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How Super Rules Change with Age

NSW Payroll Tax

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Payroll tax is a blind spot for many. 

Do I Have To Pay NSW Payroll Tax?

The business is growing. You hire more staff and contractors. And suddenly payroll tax is an issue – a huge issue – an issue you didn’t see coming.

Rough Estimate

To assess whether payroll tax is an issue for you or not, start with a rough estimate. Add up everything you pay for workers – anything you pay for work to get done – wages, paid leave, super, contractor payments, other benefits everything. Does the total in that bucket exceed $1m?

If you are well below $1m, then don’t worry about payroll tax. If you might be getting close, have a closer look

Two Baskets

To work out whether you need to pay payroll tax or not, you need to separate your workers into two groups.  To make this easier imagine two baskets.

Put all your individual workers into the first basket. Individual workers are those who receive a wage from you. And they are those who gave you an ABN in their own name, so no partnership, trust or company involved.

And then you put everybody else into the second basket. Everybody working for you through a partnership, trust or company.

FIRST Basket – Individual Workers

Now you start looking more closely at the individuals sitting in your first basket. Those receiving a wage or working as sole traders.

You look at the totality of relationship. That is the key phrase – totality of relationship. You look at each individual and assess the totality of your relationship with them or their relationship with you – whichever way you look at it.

Totality of relationship means that you don’t just consider one factor, but the total – all six factors together. You look at the total relationship.

A worker is your contractor if they are:

1   –  Able to delegate – they arrive in a team
2  –  Paid for a result, not time – they fix problems at their own cost
3  –  Provide their own tools to complete the work
4  –  Bear the commercial risk – they can make a loss
5  –  Have control over their work – when and how
6  –  Independent of you – you don’t tell them what to do

If considering these six factors somebody looks like a contractor, move them to the second basket. Otherwise leave them in the first basket.

Moving into the second basket is good. You want that. It means you get a second chance. Because everybody left in the first basket is subject to payroll tax.

SECOND Basket – Contractors

Now you look at the second basket. Your contractors – those who work for you through a partnership, trust or company as well as those who came from the 1st basket.

Your aim is to get everybody out of this 2nd basket. But you can only take them out, if one of the 7 exemption applies.

These exemptions are about all or nothing. An exemption either applies to a contract or it doesn’t apply. There is no pro-rata thing going. One day over – gone.

So you go through these 7 exemptions for each contractor. If an exemption applies, great – you can take them out. If none applies, you leave them in there.

# 1  Services Ancillary to the Provision of Goods

It is all about the goods. The labour provided under the contract is ancillary to the supply or use of goods.  

Think of the glazier who delivers and installs the new state-of-the-art glass panels. It is all about the panels. The glazier installing them is just the side show.

# 2  Services Not Ordinarily Required

Your business doesn’t ordinarily require these services. And the contractor supplies the same type of services to the general public in that year.

Think of a plumber who comes to the site once-off to repair a broken pipe. You usually don’t have a broken pipe. And the plumber has plenty of other customers on other sites.

# 3  Services Required For Less Than 180 Days 

The business ordinarily only uses these services for 179 days a year or less. So this is about the service itself. Not the worker. Think of a ski-resort that only needs road clearing for 179 days a year. 

# 4  Services Provided For Less Than 90 Days

This is now about the worker, not the service itself. The worker works for less than 90 days in a financial year. Think of a virtual CFO who only comes  for a day each month.

# 5  Services Generally Supplied To the Public

This exemption only applies if the Chief Commissioner says so. So you need to specifically apply for this one.

This exemption applies when satisfied – based on evidence provided – that the contractor actually provided that type of service to the general public during the financial year. 

# 6  Services Performed by Two or More People

The contractor doesn’t arrive alone but brings at least one other person to help them. Think of the arborist who needs another person to hold his safety lines.

These six exemptions apply across Australia (apart from WA). That is why they are called the ‘six general provisions’.  But there is one more. One specific exemption that only applies to NSW.

# 7  Services Provided by an Owner-Driver

The contract is solely for the conveyance of goods in a vehicle provided by the contractor. The contractor must own or lease the vehicle and must not be an employee. Think of the truck driver who delivers cement for you in their own truck. 

Numbers’ Game

The rest is now just a numbers’ game. You add up everything you pay for the individuals left in the 1st basket and the contractors in the 2nd basket.

And if the total exceeds $1m*, you pay payroll tax. That is why you try to get everybody out of the 1st basket into the 2nd basket and then everybody out of the 2nd basket. That is why you try. 

As part of the NSW COVID-19 Stimulus Package there is no payroll tax during the corona virus crisis until 30 June 2020.

* The threshold for payroll tax is $1m from 1 July 2020 onwards. Lower thresholds apply to the years before that.

 

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Accounting Set Up

Tax Deduct a Business Lunch

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

 

minor benefit rule

Tax Deduct a Business Lunch

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How to tax deduct a business lunch. Or breakfast meeting. Or morning and afternoon tea. Or dinner.

Tax Deduct a Business Lunch

Most accountants will tell you that you can’t tax deduct a business lunch, nor a breakfast meeting, nor morning or afternoon tea, nor a business dinner. It is all entertainment. And hence not deductible.

And they are right. BUT…..

There are 5 back doors – FIVE – wide open – that allow you to claim a tax deduction nevertheless.

Backdoor #1   The 4W Test

This is the biggest door of all. Think garage door. And this door exist thanks to TR 1997/17. You have probably never heard of this tax ruling and will never again. But it is your best chance to claim a tax deduction for a meal.

TR 1997/17 allows you to tax deduct a meal if the expense passes the Why, What, Where and When test. So let’s call it ‘The 4W Test’.

If the Why, What, Where and When indicate that the dominant purpose of the meal was business, then it doesn’t count as entertainment.

The Why and What carry the most weight. You must get those right. And then you need at least one more – the Where or the When – or even better both.

WHY did you have it? Taking a client out to lunch means business. Taking out a friend doesn’t.

WHAT did you have? Something purely functional like sandwiches and coffee means business. A three-course meal doesn’t. 

