smsf course outline

Course Outline

2016

Business School

SMSF Specialisation Course

Revised edition, February 2016.

© Copyright The University of New South Wales Australia, 2013-15.

No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without the prior written permission of the Head of School, Taxation & Business Law at the UNSW Business School.

Copyright for acknowledged materials reproduced herein is retained by the copyright holder.

All readings in this publication are copied under licence in accordance with Part VB of the Copyright Act 1968.

A U T H O R

Gordon Mackenzie CA BSc LLB (Monash) LLM (Sydney)

Grad Dip Securities Analysis F Fin CTA Solicitor

Updated Darren Wynen CA

February 2016

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Workshop Outline Self Managed Superannuation Funds—Specialisation course

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Contents

Welcome and introduction ........................................................................................................... 2

Author/instructor profile ......................................................................................................... 3

Contact details ......................................................................................................................... 4

About the course ........................................................................................................................... 5

The need for specialisation: complexity and planning ............................................................ 5

Assumed knowledge ................................................................................................................ 5

What we expect from you ........................................................................................................ 6

What you should expect from us ............................................................................................. 6

Face to face and distance modes ............................................................................................. 6

Assessment .................................................................................................................................... 7

The complete list of everything that you need to know .......................................................... 7

SMSF specialisation course checklist ............................................................................................ 8


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Welcome and introduction

The School of Taxation & Business Law at UNSW Australia is delighted to be offering the SMSF Specialisation course.

We are particularly delighted to be working on SMSFs as they are the fastest growing sector in superannuation and have the largest amount of funds under management.

The SMSF Specialisation course has been built on three courses run by Atax as part of the Master of Tax and Financial Planning:

Taxation of Superannuation

Tax Strategies in Financial Planning

SMSF Law

Our role in the SMSF Specialisation course is slightly different to what we usually do in our Masters courses. While the material that we have included here is set at a Masters level, we have been asked to test the competency of candidates doing this course on SMSFs. That, in practice, means that we are testing candidates on their knowledge of and ability to apply the regulation and taxation of SMSFs. That is also what we do in our Masters programs but, in addition, we investigate anomalies, deficiencies and arbitrage (planning) opportunities in legislation. However, as these materials are based on our Masters courses, we have included some of the planning material from those existing courses.

You should appreciate that this course is not the same as a Professional Development program. Our role is to certify to your professional organisation that we consider that technically, you are an expert in SMSFs. For this reason this course is comprehensive and, for some, perhaps a demanding course. At the request of your professional organisation, we have been asked to make the assessment (the exam) rigorous, which it is. You should consider that in how you approach completing this course.

We are also conscious that candidates may need RG 146 certification under the new limited AFS Licensing rules. This course will satisfy the Specialist Knowledge component for RG 146 certification.

We look forward to working with you during the course and particularly engaging and discussing SMSFs with those of you doing the face-to-face Workshops.

With very best regards,

Gordon Mackenzie (on behalf of Atax).


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Author/instructor profile

Gordon Mackenzie CA B Sc LLB (Mon) LLM (Syd) Grad Dip Securities Analysis F Fin CTA Solicitor Supreme Court NSW

Chartered Accountant

Senior Lecturer, Atax School of Taxation & Business Law UNSW Business School UNSW Australia

Gordon has 35 years of experience in superannuation regulation and taxation. He is currently a senior lecturer at Atax, School of Taxation and Business Law at UNSW Australia where he researches and teaches in: Taxation of Superannuation, Tax Strategies in Financial Planning and SMSF Law, as well as some corporate tax courses (Consolidations and Group Structures, and Tax of Corporate Finance). He is also the convenor of the Master of Tax and Financial Planning and Master of Applied Taxation (Superannuation) at Atax.

