Ato Anti Detriment, Reserves, Exempt Pension Income, Deductions

Ato Anti Detriment, Reserves, Exempt Pension Income, Deductions

By:


Anti-detriment payments

Stuart pointed out in his speech that there has been some discussion in industry as to whether SMSFs can claim a deduction for anti-detriment payments, and the answer is yes they can.

Where an SMSF increases a lump-sum death benefit payment to a spouse or child, the fund is entitled to claim a tax deduction. The deduction is calculated by reference to the increase in the death benefit to allow for tax previously paid by the fund in respect of the deceased member account.

In essence, to make an anti-detriment payment an SMSF requires sufficient assets to pay both the deceased members account balance at the time of death as well as the recouped tax amount. This can raise practical funding issues for SMSFs with some quite sophisticated strategies being developed. However Stuart points out that trustees sometimes forget the very basic requirement which is whether or not such a payment is even permitted under the SMSFs trust deed. Trustees should also be aware that they must claim the deduction in the year the lump sum death benefit is paid.

Reserves

The use of reserves by DIY Superannuation funds is relatively uncommon, but increasing. Some advisers are suggesting that they may be advantageous for SMSFs in certain circumstances for tax, estate planning, and self-insurance. Although there are valid reasons for creating both income and contribution reserves the ATO is concerned by the apparent complexity of some of these arrangements you will need to take care to understand and maintain these accounts. Also note that transfers from these reserves may count as contributions.

Exempt current pension income (ECPI)

It was highlighted that exempt current pension income continues to be a major area of ATO concern for compliance risk as its often calculated incorrectly. The ATO are targeting it this year through information mail-outs and compliance activity and have also published information on their website to provide further guidance.

The ATO have identified a number of SMSFs using the proportional method and claiming ECPI without meeting the actuarial certificate requirements. Where an SMSF is using the proportional method and requires an actuarial certificate the ATO expect this to be obtained before they lodge their annual return as failure to do so may see the deduction claim for ECPI being disallowed.

Deductions and credits

When the new 2007-08 SMSF annual return (SAR) was introduced, the ATO made significant changes to the return form which they hoped would assist funds to more accurately claim deductions and credits. However they have found some funds are still claiming deductions at the wrong return label or are claiming credits to which theyre not entitled. This can lead to unnecessary audit and compliance activity.

For example, all SMSFs are required to be audited before lodging their return. The ATO introduced a new deduction label to capture approved auditor expenses incurred by SMSFs but have found that fewer than 50% of funds reported this deduction at the correct label. They therefore wish to remind trustees to report the auditor fees at this new label and not under the Management and Administration expenses label.

Another expense that is being misreported is investment expenses. Expenses incurred in deriving investment income, for example ongoing fees paid to external investment advisors for the management of investments, should be shown at the Investment Expense label and not as Management and Administration expenses.

Its also been brought to the ATOs attention that some trustees are unsure where to claim tax-related expenses (such as fees paid to a registered tax agent for the preparation of the SMSF annual return and the supervisory levy). These expenses should be claimed at the Other Deductions label.

People providing information to the ATO should be aware that there are several offences under the tax laws which relate to making false and misleading statements and keeping incorrect records. The definition of statement is broad and includes written and electronic information and statements made by persons other than the taxpayer and to persons other than tax officers.

About the Author:
Get advice from SMSF Review to start your DIY Superannuation. Most comprehensive online resource dedicated entirely to educating SMSF trustees. For more information or to enjoy our free membership offer, visit SMSF.



Article Originally Published On: http://www.articlesnatch.com


Tags: , , ,

|

Loading...
Related....
Videos...

Recent Investing Articles

Comments

Still can't find what you are looking for? Search for it!

Loading

Site Navigation:

Copyright 2005-2011 ArticleSnatch, LLC - All Rights Reserved.
Privacy Policy | Terms of Service.