WHERE did you have it? Business premises means business. Off site weakens your argument, but doesn’t kill it if the When supports your argument

WHEN did you do it?  During business hours means business. At night doesn’t.

So if your meal ticks at least 3 boxes, it is a business expense and hence not entertainment. And so it is tax deductible.

Backdoor #2    Sustenance

If you have a simple meal on business premises without alcohol, the ATO will count it as sustenance as long as it is finger food. Think of  a working lunch in the board room with sandwiches and tea, a morning tea in the staff room with muffins and coffee or an all-nighter at your desk with pizza and coke.

Sustenance doesn’t count as entertainment, but is a business expense, hence tax deductible.

Backdoor #3    FBT

If you pay FBT for an expense – any expense – then you can tax deduct that expense even if it is entertainment.

So whenever you pay FBT for a meal, you can tax deduct that portion of the expense that was subject to FBT.

Backdoor # 4    Sudiv 32-B

And then there is another door but a really tiny one. Certain entertainment expenses are tax deductible thanks to exceptions listed in Subdiv 32-B..

This subdivision is long and confusing with tricky details and a long list of exceptions. So we run a real risk of boring you with this one.

So below we have just listed a few to give you an idea, but please email or call if you want to try and fit through this tiny door.

You can tax deduct a meal if it falls under certain employer, seminar, promotion and advertising or other expenses. There is also a specific exception for businesses in the entertainment industry. 

If you provide a lunch in an in-house dining facility, that expense might be tax deductible per s32-30.  The same might apply to food or drink that would be subject to FBT but is not due to certain exemptions in the FBT Act. If you provide a business lunch at a seminar that lasts 4 hours or more, you can deduct these entertainment expenses per s32-35.  If you provide a lunch to promote or advertise your goods or services – a product lunch for example – you may be able to claim a deduction per s32-45, but only if ordinary members of the public have an equal chance to attend your event.

Back Door # 5    Travel

And then there is travel. All bets are off when it comes to travel. When you travel, you can have as lavish a meal as you like and it still counts as a business expense. Just stay off the booze. Alcohol and business don’t mix in the eyes of the ATO.

GST

If your lunch is tax deductible for income tax purposes, then you can also claim the input tax credit in your BAS. But if it isn’t, then you can’t

GST just follows what you do for income tax. Whatever is tax deductible as a business expense, gives you an input tax credit (as long as it is a taxable supply).

 

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NSW Payroll Tax

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

Super Death Tax

Super Death Tax

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There is no inheritance tax in Australia. But there is super death tax.

Super Death Tax

Super death tax can be a nasty surprise for your family when they are at their most vulnerable. So best to be avoided.

Who Gets Your Super

When you die, you leave your super behind. Your left-over super goes to your SIS dependants or your estate. That’s it. SIS dependants or estate. We cover all this in Who Gets My Super. 

Once this is clear, the next issue rears its head – tax.

How Much Tax

Your super might not arrive alone. It might arrive with a hefty tax bill in tow. The dreaded super death tax. To understand super death tax, you need to remember one thing. Your super had a good run. Tax deductions for contributions and a 15% or 0% tax rate. That is a pretty good deal.

The legislator did all this to help you fund your retirement. And to help those dependent on you. But now that you are no more, the legislator wants those tax concessions back for the super you left behind. Your non-tax dependants are not deemed worthy of these concessions. 

The argument is that outside of super you would have paid an average 30% tax, not 0% or 15%. And so your left over taxable components going to non-tax dependants get hit with a top up.  Top up back to 30% plus Medicare. This top up is the dreaded super death tax. How badly it hits depends on four factors.

1 – Tax Dependancy

When your super goes to tax dependants as a lump sum – no super death. Your tax dependants depended on you and now your super is all they got.  So the legislator goes easy on them. No tax. They will get every cent of your super.

But everybody else – any non-tax dependant – pays super death tax. But who is a tax dependant and who isn’t?  

Your spouse and your children under 18 are your tax dependants. Anybody financially dependant on you or living with you in an interdependency relationship qualifies as your tax dependant as well. And this can include your adult children per ATO ID 2014/22.

By the way, the official term is ‘death benefits dependant’ per s302-195 ITAA97, but that is too long and so everybody just says ‘tax dependant’.

2 – Super Components

Your super consists of a tax-free and a taxable component.  We cover all this in Super Components. 

Your tax-free component won’t trigger any tax – tax dependant or not – ever. You paid your non-concessional contributions out of after tax income. So there won’t be another tax charge.

But your taxable component does trigger super death tax when paid to non-tax dependants. 15% for any taxed element and 30% for any untaxed element, both plus 2% Medicare levy. 

3 – Type of Payment

Your super needs to go when you go. And so it either leaves the super environment straight away as a lump sum. Or it goes into somebody else’s super account as a pension. Different rules apply to either.

The tax treatment of a lump sum depends on whether a recipient is a tax dependant or not. Tax dependants pay no death tax. Everybody else only gets the tax-free component tax-free, but pays super death tax on the taxable component – 15% for a taxed and 30% for a tax-free element.

The tax treatment of a pension on the other hand doesn’t depend on tax dependancy. Anybody receiving a pension is a tax dependant anyway since the rules overlap. It also doesn’t matter whether it is a reversionary or death benefit pension. The tax treatment is the same. For a pension it is all about age – how old is the beneficiary now? How old was the deceased at the time of death?

Both 60 or over – no tax. One of them 60 or over – no tax. Both of them under 60 – super death tax on the taxable component, but only until the beneficiary turns 60. 

4 – Medicare Levy

Whether or not the 2% Medicare levy applies on top of a 15% or 30% tax rate depends on how the death benefit is paid.

If it comes directly from your super fund, the 2% Medicare levy applies. If it comes via your estate, the levy doesn’t apply. This little detail can easily cost your adult child $20,000 on a $1m lump sum death benefit.

So these are the 4 factors that determine how much super death tax your beneficiaries pay when they receive your super.

Does all this make sense? Just call me if it doesn’t. There might be a simple answer to your query. 

 

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Super Fund

How Super Rules Change with Age

Super Contributions

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Super Contributions

Super Contributions

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You can contribute to your super – but how much and when depends.  Super contributions come with a lot of strings attached.

