TECHNICAL COMMITTEE MEETING MINUTES OF MEETING HELD ON TUESDAY 24 SEPTEMBER 2013 AT 3:30PM AEST BY TELEPHONE CONFERENCE

Transcription

1 TECHNICAL COMMITTEE MEETING MINUTES OF MEETING HELD ON TUESDAY 24 SEPTEMBER 2013 AT 3:30PM AEST BY TELEPHONE CONFERENCE Attendees: Rob Jeremiah (Chair) (RJ) Philip Broderick (PB) Melissa Brazzale (MB) (attending to take minutes) Lisa Hurwood (LH) Carmel Riordan (CR) Barbie Chiro (BC) Teresa Parletta (TP) Bryce Figot (BF) Apologies: Darren Kingdon Kevin Sudlow Steven Skoglund 1. Welcome RJ as Chair opened the meeting at 3:30pm. All participants were welcomed. 2. Minutes of last meeting: The minutes of the meeting on 9 May 2013 were circulated. RJ noted that Item 5 of the previous minutes (Submissions to be made: proposed legislative change regarding refund of concessional contributions) did not warrant further consideration as this matter at the present time is on the agenda of the newly elected government and legislation will be passed to cover this issue. RJ also noted that in respect of Item 4 of the previous minutes (Report on progress of submission to the Federal Government, Treasury and ATO regarding SMSF compliance and their continuing role) that he had reported to A. Cullinan as agreed. 3. Report on NTLG: It was noted that the minutes for the September 2013 NTLG meeting have not yet been released and are yet to be finalised. RJ reported that as of 1 July 2013 a change was made to the structure of NTLG where the 68 current forums have been dissolved. In replacement, 8 new committees will be commissioned, however it was noted that these committees have not yet been established. SISFA Minutes 24 September 2013\P.1 - S.1\P:23/02/15 10:13 8ait

2 - 2 - RJ noted that the new Superannuation Industry Advisory Group (SIAG) will consist of non-government members. SISFA nominated 10 days ago for a position on the SIAG. 3.1 TD 2013/D7 Segregation of current pension assets RJ noted that there had been much discussion at the September 2013 NTLG meeting on this issue as a result of which TD 2013/D7 is likely to be redrafted. It was noted that there is a difficulty in applying the ATO s view especially in relation to the segregation of bank accounts. BC queried Part IVA s application in relation to the segregation of assets as Part IVA is only mentioned briefly in paragraph 10 of the draft ruling. It was also queried how the principles outlined in the draft ruling would apply where a super fund has a partial ownership interest in an asset. RJ noted that the interest itself is to be interpreted as the asset. PB agreed and noted that whilst the draft ruling makes no reference to a part interest held in an asset, that the part interest itself will be taken to be the relevant asset. RJ considered that a draft submission should be made to seek clarification on how segregation would apply in relation to real property and also how Part IVA would apply in the context of segregation. Action: RJ It was agreed that RJ would speak with Andrew Lee of the ATO regarding the timing of the submission and then send BC and CR a note TD 2013/5 Superannuation income streams The new regulations, being the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013, were considered. RJ read from the regulations being: added to the superannuation interest on or after the deceased s death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased s death until as soon as it was practicable to pay the superannuation lump sum. The committee queried the use of the term as soon as practicable. RJ noted that the ATO s perception is that the term gives more flexibility as payment of benefits may not be able to occur within a specified time frame in certain circumstances. RJ also noted that if the regulations specified for an end date that this could be too restrictive. SISFA Minutes 24 September 2013\P.2 - S.1\P:23/02/15 10:13 8ait

3 - 3 - PB considered whether the use of the term as soon as practicable could be misunderstood with the result that death benefit payments are delayed for reasons that would prevent them being practicably paid. BC noted that the use of end dates was not appropriate as it did not take into consideration extenuating circumstances. It was noted that the committee was comfortable with the term as soon as practicable In-house assets and section 71(8) SISA It was noted at the September 2013 NTLG meeting it had been confirmed with the ATO that this remains a pressing issue and that the ATO had agreed to consider further how it may be rectified including the possibility of legislative amendment. Action: RJ RJ noted that he will follow up on this issue and that there is no action required by SISFA SISFA submission regarding LRBAs and two borrowings It was noted that the Committee made a submission in relation to this matter The issue was whether an LRBA with two lenders and therefore two charges would comply with section 67A(1)(f) SISA. The ATO responded that two lenders and two charges did not breach section 67A(1)(f). The ATO referred to the June 2012 NTLG minutes which discussed that there was no restriction on the number of borrowings as long as each lender met the required conditions PB noted that whilst the June 2012 NTLG minutes dealt with the prospect of two lenders, it did not necessarily deal with the issue of two charges. PB noted the two reasons why the Committee prepared the submission: 1. A technical argument that more than one charge over a property would breach section 67A(1)(f); and 2. Certain major banks had refused to enter into an LRBA with more than one lender and charge PB noted that if banks refuse to enter into LRBA s on this basis, there is now written confirmation from the ATO stating that multiple LRBAs do not breach the SIS Act Value of a superannuation contribution made by a related party of an SMSF by improvement of real property owned by the SMSF This issue concerned how improvements made to a property by a related party would be valued in the context of superannuation contributions It was uncertain whether the contribution would be valued at the value of the labour and materials performed by the related party, or the increase in the value of the property after improvements were made SISFA Minutes 24 September 2013\P.3 - S.1\P:23/02/15 10:13 8ait

