SUMMARY
The Treasurer announced a package of cost-of-living measures, including up to $3bn in energy bill relief (expected to reduce power bills by up to $500 for 5 million households) and $1.3bn for home energy upgrades. These measures have been designed to provide relief without adding inflationary pressures (which would make the Reserve Bank’s job even harder).
Access to the Parenting Payment (Single) will also be extended along with increased payments for JobSeeker, Youth Allowance and rent assistance.
Small businesses will also benefit from a temporary increase in the instant asset write-off threshold to $20,000 for 2023-24.
A Budget surplus of $4.2bn is forecast in 2022-23, but an underlying cash deficit of $13.9bn is expected in 2023-24 (and a $35.1bn deficit for 2024-25). The Budget papers note that the global economic outlook has deteriorated and is highly uncertain with persistent inflation and rising interest rates expected to slow real GDP growth .
On the revenue side, the Government said it is taking action to improve the sustainability of the tax system. This includes measures to reduce the tax concessions for superannuation balances above $3m, more timely payments of tax and superannuation, and reforms to the tax settings for offshore liquefied natural gas projects.

Tax-related measures announced
The major tax-related measures announced in the Budget included:
Small Businesses Instant Asset Write-Off Threshold – to be increased to $20,000 for 2023-24 for businesses with aggregated annual turnover of less than $10m. The $20,000 threshold will apply on a per asset basis;
Small Business Energy Incentive – businesses with annual turnover of less than $50m will be able to claim an additional 20% deduction on spending that supports electrification and more efficient use of energy. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024;
Small Business Lodgment Penalty Amnesty – will be provided for small businesses with aggregate turnover of less than $10m to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022;
Small Business Unpaid Tax And Super – additional funding from 1 July 2023 to assist the ATO to engage with taxpayers who have high-value debts over $100,000 and aged debts older than 2 years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10m, or privately owned groups or individuals controlling over $5m of net wealth;
PAYG And GST Instalment Uplift Factor – 6% for 2022-23 (being lower than the 12% rate that would otherwise have applied under the statutory formula);
Pt IVA – scope to be expanded to catch 2 additional types of scheme from 1 July 2024, regardless of whether the scheme was entered into before that date;
FBT Rules For Electric Vehicles (Evs) – the eligibility of plug-in hybrid electric cars will sunset from 1 April 2025 from the FBT exemption for eligible electric cars;

MIT Withholding Tax Concession For Data Centres And Warehouses – the “clean building” managed investment trust withholding tax concession will be extended to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 pm (AEST) on 9 May 2023;
Build-To-Rent Properties – for eligible new build-to-rent projects where construction commences after 7:30 PM (AEST) on 9 May 2023 (Budget night), the Government will: (i) increase the rate for the capital works tax deduction (depreciation) to 4% per year; (ii) reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%;
BEPS Two Pillar Solution: Start Dates – (i) 15% global minimum tax for large multinational enterprises with the Income Inclusion Rule (IIR) will apply to income years starting on or after 1 January 2024 and the Undertaxed Profits Rule (UTPR) applying to income years starting on or after 1 January 2025; and (ii) 15% domestic minimum tax will apply to income years starting on or after 1 January 2024;
PRRT: LNG And Gas Transfer Pricing – the Government has proposed to cap the use of deductions from 1 July 2023 to the value of 90% of each taxpayer’s PRRT assessable receipts in respect of each project interest in the relevant income year and apply after mandatory transfers of exploration expenditure. Projects would not be subject to the cap until 7 years after the year of first production or from 1 July 2023, whichever is later. The cap will not apply to certain classes of deductible expenditure in the PRRT;
PRRT – meaning of “exploration” and “mining, quarrying and prospecting rights” to be amended in response to Shell Energy Holdings Australia case, applicable to all expenditure incurred from 21 August 2013. Will also restore the policy intent of the law and apply in respect of all mining, quarrying and prospecting rights (MQPRs) acquired or started to be used after 7:30 pm (AEST) on 9 May 2023.

Superannuation
The superannuation measures include:
Non-Arm’s Length Income (NALI) – the amount of non-arm’s length expenses (NALE) taxed at 45% as NALI will be limited to twice the level of a general expense from 1 July 2023 for SMSFs and small APRA funds. In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund;
Super Account Balances Above $3m – the Budget confirmed the Government’s intention to apply an additional 15% tax on total superannuation balances above $3 million from 1 July 2025;
Payday Super – employers will be required to pay their employees’ super guarantee at the same time as their salary and wages from 1 July 2026;
Pension Drawdowns: No Reduction In Minimum – the Budget did not announce a further extension to 2023-24 of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities.

If you require further information please do not hesitate to contact us.

Yours faithfully
Carlos Fernicola

Summary

On Tuesday, 25 October 2022, Treasurer Jim Chalmers handed down the 2022-23 October Federal Budget. This second Budget for 2022-23 updates economic forecasts and outlines the new Labor Government’s priorities following the May 2022 Federal election.

The Budget estimates an underlying cash deficit of $36.9 billion for 2022-23 and $44 billion for 2023- 24. While the economy is expected to grow by 3.25 per cent in 2022-23, it is predicted to slow to 1.5 per cent for 2023-24, a full percentage point lower than forecast in March 2022. Inflation is expected to peak at 7.75 per cent later in 2022 but is projected to moderate to 3.5 per cent through 2023-24 and return to the Reserve Bank’s target range in 2024-25. Against this backdrop, the Treasurer has sought to exercise fiscal restraint so as not to put more pressure on prices. Rather, the Budget sets out a 5-point plan for cost-of-living relief in the areas of:

1. child care

2. expanding paid parental leave

3. medicines

4. housing

5. getting wages moving.

While the Budget does not contain major tax changes it does seek to begin some Budget repair work via tax integrity measures.

Tax measures

Tax-related measures announced in the Budget included the following.