Super Contributions

There are three ways to grow your super:

1 – Contributions;
2 – Investment income;
3 – Transfers from another super account.

Investment income and transfers are relatively straight forward. They are what they are. Just make sure the investment income is at-arm’s-length.

But contributions come with a lot of ifs and whens. There is a mandatory and a voluntary part. Contributions are either concessional or non-concessional. And there are caps, work-tests and age limits.

Mandatory Contributions

It is mandatory for your employer to make minimum superannuation contributions on your behalf whenever they pay you $450 or more (before tax) in a calendar month. This is the superannuation guarantee (SG).

And it applies to all adult employees – full-time, part-time or casual – no matter your age with two exceptions.  While under 18, you must work more than 30 hours per week in addition to the $450 before you qualify. The same applies if you work in a domestic setting, for example as a cleaner or nanny.

The current SG rate is 9.5% but set to increase by 0.5% increments until it hits 12% from 1 July 2025 onwards.

Your employer has to pay 9.5% of what you usually earn each month, so your salary for your usual hours of work plus anything extra you usually get – for example commission, bonus, shift loadings or allowances. The official term is ordinary times earnings (OTE). Your OTE doesn’t include overtime.

Your SG entitlement is capped at $5,250.65 per quarter for 2019/20, equivalent to an OTE of $55,270. This is the maximum super contribution base (MSCB). Even if you earn significantly more, your employer only has to pay super up to the MSCB.

If your employer doesn’t pay your SG on time, they have to pay the superannuation guarantee charge (SGC) which consists of your SG payments plus penalties and interest.

Your employer’s SG payments count as a concessional contribution and so trigger a 15% contribution tax upon arrival in your super fund.

Voluntary Contributions

In addition to your employer’s SG payments, you can make additional contributions into super. You don’t have to, but you can. Voluntary contributions are also referred to as personal contributions.

They can be in cash or in-specie. A cash contribution is just a bank transfer. An in-specie contribution is when you transfer ownership of an asset. In-specie contributions are usually limited to SMSFs. Government, industry and retail funds are unlikely to accept in-specie contributions. 

Once you hit 65, you can only make voluntary contributions, if you work at least 10 hours per week, averaged over 30 consecutive days. So over 30 consecutive days you must work at least 40 hours. This is the dreaded super work test.

Once you hit 75, you can’t make any more voluntary contributions – even if you pass the work test – apart from the down-sizer contributions. 

Voluntary contributions are either concessional or non-concessional contributions.

Concessional Contributions

You can contribute up to $25,000 each year before-tax. Before-tax means that somebody claims a tax deduction, either you or your employer. This is called a concessional contribution.

Your employer’s SG payments count towards this cap, but you can use up any remaining cap space with additional personal contributions and claim a tax deduction. If you don’t use up the cap space in one year, you can use it over the following five years as long as your TSB is below $500,000.

Any concessional contributions will trigger a 15% contribution tax upon arrival within your super fund. If your total income plus super contributions exceed $250,000, then your concessional contributions will trigger an additional 15% Div 293 tax.

Non-Concessional Contributions

You can contribute up to $100,000 each year after-tax. After-tax means that neither you nor your employer claim a tax deduction, so this is called a non-concessional contribution.

Spouse contributions you receive count as non-concessional since they trigger a tax offset but not a tax deduction as such.

If you want, you can contribute 3-years’ worth of contributions in one hit. So instead of contributing $100,000 each year, you could contribute more in one year and then contribute less in the following two years, so that all up you don’t contribute more than $300,000 over 3 years.

Once your total superannuation balance (TSB) – so everything you have in super – hits $1.6m, you can’t make any more non-concessional contributions.

Non-concessional contributions don’t trigger any tax upon arrival in your super funds. 

So this is a short overview of what you can contribution when and how. If you get stuck, please call or email us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

superannuation

Superannuation

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Superannuation is for your retirement. You pay less tax to save more for later.

Superannuation

When you are old and no longer work, you hopefully have enough savings, superannuation or the age pension to live comfortably. But will you?

Saving for your retirement is tough – low wage growth, high marginal tax rates, HELP/HECS debt, mortgage, young kids, you name it – and so you probably won’t get far with this one.

Qualifying for the age pension is also tough and likely to get worse, since our current system is not financially sustainable for generations to come.

And so that means your super is all you will have left – unless you want to rely on family and friends, charity and welfare or crime and begging.

That is a lot of heavy lifting for your super to do. And so there are tax concessions to help you.

Less Tax

Your super comes with three tax concessions. You pay 15% tax on any income within super while in accumulation, 0% tax within super while in pension and 0% tax when you cash your super past 60 or 65 years of age.

This is what super is about. If these tax concessions didn’t exist, very few would consider contributing more than they absolutely have to.

Super Rules

Super comes with nice tax concessions, but also with not-so-nice strings attached. Especially four areas have the legislator’s full attention. How much goes into your super. What happens inside. How much moves into pension mode. And how much comes out. 

How Much Goes In

What goes into your super is called a contribution. There is a mandatory and a voluntary part. The mandatory part affects your employer. The voluntary part just you. 

It is mandatory for your employer to pay a superannuation guarantee (SG) on your behalf whenever they pay you $450 or more (before tax) in a calendar month. The current SG rate of 9.5% is applied to your ordinary earnings capped at the maximum super contribution base, which is $55,270 per quarter in 2019/20. These payments count as concessional contributions.

In addition to your employer’s SG payments, you can voluntarily make additional contributions into super (before-tax or after-tax) as long as you are below 65. Between 65 and 75 you can make voluntary contributions if you work at least 10 hours per week. 

Before-tax means that somebody receives a tax deduction – this is called a concessional contribution. Your concessional contribution is capped at $25,000 per year and triggers 15% or 30% tax upon arrival in your super fund.

After-tax means no tax deduction – so this is a non-concessional contribution. Your non-concessional contribution is capped at $100,000 per year and only possible while your superannuation balance (TSB) – so everything you have in super – is below $1.6m. Non-concessional contributions don’t trigger any tax upon arrival in your super fund.