In addition, over his 35 years of experience in the area of superannuation regulation and taxation, Gordon:

drafted superannuation trust deeds for small business, such as medical practice companies, and for large corporate superannuation funds

was Technical Services Director at AMP Ltd with a qualified staff of 30+ accountants servicing 3000+ financial planners

was the lead superannuation lawyer at AMP Ltd where he was involved in superannuation product design, including the first master trusts and the first industry superannuation funds


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helped set up and run a superannuation administration company AAS Pty Ltd

was Global Tax Director at AMP Ltd, responsible for the tax liability on $100bn funds under management worldwide, $50bn of which was in Australia and 70% of which was held by superannuation funds

has been on committees for ASFA, Financial Services Council, Business Council and is currently on the Tax Technical Committee for ICAA and its Education Board

made a submission to the Cooper Review on after tax returns for superannuation funds that was accepted in its recommendations

completed work that was responsible for TA 2008/5 and TR 2010/1 being issued

writes for and is on the editorial board of Australian Superannuation Law Bulletin

wrote the Taxation of Superannuation in Halsbury’s Laws of Australia and in Australian Tax 2012.

wrote the Taxation of Superannuation content for the CA program

one of the advisers to Tax Practitioners Board on the tax educational standards for financial planners.

Gordon’s list of publications and presentations can be found here:

https://www.business.unsw.edu.au/our-people/gordonmackenzie

Contact details For technical content matters, please contact Gordon Mackenzie at:

[email protected]

For administration matters, please contact the course manager at [email protected]

https://www.business.unsw.edu.au/our-people/gordonmackenzie

mailto:[email protected]

mailto:[email protected]


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About the course

The need for specialisation: complexity and planning Australia is unique in the way that it allows individuals to directly hold and control their retirement assets. That creates a high risk from the misuse and mismanagement of the SMSF’s assets, so it needs to be robustly regulated, which explains the volume of SIS Act legislation and continual SMSFRs issued by the ATO.

However, there are significant planning opportunities from using an SMSF. They have become the vehicle of choice for holding the wealth of high net worth individuals and business owners. There are three primary reasons for that:

1. they have low administration costs, as surveys have shown, compared with other types of superannuation funds

2. they can be used to tax efficiently integrate a business owners’ assets with their superannuation through certain CGT small business concessions and the Business Real Property exemption, and

3. they can provide more efficient overall tax management, from actively managing the tax concessions available to SMSFs, than the other superannuation providers such as retail and industry funds.

Assumed knowledge Given that three or four years’ experience in superannuation is a pre-requisite for candidates, (depending on your professional association requirements) we have assumed a base knowledge in a lot of the areas that are covered. However, as that knowledge was already included in the notes that we have used to build this course, some of this has been left in (but flagged) as a courtesy to you (and convenience for us).

Private and in-house practitioners

We expect the majority of candidates doing the course to be in practices that deal with compliance, planning and advice services to SMSFs. In fact, we designed the course around that assumption and that is our experience from Members who do our Masters programs. However, we also expect (again, from our experience) that some members doing the course will be in-house in financial institutions and dealer groups so we have left in the materials (but flagged as ‘assumed knowledge’) some of the more high level issues, such as details of other types of superannuation funds that compete with SMSFs, for those members who have an interest in SMSF product design.


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What we expect from you Candidates will be asked to demonstrate, through successfully completing an exam, their competency in the regulation and taxation of SMSFs.

What you should expect from us You should expect that the materials on which you are to examined are comprehensive, technically correct and current.

One of Atax’s advantages is that we cover the market in terms of dealing with private practitioners, those working in financial institutions servicing SMSFs, Federal Treasury in terms of policy and the regulator (ATO). So, in that regard, we act as an aggregator and commentator on everything SMSF.

Nevertheless, we fully anticipate that there will be issues that may be raised by candidates in the course that will give us pause for thought and we very much welcome and look forward to that.

Face to face and distance modes This course is run in two modes: face to face (workshop) and distance (self-study).

Candidates for both modes receive and work through the same set of materials and attend the same exam.

In face to face mode, you will be led through the material by an instructor. It will be a discussion style approach, seeking interaction by candidates who, given their experience, will be invited to share that experience and problem solving expertise. It will not be lecture style.

The distance mode is a self study option which we find better suits candidates who are time poor from work and family commitments or who consider themselves sufficiently knowledgeable already. From experience, each candidate will have their own way of using these—from skimming the contents pages to identify areas that they may want to look at in a bit more detail, to those who will work through all of the material as a complete study guide.


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Assessment

Assessment is by examination only. The exam will be 3 hours, plus reading time, and will contain both multiple choice and problem solving questions. You will be able to refer to printed materials during the exam (open book).

As we get closer to the exam we will give you more detail some of what it will look like and we will provide you with practice questions.