1. Intangible assets depreciation – reversal of previously announced option to self-assess effective life for certain intangible assets (e.g., intellectual property and in-house software). The effective lives of such assets will continue to be set by statute.
2. Previously announced measures – the Government has announced that it will abandon eight measures announced by the previous Government and defer the start date of three others. While most of the measures relate to the heading of “Business Taxation” (and are finance related), some proposals include superannuation and personal tax measures.
3. Digital currencies not a foreign currency – the Budget Papers confirm that the Government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency.
4. Off-market share buy-backs – the Government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buybacks.
5. COVID grants treated as non-assessable non-exempt (NANE) income – the Budget Papers contain a listing of further State and Territory COVID-19 grant programs eligible for nonassessable, non-exempt treatment.
6. Penalty unit increase – the Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023.
7. Tax Practitioners Board funding – the TPB will get increased funding to investigate high-risk tax practitioners and unregistered preparers.

Superannuation measures

The superannuation measures include:

1. SMSF residency changes – the proposal to extend the central management and control (CM&C) test safe harbour from two to five years, and remove the active member test, will now start from the income year commencing on or after assent to the enabling legislation (previously 1 July 2022).
2. SMSF audits every three years – the Government will not proceed with the former government’s proposal to allow a three-yearly audit cycle for SMSFs with a good compliance history. • Retirement income products – the Government will not proceed with the proposal to report standardised metrics in product disclosure statements. Other measures
3. Affordable housing measures – the Government will establish a Regional First Home Buyers Guarantee Scheme and a Housing Australia Future Fund.
4. Housing Accord – struck between State and Territory governments and investors, including super funds, targeting 1 million new homes over 5 years from 2024. The Government will commit $350 million over 5 years to deliver 10,000 affordable dwellings.
5. Paid Parental Leave (PPL) scheme – to be expanded from 1 July 2023 so that either parent can claim the payment. From 1 July 2024, the scheme will be expanded by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026.
6. Child care subsidy – maximum CCS rate to be increased from 85 per cent to 90 per cent for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income.

Budget highlights

Revenue and expenditure

1. Total 2022-23 revenues are estimated at $607.2 billion (24.5% of GDP), compared with preelection update forecasts of $548.5 billion (23.8% of GDP).
2. Expenses are seen at $644.1 billion (25.9% of GDP), compared with April forecasts of $626.5 billion (27.2% of GDP).
3. Gross debt for 2022-23 is estimated at $927 billion (37.3% of GDP). Net debt is $572.2 billion (23% of GDP).
4. Gross debt for 2025-26 is estimated at $1,159 billion (43.1% of GDP). Net debt is $766.8 billion (28.5% of GDP).

Interest payments are the fastest growing payment in the Budget, increasing on average by 14.4 per cent per year over the next decade.

Key commodity prices are assumed to decline from current elevated levels by the end of the March quarter 2023.

Savings measures

1. $22.0 billion in spending reductions or reprioritisations.
2. $3.7 billion from extending the Tax Avoidance Taskforce, Shadow Economy, and Personal Income Taxation Compliance programs to improve the integrity of the tax system.
3. $952.8 million through action to enforce tax payment by multinationals.

Families

1. $4.6 billion to increase Child Care Subsidy rates to make early childhood education and care more affordable for eligible families.
   1. $531.6 million to expand the Paid Parental Leave Scheme, part of changes to increase the number of weeks available to families to 26 weeks in 2026.
   2. $1.7 billion to support implementation of the new National Plan to End Violence Against Women and Children.

Housing

• $350 million over 5 years towards Housing Accord setting aspirational goal of 1 million new homes.
  • Establishing $10 billion Housing Australia Future Fund to provide new social housing and affordable housing.

Defence/aid

• Defence funding will increase by 8 per cent in 2022-23 and rise to more than 2 per cent of GDP over the forward estimates.
  • $1.4 billion in additional Official Development Assistance over 4 years, including $900 million to increase support to the Pacific region and $470.0 million to increase support to Southeast Asia.

Education

1. 480,000 fee-free TAFE and community-based vocational education places.

Health

• $235 million to commence the rollout of Urgent Care Clinics.
  1. Maximum co-payment under the Pharmaceutical Benefits Scheme (PBS) will decrease from $42.50 to $30 per script from 1 January.
  2. $1.4 billion for new and amended listings, including treatments for various types of cancer and growth hormone deficiency in children. First Nations Peoples
  3. $75.1 million to prepare for referendum to enshrine a First Nations Voice to Parliament in the Constitution.
  4. $314.8 million to support First Nations peoples’ health and well-being outcomes.
  5. $100 million for housing and essential infrastructure in Northern Territory homelands and $99 million to support improved justice outcomes. Infrastructure
  6. $8.1 billion to deliver on key infrastructure projects including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other important freight highways such as the Tanami Road and Dukes Highway.
  7. $2.4 billion to extend full-fibre access to 1.5 million additional premises, including to over 660,000 in regional Australia.
  8. $250 million will be provided to expand the Local Roads and Community Infrastructure Program.  $150 million to upgrade regional airports and their precincts.
  9. $1.9 billion Powering the Regions Fund to support transition of regional industries to net zero.
  10.  $1.2 billion to advance regional telecommunications. Climate/Environment
  11. $345 million to exempt eligible electric cars from fringe benefits tax and the 5 per cent import tariff.
  12. $204 million to lift total government investment in the Great Barrier Reef to $1.2 billion by 2030.
  13.  $1.1 billion for the next phase of Natural Heritage Trust funding.
  14. $224.5 million to establish the Saving Native Species Program.
  15. $117.1 million to restore funding for environmental assessments.

Biosecurity

1. $75.6 million to bolster biosecurity system against escalating animal disease risks and $11.7 million to increase detector dog capability. Disaster support
2. Provision of $3 billion in the contingency reserve to meet disaster recovery costs from this year’s floods.
3. Invest up to $200 million per year on disaster prevention and resilience through the Disaster Ready Fund.
4. $22.6 million to address insurance affordability and availability issues driven by natural disaster risk.

Federal Integrity Commissioner

$262.6 million to establish and support the Commission, which will focus on detecting and investigating serious or systemic federal corruption.

Personal tax Personal tax rates unchanged for 2022-23; Stage 3 start from 2024-25 unchanged

In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.

