Self-managed superannuation funds have a number of taxation advantages. They allow a person to gain a tax deduction, subject to limitations, for what is in effect a transfer of assets from one hand to another, from the taxpayer to a fund controlled by the taxpayer.
While any such transfer will be subject to a 15% tax, any income derived as a consequence of the transfer will also only be subject at the most to a 15% tax. More important is that once the taxpayer turns 60, pensions paid by the fund to the taxpayer will be tax free.
All this, however, is predicated on the fund being a “complying superannuation fund”. A self-managed superannuation fund will not be a complying fund unless it is both a “regulated fund” and has not in the year of income contravened a “regulatory provision” section 42A of the Superannuation Industry (Supervision) Act 1993, unless the tax office decides to ignore the contravention.
The decision in XPMX v Commissioner of Taxation (Administrative Appeals Tribunal, 15 November 2008) involved a fund that failed to comply with a number of those prescribed standards.
In particular the fund had not kept proper accounting records and had not appointed an approved auditor as required. The trustees of the fund felt that it was too costly for the fund to appoint an approved auditor. They felt that a small, single-member, self-managed superannuation fund with few transactions should not be required to comply with the regulatory requirements of the act.
However, the tax office issued a notice deeming the fund to be a non-complying superannuation fund.
This was quite serious. Doing this means more than just taking away a fund’s ability to claim taxation concessions. Broadly speaking, it causes all of the assets of a fund to be immediately taxable at the maximum personal marginal rate of tax.
It is another example of the law using a sledge hammer to crack a nut.
The tribunal observed that in the present case it seemed clear that the fund could be made non-complying.
The tribunal said that to avoid this, the trustee of the fund should be provided with the opportunity to furnish a written undertaking to transfer and rollover the fund into a nominated industry, retail or public offer fund that was a complying superannuation fund.
This was quite a pragmatic result. The fund was not penalised for what was a correctable mistake while the taxpayer was removed as a trustee as a consequence of ignoring the regulatory provision requirements.
I suspect that there will be more cases like this. The results will not be unreasonable. Taxpayers will be allowed to control their own funds if they can show they are prepared to comply with the regulatory provision regulations.
This article is from CPA Australia’s monthly magazine, In the Black
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