What Happens Inside

What happens inside is all about investment rules. Your super is yours but you can’t do with it whatever you want. There are six rules that are to protect your super – from you and your Part 8 associates. They are especially relevant for self-managed super funds (SMSF) since an SMSF gives you plenty of opportunity for chummy deals with your mates.

You must pass the sole purpose test and act at arm’s length. You must keep in-house assets below 5% of total assets.  And you must neither acquire assets from related parties, nor acquire or hold assets for personal use, nor borrow money unless it is through a limited recourse borrowing arrangement (LRBA).

How Much Moves Into Pension Mode

How much moves into pension mode is all about transfer balance accounts and caps. Since funds in pension mode enjoy 0% tax, there is a cap on how much you can move into pension mode. That cap is $1.6m at the moment, but will increase with time.

What Comes Out

And how much comes out is all about conditions of release and benefit payments. The big draw-back of super is that you can’t access it for a very long time, usually until you hit 60 or 65. There are ways to access it earlier but those will cost you a fair bit of tax.

Super Fund

Your super is for your retirement. To keep it safe over all those years, it needs to go into a separate entity – a superannuation fund, also called a super fund.

You can join a government, industry or retail fund. Or you can set up your own superannuation fund – called a self-managed superannuation fund (SMSF).

A super fund consists of trustees and members. Trustees mange the fund and are the legal owners of any super assets, but hold these on behalf of members. 

In an SMSF, you as the member are also a trustee – either an individual trustee or a director of the corporate trustee.

And so this is a very short overview of superannuation. Super is a complex topic and a highly regulated area. Please call or email us if you get stuck. There might be a simple answer to your question.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

minor benefit rule

Minor Benefit Rule

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The minor benefit rule is the one exception that turns a non-deductible contribution into a deductible one. 

Minor Benefit Rule

When you make a donation and you pay way more than the minor benefit you get back, then you obviously did this to support the charity. And that should be rewarded through a tax deduction. This is the essence of the minor benefit rule.

The tricky point is what makes a benefit a minor benefit. What means minor? That is the point the entire rule evolves around.

Recap

Here is a quick recap in case you haven’t read Tax Deductible Donation.

A donation is either a gift or a contribution. A gift is tax deductible if it meets the six conditions listed in s30-15 ITAA97 and TR 2005/13.

A contribution is usually not tax deductible, but there are two exceptions – the general deduction in s8-1 ITAA97 and the minor benefit rule. 

The general deduction in s8-1 (1) ITAA97 allows you to claim a tax deduction whenever you pay for something to gain assessable income. To get brand exposure or to buy donor data for example.

The minor benefit rule in s30-15 ITAA97 allows you to claim a tax deduction for a contribution if your contribution qualifies as a tax deductible gift without being a gift and – in addition – meets five other conditions.

Minor Benefit Rule

For your contribution to be tax-deductible after all, it needs to pass two tests. It needs to pass the test for a tax deductible gift. That is the first test. Let’s call it the gift test.

But instead of being a gift – the first condition for being a tax-deductible gift – it needs to pass the additional five conditions of the minor benefit rule. This is the second test.

Gift Test

The contribution needs to be LIKE a tax-deductible gift …apart from the fact that it isn’t a gift. So it must meet all the conditions a gift has to meet per s30-15 ITAA97 and TR 2005/13, except the first one about receiving nothing in return. Roughly speaking, a gift is tax deductible if it meets the following conditions. It must be

1 – a gift – skip this one – a contribution fails this one by definition;
2 – of money or property;
3 – of sufficient value;
4 – made voluntarily;
5 – with a tax receipt;
6 – to a recipient with DGR status.

This is the first test.

Minor Benefit Rule

The second test is passing the minor benefit rule. To pass the minor benefit rule:

1 – You must be an individual and not a company, trust or partnership.
2 – The event must be a fundraising event or charity auction.
3 – If you claim the price of a ticket, you can only claim up to two tickets.
4 – You must only receive a minor benefit in return for your contribution.
5 – The relevant charity must run less than 15 events of this type per year.

Minor 

The core essence of the minor benefit rule is that the benefit you receive is only…MINOR. The thinking is that if you get way less than you paid for, then you must have done this to support the charity. And that should be rewarded with a tax deduction. 

But what is a minor benefit? A benefit is minor if it is worth $150 or less and you pay at least 5 times more than what it is worth. So there are two criteria – market value and payment.

Market Value

The market value of the benefit must be $150 or less. 

This is important. It means that whenever you buy something at a charity auction worth more than $150, the auction item won’t qualify as a minor benefit. The same applies to the tickets for a fundraising event. If it is worth more than $150, no minor benefit.

But remember this is not about what you actually pay for the ticket or item. It is about what it is worth – the market value of your ticket to the event. And the market value of the auction item you successfully bid for.

Payment

You must pay at least 5 times more than its market value.

And this is just as important. It means that if the venue charges $100 per head, then you must pay at least $500 for the ticket for it to qualify as a minor benefit. And if an auction item is worth $50, you must pay at least $250 for it.

The argument is that if you pay 5 times more for what it is worth, you clearly pay the money for other reasons than the benefit you get back. Your intentions are clearly altruistic.

How To Determine Market Value 

A benefit is worth its market value, which is what you would have had to pay for the same good, service or event on the open market. And if there is nothing else like this, then a similar or comparable good, service or event (price or market comparison).

And if it is impossible to make a reasonable price or market comparison, then the market value is assessed based on cost. Take the actual cost plus notional costs plus a certain profit margin and you get the market value (cost-based approach). 

So the value of a benefit is assessed based on market value or cost. Since it is the charity issuing the receipt, they are the ones that need to ultimately work this out. 

Subsidised Benefits

What happens if some benefits are subsidised and the charity didn’t actually pay for these? Makes no difference. Any benefit is assessed based on its market value or cost, even if part or all of the benefit was actually subsidised by another donor.

Let’s say a donor picked up the tap at the charity Gala dinner. So the charity only had to pay $50 per meal, but not the additional $60 per head for free drinks. What is the market value of the benefit received? The answer is $110.

Or another donor donated a range of items for the charity auction. The minor benefit rule still uses the actual market value, despite the fact that the charity paid nothing for these items.