Resident rates and thresholds for 2022-23

The 2022-23 tax rates and income thresholds for residents (unchanged from 2021-22) are:

Taxable income ($)	Tax payable ($)
0 – 18,200	Nil
18,201 – 45,000	Nil + 19% of excess over 18,200
45,001 – 120,000	5,092 + 32.5% of excess over 45,000
120,001 – 180,000	29,467 + 37% of excess over 120,000
180,001+	51,667 + 45% of excess over 180,000

Stage 3: rates and thresholds from 2024-25 onwards

The Budget did not announce any changes to the Stage 3 personal income tax cuts that are set to commence from 1 July 2024. Under the Stage 3 tax changes from 1 July 2024, as previously legislated, the 32.5 per cent marginal tax rate will be cut to 30 per cent for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37 per cent tax bracket will be entirely abolished at this time.

Therefore, from 1 July 2024, there will only be 3 personal income tax rates – 19 per cent, 30 per cent and 45 per cent. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30 per cent. With these changes, around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.

Low income tax offsets – LMITO not extended to 2022-23

The 2022-23 October Budget did not announce any extension of the low and middle income tax offset (LMITO) to the 2022-23 income year. The LMITO has now ceased and been fully replaced by the low income tax offset (LITO). The March 2022-23 Budget had increased the LMITO by $420 for the 2021-22 income year so that eligible individuals (with taxable incomes below $126,000) received a maximum LMITO up to $1,500 for 2021-22 (instead of $1,080). With no extension of the LMITO announced in the October Budget, 2021-22 was the last income year for which the offset was available. As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.

 Low income tax offset for 2022-23 (unchanged)

For completeness, and as a reminder, low and middle income taxpayers are entitled to one or 2 offsets: LMITO (until the 2021-22 income year) and the low income tax offset (LITO). No changes were made to the LITO in the 2022-23 October Budget. The LITO will continue to apply for the 2022- 23 income years and beyond. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.

Business tax

Thin cap: new earnings-based tests for limiting debt deductions Under the current thin capitalisation rules, a non-financial entity’s allowable debt (interest) deductions in relation to its cross-border investments are limited by the application of a number of statutory tests under which its maximum allowable debt is the greatest of:

• the safe harbour debt amount (60% of the average value of the entity’s Australian assets)

• the arm’s length debt amount, or

• the worldwide gearing debt amount which allows the entity to gear its Australian operations up to 100% of the actual gearing of its worldwide group.

The Government will replace the safe harbour and worldwide gearing tests with earnings-based tests to limit debt deductions in line with an entity’s profits. More specifically, the thin cap rules will be amended to:

• replace the safe harbour test with a new earnings-based test which under which an entity’s debt related deductions will be limited to 30% of profits (using EBITDA as the measure of profit) • allow deductions denied under the EBITDA test to be carried forward and claimed in a subsequent income year (up to 15 years)

• replace the worldwide gearing test and allow an entity in a group to claim debt deductions up to the level of the worldwide group’s net interest expense as a share of earnings (which may exceed the 30% EBITDA ratio).

The arm’s length debt test will be retained as a substitute test which will apply only to an entity’s external (third party) debt, disallowing deductions for related party debt under this test. The changes will apply to multinational entities operating in Australia and any inward or outward investor.

Anti-avoidance: denial of SGE deductions for payments for intangibles

The Government will introduce an anti-avoidance rule to prevent significant global entities (entities with global revenue of at least $1 billion) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low- or no-tax jurisdictions.

Off-market share buy-backs: proposed integrity rules

The Government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. There is no further detail in the Budget Papers nor in any associated media releases as to what precisely is intended.

Tax transparency: new reporting requirements

The Government will introduce reporting requirements to enhance the tax information made available to the public. The Government will require:

• significant global entities to prepare for public release tax information on a country by country (CbC) basis and a statement on their approach to taxation, for disclosure by the ATO

• Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile. and

• tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).

These new reporting requirements will apply for income years commencing from 1 July 2023.

$600 MILLION PACKAGE TO HELP QUEENSLAND BUSINESSES

Published Friday, 13 August, 2021 at 03:06 PM

Treasurer and Minister for Investment
The Honourable Cameron Dick

The Commonwealth and Queensland Governments have reached a 50/50 funding agreement that will see the value of the Queensland COVID-19 Business Support Grants rise from $260 million to $600 million.

As part of the package additional support for businesses that have had a decline in turnover of more than 30 per cent will include:

• A $1,000 one-off grant to non-employing sole traders across Queensland
• Tiered payments based on payroll size for all businesses across Queensland:
  • A $5,000 one-off, top-up grant to small business with payroll of less than $1.3 million
  • A $10,000 one-off, top-up grant to medium sized business with payroll between $1.3 million and $10 million
  • A $25,000 one-off, top-up grant to large sized tourism and hospitality focused businesses with payroll of greater than $10 million.

Federal Treasurer Josh Frydenberg said this new business support package recognises that the impact of lockdowns is felt right across Australia.

“The Morrison Government recognises the impact that lockdowns across the country are having on businesses in Queensland,” Treasurer Frydenberg said.

“This package will help to keep businesses in business and Queenslanders in jobs and builds on the almost $30 billion in economic support the Morrison Government has provided Queensland households and businesses during the pandemic.”

“As we have done so throughout this crisis, we will continue to work with the Palaszczuk Government to ensure the Queensland economy continues to recover from the impact of COVID-19.”

Queensland Treasurer and Minister for Investment Cameron Dick said the agreement would boost support, not just for businesses that have been affected by recent lockdowns, but by those that continue to suffer because of lockdowns in other jurisdictions.

“We know that across Queensland, the lack of international and interstate visitors is affecting businesses every day, especially those in tourism and hospitality,” the Queensland Treasurer said.

“This dollar-for-dollar agreement with the Federal Government will see Queensland’s contribution rise to $300 million and vastly increase the scope of support available to businesses right across the state.”

“From Monday 16 August, our $5000 COVID-19 Business Support Grants program will be open to businesses across Queensland, but this agreement with the Federal Government is in addition to that and means that we will be able to extend our support even further.”

