SuperStream Update


Use SuperStream to cut super admin by 70%


 

Did you know that SuperStream is cutting the time small businesses spend on super administration by around 70%?

With 2016 on the horizon, the Australian Taxation Office (ATO) is encouraging small businesses to cross SuperStream off their 'to-do' list ahead of the 30 June deadline and reduce time spent on super administration.

With only two quarters left until SuperStream becomes mandatory, now is the time for small businesses to make the change and ensure their system is running smoothly before the deadline.

According to the ATO, over a quarter of a million small businesses have already adopted SuperStream. Once set-up, SuperStream is reducing the time they spend on super by around 70%. Depending on the size of the business, this means saving anything from about 1.5 hours to a whole day's effort each payment cycle.

If December and January mark quieter periods for your business, now is a great opportunity to check that your SuperStream option is ready, whether that be your payroll software, your super fund's online payment system, or a clearing house, like the ATO's Small Business Superannuation Clearing House. You can also ask your accountant or bookkeeper for help.

Importantly, you should collect the necessary employee identification data – being your employees' TFNs and their funds' unique super identifiers (USIs) - and enter it into your system ahead of the next quarterly due date on 28 January. That way, you have time to check that things are running smoothly before the deadline.

Your employees can find their fund's USI on their super statement or by calling their fund. You can also find these details using the ATO's Super Fund Lookup website.

If you aren't sure how to prepare for SuperStream, you can visit the ATO's online employer checklist. You can also ask your accountant, bookkeeper, payroll provider, clearing house or super fund for help.

The ATO provides the following links to help small businesses get ready:

·         A step-by-step checklist www.ato.gov.au/SuperStreamChecklist

·         Super Fund Lookup website

·         A short animated video

Breakout box: what is SuperStream?

SuperStream is the new way of making super contributions. Under SuperStream, employers must send super contributions electronically in a standard format, with linked data and payments.

SuperStream becomes mandatory for small employers (those with 19 or fewer employees) on 30 June 2016.

For more information, or a handy checklist, check out ato.gov.au/superstreamchecklist

Eligible employers can also use the Small Business Superannuation Clearing House to comply with SuperStream: ato.gov.au/sbsch

 

Breakout box: what employers are saying about SuperStream

More than 350,000 employers, including 250,000 small employers, are already using SuperStream. Here's what they have to say.

Debbie Pyne, Payroll Officer, Salt House Restaurant, QLD

"SuperStream is saving us a significant amount of time each month. It would normally take up to 1.5 days to complete our employees' monthly super. It is now an hour or two maximum per month.

"While the initial set-up for SuperStream had its challenges from gathering the data etc., this time investment has now paid off.

"We have been saying how easy it is to do super now, because (SuperStream) is so efficient."

Jan Morey, Owner, Sorrenberg Vineyard, Victoria

"I used to sort super out online via each fund's website. Our accountant told me about SuperStream and mentioned the upcoming deadline. Now I'm using SuperStream via the Small Business Super Clearing House. It's free and I make quarterly super contributions to three employees, two full-timers and one part-timer, and I've made three payments so far. I cannot imagine how those with even more staff would sort super out without SuperStream; it's so much easier."

Ange Hopkins, Director, Cherry Bomb Hairdressing

"(It's) definitely an easier way to make payments that has reduced the super processing time. I don't have to log into different sites to make different payments, it's seamless.

"Processing time is now five minutes rather than 45 minutes. It's hugely improved the time. The bigger the organisation, the better the streamlining."


 

 

What is Required in an Investment Strategy?

 

What is Required in an Investment Strategy?

As a trustee of an SMSF you are required by law to formulate and implement an investment strategy and review it on an ongoing basis. Specifically subregulation 4.09(2) of the Superannuation Industry (Supervision) Regulations 1994 specifically states the following:

The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:

(a)    the risk involved in making, holding and realising, and the likely return from, the entity's investments, having regard to its objectives and expected cash flow requirements;

(b)   the composition of the entity's investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification;

(c)    the liquidity of the entity's investments, having regard to its expected cash flow requirements;

(d)   the ability of the entity to discharge its existing and prospective liabilities; and

(e)   whether the trustee of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.