Even if everything was donated – venue, meals, drinks, MC and auction items – it would still be the market value of all this that would go into the calculation. The fact that the charity didn’t pay for some of the benefit doesn’t change the market value or notional cost of that benefit.

Free Event

What happens if attendees don’t pay for the ticket to attend and are just asked for a donation, which they are free to make or not?  Then the entire payment is a donation and hence tax deductible as such. In this case you don’t need to worry about the minor benefit rule.

Splitting

The charity can’t split the ticket into event and gift. It can’t say $150 of the ticket is for the Gala dinner and the other $350 are a gift. Para 149 in TR 2005/13 is very clear on that one,

Para 149: Where DGRs conduct fundraising events such as celebrity dinners, gala events, $1,000-a-plate dinners, and so on, the price of a ticket cannot be notionally split between the value of the material benefit received, that is, the meal, and the amount which represents a gift. Where attendees are to pay a given sum of money in order to attend a function, no part of that sum can be considered a gift. This is so even where the cost of attendance is well in excess of the value of the meal received.

But the charity can charge the meal at market value and then ask for a donation. Para 151 in TR 2005/13 even suggests that,

Para 151: However, a fundraiser can offer tickets to a function for an amount which approximates its market value, and solicit additional optional donations from potential attendees. The ticket cost will not be deductible as a gift. However, the additional optional donations will be tax deductible.

Example

After all this, let’s do an example. 

Let’s say there is a Gala dinner followed by a charity auction, which Bob attends. Bob pays $500 for the dinner worth $100 and he successfully bids $1,000 for a golf bag worth $100 and $500 for wine worth $50.

In that case Bob can claim 3 deductions. He can claim $400 for the ticket, $900 for the purchase of the bag and $450 for the purchase of the wine. 

FBT

And last but not least, just in case it confuses you. FBT also has a minor benefit rule. But it is a case of same name – different rule. The minor benefit rule for FBT purposes has nothing to do with the minor benefit rule for contributions to charities.

For FBT purposes, benefits that are less than $300 in notional taxable value count as minor benefits and hence are exempt from FBT. But that is FBT land and has nothing to do with tax deductible contributions.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Tax Deductible Donation

Tax Deductible Donation

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When can you claim a tax deduction for a donation you make? What makes a donation a tax deductible donation?

Tax Deductible Donation

The short answer is: You can claim a deduction, if you have a tax receipt from an entity with DGR status that says it is a tax deductible donation.

The long answer is more complicated and goes like this: A tax deductible donation is either a tax deductible gift or it is a contribution that falls under s8-1 or the minor benefit rule.

If a charity has given you a receipt that says tax deductible gift, you can stop here. You got your tax deductible donation.

But if the charity hasn’t given you a receipt yet and there is a question mark whether you will, then the following is for you.

Donation

A donation is any money or property you voluntarily give to a charity – be it a gift or a contribution. 

DONATION = GIFT + CONTRIBUTION

If you get nothing in return, your donation is a gift. If you get anything in return, your donation is a contribution.  

So every donation of money or property is either a gift or a contribution. Gift v contribution – that is the terminology the legislator uses in Div 30 ITAA97. The problem is that the ATO doesn’t. They talk about ‘gifts or donations’ in D9 of an Individual Tax return as well as on their website. Messy terminology. Don’t let that confuse you. The end result is the same.

Tax Deduction

Why does it matter whether your donation is a gift or a contribution? It matters for tax purposes. It matters if you want to claim a tax deduction since different rules apply depending on whether something is a gift or a contribution.

Gift

A gift is tax deductible if it meets the conditions listed in s30-15 ITAA97 and TR 2005/13. There are many fine nuances in these rulings, but roughly speaking, a gift is tax deductible if it meets six conditions. It must be

1 – a gift;
2 – of money or property;
3 – of sufficient value;
4 – made voluntarily;
5 – with a tax receipt;
6 – to a recipient with DGR status.

Contribution

A contribution is not deductible since you receive something in return. You are basically buying something, even if it is for a bad price. And so there is no tax deduction. But … there are two exceptions – the general deduction in s8-1 ITAA97 and the minor benefit rule. 

General Deduction s8-1

The general deduction in s8-1 (1) ITAA97 allows you to claim a tax deduction whenever you pay for something to gain assessable income. To get brand exposure or to buy donor data for example.

Minor Benefit

Whenever you get a benefit in return, you didn’t give a gift. But if this benefit is so minor in comparison to what you pay – if you pay way above market value – then you must have done this to support the charity.  

The dinner and auction was just the side show. It is a minor benefit in comparison to what this is about. This is the reasoning behind the minor benefit rule.  

Minor Benefit Rule s30-15

The minor benefit rule in s30-15 ITAA97 allows you to claim a tax deduction for a contribution if your contribution passes two tests.

The contribution needs to be LIKE a tax-deductible gift …apart from the fact that it isn’t since you received something in return. So it must meet all the conditions a gift has to meet apart from being a gift. That is the first test.

The second test is that the benefit must be minor. To pass there are five conditions about you, the charity and the event.

# 1    Individual

You must be an individual. Only individuals can claim a tax deduction under the minor benefit rule, but companies, trusts and partnerships can’t. 

# 2   Fundraising Event or Charity Auction

The minor benefit rule only applies to fundraising events and charity auctions. So it doesn’t apply – for example – to the cost of merchandise you buy through a charity website.

# 3    Tickets

If you claim the price of a ticket, you can only claim up to two tickets. 

# 4   Less Than 15 Similar Events

The charity running the event must run less than 15 events of this type per year.

# 5   Minor Benefit

This is the big hurdle. Whether a benefit is a minor benefit depends on its market value and what you pay for it.

The benefit you get must be worth $150 or less. And what you pay must be at least 5 times more than what you paid. These are the two deciding factors – market value and what you pay.

Market Value

The market value of the benefit must be $150 or less. If it is worth more than $150, no minor benefit. So if the ticket or auction item is worth more than $150, it doesn’t qualify as a minor benefit. 

But remember this is not about what you actually pay for the ticket or item. It is about what it is worth – the market value of your ticket to the event. And the market value of the auction item you successfully bid for.

