Speak up now if you don’t like these super changes

SMSF technical expert and columnist for The Australian newspaper
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Some important changes to self-managed super funds that were proposed by the Cooper Review last year have moved onto their next development stage with the release last week of a Government-sponsored work party’s recommendations. Most of the suggested changes are fine, but one of them that bans off-market transfers is absurd and will hopefully be dropped.

The taskforce was headed by Paul Costello (no relation to the former Treasurer) and dealt with a wide range of super matters. The following areas specifically interest SMSFs:

In specie transfers and contributions

Now, I think this change is absurd. The following proposal is not yet law, so if you don’t like it, make sure to tell your local Federal politician. Given the current state of Federal politics, they’re all very keen to listen to what might be influencing your vote.

The proposal is that all asset transfers between an SMSF and a related party of the fund must occur through a market. If a market doesn’t exist for the transfer of that asset, then a valuation would have to be provided by a suitably qualified independent valuer.

This rule would apply to all asset transfers in and out of an SMSF, which includes ‘in specie’ contributions and benefit payments. It would obviously impact asset purchases and sales to related parties.

What this means for you is that there are extra steps and costs involved in transferring assets.

The stated purpose of this proposed law is to remove any “mischief (perceived or otherwise) of manipulation of capital gains tax … or excess contributions tax.”

Now, there are two points that need to be made here. Firstly, all Commonwealth tax laws operate under a self-assessment system. That is, we work out our own tax liabilities and the Australian Tax Office (ATO) initially accepts our calculations. We all know the ATO selectively audits taxpayers to ensure compliance with the system and there are penalties in place that the ATO can impose on someone who blatantly underpays their taxes. So why should it be any different for SMSFs?

Secondly, all SMSFs have to be audited each year. It’s the job of the auditor to identify the supposed problems, including suspicious related party transactions.

The Self Managed Super Fund Professionals’ Association (SPAA) points out that such a regulation would place SMSFs at a disadvantage to large retail and industry funds because the former would not be subject to this law.

Valuation of assets

The working party looking at the Cooper Review recommendations wants to see more frequent asset valuations in an SMSF when a fund is paying a pension or if a fund has in-house assets (that is, loans or leases to or investments in related parties of the fund).

A formal valuation would have to be obtained at least every three years for all other assets and informally valued in the intervening period.

If a formal valuation is not possible, then a super fund would have to provide documentation justifying the valuation given.

Auditor costs may rise

SMSF auditors will have to be more careful in being seen to be independent. They will also need to be registered with ASIC. How they are registered is yet to be fully worked out. These specific changes are unlikely to have a huge impact on your SMSF, but it is interesting to see what is impacting your service providers. I think these two changes will push up the price of completing SMSF audits, which I’m sure no one will be too pleased to hear about.

Deeming clauses for trust deeds

The Cooper Review suggested that the super laws should be amended so that any changes in the super and income tax laws would be automatically placed into a super fund’s trust deed. The purpose was to reduce the need to regularly keep your trust deed up to date.

In a welcome move, the Costello Review rejected this proposal because it would deliver “no practical value”. As they point out, there are other laws (including those made by State and Territory Parliaments as well as Court cases) that impact super fund trust deeds.

Additional ATO powers including imposing penalties

The ATO will be given power to provide a wider range of penalties, including demanding that trustees receive specific education of their duties.

You can find a copy of the recommendations here.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Also in today’s Switzer Super Report

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