Setting up an SMSF – changed ATO procedures
The ATO has recently changed requirements relating to establishing new SMSFs. We have outlined the changes below and how you can satisfy these new requirements
In the past the ATO would register a fund and issue an ABN on the basis that a Trust Deed had been executed and other appropriate documentation put in place. The fund would then be able to open bank accounts and share trading accounts which would subsequently hold the fund assets. Importantly, the fund would not actually hold any assets until after the ABN was issued.
If a fund did not receive assets into the fund bank accounts etc (due to delays in rollovers etc) until after the end of the financial year in which the fund was established the normal procedure was to lodge a “Return Not Necessary” (saving the need to submit an annual return with zero values). I understand some funds submitted RNNs for several consecutive years.
New Process (commenced Feb 2015)
In addition to having executed the Trust Deed and other documents, the ATO now requires that funds actually “hold assets” prior to registering and issuing the ABN. This is based on a legal interpretation that a Trust cannot exist if it does not hold an asset.
How does a fund “hold assets” without a bank account?
I understand many funds have encountered difficulties in satisfying the “hold assets” requirement as banks will not open an account for the fund until it has an ABN and the ATO will not issue the ABN until the fund holds assets. This issue was raised in a recent ATO Conference call with SMSF practitioners.
The ATO response was that “assets held” by the fund did not need to be material or held in a bank account. The ATO guidance was that simply stapling a $10 initial contribution to the Trust Deed would satisfy the “hold assets” requirement. The ATO will then issue the ABN allowing the fund to open bank and other accounts into which rollovers, employer contributions etc can be deposited.
No more RNNs
As a fund will now only be issued an ABN once it has confirmed it “holds assets”, it follows that all funds will need to lodge annual returns in the financial year they were established. That is, no funds will qualify for an RNN. Accordingly the ATO has ceased issuing RNNs for all funds established after approximately Feb 2015. The comment in the ATO conference call was that even if the only asset held by the fund was the $10 stapled to the Trust Deed in order to satisfy the “hold assets” requirement, an annual return will still be required. The ATO emphasised that given these new processes practitioners need to think carefully about when they establish an SMSF. In particular, if there is any prospect that rollovers and material contributions will not take place until the following financial year it may be better to hold over fund registration until that financial year has commenced.