Self Managed Superannuation Funds (SMSFs) allow its members to capitalise on tax benefits available to them, while allowing them to directly control and manage how their retirement savings are invested. As there are an extensive number of reporting obligations relating to SMSFs, there is a lot of responsibility on the trustees of a SMSFs to comply with; as a result SMSFs may not be suitable for people without an adequate understanding of their obligations.
Associated with running a SMSF, the trustees have a considerable number of reporting obligations imposed on them.
As soon as practical after the end of each financial year the Trustee must attend to a number of financial reporting requirements. These include the preparation of:
A statement of financial position recording the assets and liabilities of the fund as at the end of that preceding financial year; which is June 30 of the previous year,
An operating statement recording the profit derived or loss incurred by the fund for that financial year (or part of the year if the fund was not in existence for a full year),
Member and other statements and reports to be prepared
An income tax return
Once these financial statements are completed, the trustees must then arrange for the financial statements and the accounting records of the fund to be audited by an independent and approved SMSF auditor, registered with the Australian Securities & Investment Commission (ASIC). The SMSF auditor is required to review the financial statements and supporting records of the funds, and provide an opinion as to whether it considers the financial statements provide a true and fair position of the fund.
If the auditor detects any breaches of the fund, it is obliged to report these to the Australian Tax Office (ATO).
On completion of the audit, the tax return for the fund is to be turns to be lodged with the ATO.
A SMSF is required to maintain accounting records. These records are to be kept in a form, with supporting documentation, to enable them to be properly audited. Accounting records are to be retained for 5 years after the end of a financial year to which they relate.
If a SMSF earns less than $75,000 in annual revenue, then it does not need to register for Goods & Services Tax (GST). If an SMSF has income from business enterprises is in excess of $75,000 per annum, then it is required to register with the ATO for GST. In most cases, income derived from business enterprises is usually only the rent received from a commercial or business property. (An SMSF that receives rent from a residential property doesn’t count towards the $75,000 annual turnover threshold.)
The ATO defines $75,000 of income as gross revenue, not net income after expenses. In cases where the SMSF owns a commercial or business premises, an SMSF trustee may voluntarily elect to register for the GST. By doing this, the SMSF will have to charge GST on any rental income received, and this will have to be remitted to the ATO. On the flip side, the SMSF can then choose to claim GST on certain expenses, solely related to the property. SMSF trustees that have registered for GST voluntarily should be mindful of the extra costs and reporting involved. Always seek independent and qualified SMSF advice to ensure the costs of registering an SMSF for GST don’t outweigh the benefits.
GST charged during a quarter is to be reported and paid to the to the ATO via a Business Activity Statement (BAS). GST received can be offset to GST paid. Where an SMSF owns commercial premises and is registered for the GST, then GST must be charged on the rent and paid to the ATO. In these cases, the GST component of any expense relating to the commercial property can be claimed by the SMSF.
When it comes to claiming GST on an SMSF, it’s not a hard-and-fast rule of 10% in and 10% out. While the majority of expenses incurred by an SMSF will include GST, the law only allows an SMSF to claim back a reduced portion of the GST. Depending on the cost, none of the GST can be claimed.
An SMSF can only claim 75% of the GST paid on investment management fees, actuarial fees and brokerage fees. No GST can be claimed or refunded on accounting fees for the preparation of income tax returns and BAS, audit fees, legal fees and expenses relating to a residential property.
Contact H&R Block SMSF Solutions if you require assistance regarding the financial reporting obligations of your fund.
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