“It comes on top of the nearly $70 million in additional support and benefits for Queensland tourism and hospitality businesses that I announced earlier this week.”

“I want to thank Federal Treasurer Josh Frydenberg for his rapid response to the evolving impact that COVID-19 is having on businesses right across Queensland.”

ENDS

Media Contact:

Treasurer Frydenberg’s Office:      Kane Silom                02 6277 7340

Treasurer Dick’s Office:                   Geoff Breusch           0417 272 875

Media Statements

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• Help and Support

There have been 2 important changes announced to the JobKeeper Payment scheme.

First, the Assistant Treasurer has announced that businesses will now have until 8 May 2020 to ensure all eligible employees have received a minimum of $3,000 in gross wages for the first 2 fortnights of the JobKeeper support period. Previously, the payment deadline to employees for the first 2 fortnights (30 March – 12 April, 13 April – 26 April) was 30 April 2020.

Second, the ATO advises that the Commissioner has extended the time to enrol for the initial JobKeeper periods from 30 April 2020 until 31 May 2020. Eligible employers will still be able to claim for the fortnights in April and May if enrolled by 31 May 2020.

This means that eligible employers are able to receive JobKeeper Payments for the fortnights in April if payment is received by employees by 8 May 2020 and the employer is enrolled by 31 May 2020.

• A $500m loan facility created to support businesses (interest free for the first 12 months this is now closed to new applications.
• A 6-month payroll tax deferral will be extended to all businesses across the State:
• The Queensland government will refund 2 months’ worth of payroll tax. Additionally, it is providing small and medium businesses a 3-month payroll tax “holiday”:
• The Queensland Office of State Revenue will also work with affected businesses to create repayment plans for the deferred tax liabilities:
• Landlords may be eligible for a land tax rebate reducing land tax liabilities by 25% for eligible properties for the 2019-20 assessment year:
• A 3-month deferral of land tax liabilities for the 2020-21 assessment year: see 2020
• A waiver of the 2% land tax foreign surcharge for foreign entities for the 2019-20 assessment year:
• There is legislation which facilitates a moratorium on evictions for residential tenants and residents who are in financial distress and are unable to meet their commitments due to the impact of the COVID-19 emergency
• A support package for international students:
• Changes were made to provide for certain legal documents to be witnessed by audio visual link during the COVID-19 pandemic, as well as property inspections etc:
• A waiver of State land rent for 6 months, estimated to benefit more than 6,000 farmers, businesses, tourism operators, and community and sports clubs:
• A $54.5m transport package targeting regional air, bus and ferry services, as well as the personalised transport industry (taxis), heavy vehicles and licence and registration fees:

Federal Govt – Tax Related Business Measures

• Cash flow boost payments – tax-free payments up to $100,000 for eligible small and medium sized entities (SMEs), and not-for-profits (including charities) that employ people, with a minimum payment of $20,000. The payments will be made in 2 stages: see 2020 WTB 12 [262]. At 23 April 2020, the ATO had paid out $3bn in cash flow boost payments to 177,000 businesses ahead of the originally anticipated start date of 28 April: see 2020 WTB 16 [384]. Further cash flow boost payments will be made by October 2020.
• Instant asset write-off extended and increased to $150,000 – the Coronavirus Omnibus Act amended the ITAA 1997 to increase the instant asset write-off threshold from $30,000 to $150,000 for business entities with aggregated annual turnover of less than $500m (up from $50m) from 12 March 2020 to 30 June 2020:
• Accelerated rates of depreciation – businesses with aggregated turnovers of less than $500m in an income year can deduct capital allowances for depreciating assets at an accelerated rate. This measure extends over 2 income years, ie 2019-20 (albeit not the full year) and all of 2020-21:
• R&D tax incentive applications for 2019 deferred – the Government has deferred the lodgment dates for R&D Tax Incentive applications for the 2018-19 income year until 30 September 2020:

JOBKEEPER PAYMENT

The JobKeeper Payment scheme is designed to provide a wage subsidy of $1,500 per fortnight per employee. The payment will be paid to employers, for up to 6 months, for each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by that employer. Where a business has stood down employees since 1 March, the payment is designed to help the employer maintain connection with their employees.

• JobKeeper legislation passed – contains the legislative framework to implement the Government’s $130bn JobKeeper Payment (with the mechanics to be contained in Statutory Rules):
• At 23 April 2020, more than 900,000 businesses had registered their interest in accessing JobKeeper payments, with 275,000 already completing applications:
• JobKeeper Statutory Rules (as amended) – contain the detailed rules and taxpayer requirements to qualify for the JobKeeper Payment scheme:
• JobKeeper alternative turnover test – details of the alternative tests that can be used to determine if the decline in turnover test is satisfied for the purposes of the JobKeeper Payment:
• JobKeeper alternative test for special purpose entities – new rules that set out a separate decline in turnover test where businesses use a special purpose entity to employ staff:
• JobKeeper decline in turnover test – changes and modification of rules affecting: (i) charities; (ii) religious practitioners; (iii) the selection of all eligible employees (one-in, all-in); (iv) students aged 16 and 17; (v) international aid organisations; (vi) universities:
• Banks able to confirm employer’s JobKeeper election – ADIs are able to confirm that notices have been provided by the Commissioner to employers concerning their election to participate in the JobKeeper Payment program, designed to assist provision of bridging finance:
• JobKeeper deadline(s) extension: the Federal Government announced that employers have until 8 May 2020 to pay staff for the first 2 JobKeeper fortnights (previously 30 April) and must register by 31 May 2020 (again, previously 30 April):

SUPERANNUATION

Superannuation early release up to $20,000 – individuals affected by COVID-19 can apply via myGov to release (tax-free) up to $10,000 of their superannuation in the 2019-20 financial year. A second application up to $10,000 can be made in the 2020-21 year until 24 September 2020. To be eligible (reg 6.19B of the SIS Regs), a person must be unemployed or eligible to receive income support such as jobseeker or youth allowance. Alternatively, on or after 1 January 2020, the person must have been made redundant, or their working hours have been reduced by 20% or more (or a reduction in turnover of 20% or more for a sole trader):

