What happens if your SMSF is non compliant?

While there are benefits to running an SMSF, they do not come without their compliance responsibilities. This includes lodging your fund’s annual return on time, attending to reporting obligations, and having an investment strategy. SMSFs who do not meet their obligations are subject to penalties by the ATO through the following measures.

Education direction

An SMSF trustee who does not meet compliance requirements can be given a written direction to undertake a course of education that is designed to improve their ability to meet their obligations, reducing the risk of future non-compliance. The course may be completed online within a nominated timeframe. Failure to comply with an education direction can result in an administrative penalty of 10 units.

Administrative penalties

SMSF trustees are liable to pay administrative penalties if they contravene provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). This includes contraventions of borrowings, in-house assets, education direction, duty to notify of significant adverse events, and accounts and statements. The minimum penalty is $1,050 and the maximum penalty is $12,600.

Enforceable undertaking

SMSF trustees may be able to rectify non-compliance by providing a written commitment to an enforceable undertaking. The ATO may or may not accept the undertaking, which should include:

• A commitment to ending the non-compliance behaviour.
• What action will be taken as rectification.
• The designated time period to rectify the contravention.
• How and when the trustee will report the completion of rectification.
• Strategies employed to prevent future contraventions.

Rectification direction

The ATO may decide to provide a trustee with written direction to rectify their contravention. The trustee will then be required to undertake specified action to rectify the non-compliance within a given timeframe. Rectification commonly involves employing managerial or administrative arrangements that will prevent similar contraventions in the future. Proof of compliance with the direction to rectify will be required. Failure to comply with the direction is an offence of strict liability, which can lead to disqualification or the removal of the fund’s complying status which may result in a significant tax penalty on the fund.

Disqualification

The ATO has the ability to disqualify individuals from acting as a trustee due to their non-compliance. This will take into account the severity of the contraventions and the likelihood of them reoccurring. Continuing to act as a trustee after disqualification is an offence that may result in further penalties.

Civil and criminal penalties

Civil and criminal penalties through court can apply when SMSF trustees contravene with provisions such as:

• The sole purpose test
• Prohibition of avoidance schemes
• Promotion of illegal early release schemes
• Duty to notify the regulator of significant adverse events.

Non-compliance notice

SMSFs may be issued a notice of non-compliance when serious contravention of super laws have occurred. This causes the fund to remain non-compliant until a notice of compliance is received. For every year the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.

Winding up the fund

After a contravention has occurred, the trustee may wind up the SMSF and roll over the remaining benefits to an Australian Prudential Regulation Authority (APRA) regulated fund. However, in some cases, the ATO may continue to issue the SMSF with a notice of non-compliance and/or apply other compliance measures.

Freezing the SMSF’s assets

A trustee may be given a notice to freeze an SMSF’s assets when it appears that conduct by the trustees or investment manager may adversely affect the interests of the beneficiaries. The notice may restrict the trustee or investment manager from acquiring assets and disposing of assets.

JobKeeper GST turnover test released

The ATO has published a ruling on the decline in turnover test for businesses applying for the JobKeeper scheme as part of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020.

This turnover test requires businesses to calculate their ‘current GST turnover’ and ‘projected GST turnover’, subject to modifications to the definitions outlined in the Payments and Benefits Rules. The new ruling outlines the aspects of the decline in turnover in the following steps:

• Step A: what supplies are relevant when calculating projected GST turnover and current GST turnover,
• Step B: how you allocate supplies to relevant periods,
• Step C: how you determine the value of each supply that has been allocated to a relevant period, and
• Step D: The ATO compliance approach, which effectively allows you to work out Step B and Step C at the same time.

The turnover test period must be either a calendar month that ends after 30 March 2020 and before 1 October 2020, or a quarter that starts on 1 April 2020 or 1 July 2020.

