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.
Source: SPAA media release, 19 February 2014
[LTN 33, 19/2/14]
Extract from the Income Tax Assessment Act 1997
295-95 – Deductions related to contributions
(1) Provisions of this Act about deducting amounts apply to these entities as if all contributions made to them were included in their assessable income:
(a) * complying superannuation funds;
(b) * non-complying superannuation funds that are * Australian superannuation funds;
(c) * complying approved deposit funds;
(d) * non-complying approved deposit funds;
(e) * RSA providers.
Note 1: This means that the entities can deduct amounts incurred in obtaining the contributions.
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.
(2) A * superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:
(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
(c) at that time either the fund had no member covered by subsection (3) (an active member ) or at least 50% of:
(i) the total * market value of the fund’s assets attributable to * superannuation interests held by active members; or
(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;
is attributable to superannuation interests held by active members who are Australian residents.
(3) A member is covered by this subsection [viz: is an ‘active member’] at a time if the member is:
(a) a contributor to the fund at that time; or
(b) an individual on whose behalf contributions have been made, other than an individual:
(i) who is a foreign resident; and
(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.