• Super pension drawdowns reduced by 50% – the minimum annual payment amounts for pensions and annuities have been temporarily reduced by 50% for 2019-20 and 2020-21. The reduction in the minimum payment amounts applies to account-based, allocated and market-linked (term allocated) pensions:
• Temporary residents early release for COVID-19 – certain temporary residents impacted by COVID-19 may apply for an early release of up to $10,000 of their superannuation by 30 June 2020:
• Tax agents granted AFS licensing relief for early release – a temporary AFS licensing exemption allows registered tax agents to provide certain financial product advice to their existing clients about the early release of superannuation under the Coronavirus condition of release: ASIC has also provided some administrative relief:
• AML/CTF exemption for early release of super – AUSTRAC has registered legislative rules to provide a temporary exemption from the customer identification procedures for super funds making COVID-19 early release of super payments in respect of the money-laundering and counter-terrorism rules:

  

SOCIAL SECURITY

• Fortnightly $550 Coronavirus supplement – for job seekers, sole traders, students etc (Coronavirus supplement). Effectively doubles the current payment for new and existing social security recipients from 27 April 2020. To be paid for 6 months to both existing and new recipients of the JobSeeker Payment, Sickness Allowance, Youth Allowance for jobseekers, Parenting Payment Partnered, Parenting Payment Single, Partner Allowance, Sickness Allowance and the Farm Household Allowance:
• $750 stimulus payments for income support recipients – the first $750 cash stimulus payment has now gone out to 6.8 million eligible pensioners, carers, disability support pensioners, those on family tax benefits and concession card holders. A second $750 payment will be made from 13 July 2020 for eligible income recipients and concession card holders:
• Pension deeming rates cut – the social security deeming rate have been reduced (twice) to 0.25% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate is 2.25% for balances over these amounts:

REGULATION

• Commercial property tenancies: States to implement mandatory National Code – the Prime Minister confirmed that the States and Territories will legislate a “Mandatory Code of Conduct for SME Commercial Leasing Principles during COVID-19”:
• Creditors statutory demand threshold – the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. The statutory timeframe for a company to respond to a statutory demand has similarly been extended from 21 days to 6 months:
• Bankruptcy minimum debt of $20,000 – the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will increase from its current level of $5,000 to $20,000 (ie personal insolvency). The time debtors have to respond to a bankruptcy notice will be increased from 21 days to 6 months:
• Duty to prevent insolvent trading – directors will be (temporarily) relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business:
• Federal wage subsidy for apprentices – eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020:
• SME loan guarantee scheme for bank lending – the “coronavirus SME guarantee scheme” which will provide a guarantee of 50% to SME lenders for new unsecured loans to be used for working capital:
• Regional and sector support – the Government has set aside an initial $1bn to support those regions, communities and industries that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture and education
• Subsidy for child care providers – the Government will pay 50% of the sector’s fee revenue up to the existing hourly rate cap based on a point in time before parents started withdrawing their children in large numbers, but only so long as services remain open and do not charge families for care:

The Government will provide tax-free payments up to $100,000 for eligible small and medium sized entities (SMEs), and not-for-profits (including charities, “NFPs”) that employ people, with a minimum payment of $20,000. The payments will be made in 2 stages, which are referred to as “cash flow boost” payments in the legislation.

The first cash flow boost payment for employers will be available from 28 April 2020. Employers will receive a payment equal to 100% of their salary and wages withheld, with the maximum payment being $50,000. In addition, the minimum payment will be $10,000.

The second cash flow boost payment for employers will be made from 28 July 2020. Eligible entities will receive an additional payment equal to the total of the first cash flow boost payment received.

This means that eligible entities will receive at least $20,000 up to a total of $100,000 under both payments. The 2-phase payment is intended to provide cash flow support over a longer period (thereby increasing confidence, helping employers to retain staff and helping entities to keep operating, etc).

Eligibility

Small and medium sized business entities and NFPs with aggregated annual turnover under $50m and that employ workers will be eligible for the cash flow boost payments. There is also an overriding “carrying on a business” test. Eligibility will generally be based on prior year turnover, although there is scope for the Commissioner to deem an entity as eligible (ie if “reasonably satisfied” etc).

To qualify for the second cash flow boost payment, the entity must continue to be active.

The payments will only be available to active eligible employers that were established before 12 March 2020.

When first announced, the payments were not available for NFPs. However, they have now been included (subject to the $50m threshold etc). Charities are not subject to the 12 March 2020 deadline, ie charities which are registered with the ACNC will be eligible regardless of when they were or will be registered. This recognises that new charities may be established in response to the COVID-19 pandemic.

Anti-avoidance rules

Eligibility is also subject to a specific integrity rule to overcome artificial or contrived arrangements.

the potential scope of these anti-avoidance provisions has generated quite a bit of concern among taxpayers, accountants and advisors. If taxpayers structure their affairs to ensure that they qualify for what may be a business-saving payment, will this fall foul? For example, what are the consequences converting what would otherwise be a payment outside the PAYG rules to ensure that it qualifies as a PAYG payment (eg a dividend paid to a shareholder who works in the business)?

Another consideration is the promotor penalty regime. Accountants would obviously be promoting their services in this field as a matter of urgency at this time. Does it then mean that they will later have to be concerned about falling foul of the rules in Div 290 of Sch 1 to the TAA, which deal with the promotion of tax exploitation schemes?

Hopefully, there will be some clear and sensible guidance on this from the ATO relatively soon. If there is one measure that seems to stand tall over the others, in terms of its importance to businesses, it is the cash flow boost payments. It will be vital to helping keep businesses afloat. If people profiteer, go after them. But if it saves a few businesses who push the envelope, then so be it at this challenging time.

Payment and processing

The payments will be automatically calculated by the ATO and will flow automatically through the ATO. There are no new forms required. The payments will be tax-free.

All payments will be delivered by the ATO as a credit to the entity upon lodgment of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.

The first cash flow boost payments will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020, upon employers lodging eligible (upcoming) activity statements.

Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100% of the amount withheld, up to a maximum payment of $50,000. Eligible employers that pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.