Where the above requirements are not fulfilled the SMSF auditor is required to inform the ATO via an Auditor Contravention Report. 

Importantly this regulation falls under the operating standards of the Superannuation Industry (Supervision) Act 1993 and therefore is subject to the new penalty regime imposed by the ATO from 30 June 2014. This holds a possible charge of $3,400 per trustee so it is very important to follow the requirements set out above.

 

SMSF's lending money to members of the fund and related parties is specifically prohibited by the guiding legislation: Superannuation Industry (Supervision) Act 1993. Trustees must understand that providing loans or financial assistance to members and their relatives is not permitted.

The reason for this is because the purpose of the SMSF is to provide benefits to the members of the SMSF upon their retirement or death. Therefore providing benefits prior to this time is not allowed.

A relative of a Self Managed Superannuation Fund include a members or member spouses:

  • Parent;
  • Grandparent;
  • Brother/Sister;
  • Uncle/Aunt;
  • Nephew/Niece;
  • Lineal descendants; or
  • Adopted Child

Approximately 25% of all breaches reported by SMSF Auditors involve loans to members or member's relatives. With this alarming statistic the Australian Taxation Office (ATO) is now targeting this breach heavily.  

Recently the ATO issued a new compliance regime which has a breach of this nature attracting up to 60 penalty points or $10,200 per trustee so if an SMSF had 4 trustees the penalty would be 4 x $10,200 or $40,800. Please note this is payable by the trustees themselves and cannot be paid by the SMSF's assets.

Additionally the ATO can issue a rectification directive which will set out how the trustees must rectify the breach.

Remember it is you as the Trustee of your SMSF that is ultimately responsible and therefore you must make sure you understand your duties, responsibilities and obligations.

 

 

Should your SMSF have a corporate trustee?

Statistics provided by the ATO indicate that 73% of all SMSFs in Australia have individual trustees and 90% of newly established SMSFs are established with individual trustees.

However, the benefits of appointing a company as trustee of an SMSF easily justify the initial cost of acquiring the corporate trustee and the annual ASIC fee.

What are the advantages?

Appointing a corporation to act as trustee of your SMSF has advantages in the following areas:

-Succession planning;
-Ease with which additional members/directors can be appointed and removed;
-The SMSF is often in a better position to borrow money for the acquisition of investment assets (limited recourse borrowing  arrangement);
-Greater privacy and greater convenience; and
-Reduction in personal risk that comes with being a trustee who is a legal natural person.

Are there personal risks from being an individual trustee?

While being a corporate trustee does not make you risk immune it is something you need to consider when making the decision for or against.

In the case of Shail Superannuation Fund v Commissioner of Taxation [2011] the individual trustees, Mr and Mrs Shail, held assets exceeding $3.46 million within their SMSF. Mr and Mrs Shail were both individual trustees and members of this fund. After encounter some relationship difficulties Mr Shail withdrew the whole $3.46 million of SMSF assets and left the country.

As Mr and Mrs Shail had not yet satisfied a condition of release for the fund assets, the Australian Taxation Office issued a notice of non-compliance and assessed the trustees of the fund for $1.58 million in tax payable, plus penalties of $1.47 million. As a co-trustee, Mrs Shail was now liable for the liabilities incurred in this process.

Mrs Shail was now left with a debt in excess of $3 million for which she was personally liable to pay and is likely to face bankruptcy proceedings in the future, resulting in the loss of any property and assets that she owns in Australia, including any family home.

Personal liability arising from the liabilities of an SMSF

This case above clearly shows the principle that co-trustees are jointly and severally personally liable for the liabilities of an SMSF.

This can be potentially disastrous to individual trustees, particularly where:
-They own valuable assets outside their SMSF, in their personal names, including the family home;
-The SMSF owns 'real' property and an accident occurs on that property where legal action follows; and
-The regulatory body fines or assesses other taxes or liabilities.

Whilst the use of a corporate trustee cannot extinguish all possible liability situations the appointment of a corporate trustee can go a long way towards protecting the personal assets of a trustee.

Should all SMSF's have a corporate trustee?

For any one of the reasons above the cost of registering a company far outweighs the savings which might be made from being an individual trustee. Additionally the convenience by which changes in membership can be achieved and the personal liability protection which results by using a corporate trustee seems to weigh in its favour.