Times and locations of the exams can be found on the SMSF student website.

Any candidates who are not successful may complete the exam during the next intake.

The complete list of everything that you need to know For your convenience and, also, recognising the experience pre-requisite of candidates doing the course, on the following pages we have compiled a checklist of all the matters that are covered in the material and upon which you will be assessed in the examination. The checklist is presented in two parts—the assumed knowledge first, and then the specialist knowledge which will be the basis of the Workshop.

You should use this checklist to:

confirm whether you have the assumed knowledge

identify areas where you may need to do further study in order to guide your use of the study materials

prioritise areas that you will need to focus on in the Workshop or your own independent study, and

prepare for the examination by using it as a complete list of what is examinable.

©


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SMSF specialisation course checklist

(Things you need to know (and that you need to demonstrate to us that you know).)

ASSUMED KNOWLEDGE Yes No

Australia’s retirement income system

Purpose of superannuation

Types of superannuation

Where SMSFs fit and their role

Regulation of superannuation

Advantages and disadvantages of SMSF

Advantages

Strategy control

Design and operation control

Flexibility

Beneficial for business owners

Benefit design

Fee savings

No costly regulation

Disadvantages

Complex investment strategy

Ongoing compliance costs

No external dispute resolution

Limited income streams

Single accumulation interest

Qualifying as an SMSF

Single member SMSF

Corporate trustee requirements

Individual trustee requirements

Trustee remuneration rule

Employment restrictions


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Multiple member SMSF

Member limits

Corporate trustee requirements

Individual trustee requirements

Trustee remuneration rule

Employment restrictions

Employee extensions

Corporate or individual trustee?

Old age pension

Trading/financial Corporation

Changing members

Survives death

Eases asset ownership issues

Adds complexity/cost

Child as member

Meanings of:

Member

Relative

Employee

Disqualified person

Responsible officer

Legal personal representative and enduring power of attorney

Definitions

Rules for acting in place of trustee

Appointment requirements

Qualifying for tax concessions

Complying superannuation fund

Compliance test

Did not breach

Breached but


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Tax affect

Seriousness

Other matters

Failing to comply

Actions to be taken

Resident regulated superannuation fund

Established/assets in Australia

Central management and control

Active member test

Breaches, penalties and sanctions

Breaches of trust deed

Failing to be an SMSF

Regulatory penalties and sanctions

Offences

Civil penalties

Criminal penalties

Administrative penalties

Income tax penalties

ATO’s approach to breaches

Establishing an SMSF

8 steps

Construct trust deed

Appoint trustees

Elect to be regulated

TFN, ABN and GST registered

Investment strategy

Holding assets and bank account

Insurance

Appoint auditor

Trustee requirements




Trustees role, duties and powers

Trustee liability

Trustee indemnity

Failure to perform

Administering an SMSF

Financial statements

Audit

Lodging with ATO

Supervisory levy

BAS

Actuarial certificate

Miscellaneous Administration

Maintain trust deed

Issue PDS

Notify ATO of changes

Record keeping

Records kept 5 years

Records kept 10 years

Winding up an SMSF

Notify ATO

Member’s benefits

Final audit



SPECIALIST KNOWLEDGE Yes No

Contribution operating standards

‘Contribution’