What you Pay

You must pay at least 5 times more than its market value.

And this is just as important. It means that if the meal is worth $100 per head, then you must pay at least $500 for the ticket for it to qualify as a minor benefit. And if an auction item is worth $50, you must pay at least $250 for it.

The argument is that if you pay 5 times more for what it is worth, you clearly pay the money for other reasons than the benefit you get back. Your intentions are clearly altruistic.

—–

Here is more about the minor benefit rule. If you get stuck, please call or email us. There might be a simple answer to your question.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

SMSFs need an ABN and TFN

ABN and TFN

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SMSFs need a TFN and ABN. SMSF’s corporate trustees need an ACN. And all members need a TFN.

SMSFs need an ABN and TFN

That was quick and confusing, so let’s go through this once more.

Your SMSF needs a TFN

Tax File Numbers (TFN) are issued by the Australian Tax Office (ATO) and identify a tax payer.

Your SMSF has to prepare an annual return and hence needs a tax file number. This number is like your SMSF’s id. Without it the ATO can’t process the information in their system.

Your SMSF needs an ABN

Australian Business Numbers (ABN) are issued by the Australian Business Register (ABR) and identify a business.

Your SMSF needs an ABN…….Not actually true. There is no legal obligation for an SMSF to get an ABN. Neither the SIS Act nor SIS Regulations stipulate an ABN. And so the ATO can’t force you. Your SMSF can be a complying super fund without an ABN. 

But life is a lot easier when your SMSF does have an ABN. The business community expects your SMSF to have an ABN so many forms will ask for it. And eSAT doesn’t work for SMSFs without an ABN.

eSAT is the electronic superannuation audit tool auditors can use for their annual compliance audit or to lodge an auditor contravention report.

Your Corporate Trustee needs an ACN

Australian Company Numbers (ACN) are issued by the Australia Securities & Investments Commission (ASIC) and identify a company.

A corporate trustee is a company so they need an ACN by definition. Every company – be it a special purpose company or not – automatically gets an ACN upon registration. You are not an Australian registered company if you don’t have an ACN.

Assuming your corporate trustee doesn’t run a business or derive any income directly, they neither need an ABN nor a TFN.

All Members Need a TFN

Every member has a beneficial interest in the SMSF’s assets and income. And so the ATO wants to know who these members are. And they do that through a TFN. So every member needs a TFN.

If you get stuck, please email or call us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

In-Specie Contributions

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When your SMSF receives in-specie contributions, two things happen in one go. Your SMSF receives a contribution. And your SMSF acquires an asset.

In-Specie Contributions

There are two ways for an asset to move into your SMSF. The trustee can either buy the asset. Or the trustee can receive the asset as an in-specie contribution.

Let’s use an example. Let’s say you bought an apartment 10 years ago, negatively geared it against your income. And you did well. But now the mortgage is paid off, so you start paying marginal rates on your rental income. So you do an in-specie contribution into your SMSF.

In-Specie Contributions

In-specie contributions are complex. They come with baggage. A ton of strings attached. Four to be exact.

1 – An in-specie contribution is a contribution, so you need to watch out for contribution caps.

2 – But an in-specie contribution is also an acquisition, so you also got the superannuation investment rules to deal with.

3 – An in-specie contribution usually comes from a related party – who else would transfer an asset into your fund? So you got all the rules around related party transactions to comply with, especially s66 of the SIS Act.

4 – And an in-specie contribution might require a loan. So you need to get around s67 of the SIS Act telling you not to borrow money.

No Change of Legal Ownership

For in-specie contributions no cash changes hands. There is no actual sale of the asset. No change of legal ownership.

The trustee – be it an individual or corporate trustee – owned the asset before the contribution. Not as a trustee in trust for the members. But in their own right as an individual or company.

After the contribution the individual or corporate trustee are still the legal owners of the asset.  Nothing changed in that respect.

Transfer of Beneficial Ownership

What changed is the beneficial ownership of the asset. The contribution was a transfer of beneficial ownership.  

Before the contribution the trustee – be it an individual or corporate trustee – held both the legal and beneficial ownership of the relevant asset.

After the contribution the trustee is still the legal owner of the asset. But beneficial ownership is now in the hands of the members. The trustee only holds the asset in trust for members. Because after all an SMSF is only a fiduciary relationship.

Trustee on Title

For an in-specie contribution the trustee needs to own the asset before the transfer – not as a trustee but in its own right. A trustee can only hold an asset in trust for members if it is the legal owner of the asset.

This is often an issue when assets are held in individual names but the SMSF has a corporate trustee, particularly when the asset is property. If the land register lists the title in individual names and the SMSF has a corporate trustee, there is no room for an in-specie contribution.

This comes up more often than you might think. Mum and dad investors buy a commercial property in individual names and negatively gear it against their salary and wages.  Once the property is positively geared, they transfer it into the SMSF through in-specie contributions to move future lease income and capital gains into the concessional tax environment of super. At least, this is what they intend to do.

But if the SMSF has a corporate trustee, then this doesn’t work since the corporate trustee doesn’t have legal ownership of the asset. The title is in individual names.

But in practice it depends on whether the auditors let this through. And whether the ATO ever looks closer. 

Part Transfer

The transfer doesn’t need to cover the entire asset. It can just be part of an asset. For example 25% or 50%.  So if an asset’s value exceeds the annual contribution and bring-forward caps, you can contribute the asset over time.

Let’s say a small business owner transfers 50% of his business premises into an SMSF using the bring-forward rule. So he now holds 50% as trustee and the other 50% directly. He waits three years and then starts transferring the remaining 50% in several tranches.

Contribution

Whether you make a contribution in-specie or in cash, the normal contribution caps still apply. So if you want to transfer your business premises into your SMSF and its market value exceeds contribution caps, you do the transfer in stages over several years.

You can’t make any more non-concessional contributions, once your TSB hits $1.6m. TSB stands for Total Superannuation Balance. Think of it as everything you got in super.

So with that limit, it gets much harder to get an entire building into an SMSF. Anything that is worth more than $1.6m won’t fit. You would just transfer a portion into the SMSF and keep the rest outside of super.