During the turnover test period, businesses will satisfy the decline in turnover test if:

• Their projected GST turnover falls short of their current GST turnover for a relevant comparison period (the comparison turnover, and
• The shortfall expressed as a percentage of the comparison turnover equals or exceeds the specified percentage for the business

Keep in mind that the decline in turnover test applies to both entities that are registered and not registered for GST in determining if they are eligible for the JobKeeper payment.

The ruling also covers another approach to calculating business’ turnover – the cash or accruals approach – and outlines alternative methods that will allow for the allocation of supplies to a relevant period and determination of the value of those supplies.

Things to know about the First Home Super Saver Scheme

Individuals looking to buy their first home may claim up to $30,000 of their super contributions through the First Home Super Saver (FHSS) Scheme, which aims to reduce pressure on housing affordability.

The scheme allows first home buyers to save money within their superannuation fund and accumulate faster savings with the concessional tax treatment of super. Eligible individuals who are able to use up to $15,000 of voluntary contributions per year, and a total of $30,000 contributions across all years. The FHHS amounts received will affect your tax for the year it is released to you; both the assessable and tax-withheld amounts from your FHSS payment will need to be included in your tax return.

The types of contributions eligible to go towards the FHHS scheme are voluntary concessional contributions and voluntary non-concessional contributions. Contributions can be made up to your existing contributions cap.

To be eligible for the scheme, individuals must:

• Be at least 18 years of age.
• Have not previously owned property in Australia, or have previously released First Home Super Saver funds.
• Have the intent to live in the property you use the funds to purchase as soon as practicable, for at least the first 6 of the 12 months of owning the property.

Individuals experiencing financial hardship may also apply for the scheme even if they have already purchased property in the past if their financial hardship has resulted in a loss of property interest. This may be applicable to individuals who have experienced events such as:

• Bankruptcy
• Unemployment
• Divorce
• Natural disasters
• Illness.

What you need to know about lodgement deferral dates

Due to COVID-19 and unforeseen financial circumstances, the ATO has announced a series of lodgement deferral dates available for tax returns, fringe benefits tax returns, monthly and quarterly BAS, annual GST returns, PAYG summary annual reports and taxable payment annual reports.

Lodgement deferrals extend the due date for lodgement of a document without incurring a failure to lodge on time (FTL) penalty. To request for a lodgement deferral, simply complete an online application and lodge through online services provided by the ATO. The ATO will then assess and approve your requests within a 28-day period.

The extended lodgement dates for particular lodgements are listed below:

• Income tax 2018-2019 returns: 5 June 2020
• Fringe benefits tax 2019-2020 returns: 25 June 2020
• SMSF 2018-2019 annual returns: 30 June 2020

To request for a lodgement deferral for business activity statements, annual GST returns, PAYG summary annual reports and taxable payment reports, the ATO encourages businesses and employers to contact their tax or BAS agent to confirm their lodgement due dates and to submit requests as due dates are determined on a case-by-case basis.

While deferring a lodgement may be beneficial in the long term, it is still important to keep in mind your tax liability and how deferring lodgements may affect your cash flow options in the long term. Always discuss your options with a financial advisor or accountant before deferring your taxes as you may accrue more debt than expected otherwise.

Assistance available for SMSFs and their members

The Government’s economic response to coronavirus will provide SMSFs and their members with additional support, including reducing minimum drawdown rates and early release of superannuation.

The minimum annual payment required for account-based pensions and annuities has been reduced in an initiative to assist retirees. For the 2019-20 and 2020-21 financial years, the minimum annual payment required for members has been reduced by 50%.

If the minimum drawdown amount has been paid, no further payments will be required for the rest of the year. Those who have already paid more than the minimum drawdown amount are able to have their member recontribute this amount if the member is eligible to make contributions. Re-contributions will continue to be subjected to rules or limits, such as contributions caps.