When made

Adding to capital with a purpose

Non-cash contributions

Employer contribution and member contribution

Work test

Gainfully employed

Time gainfully employed

Mandated employer contributions

Non-mandated

in specie

Fund capped contributions

No TFN

Contribution splitting

Splittable contributions

Spouse condition of release restrictions

Why split

Benefit payment operating standards

Compulsory cashing

To whom

By when

Dependant

Commutation at 25

Voluntary cashing

Condition of release

Retirement

Temporary and permanently disabled

Rollover

Account based pension




Minimum payment schedule

Pro rated first year payment

Rolling back to accumulation

Commuting for a lump sum

Market linked income stream

Minimum payment calculation

Transition to retirement pension

Minimum payment schedule

Maximum payment schedule

Pro rated first year payment

Meeting condition of release

Rolling back to accumulation

Investment Standards

Sole purpose test

Core purposes

Ancillary purposes

Incidental benefits

Application

Collectables and personal use assets

5 requirements

Investment strategy obligation

Risk/return

Diversification

Liquidity

Liabilities

Borrowing restriction

What is a borrowing

Operational exceptions

Securities settlement

Benefit payment




Surcharge

Timing and value limits

Limited recourse borrowing arrangement exception

Single acquirable asset

Identical groups extension

Single asset to multiple assets

Acquisition costs and repairs and maintenance

Not improvements

Holding trust

Bare trust

Only asset

Transferring asset after loan repaid

Replacement asset limits

Guarantor limitations

Intentionally acquiring an asset from a member

Related party

5% in-house asset exemption

Listed securities exemption

Business real property exemption

Other exemptions

Anti-avoidance rule

Lending or providing financial assistance to members

Loan

Financial assistance

Indicators of financial assistance

Relative

Investing and dealing with investment on arm’s length basis

More favourable to SMSF than arm’s length exemption

Dealing

Delaying enforcement




In-house asset

Loan

Invest in

Lease arrangement

Related party

Part 8 Associates

Relatives

Partners

Sufficiently influenced

Company

Trust

Related trust

50% entitlement test

Appointor test

Grouping rules

Not acquire more than 5%

Action required getting below 5%

Valuation rules

Excluded in-house assets

Business real property

Tenants in common other than leased to related party

Ungeared company/ trust

Leased business real property with related party only

No borrowings or charges

No interest in another entity

No loans except with ADI

Cannot rectify breach

SMSF tax concessions and contribution taxes

Superannuation fund

Special purpose trust




Taxed at three points

Taxation concessions

15% net tax after 60 in accumulation mode

15%/30% net lump sum tax up to 60

MTR—15% tax offset pensions up to 60

Zero tax on pension income post retirement or TTR

Employer contribution deductions

Complying fund

Employee

Age limit

Salary sacrifice

Post termination contributions

Contributions exceeding remuneration

PSI limits

Personal contributions deductions

Complying fund

10% rule

Employee activities

RFB

RESC

Planning

Age limits

Notice requirements

When given

Invalid notice

Not contributions

Previously included

Not still a member

Contributions paid out

Use to pay pension




Splitting application given

Deduction denied

No deduction for interest funding personal contributions

Excess contributions

Concessional contribution

Assessable to fund

Reserve allocations

Fair and reasonable to all

5% account balance

Non-concessional contribution

Concessional contribution cap

Non-concessional contribution cap

Bring forward rule

Automatic

64 on 1 July

Work test in year triggered

Work test in following years

Structured settlements

Unlimited exclusion

Contributions relating to some CGT small business concessions

Small business 15-year exemption

Small business retirement exemption

Notice requirements

CGT cap amount

Managing excess contributions

Taxation of excess concessional contributions at MTR

Withdrawal of excess concessional contributions

Mistake

Sub trusts

Commissioner’s discretion




Spouse tax offsets

Government co-contribution

Income Test

Tapering

Planning

Deduction or co-contribution

Contribution splitting

Splittable contributions

Prior year concessional net of tax

Spouse condition of release requirements

SMSF taxation

Method statement

Complying SMSF

Components of taxable income

Low rate tax amount

Non-arm’s length income

Not arm’s length transaction

Private company dividends

Discretionary trust distributions

Fixed trust distributions

Modifications

CGT

Excluding FX

Excluding fixed interest

Excluding personal/collectables

PST/life policy exemption

Assessable contributions

Current pension asset exempt income

Segregated method

Unsegregated method




Which one

CGT gains/losses

Part year calculations

Insurance premium deductions

Self insuring deduction

Directly funding insured benefits

Anti detriment deduction

Alternate formula

Funding with reserves

Apportioning deductions

TR 93/17

Undifferentiated expenses

Investment expenses

Tax offsets

Imputation credits

Foreign tax

Non-complying superannuation fund

Benefit taxation

Superannuation benefit

Code for taxing

Superannuation member benefit

Superannuation death benefit

Tax free and taxable components

Crystallised and contribution segments

Elements taxed and untaxed in the fund

Superannuation interest

Superannuation lump sum and income streams

Proportioning rule

Roll-over

Death benefit dependant




Directly

Through estate

Assessing provisions

60+

Over preservation age/under 60

Under preservation age

Lump sum/income stream

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