In terms of the second cash flow boost payment, payment processing will depend on whether the taxpayer is a monthly or quarterly remitter.

For monthly activity statement lodgers, the second cash flow boost payments will be equal to a quarter of their first cash flow boost payment following the lodgment of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).

For quarterly activity statement lodgers, the second cash flow boost payment will be equal to half of their total first cash flow boost payment following the lodgment of their June 2020 and September 2020 activity statements (up to a total of $50,000).

ATO administration

The ATO has released a fact sheet which contains further details on how it intends to administer the cash flow boost payments measures.

If entities lodge early, the ATO confirms that, regardless, they will not receive the first cash flow boost payment before 28 April 2020.

The ATO states that eligible entities must also have either:

• derived business income in the 2018–19 income year and lodged 2019 tax returns on or before 12 March 2020; and
• made GST taxable, GST-free or input-taxed sales in a previous tax period (since 1 July 2018) and lodged the relevant activity statement on or before 12 March 2020.

The ATO will generally determine whether an entity is a small or medium business entity based on its most recent income tax assessment for a prior year. However, where it does not have any income tax assessments for prior years, it may still be eligible – providing the ATO is satisfied, based on other information, that the entity is in business and would have an aggregated annual turnover under $50m.

The fact sheet goes to state the following:

“We may also give you further time to provide us notice that business income or supplies were made. This will generally be the case where you have a lodgment deferral in place. If you did not have a lodgment deferral in place, you will not become eligible if you lodge or amend returns for those periods now.”

(Although this would not be intended, arguably it seems to unfairly punish those who do not have a deferral already in place. It could even be argued that this is against the spirit of what is after all a rescue package.)

However, the ATO does go on to say that, as the cash flow boost is generated on lodgment of an eligible activity statement, if a lodgment deferral has been granted by the ATO, the cash flow boost will generally be made at the time of the deferred lodgment. This ensures that eligible entities that have received deferrals, eg due to recent natural disasters such as the bushfires, do not miss out on the payment or have to forgo their extended time to lodge to qualify.

In addition, entities may choose to lodge before the deferred due date (but only on or after 28 April 2020) in order to access the cash flow boost earlier, eg those expecting GST refunds.

The ATO states that, to be entitled to the cash flow boost payments, eligible entities need to lodge the relevant activity statements within 2 years of when the activity statements were due to be lodged. This ensures that the measure is targeted at helping employers during the period affected by C-19.

Importantly, the ATO states that to access the cash flow boost, entities must lodge their activity statement. If an entity does not need to lodge an activity statement in respect of its PAYG withholding, the ATO is “working through a solution” and will update its website with more information on what such an entity needs to do.

Finally, the ATO notes that entities will still be entitled to a deduction for PAYG withholding paid. And for those readers with a GST bent, the ATO confirms what you already know – that payment will not be treated as consideration for a taxable supply as the entity is not making or agreeing to make a supply for the payment (ie it is not subject to GST). 

On 22 November 2019, Treasury released a consultation paper as part of the Government’s Retirement Income Review which is seeking to establish a fact base on the operation of the current retirement income system. The review is being conducted by an independent panel chaired by Mr Michael Callaghan, a former senior Treasury official: see 2019 WTB 41 [1301].

As recommended by the Productivity Commission (see 2019 WTB 2 [42]), the review is investigating the “three pillars” of the retirement income system, being:

1. the means-test Age Pension;
2. compulsory superannuation; and
3. voluntary savings (including home ownership).

The Government considers that it is important that the system allows Australians to achieve adequate retirement incomes, is fiscally sustainable and provides appropriate incentives for self-provision in retirement.

The panel said it will undertake a holistic assessment of how the retirement income system is functioning and look at the range of research papers and reports previously published, including the findings of the Productivity Commission report which assessed the fees, investment returns, overall efficiency of the super system.

Interaction of 3 pillars

The paper notes that the diverse personal circumstances of retirees can contribute to complex interactions of the 3 pillars, creating the potential for significantly different retirement income outcomes between individuals. These outcomes are also affected by interactions with other policy areas, such as aged care, health and taxation.

Interactions between superannuation, the Age Pension and voluntary savings may drive behaviour, including:

• the difference in the age at which superannuation and the Age Pension can be accessed. This may affect decision making around when to retire, and how heavily new retirees draw on superannuation ahead of qualifying for the Age Pension;
• the way assets are treated under the Age Pension means test;
• family home treatment under the Age Pension means test.

Changing trends

The paper says the retirement income system needs to accommodate a range of demographic and economic trends without requiring a significant increase in government support. It also needs to be able to withstand one-off shocks. Changing trends include:

• increasing life expectancy and decreasing home ownership;
• lower returns on low-risk investments. If low interest rates persist, higher total savings or increased investment in riskier assets may be needed to support the same level of retirement income;
• labour market trends could reduce the proportion of people covered by compulsory super;
• a major economic crisis could see low investment returns and a fall in asset prices, potentially increasing dependency on the Age Pension.

Family home

The paper notes that the family home is an important asset for retirement. Pensioners aged over 65 who live in their own home have much lower rates of financial hardship than those renting privately. The family home can store equity for use in retirement through downsizing or a reverse mortgage.

Importantly, the family home is exempt from the Age Pension means test. There has also been debate about whether the exclusion of the primary residence from the Age Pension means test results in people overinvesting in their family home.

Aged care

Aged care costs are a major point of interaction for the retirement income system. Uncertainty about the possible need for a lump sum to access residential aged care can lead to retirees not drawing on savings at the rate that they might otherwise do so. In addition, the means test for the Age Pension is structured differently to the means test for aged care and the interaction can be complex to understand.

