More work is required to reform the penalties faced by self-managed super funds (SMSFs), according to Peter Burgess, Head of Policy & Technical at AMP SMSF. Speaking at the SPAA National Conference on Wed 19.2.2014, Mr Burgess welcomed the Government’s decision to proceed with the proposal to give the Tax Office more flexible powers to issue administrative penalties for breaches by SMSF trustees from 1 July 2014. However, he said more work could be done as one of the “most severe and inflexible” penalties still remains – the penalty for failing the SMSF residency test.
Mr Burgess noted that the loss of complying fund status for breaching the SMSF residency rules in s 295-95(2) of the ITAA 1997 is significant, particularly when you consider that the “active member test” is a difficult test to understand and apply and many breaches are inadvertent. Hopefully, the SMSF industry will have the opportunity to push for a more flexible penalty regime in this area during financial sector review, Mr Burgess said.
[LTN 33, 19/2/14]
Extract from the Income Tax Assessment Act 1997
295-95 – Deductions related to contributions
(e) * RSA providers.
Note 2: Examples of contributions that are not assessable are:
* contributions which the contributor cannot deduct;
* contributions excluded from assessable income under Subdivision 295-D.
(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and
(b) at that time, the central management and control of the fund is ordinarily in Australia [see ss(4)]; and
(a) a contributor to the fund at that time; or
(ii) who is not a contributor at that time; and
(iii) for whom contributions made to the fund on the individual‘s behalf after the individual became a foreign resident are only payments in respect of a time when the individual was an Australian resident.
(4) To avoid doubt, the central management and control of a * superannuation fund is ordinarily in Australia at a time even if that central management and control is temporarily outside Australia for a period of not more than 2 years.