Members of SMSFs who have been adversely affected by COVID-19 may be able to access up to $10,000 of their super before 1 July 2020, as well as a further $10,000 between 1 July 2020 and 24 September 2020, on compassionate grounds. To be eligible, members must satisfy at least one of the following criteria:

• They are unemployed.
• They are eligible for certain government support payments, including a job seeker payment, youth allowance for jobseekers or parenting payment.
• They were made redundant on or after 1 January 2020.
• They had their work hours reduced by at least 20% on or after 1 January 2020.
• They are a sole trader and either had a turnover reduction of at least 20% or had their businesses suspended, both on or after 1 January 2020.

Applications for early access can be made through myGov.

In addition to these initiatives, the Government will also be automatically deferring the lodgement of 2019 SMSF annual returns until 30 Junes 2020.

FBT exemptions to keep in mind during the COVID-19 pandemic

In emergency situations like the COVID-19 pandemic, there are certain benefits you can provide your employees or their associates which may be exempt from fringe benefits tax (FBT).

The fringe benefits tax is a tax which employers must pay on certain benefits they provide for their employees, their employees’ families and associates. However, with emergency circumstances such as the pandemic-level coronavirus, the ATO is providing FBT emergency assistance exemptions which apply to many common scenarios that your business may be experiencing.

In the case of COVID-19, the FBT emergency assistance exemption applies to:

• Help businesses which have had to relocate their employees who needed to self-isolate and are from a high-risk area.
• Paying for emergency meals and accommodation for employees who are stranded overseas due to travel restrictions.
• Paying for flights for overseas employees returning to Australia.
• Exempting transport fees for an employee to seek medical assistance from their workplace.
• Exempting equipment purchased to provide to work-from-home employees such as laptops, portable printers or other portable electronic devices.
• The minor benefits exemptions may apply for minor, infrequent and irregular benefits of under $300.

With all these exemptions to keep in mind, remember that your FBT return is due 21 May 2020 unless the ATO accepts your request for an extension on lodgement time, you have been granted a deferral or you lodged electronically through a registered tax agent.

Your FBT returns can only be lodged through the practitioner lodgement service (PLS) which requires a Standard Business Reporting (SBR) enabled software from a digital provider. Your digital service provider should be partnered with the ATO in integrating tax and superannuation services into your practice management software.

Managing longevity risk and your superannuation

Longevity risk is a common and important factor to consider when planning for your retirement funds. Longevity risk refers to the risk of outliving your savings and arises as people enter retirement, and in most cases, with a fixed amount of money to use during their retirement years. Managing your longevity risk is important because retirees often have no idea of how long they will need their retirement funds for. Here are a few strategies to help you manage your longevity risk:

Purchase an account-based pension:

An account-based pension is a regular income stream you can buy with the money from your super after you retire and reach your preservation age. When buying an account-based pension, you can choose how much of your super funds you’d like to transfer to the pension phase, the size and frequency of your payments (within a set limit) and how you want your money to be invested through your pension.

If you were thinking of purchasing an account-based pension to begin with, now may be the time as the Government is temporarily reducing superannuation minimum drawdown rates for account-based pensions by 50%. The annual payment as a percentage of account balance currently has reduced rates between 2% and 7% (from age brackets from 55 to 95+ respectively).

Set up a lifetime annuity:

Lifetime income annuities and insurance products designed to provide income throughout your retirement. Annuities are bought from insurance companies with a lump sum of cash and in return, you can get regular income payments until you pass away or for the amount of time you’ve agreed upon.

To make sure you purchase the right annuity for your desires and circumstances, it is often wise to consult a financial adviser before making your decision or go through a reliable insurance broker. In the case that you’d like to avoid paying commission fees from an insurance broker, you can also purchase lifetime annuities from investment companies rather than a traditional insurance company.

Age pension as a safety net:

While there are a number of retirement safety net options available to retirees, age pension is the most obvious and most reliable. An age pension is a means-tested Government-backed safety net for retirees who are unable to fully provide for themselves in retirement. While a stable income stream to take note of, age pensions usually only provide their recipients with the bare minimum and hence considering some of the strategies listed above will give you more leeway with your funds and lifestyle after retirement.