Appointing a corporate trustee ensures that in the event of a liability arising, the corporate trustee bears that liability instead of the individual trustees. This is something members should consider when weighing up their options. When establishing an SMSF and before making any decisions it is extremely important that you make an appointment and get advice from a professional so that you get it right the first time. I am happy to answer any queries you may have and can be contacted on the supplied details.



Sole Purpose Test

The sole purpose test is defined in Section 17A of the Superannuation Industry (Supervision) Act 1993 (SISA). Briefly the sole purpose test is a test that ensures a superannuation fund is maintained for the purpose of providing benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies.

If a super fund trustee, a super fund member or relative enjoys a direct or indirect benefit before retirement from a super fund's investment, that is, more than an incidental or insignificant benefit, then it is probable that the super fund has breached the sole purpose test.

A great ATO publication to read is SMSFR 2008/2: The application of the sole purpose test this outlines the ATO's view and gives examples of specific scenario's where there has been a breach of the sole purpose test.



Setting up a Self-Managed Superannuation Fund

There are legislative and trust law requirements that must be considered when setting up a Self-Managed Superannuation Fund (SMSF). We would suggest that you consult a professional advisor for assistance in the set-up of your SMSF and to ascertain whether it is the right choice for your situation.

Below is a simple list of the steps required to set up an SMSF:

  1. Decide if your SMSF will have a corporate trustee or individual trustees; for further information on this decision please see our post on "Should your SMSF have a corporate trustee?"
  2.  Execute a trust deed for your SMSF, stat sets out the rules for your SMSF. In summary your deed may include the following:
    a. The name of the SMSF;
    b. The trustees of the SMSF;
    c. Membership eligibility; and
    d. Conditions relating to the acceptance and payment of benefits.
  3. Have the deed registered at your state revenue office;
  4. Elect for your SMSF to received tax concessions and obtain a tax file number. Electing to be regulated under the Superannuation Industry (Supervision) Act 1993 (SISA) needs to be done within 60 days of your SMSF being established. You will need to read the instructions and complete the form "ABN Registration for Superannuation Entities".
  5. Open a bank account in the name of all trustees on behalf of the fund. Please note that the structure must be strictly adhered to as a requirement of the SISA is that all assets of the fund must be held separately from those of the trustees.
  6.  Draw up an investment strategy for the fund. This strategy should consider life insurance for all members and clearly state the SMSF's objectives and how these will be achieved. Often benchmarks are used to show the ratio of the assets to be held by the fund.
  7.  Administer the fund. I.e. accept contributions, make investments, enter into contracts to buy and sell assets of the fund and make payments to members as required by the deed.
  8. Have financial reports prepared and audited annually as required by the SISA.
  9. Comply with other administrative obligations such as record keeping and lodgement of superannuation annual returns.

Further information can be found by downloading the ATO publication "Setting up a Self Managed Super Fund".



Definition of an SMSF

There are 3 kinds of SMSF those consisting of individuals, single member and those known as corporate whereby a company is trustee.

Individual Trustees

  • Consists of 4 members or less
  • No member is an employer of another (unless related).
  • Each member is a trustee
  • Trustees are not paid for being trustees

Who Cannot Act as a Trustee of a SMSF- section 120 (1) SISA:

  • Anyone who is disqualified meaning:
  • Convicted;
  • Has a civil penalty order against them;
  • Is an undischarged bankrupt; and/or
  • Is disqualified by a regulator

Corporate Trustees

  • Each member is a director of the company.
  • Trustees are not paid for being trustees
  • No director receives remuneration for services to the fund
  • No member is an employer of another (unless related).

A Company Cannot Act as a Trustee under subsection 120 (2) SISA if:

  • A responsible officer is disqualified
  • A receiver and or manager or provisional liquidator has been appointed to the company
  • The company is winding up

Single Member

  • Must have 2 individuals as trustees as long as:
  • The member must be a trustee
  • The other trustee must be related or any other person provided they are not an employee
  • No payments to be received for services to the fund

Corporate Trustee Single Member

  • Only 1 member and trustee required ie 1 individual
  • No payments to be received for services to the fund
  • Member must be the director or one of two directors of the company the second director being either related or any other person provided they are not an employee.