BDO’s Quarterly Superannuation Update

Welcome to BDO’s Superannuation Quarterly Update, where we provide the latest news and insights from the ever-changing superannuation and self-managed superannuation fund (SMSF) landscape in Australia. Keeping up-to-date with the latest developments and requirements is crucial to fulfilling your obligations and optimising your superannuation benefits.

In quarters update we will cover important announcements from the Australian Taxation Office (ATO), the importance of SMSF record-keeping obligations, upcoming lodgement dates, and a Q&A with BDO’s SMSF Audit expert, Shirley Schaefer.

What is the Regulator Saying?

The ATO is the primary regulator in relation to SMSFs.

The SMSF sector continues to grow

The ATO recently released its annual statistical overview of SMSFs, providing key insights for the 2020/2021 financial year, with the main source of data being 2020/2021 lodged annual returns.

Key takeaways include:

There are over 603,000 SMSFs and this number is growing every year
SMSFs currently hold over $869 billion in assets, accounting for 26 per cent of all superannuation assets in Australia
There are more than 1.1 million SMSF members, and the median age of these members is 62
The median age of members of newly established SMSFs is 46
66 per cent of SMSFs have a corporate trustee
34 per cent of SMSFs have individual trustees.

Illegal early access to super

As a SMSF trustee, it is your responsibility to ensure any early access to your super is compliant with superannuation laws. It is important to note these laws only permit early access to superannuation in limited circumstances.

In greener terms, most people can only access their superannuation when they:

Retire and turn 60
Turn 65 (regardless of retirement status).

Any other reasons for accessing your superannuation may be illegal.

If you choose to access your super early, some of the consequences include:

Losing your retirement savings
Paying additional tax
Paying interest and large penalties
Being disqualified as a SMSF trustee.

Be aware of promoters

Be careful if someone offers to help you access your super early. There are individuals (known as promoters), who may claim they can assist you set up a SMSF so you can access your super for reasons such as paying off your credit card, purchasing property or to fund a holiday. These schemes are illegal.

If a promoter contacts you, contact your local BDO adviser for assistance.

Did you know that you are able to vary your PAYG instalments?

The pay-as-you-go (PAYG) instalment system allows you to make tax prepayments during the year, which can assist in maintaining a healthy cash flow and prevent a large tax bill at the end of the financial year.

If you think the fund’s PAYG instalments are either excessive or insufficient, you have the option to adjust them. These changes must be made on or before the day the fund’s instalment payment is due, and the new amount will apply to all remaining instalments unless another variation is made before the end of the financial year.

For more information about varying your instalments, visit the ATO website.

If you need help varying your PAYG instalment for your SMSF, contact your local BDO adviser.

Record Keeping Obligations

Did you know that SMSF trustees are legally required to keep accurate tax and superannuation records?

Accurate record keeping assists you as a trustee, as well as any SMSF professionals you engage, to prepare the fund’s financial statements and annual return, and conduct the annual audit. Keeping accurate records can reduce time and money spent on SMSF administration.

What records need to be kept, and how long must they be kept for?

The following records must be kept for a minimum of five years:

Annual financial reports, including income tax returns and statutory returns
Copies of PAYG and instalment/business activity statements
Accurate and accessible accounting records that explain the transactions and financial position of your SMSF
Transfer balance account reports
Rollover statements.

The following records must be kept for at least ten years:

Minutes of trustee meetings and decisions
Changes to the trustee structure
Consent to act as trustee documents
Trustee declarations recognising the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007
Annual audit reports
Documented decisions about storage of collectables and personal use assets
Copies of all member annual statements and income stream (pension) calculations.

All the above mentioned documentation form part of the fund’s ‘permanent documentation’, and we recommend these records, your fund’s trust deed, and any amendments or upgrades, are kept for the life of the fund.

What happens if you don’t keep these records for the required time?

A consequence of not keeping the required records can result in administrative penalties, personally payable by each trustee or the fund trustee company.

Can the records be kept electronically?

While it is acceptable to keep SMSF records in an electronic format, the ATO has stated that they must be in English and easily verified.