ATO introduces new working from home deduction scheme

COVID-19 is forcing many businesses to work from home, meaning that you now have to pay for expenses such as heating and lighting that were previously covered by employers.

The ATO has introduced a new ‘shortcut method,’ where you can claim additional running expenses at a rate of 80 cents for each hour you work from home as a result of COVID-19.

Deductible running expenses include:

• Utilities such as heating, cooling and lighting.
• Cleaning costs for your work area.
• Mobile or landline phone expenses for work calls.
• Internet connection.
• Computer consumables and stationery.
• Repair costs for home office equipment and furniture.
• Depreciation of home office equipment, computers, furniture and fittings.
• Small capital items such as a computer (purchased for the purpose of working from home) can be claimed if they cost under $300. If the cost exceeds $300, the decline in value can be deducted.

The shortcut will apply from 1 March 2020 to 30 June 2020. A record of hours worked such as timesheets or rosters must be kept as proof. If you only undertake minimal work tasks from home such as occasionally checking emails or taking calls, then you are not eligible for the deduction. To claim the deduction, you must specify your claim with the note “COVID-hourly rate” when lodging your upcoming 2019-20 tax return.

There are two pre-existing alternative methods to claim working from home deductions that individuals may choose to use, however, they are generally more tedious:

• One way you can file a claim on your expenses is the actual cost method, where you keep a diary that details the work portion of your household running expenses. This can include receipts and documents supporting your claim. If you don’t provide supporting documents displaying the portion of expenses that were incurred for work, the ATO may reject your claim.
• The fixed-rate method allows you to claim a fixed rate of 52 cents per hour worked. This applies for electricity and decline in furniture expenses, but a separate claim can be made for phone and internet expenses, the depreciation of office equipment and computer consumables and stationery.

These deductions are only eligible for the proportions of the expenses that are actually used for work purposes. For example, if you’re using your own phone to make work calls, then only the portion of the bill that was incurred due to work calls can be claimed. If the room you are working in is shared with others, you can only claim electricity expenses for the hours you were exclusively using that room for work purposes.

Expenses such as rent, mortgage and insurance cannot be claimed unless you have a permanent home office.

Expert advice on early superannuation access as a result of COVID-19

Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.

With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.

While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.

Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.

Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.

In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.

The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.

Setting up your myGovID

If you haven’t set up your myGovID yet, you need to do it before you can lodge your next business activity statement (BAS).

AUSkey, including Manage ABN Connections, will be replaced by the ATO’s myGovID and Relationship Authorisation Manager (RAM) from 27 March 2020. After this change, you will no longer be able to access government online services through an AUSkey. Device AUSkeys will be replaced by new machine credentials.

Business owners will need to set up a myGovID soon if they haven’t already done so and link it to RAM. Your myGovID is separate from your myGov account and will allow you to prove your identity online. RAM is an authorisation service that uses your myGovID to provide you with access. When linked with your myGovID, RAM will allow you to act on behalf of your business online.

Desktop and browser-based versions of myGovID will not be supported as these devices are easily accessible. To set up your myGovID, you will need an email address (that you do not share with anyone else) and a smart device that uses iOS 10 or later on Apple devices, or Android 7.0 or later (not including devices that use Android Go operating systems). You can download the myGovID app for free through the AppStore or Google Play.

Depending on what government online services you wish to access through myGovID, you will have to provide certain identity documents to authenticate your account. You can generally have a Basic or Standard identity strength. A Basic identity strength is where you provide only one or no identity documents, aside from your personal details (such as your date of birth and email address). Only some government online services will accept a Basic identity strength, such as Bankruptcy Register Search, ACMA Lodgement Portal and Debt Agreements Online.

A Standard identity strength requires two Australian identity documents, such as:
– A passport, no more than three years past its expiry date
– A driver’s license, including a learner permit
– A birth certificate
– A Medicare card.
This will allow you to access all participating government online services, including the Business Portal where you can lodge your BAS.