Consultation questions

The Treasury paper sets out 23 consultation questions. For example:

• What factors should be considered in assessing the fiscal sustainability of the current settings (eg tax concessions, contribution caps, and Age Pension means testing)?
• What evidence is there that people are able to achieve their retirement income outcomes without seeking formal financial advice?
• Is there sufficient integration between the Age Pension and the super system?
• What evidence is available to assess whether the current settings support fair outcomes in retirement for individuals with different characteristics and/or in different circumstances (eg women, renters, etc.)?
• What are the main impacts of the trends (demographic, labour market, and home ownership etc) that affect the operation of the retirement income system now and into the future?
• How does the system balance each of the principles and the trade-offs between principles (eg sustainability and adequacy)?
• What measures should the panel use to assess whether the retirement income system allows people to achieve an adequate retirement income? Should the system be measured against whether it delivers a minimum income level in retirement; reflects a proportion of pre-retirement income (and if so, what period of pre-retirement income); or matches a certain level of expenses?
• Is there evidence the system encourages and supports older people who wish to remain in the workforce past retirement age?
• To what extent does the retirement income system compensate for, or exacerbate, inequities experienced during working life?
• Does the retirement income system effectively incentivise saving decisions by individuals and households across their lifetimes?
• What evidence is available to show how interactions between the pillars of the retirement income system are influencing behaviour?
• What is the evidence that the outcomes the retirement income system delivers and its interactions with other areas (such as aged care) are well understood?

Submissions

Submissions are due by 3 February 2020 to: Retirement Income Review Secretariat, Treasury – email: retirementincomereview@treasury.gov.au; Tel +61 2 6263 4186 (Robb Preston).

Here we provide the CA ANZ perspective.

IN BRIEF

• ATO letter sent to small number of SMSFs who have LRBA and bulky asset
• Many media claims appear to use to be over the top
• We explain how CAs can help their clients

About 17,000 SMSF trustees will receive a letter from Tax Office about their fund’s investment strategy.

The letter has attracted adverse comments in the media and its timely for Chartered Accountants ANZ to provide our perspective to help CAs and their clients.

Understanding the background

Before we discuss the ATO’s letter there are number of points that need to be made:

1. Under the super laws the ATO is a compliance regulator – that is, its job is to ensure that SMSFs comply with the super laws.  (On the other hand APRA is a prudential and compliance regulator – its job is to ensure third party members’ and beneficiaries’ interests are protected and that fund’s comply with the super and other laws.)  Obviously the ATO ensure compliance with various tax laws by all super funds.
   
   
2. Each year trustees declare on their SMSF annual return that “I have received a copy of the audit report (If required) and am aware of any matters raised therein.  The information on this annual return, including any attached schedules and additional documentation is true and correct.”
   
   
3. All SMSF trustees should have executed the ATO trustee declaration which includes the following words:
   
   “I also understand that by law I must prepare, implement and regularly review an investment strategy having regard to all the circumstances of the fund, which include, but are not limited to:
   
   • “the risks associated with the fund’s investments
   • “the likely return from investments, taking into account the fund’s objectives and expected cash flow requirements
   • “investment diversity and the fund’s exposure to risk due to inadequate diversification
   • “the liquidity of the fund’s investments having regard to the fund’s expected cash flow requirements in discharging its existing and prospective liabilities (including benefit payments)
   • “whether the trustees of the fund should hold insurance cover for one or more members of the fund.”
     
     
4. The 2018/19 SMSF approved audit form states the following – “My reasonable assurance engagement has been conducted in accordance with applicable Standards on Assurance Engagements issued by the Auditing and Assurance Standards Board, to provide reasonable assurance that the trustees of the fund have complied, in all material respects, with the relevant requirements of the following provisions (to the extent applicable) of the SISA and the SISR … Regulations … 4.09
   
   
5. Regulation 4.09 of the SIS Regs is an “operating standard” – that is, it is a provision that must be complied – and states the following:
   
   
6. A key feature of the NSW Supreme Court case Ryan Wealth Holdings Pty Ltd v Baumgartner was the fund’s written investment strategy and the court deciding that the trustee had not invested the fund’s money in accordance with that strategy
   
   
7. In February 2019, the Council of Financial Regulators (RBA, ASIC, APRA and Treasury) published a report to government about leverage and risk in the superannuation system.  That report states, “less diversified SMSFs with LRBAs are … exposed to asset concentration risk, which in the event of a fall in the asset’s price, could lead to a significant loss in value of the SMSF. Further, this high degree of asset concentration could exacerbate risks to SMSF members if personal guarantees are involved, leading to a loss of personal wealth beyond superannuation”.

The ATO letter

The letter has the following opening paragraphs:

“Our records indicate that your self-managed super fund (SMSF) investment strategy may hold 90% or more of its funds in one asset, or a single asset class.

“This means that your fund may be at risk of not meeting the diversification requirement as outlined in the operating standard of the Superannuation Industry (Supervision) Regulations 1994.

“As a trustee you are ultimately responsible for ensuring your investment strategy meets the requirements under the law. You could also be liable for an administrative penalty of $4,200 if your investment strategy fails to meet these requirements.”

It then concludes with the following:

“We will also be writing directly to the auditor of your fund to notify them of our concerns. You should be aware that if your auditor identifies that you have failed to rectify any non-compliance with the requirements listed above; this could result in the imposition of the above mentioned penalties.”

Who will receive this letter?

As noted above this letter will be sent to about 17,000 SMSFs that have at 90% of their total assets, as reported to the ATO in a single asset or asset class and the fund also has a Limited Recourse Borrowing Arrangement.  That is, it is being sent to about 3% of all SMSFs.

Reactions to date

CA ANZ has seen the following claims in the media:

• The ATO are alleging that having one asset class is a bad thing or at lest implied it is wrong
• This represents a “full scale assault” on both SMSF trustees and auditors
• SMSF clients who are elderly will be unduly worried
• This is yet another example of the ATO seeking to place a level of distrust against tax agents
• The ATO are asking auditors to warrant investment strategies – a task they are unlikely to be qualified or permitted to do
• The legislation doesn’t actually require a written investment strategy, it just requires the trustees to ‘formulate, review regularly and give effect’
• Robert Gottliebsen in The Australian (9 September 2019) makes the following claims:
  • “The Tax Office has taken tentative steps into financial planning
  • “It’s threatening tone indicates that this just the start of a thrust akin to the withdrawal of ABN numbers from small enterprises
  • “The vast majority of self-managed superannuation funds have 90 per cent plus of their funds in one asset or one asset class invested in one or two properties. Most made the decision confident they were complying with the superannuation rules that did not nominate a fixed percentage.
    “The investment strategies usually fall into two baskets: First, those properties that are occupied by the beneficiaries’ business. They include warehouses, factories shops etc. Second, residential dwellings where there was often high borrowing. The categories raise very different issues…
    “The ATO seems to be concerned about liquidity. Big funds where members can withdraw their money at short notice need liquidity. But when the beneficiary is the same person or persons as the trustee it’s not an issue. The beneficiaries know they can’t access the cash until the property is sold and they arrange their affairs accordingly.”
  • “The ATO people have few if any financial planning qualifications. Perhaps that’s why they mentioned the figure of 90 per cent in the letter. I can’t find a figure of 90 per cent in any of the legislative requirements. It looks like the ATO made it up. And because they are above the law I guess they can.”
  
