Highlights of the ATO SMSF Newsletter – Issue No 18

15 July 2011

Compliance Program for 2011/12

The ATO 2011/12 Compliance Program will, amongst other things, focus on SMSFs which are:

  • newly registered – to ensure that such funds are not being used for early release purposes
  • lodging their first annual return – to ensure that they are entitled to be issued a notice of compliance
  • the subject of auditor contravention reports
  • re-reporting member contributions – particularly when the reporting has the effect of eliminating or reducing a previously excess contribution position of a member
  • reporting current exempt pension income  - to ensure they are correctly reporting such income.

The ATO proposes to undertake 300 audits and 600 reviews of SMSFs this financial year.
 

Reporting of Limited Recourse Borrowing Investments

The 2010 SMSF annual return is now available.  The ATO advises that SMSFs which have limited recourse borrowing investments in place during the 2010 financial year, must report the investment under Item 14b Label J “Derivatives and Instalment Warrants” of the Annual Return.  This applies even where the subject matter of the limited recourse borrowing is real estate.  Only if and when the limited recourse arrangement ceases, should the investment be reported at Item 14b Label K (non-residential real estate) or at Label L (residential real estate) as appropriate.

 
Losses on Shares & Units

The ATO takes the view that the CGT provisions are the primary rules for the treatment of losses on shares and other marketable securities.  Consequently losses on shares and other marketable securities must only be offset against current year capital gains, or carried forward as a net capital loss.

The Government announced as part of the 2011 Budget that it would remove the “trading stock” exception so that marketable securities cannot qualify as trading stock and consequently, that losses on marketable securities cannot be treated as revenue losses.

While legislation to limit the CGT trading stock exception has yet to be introduced, it is proposed that marketable securities which did qualify as trading stock at 7.30 pm on 10 May 2011 will be grandfathered.  Consequently only marketable securities acquired after that time or acquired before that time but which did not qualify as trading stock will be treated as CGT assets.

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