February 2022 - Practical Systems Super

Director IDs and Corporate SMSF Trustees

Feb 25,2022 Comments Off

If you have a self-managed super fund (SMSF) with a corporate trustee, then you need to be aware of the new requirement to apply for and obtain a Director Identification Number (Director ID).

The introduction of Director IDs is part of ongoing attempts to modernise and streamline record-keeping systems used by the government, including details on directors of companies. Essentially this new system is designed to improve the integrity of records that are kept.

The measure is also part of a wider government crackdown on illegal activity. It is hoped that recording the identity of company directors will increase the transparency of companies and discourage illegal activity.

While all directors of companies and registered Australian bodies are affected, this article will focus solely on how these changes relate to SMSFs with a corporate trustee and the process required to comply with the new requirements.

Keep in mind that all members of an SMSF with a corporate (company) trustee are required to be a director of that company.

Also note that the same registration requirements apply if you are acting as a trustee (director) in place for another person under an authority given to you (such as an enduring power of attorney or guardianship arrangement), or where you are acting as an alternate director for a company.

What is a Director Identification Number?

A Director ID is a unique 15-digit identification number given to a director after they have verified their personal information and identity with the Australian Business Registry Services (ABRS).

As mentioned earlier, a Director ID will then be used to verify the identity of directors when dealing with government departments. Overall, it should assist in streamlining the process to identify an individual.

Once issued, the Director ID then ‘attaches’ to the applicant and will remain in place throughout their life. So only the one Director ID can be applied for and issued per individual.

A Director ID will remain attached to your records even if you resign as a director or leave Australia.

When do you need to apply?

This will depend on when you were appointed as a director of the corporate trustee for your SMSF.

Before 31 October 2021: If you were appointed as a director before 31 October 2021, you will need to apply for your own unique Director Identification Number by 30 November 2022.

Between 1 November 2021 and 4 April 2022: If you were/are appointed as a director between these dates, you will need to apply within 28 days of being appointed.

If you are setting up an SMSF with a corporate trustee after 4 April 2022, then you will need to apply for and obtain your own unique Director ID before the SMSF and corporate trustee can be established.

It is important to note that you will need to go through the Director ID application process yourself. No one else can complete the application process for you. If you have a professional that assists you with your SMSF, such as an accountant or tax agent, then they are not allowed to apply for a Director ID for you. It would however be prudent to inform your accountant or tax agent once you have obtained your Director ID.

How to apply

Applications can be made using one of the following processes:

Online through the ABRS website
Telephone
Paper application form.

The information required to complete the application will depend on which process you use. Details of these requirements are provided below.

Online application through the ABRS website

This is the quickest way to apply for a Director ID, but you must have a myGovID account already set up. Note that this is different to a myGov account.

myGovID is an app that you can download to your phone or tablet designed to confirm your identity with different online government departments.

Step 1: If you don’t have a myGovID set up, click here first and follow the required process. Once completed, go to Step 2.

Step 2: If you already have a myGovID set up, click here. You will then need to login to myGovID and follow the required process under ‘Apply now with myGovID’.

Step 3: Provide relevant details and supporting information.

Information you will need to have at hand:

Your Tax File Number (TFN)
Details of your residential address
Two sources of identity verification documentation including:
- Bank account details (BSB and account number) where interest has been earned or where a tax refund has been paid into by the ATO
- An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
- A dividend statement from the last two years. You will need your investor reference number
- A Centrelink payment summary
- A PAYG payment summary.

Telephone application

Step 1: Phone 13 62 50 from within Australia. If you are overseas, phone +61 2 6216 3440.

Step 2: Provide all relevant information as requested during the call.

Information you will need to have at hand:

Your Tax File Number (TFN). This is optional but using your TFN can expedite the application process
Details of your residential address
Two Australian identification documents including:
- One primary document: Australian full birth certificate, Australian passport, Australian citizenship certificate, ImmiCard or Visa
- One secondary document: Medicare card, Australian driver’s licence
Confirm your identity by responding to two questions based on information already known about you
Acceptable identity verification documentation including:
- Bank account details (BSB and account number) where interest has been earned or a tax refund has been paid by the ATO
- An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
- A dividend statement from the last two years. You will need your investor reference number
- A Centrelink payment summary
- A PAYG payment summary.