Acquisition

An in-specie contribution is an acquisition the SMSF makes. And so all six superannuation investment rules apply. You need to….

1 –  Pass the sole purpose test – s62 SIS Act
2  – Act at arm’s length – s109 SIS Act
3  – Keep in-house assets below 5% – s82 SIS Act
4  – Not acquire assets from related parties – s66 SIS Act
5  – Not hold assets for personal use – s62A SIS Act + para 13.18AA SIS Reg
6  – Not borrow money – s67 SIS Act

Look at s66 / # 4 again. Not acquire assets from related parties. But an in-specie contribution is exactly that. It is an acquisition from a related party. So this would put an end to any in-specie contributions.

But s66 contains three exceptions. Listed securities, business real property and in-house assets below 5%. So those three asset groups can still come into the SMSF via an in-specie contribution. 

Related Party Transaction

An in-specie contribution almost always comes from a related party. Never say never, but who else would transfer an asset into your fund?

Since the asset comes from a related party, the legislator wants to make sure that the transfer happens at arm’s length. That the asset comes in at market value – not more and not less. So you got s66, s82 and s109 of the SIS Act to contend with.

Loan

There is no point in making an in-specie contribution for $3.50. So in-specie contributions are usually about substantial asset values. And that makes it more likely that a lender has a charge over the asset that allowed the asset’s acquisition in the first place. 

If that is the case, the lender is unlikely to consent to an in-specie contribution. So you would refinance the loan and change it to an LRBA – probably with a different lender – to get around s67 of the SIS Act . 

So looking at all this, you can probably see that in-specie contributions are doable but complex. 

If you have a question, please email or call. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Super Investment Rules

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The SIS Act lists various superannuation investment rules that are to to keep your super safe  until you retire.

Superannuation Investment Rules

Superannuation is highly regulated in Australia. Especially four areas have the legislator’s full attention. How much goes into super. What happens to it while inside. How much moves into pension mode. And how much comes out. 

How much goes into super is all about concessional and non-concessional contributions. What happens while inside is all about superannuation investment rules. How much moves into pension mode is all about transfer balance accounts and caps. And how much comes out is all about conditions of release and benefit payments.  

Insider Deals

Government and retail super funds are unlikely to do insider deals with you. You are just one small fish in a big pond.  But your SMSF might be a temptation too hard to resist when cash is tight. So investment rules are especially relevant for SMSFs, since there is so much room for dodgy deals. 

Take the arm’s-length rule as an example. Imagine the arm’s-length rule didn’t exist. Your SMSF could buy below market from related parties and bring extra super in. Or sell below market to related parties and move extra super out. And this points to the highest risk when it comes to SMSFs – related parties. Dodgy deals with related parties.

Related Parties

And so investment rules focus on related parties. This is where the risk is. Your SMSF has two related parties – you and your ‘Part 8 associates’. Part 8 of the SIS Act covers related party transactions – hence the term ‘Part 8 associates’.

You is simple. It is just you. But determining your Part 8 associates is not that simple. It involves a lot of people – your family, fellow SMSF trustees, business partners in a partnership, any entities you or another Part 8 associate controls and so on.

Your family alone includes your spouse, children and close relatives, which includes your and your spouse’s siblings, parents, grandparents, uncles, aunts, nephews and nieces. Can you see how this can get complicated?

Part 8 discusses control in great detail. But to keep it simple, just think of majority. Think of 51% or more. Think of you and your Part 8 associates running the show.

So these related parties are the focus of Australia’s superannuation investment rules. 

Investment Rules

There are six investment rules that govern what happens to your super while inside your fund. Protecting your super from you and your Part 8 associates.

You must pass the sole purpose test and act at arm’s length. You must keep in-house assets below 5% of total assets.  And you must neither acquire assets from related parties, nor acquire or hold assets for personal use, nor borrow money. That’s it. Just those six rules. But there are plenty of exceptions.

# 1   Pass the Sole Purpose Test

The sole purpose test in s62 (1) of the SIS Act is the core of Australia’s superannuation framework. It requires trustees to focus on the provision of retirement benefits and/or death benefits.

 s62 (1)  Each trustee …must ensure that the fund is maintained solely: (a)  for one or more of …the core purposes; or (b)  for one or more of the core purposes and for one or more of the …ancillary purposes..

# 2   Act at Arm’s Length

Trustess must act at arm’s length. No deals with related parties. s109 (1) states this very clearly.

s109 (1)  A trustee …must not invest …unless:  (a)  the trustee …and the other party …are dealing with each other at arm’s length….

But then there is a back door. You can do business with related parties as long as your terms and conditions are at arm’s length. 

s109 (1) (b): or…  the terms and conditions…are no more favourable to the other party than … if the trustee …were dealing with the other party at arm’s length…

# 3   Keep In-House Assets Below 5%

Dealings with related parties carry a huge inherent risk. To contain this risk the legislator wants to keep super assets connected to related parties at a minimum – below 5%. 

s82 (2): If the market value ratio of … in-house assets as at the end of…a…year of income exceeds 5%, the trustee of the fund…must prepare a written plan. …

(4)  The plan must set out the steps …to ensure that: (a)  … in-house assets …are disposed of during the next … year…; and (b)  the value of the assets so disposed of is equal to or more than the excess amount….

Keep in-house assets below 5%. If you don’t, you need to come up with a plan how to get in-house assets below the 5% threshold again in the following year. 

There are three categories of in-house assets listed in s71(1) of the SIS Act. Loan, investment or lease – connecting the SMSF to a related party.

s71 (1):…an in-house asset …is an asset …that is a loan to, or an investment in, a related party…, an investment in a related trust…, or an asset….subject to a lease…between a trustee … and a related party…

Lease

Lease might mean a lot more than you think. Para 13.22A of the SIS Regulations defines lease arrangements much wider than other parts of the law. 

SIS law assumes a lease whenever a related party controls the use of the asset, even if there is no lease agreement that would be enforceable by legal proceedings.  