Q & A

Shirley Schaefer, Partner, Superannuation

This month, BDO’s resident audit expert, Shirley Schaefer, sits down with national super leader Paul Rafton to discuss SMSF audits.

What are some of the most common mistakes you see SMSF trustees making?

One of the most common areas where errors occur is understanding the rules and contribution restrictions. With the contribution rules constantly evolving, and the various types of contributions available, it can be a complex area to navigate. Any errors made regarding contribution limits may result in the ATO imposing excess contribution taxes on the members.

Understanding when benefits can be accessed is also a common area for errors. There are several ‘conditions of release’ that can be triggered to access superannuation benefits, and it is crucial to ensure that members understand these conditions.

Failing to comply can lead to ‘illegal early access’ and any withdrawn benefits being taxed up to 45 per cent. What are some of the ATO focus areas at the moment?

Currently, the ATO is focused on non-arm's length transactions, including non-arm's length income or expenses, particularly those involving related parties. The spotlight is on leasing arrangements between SMSFs and related parties in relation to property.

While SMSFs are permitted to lease business property to a related party, it is critical these arrangements are maintained on arms-length terms. Ensure there is a valid and legally enforceable lease agreement (preferably in writing) in place and any rental funds paid are on arms-length terms, paid on normal payment terms (e.g. monthly), and with no arrears. Arms-length rental arrangements are best documented by getting an independent rent appraisal from a qualified valuer.

While this might seem onerous for trustees, there are two reasons to ensure these arrangements are in place:

The superannuation legislation requires that any business property is subject to a legally enforceable lease arrangement in order to be compliant (this will avoid audit issues or qualified audit reports). If found to be non-compliant, the ATO could require the SMSF to dispose of the property.
If the ATO deems the income or expenses relating to the property are not on arms-length terms, they can impose income tax on rental income at 45 per cent.

What is your advice for clients establishing a SMSF and becoming trustees for the first time?

The best advice is to talk to your adviser or accountant. SMSF rules can be complex, with restrictions regarding in what and how a SMSF can invest. It is crucial to ensure compliance and avoid any potential audit issues upfront when managing a SMSF. Rectifying non-compliance issues later can be expensive and may cause hardship for the trustees.

If a SMSF contravenes the superannuation rules, transactions may need to be ‘unwound’ or ‘reversed’. This can lead to additional costs and potential hardship for the trustees. For example, if a property was incorrectly transferred into the SMSF and then had to be sold, stamp duty could apply to both transactions, and other expenses might be incurred to rectify the situation.

To prevent non-compliance issues, trustees should always check if what they want to do is within the rules. There are some good resources available on the ATO website that explain trustee obligations.

Superannuation Key Lodgement Dates

Deadline	Description
Payment of super guarantee contributions.	28 days after each quarter ends, e.g. SG contributions for the June 2022 quarter must be paid by 28 July 2022.
Lodgement of tax returns for newly established SMSFs.	28 February 2023 (payment is also due on this date).
Lodgement of tax returns for SMSFs with income more than $2 million in the last income year lodged.	31 March 2023 (payment is also due on this date).
Lodgement of all other SMSFs.	15 May 2023 (payment is also due on this date).
Transfer Balance Account Reports (TBAR).	Any SMSFs that have any members with a Total Super Balance of over $1 million must lodge their TBARs 28 dates after the end of the quarter in which the event occurs. All other SMSFs must lodge their TBARs annually with the tax return. From 1 July 2023, all SMSFs will be required to lodge TBARs on a quarterly basis, regardless of the member’s Total Super Balance.

The information contained in this publication is purely factual in nature and does not take into account your personal objectives, financial situation or needs. It is provided as an information service only and does not constitute financial product or other professional advice and should not be relied upon as such. Before making any investment or financial decisions you should consider your particular objectives, and financial circumstance or needs. Where information relates to a particular financial product you should obtain and consider the relevant Product Disclosure Statement and obtain advice from a financial adviser before making any decision. If you do require financial advice, please contact the relevant BDO member firms in Australia who will be able to assist you in their capacity as an Australian Financial Services licensee. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this publication nor do they 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 publication or for any decision based on it, except in so far as any liability under statute cannot be excluded.

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