  Source: https://www.theaustralian.com.au/business/wealth/tax-office-threat-to-selfmanaged-super-funds/news-story/1d9dddce129a5dcdd5e1230cb54867b0 (only accessible behind a paywall)

CA ANZ’s reaction to the ATO letter

Given our ongoing relationship with the ATO we appreciated seeing, under embargo, drafts of this communication.  We provided extensive comment at the communication. 

Together with other industry associations we encouraged the Tax Office to remove from the communication the reference to the potential financial penalties.

The ATO however was concerned that some trustees might ignore the communication (or later complain) if the letter did not sound an adequate warning about the legislative requirements and the penalties that could apply.

CA ANZ considers that some of the above commentary to be incorrect or, at best, misleading.

For example:

• It would seem difficult for an SMSF auditor to plead ignorance with the investment strategy requirement – after all they sign the ATO approved SMSF audit report which says they performed a reasonable assurance engagement to confirm compliance with Reg 4.09
• Auditors are not asked to state that the investment strategy is correct for a fund – they are asked to verify that the strategy provided to them meets the requirements of Reg 4.09 (that is, it clearly takes into account all the points required including diversification) and that the strategy has clearly been implemented by the trustee when operating their fund.  They are not asked to provide retail financial product advice (as defined in the Corporations Act) to SMSF trustees
• Trustees can’t argue they don’t know about this investment strategy requirement – they’ve signed the trustee declaration and each year sign their annual return stating that everything in the return is true and correct including the report prepared by their fund’s auditor
• In relation to the superannuation laws, the ATO is a compliance regulator not a prudential regulator – they can only assess investment strategies against the requirements of Reg 4.09
• Whilst strictly true that investment strategies do not need to be in writing it would be difficult for an auditor to validate an investment strategy complies with Reg 4.09 that is not in writing

We disagree with the following media comments (refer above):

• “The Tax Office has taken tentative steps into financial planning”
• “The vast majority of self-managed superannuation funds have 90 per cent plus of their funds in one asset or one asset class invested in one or two properties”
• “The ATO people have few if any financial planning qualifications. Perhaps that’s why they mentioned the figure of 90 per cent in the letter. I can’t find a figure of 90 per cent in any of the legislative requirements. It looks like the ATO made it up. And because they are above the law I guess they can.

Our recommendation to CAs

To date, in many cases, the investment strategy document piece has been a box ticking exercise with the use of pro-forma documents that contain 5 or 6 investment classes and allowable ranges between 0% and 100%.

The Baumgartner case, and to a lesser extent the McGoldrick NSW Supreme Court cases, burst this bubble.  In our view pro-forma documents are unlikely to suffice.

• For tax agents and SMSF administrators who are not licensed financial advisers:
  
  You can help your SMSF trustees understand their investment strategy obligations.  Some key questions are:
  • what are you trying to achieve in your fund for your member(s)?  That is, what is your fund’s objective?  For some, the answer might be “a decent retirement”; for others it might be “returns of CPI plus 3%” (which is like the government’s Future Fund objective)
  • what assets will you use to meet these objectives and what evidence do you have that these particular investments will help your fund to meet this objective; why not other types of investments that you have excluded?
  • how will the fund’s cashflow requirements (ideally this should be for the short, medium and long term) be met from those investments?
  • do any of your members need insurance – if so, what sort of insurance?
  • what do you mean by diversification – by asset class, within asset classes or some other rule – and how has this requirement been met in your fund?
  
  The above is not an exhaustive list.  Having settled on answers to these questions trustees then need to show how each particular investment or insurance product helps them achieve the fund’s objective and strategy.
  
  For obvious reasons you cannot recommend specific financial products and investments.
  
  And this process needs to be completed annually either via confirmation that the existing objectives and strategy and their implementation are still valid or with appropriate adjustments.
  
  
• For tax agents and SMSF administrators who are licensed financial advisers
  
  Like unlicensed Chartered Accountants you can help your clients understand their legal obligations as per the above points.
  
  Clearly your ability to assist your clients select particular financial products and investments will depend on your AFSL authorisations.
• For SMSF auditors
  
  For many years your job has been to check that the fund has an investment strategy which takes into the five limbs of Reg 4.09 and that the strategy has been implemented – that is, investments or insurance selected by the trustees line up.  For example, if a fund’s primary purpose is to pay pensions to its members yet has insufficient liquidity to make those payments – and cannot dispose of any assets – then there is a problem with the implementation with that strategy.
  
  SMSF auditors are not asked to judge if the strategy is suitable for the particular fund or if particular investments are suitable overall.  Their primary focus is compliance with Reg 4.09 – that is, tell me what you’re trying to achieve and then show me how you have gone about putting those thoughts into concrete action.

At the end of August 2019, the ATO says it will contact about 17,700 self-managed super fund (SMSF) trustees and their auditors where ATO records indicate the SMSF may be holding 90% or more of its funds in one asset or a single asset class. The ATO is concerned some trustees haven’t given due consideration to diversifying their fund’s investments; this can put the fund’s assets at risk.

Lack of diversification or concentration risk can expose the SMSF and its members to unnecessary risk if a significant investment fails.

The ATO will ask trustees to review their investment strategy to ensure it complies with regulation 4.09 of the SIS Regs. The ATO will also ask trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements.