliance” to obtain an audit once every three years (instead of annually)
• Application of a 45% tax rate to income from arrangements involving SMSFs that incur non-arm’s length expenditure at non-commercial rates (such as an accountant doing their own SMSF’s accounts for free). The ATO has deferred finalising its ruling on this area following COVID-19 and has announced it is not currently allocating compliance resources to this issue.