Paper application form

Step 1: Go to the ABRS website and download this form.

Step 2: Gather the information specified on the form.

Step 3: Complete the form with all required information.

Step 4: Sign the declaration at the bottom of the form.

Step 5: Send the form with certified copies of required documents to:

Australian Business Registry Services
Locked Bag 6000
ALBURY NSW 2640
Australia

Final thoughts

The Director ID system does not replace any of the existing requirements around updating company records. The existing requirements to inform and update ASIC on changes to company details will continue.

You may want to consider applying for your Director ID before the required ‘due date’ as there will be a large number of applications around those dates. It would be prudent not to leave your application to the last minute.

Source: Superguide.com.au

ATO statistics reveal pandemic’s impact on SMSF investments

Feb 18,2022 Comments Off

The financial impact of COVID saw the majority of SMSFs record either zero or negative returns for the 2019-20 income year, according to the ATO’s latest statistical overview.

The ATO has released its annual statistical overview of SMSFs for the 2019-20 financial year based on SMSF annual returns.

In response to feedback, the ATO stated that it had revised its approach to the way it calculates SMSF investment performance or return on assets (ROA).

The Tax Office stressed, however, that the investment returns data in the overview is only an indicator of performance across the SMSF sector and is not a direct comparison to APRA fund investment performance as the data inputs and methodology used are different.

The ATO statistics indicate that the average return ROA for SMSFs was 0.7 per cent for the 2019-20 financial year.

This was a decrease from an average return of 7.3 per cent in 2018-19 and 3.7 per cent in 2015-16.

The median ROA for SMSFs was -1.6 per cent, down from 4.3 per cent in 2018-19 and 0.2 per cent in 2015-16.

The statistics indicate that while the proportion of SMSFs recording a zero or negative return on assets had improved from 48 per cent in 2015-16 to 26 per cent in 2018-19, it then “plummeted to 61 per cent in 2019-20”.

“This drop in 2019-20 is most likely due to the effect of COVID-19 on financial markets during the last quarter of the 2020 financial year,” the ATO explained.

The proportion of funds with a ROA of greater than 5 per cent increased from 18 per cent in 2015-16 to 46 per cent in 2018-19 but then dropped to 16 per cent in 2019-20.

SMSF expenses see dip in 2019-20

The ATO statistics indicate that SMSF expenses saw a slight dip in the 2019-20 income year, with the average total expense ratio sitting at 1.16 per cent or $15,300, down 4 per cent from $15,900 in 2018-19 and up 10 per cent from $13,900 in 2015-16.

Median total expenses were $8,200, the same as in 2018–19 and up 16 per cent from $7,100 in 2015-16.

The ATO noted that SMSFs in the retirement phase incurred lower total expenses on average than funds solely in the accumulation phase. Total expenses on average for retirement phase SMSFs were $14,300, while accumulation phase funds incurred total expenses of $16,100 on average.

“Average operating expenses were $6,200, down from $6,400 in 2018-19, and the same as 2015-16,” the ATO said.

The ATO stated that while the average total expense ratio is highest for lower-balance SMSFs, the total dollar value of average and median expenses increased as fund size increased.

“For example, in 2019-20 in the $1 to $50,000 asset range the average total expense ratio was 17.6 per cent, average expenses were $4,400 and median expenses were $2,000,” the Tax Office stated.

“In the greater than $2 million asset range the average total expense ratio was 0.7 per cent but average expenses were $28,600 and median expenses were $15,900.”

Source: SMSF Adviser

Transferring Super to your spouse or partner

Feb 8,2022 Comments Off

There are a few ways to transfer super to your spouse or partner, but you need to understand the correct way to do so and the risks of doing so. Furthermore, knowing the benefits of doing so can help you determine whether you should be doing it all.

Transferring super to your husband, wife or partner is possible, but not as simple as transferring it from one account to another. Specific rules need to be followed so that an effective transfer can take place.

There are three ways of transferring your superannuation to your spouse:

Contribution Splitting
Spouse Contributions
Withdrawal & Recontribution

Your ability to implement either of these will depend on your age, employment status, super balances and type of contributions.

What is Contribution Splitting and How Does it Work?

Contribution splitting allows you to split up to 85% of the concessional contributions made into your super account over to your spouse’s superannuation account.

A concessional contribution includes employer SG contributions, salary sacrifice contributions and personal concessional contributions.

A spouse under age 67 is permitted to receive spouse split contributions. A spouse aged between 67 and under 70 can only receive spouse contributions if they meet the superannuation work test.

Even though spouse split contributions end up in your spouse’s super account, they will not count towards your spouse’s contribution caps; the original contribution will simply count towards your concessional contribution cap.

Benefits of Spouse Splitting Contributions

Some benefits of spouse splitting include:

If the recipient spouse is older, they may be eligible to access their super earlier.
Spouse splitting contributions can help equalise super balances and/or help the contributing spouse remain under certain caps such as the $1.7M transfer balance cap, the $300,000 work test cap, or the $500,000 concessional carry-forward cap.

Disadvantages of Spouse Splitting Contributions

Some disadvantages of spouse splitting include:

If the recipient spouse is younger it may take longer before the contributions can be accessed.
Your spouse will become the beneficial owner of the split contributions, which may be difficult to recoup in the event of a marriage or relationship breakdown.

What Are Spouse Contributions and How Do They Work?

While spouse contributions are not a transfer of super from one spouse to another, they do provide benefits and are somewhat in the same realm of what we’re discussing, so I thought I would include them for completeness.

Spouse contributions are non-concessional contributions made from your personal bank account into your spouse’s superannuation account.

You can contribute as much as you like into your spouse’s super account up to their available non-concessional contribution cap for the year.

However, if you are making a spouse contribution purely for the benefit of receiving a spouse contribution tax offset, then the maximum you would contribute is $3,000 each year.

Benefits of Spouse Contributions

A spouse contribution provides the contributor with a tax offset of 18%, up to a maximum of $540. The maximum tax offset is available if the recipient spouse has an income below $37,000 for the year. A partial tax offset is available if the recipient spouse earns up to $40,000 for the year.

Disadvantages of Spouse Contributions

The only real disadvantage of a spouse contribution is that you will be contributing personal funds into superannuation, which will not be accessible until the recipient spouse is eligible to access their super.

What is Withdrawal & Recontribution and How Does it Work?

A withdrawal and recontribution strategy is only available if you are eligible to access your super. Furthermore, it is usually only beneficial if you are able to access your super tax free.

To perform a withdrawal and recontribution strategy with the intention of transferring money to your spouse’s super account, you could withdraw some or all of your super in the form of a lump sum or income stream, if eligible. Then, once the withdrawal has been received in your personal bank account, your spouse could contribute it into their super account as a concessional or non-concessional contribution.

Importantly, you want to be certain of any tax consequences that may be incurred in withdrawing your super. Also, you and your spouse will need to understand any limitations of them contributing into their account, such as contribution caps and age limits for superannuation contributions.

Benefits of a Withdrawal & Recontribution to Spouse’s Super

Some benefits of withdrawal and recontribution include:

Contributing to a younger spouse’s super account can equalise account balances, which can be beneficial for long-term retirement planning and protection against potential future changes in legislation targeting higher account balances.
Contributing to a younger spouse’s super account can reduce assessable income and assets for Centrelink purposes, if the older spouse is above Age Pension age and the younger spouse is not.
Withdrawing from your higher account balance to a spouse’s lower account balance can help you remain under certain caps such as the $1.7M transfer balance cap, the $300,000 work test cap, or the $500,000 concessional carry-forward cap.

Disadvantages of a Withdrawal & Recontribution

Some disadvantages of withdrawing and contributing into a spouse’s account include:

It may prolong the length of time before being able to access funds if the recipient spouse is younger.
It may cause assets and deemed income to be assessed sooner for Centrelink purposes if the recipient spouse is older.
Withdrawing large amounts and contributing them could have capital gains tax (CGT) implications, incur transaction costs and be impacted by time out of the market.
Your spouse will become the beneficial owner of the recontributed contributions, which may be difficult to recoup in the event of a marriage or relationship breakdown.

Can I Gift Super To My Spouse?

You are unable to gift your superannuation to your spouse. However, if you are eligible to access your super, you can withdraw some super into your personal bank account and then gift it to your spouse.

Written by Chris Strano
superguy.com.au

1800 951 855

[email protected]

Archive February 25, 2022