Para 13.22A:…any agreement, arrangement or understanding in the nature of a lease (other than a lease) between a trustee of a superannuation fund and another person, under which the other person is to use, or control the use of, property owned by the fund, whether or not the agreement, arrangement or understanding is enforceable, or intended to be enforceable, by legal proceedings.

Think of a holiday home owned by an SMSF. If a related party stays there even just one night, SIS law assumes a lease.

Excluded

Certain assets are specifically excluded from being in-house assets per s71(1) SIS Act.

The three exceptions most relevant to SMSFs are 1) business real property, 2) widely held unit trusts (at least 20 entities have fixed entitlements to at least 75% of the trust’s income and capital) and 3) property owned as tenants in common but not leased to a related party.

# 4   Not Acquire From Related Parties

Section 66 (1) of the SIS Act is like a sledgehammer. It says that as the trustee of a super fund you must not acquire any assets from a related party even if it is at arm’s length. Oommpphh. That hits hard. Much harder than s109. 

s66 (1) SIS Act: … a trustee ….must not intentionally acquire an asset from a related party of the fund.

But there are exceptions to this rule. Listed securities, real property, in-house assets and relationship breakdowns are the most relevant ones.

Listed Securities

If the asset is a listed security, then there is a definite market value at the time of transfer, hence the exception in s66 (2) (a) SIS Act.  

s66 (2):  Subsection (1) does not prohibit a trustee …acquiring an asset from a related party of the fund if: (a) the asset is a listed security acquired at market value…

Real Property

SMSFs may acquire business real property from a related party at market value. Small business owners often use this exception to transfer business premises into their SMSF.

s66 (2)  Subsection (1) does not prohibit a trustee …acquiring an asset from a related party…(b) if …the asset is business real property of the related party acquired at market value…

Business real property is defined in s66 (5) of the SIS Act. It is any real estate – any freehold, leasehold or indirect interest in real property or Crown land – used wholly and exclusively for business.  Farm land is regarded as wholly and exclusively used in a business even if up to two hectares is used for domestic or private purposes.

In-House Assets

The in-house asset rules are like a materiality threshold. It is the legislator saying, “Let’s not sweat the small stuff”.

If an asset is insignificant – less than 5% of total assets – then it is ok to acquire it from a related party at market value. Thanks to s66 (2A) SIS Act.

s66 (2A):..does not prohibit the acquisition of an asset by a trustee …from a related party… if: (a)  …the asset … is an in-house asset…and (b)  …acquired at market value; and (c)  ..would not result in…in-house assets …exceeding the level permitted by Part 8.

But here is s83 SIS Act to remind you what to do if it does exceed 5%..

s83 (2): If the market value ratio of the fund’s in-house assets exceeds 5%, a trustee of the fund must not acquire an in-house asset.

Relationship Breakdowns

And then there are relationship breakdowns. When you separate, s66 (2B) of the SIS Act gives you the option to move super from one spouse to the other. 

s66 (2B): …not prohibit a trustee …acquiring an asset from a related party …[if] …the member and …spouse …are separated; and …there is no reasonable likelihood of cohabitation being resumed; and …the acquisition occurs because of…the breakdown of the relationship …and  the asset represents…the member’s own interests …or .. entitlements as determined under …the Family Law Act 1975 …

For more details see s71EA SIS Act.

# 5    Not Use Assets for Personal Use

s62A SIS Act together with paragraph 13.18AA of the SIS Regulations have very strict rules around collectables and personal use assets.

It starts with a long list of collectables and personal use assets in s62A of the SIS Act. The list ranges from artworks, artefacts and antiques over jewellery, coins and stamps to vehicles, motorbikes and recreational boats. And then para 13.18AA tells you what to do and not to with these assets.

Collectables and personal use assets must not be leased to or used by a related party, not be stored or displayed in the private residence of a related party and not be sold to a related party below market value and without an official valuation. The asset must be insured in the name of the fund. And any decision regarding the storage of the asset must be well documented and kept for 10 years. 

As with any investment the acquisition of collectables and personal use assets must comply with all the other superannuation investment rules.

# 6  Not Borrow Money

This one sounds very straight forward. An SMSF trustee must not borrow any money.

s67 (1):  …a trustee of a regulated superannuation fund must not: (a)  borrow money; or (b)  maintain an existing borrowing of money.

But there are four important exceptions. A trustee can borrow money to pay a benefit, surcharge or security transaction. The only requirement is that the borrowed amount does not exceed 10% of fund assets and is paid within a set number of days. For benefit and surcharge payments it is 90 and for security transactions 7 days.

And then there is one more exception. And this is a big one. A trustee can borrow money as part of a limited recourse borrowing arrangement (LRBA). 

LRBAs

An SMSF is allowed to borrow in order to purchase a single acquirable asset – provided the requirements under sections 67A are satisfied.

s67A (1) (a):  …the money is…for the acquisition of a single acquirable asset…, (b)  …held on trust … and (c)  the…trustee has a right to acquire legal ownership …and (d)  the rights of the lender …are limited to …the acquirable asset; and  (e)  … the …trustee’s rights are limited … to the acquirable asset; and  (f)  the acquirable asset is not subject to any charge …except as .. in (d) or (e).

This single acquirable asset is then put into a bare trust with the lender only having recourse against this one asset in case of a default. Other fund assets are safe. 

In the past the loan for the LRBA might have come from a third-party like a bank. But nowadays it usually comes from a related party since most banks no longer lend to SMSFs. 

If the loan comes from a related party, you need to act at arm’s length. You do this by sticking to market terms and conditions.

Safe Harbour

But acting at arm’s length is not that straight forward, so the ATO gave you PCG 2016/5 as a safe harbour.

PCG 2016/5 – arm’s length terms for Limited Recourse Borrowing Arrangements established by self-managed  superannuation funds (issued on 6 April 2016)

If your LRBA complies with this PCG, the Commissioner will accept your LRBA as being at arm’s length.

If you choose not to follow the safe harbour rules – they are not compulsory – you need to demonstrate that the terms of the borrowing arrangement – including a benchmarked interest rate – are at arm’s length. Otherwise the income generated from the asset is considered non-arm’s length income and hence taxed at top marginal rates.

So these are the six superannuation investment rules you need to follow as the trustee of an SMSF. 

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.