4 - 4 - RJ noted that the ATO take the view that the value of the contribution is equal to the value of the improvement to the property. RJ noted that the ATO has considered this issue twice and are unlikely to change their position Anti-detriment payments where lump sum paid by interim and final payment The issue here was where an SMSF paid out a death benefit in two separate instalments, whether it was possible for an anti-detriment payment to be included in both or either of those instalments. RJ noted that it is the ATO s position that an anti-detriment payment is able to be paid with either the interim instalment, the final payment or with both payments 4. Response from NTLG to SISFA submission on a UPE held by an SMSF in a unit trust It was noted that a submission was made by SISFA attempting to apply the analysis in ATOID 2012/74 and TR 2010/3 relating to Division 7A to a superannuation context as per SMSFR 2009/3. It was noted that the submissions was prepared by RJ and PB. The Committee noted it had not yet received a copy of the submission. RJ noted that a copy of the submission would be sent to Committee members. RJ noted that the ATO confirmed that the interpretation of financial accommodation in Division 7A as considered in ATOID 2012/74 does not extend to the interpretation of financial accommodation in a SIS Act context. This is because Division 7A and the SIS Act are different regimes and although the same term is used in each regime, the interpretation of the phrase must be considered in each context. CR noted the use of the term financial accommodation in Division 7A and the in-house asset provisions are very similar and should be able to be analogised. RJ noted that this analogy has been dismissed by the ATO. RJ read from paragraph 11 of SMSFR 2009/3 as follows 1 : This commonly could occur by the satisfaction of that right in the form of additional units in the trust. However, the issue of new units is not necessarily required for an investment of the distribution to occur. Instead, the trustee of the SMSF may enter into an agreement that the distribution be added to the corpus of the trust without the issue of additional units. The discharge of an equitable right and its replacement by a different equitable right is an application of the assets of the SMSF. BC queried how there could be an addition to the corpus of the trust without additional units. RJ noted that the question hasn t been asked however it 1 Please note postscript at the foot of these minutes SISFA Minutes 24 September 2013\P.4 - S.1\P:23/02/15 10:13 8ait

5 - 5 - needs to be addressed at some stage. It was noted that this issue is to be left on the agenda for the next technical meeting Kelly v FC of T [2013] FCAFC 88 PB noted that the Kelly case mainly concerned the assignment of a partnership interest in a law firm but also relates to superannuation contributions. Kelly attempted to deduct superannuation contributions in relation to his discretionary trust for contributions made to directors. The ATO view was that Kelly was not entitled to a deduction as he was not a common law employee and did not fall within the extended definition of employee under section 12(2) of the Superannuation Guarantee (Administration) Act Kelly relied on the argument that the trust deed allowed for a director to be remunerated and therefore a deduction was allowed. The court held that Kelly was not an employee. Whilst the trust deed allowed for directors remuneration, the shareholders of the corporate trustee did not resolve for the directors to be remunerated. On this basis, it was held that the directors were not permitted to be remunerated for the services. PB noted that it is imperative that the correct procedure is followed and this is consistent with the view of the ATO. BF noted that the Kelly case related to a passive investment trust and that it was consistent with the ATO s view that unless a director is deemed to be a common law employee, the trust is not entitled to a deduction. BF noted that the court did not consider this argument fully due to the finding that the director was not covered by s12(2). BF noted that it is safer for the discretionary trust to first distribute to a corporate beneficiary and then the corporate beneficiary pay a salary to the director. This would avoid any uncertainties. The Committee noted that an article written by BF in regards to this issue will be published in the SISFA newsletter. Action: RJ RJ noted he will send the article to Jane McIlroy to be published New technical issues to be raised by Committee Members for discussion Government changes RJ noted that Nick Brookes has joined the SISFA board and that there is a great amount of lobbying currently regarding SMSFs. CR noted that banks are moving forward in the SMSF market and are pushing clients into setting up SMSF s SISFA Minutes 24 September 2013\P.5 - S.1\P:23/02/15 10:13 8ait

6 - 6 - without the correct advice. 6. Next meeting RJ to arrange for Heather Angelopoulos to convene next meeting before the end of the year 7. Closure of meeting Meeting was closed at 5:05pm Postscript: Paragraphs 10 and 11 of SMSFR 2009/3 read as follows: 10. The entitlement to receive a trust distribution is an asset of the SMSF and it is the Commissioner's view that, in the same circumstances where the unpaid trust distribution falls within the definition of a loan as discussed in paragraphs 6 and 7 of this Ruling, this will also be an application of that asset. Therefore, where the application of the asset is for income, interest, profit or gain, for example where interest is earned on the outstanding amount, this will constitute an investment in the unit trust. However, to be an investment of the SMSF, the source of any expected income must be from the application of this asset. Consequently, it is the Commissioner's view that the mere expectation of future profits through the existing units in the unit trust is not sufficiently connected to the unpaid trust distribution to characterise the asset as an investment. This is because the income, profit or gain expected has its source in the rights attached to the investment in the units, not in the application of the unpaid trust distribution. 11. Alternatively, the trustee of the SMSF may enter into an agreement whereby the equitable right to payment of the trust distribution is converted into a different equitable right. This commonly could occur by the satisfaction of that right in the form of additional units in the trust. However, the issue of new units is not necessarily required for an investment of the distribution to occur. Instead, the trustee of the SMSF may enter into an agreement that the distribution be added to the corpus of the trust without the issue of additional units. The discharge of an equitable right and its replacement by a different equitable right is an application of the assets of the SMSF. The highlighted section of paragraph 10 is to be the subject of discussion at the next SISFA Technical Committee Meeting. SISFA Minutes 24 September 2013\P.6 - S.1\P:23/02/15 10:13 8ait