- The ATO should remain the SMSF regulator for the foreseeable future.
- The Australian Institute of Health and Welfare (AIHW) found that we’re not only living longer on average but we can expect to have healthier lives.
- The problems for the collective reputation of the financial advice sector continued to mount throughout 2014.
As this year concludes, now is a good time to take stock and consider what we learned about superannuation and tax in general and SMSFs in particular.
Superannuation
The rise and rise of superannuation as a major part of financial services and the economy in general has continued. If you want proof of this, then take a look at the Murray Inquiry’s final report and the space devoted to super.
We’re almost at the point where adverse changes to superannuation would create an inflection point during an election campaign. This means it now has almost the same significance as the aged pension, income tax rates, death duties and capital gains tax on the family home.
This is an important point to note given that 2015 will see the government release a tax white paper that will form an important plank in its re-election campaign.
Self managed super funds
The past year has seen the trend growth of SMSFs continue. The large industry, corporate and retail super funds must be scratching their heads trying to work out how they can hang onto their members because everything they’ve tried to date has abysmally failed. I think most of them have belatedly realised that full frontal attacks on SMSFs haven’t helped their reputations.
What does this mean? It means that SMSFs have finally become an important part of the superannuation sector and can’t be dismissed as some esoteric plaything of ignoramuses who are their own worst enemies.
Importantly the ATO will remain the SMSF regulator for the foreseeable future. I don’t want to look foolish by making rash predictions but I honestly can’t see this changing anytime soon. This is appropriate given how well it has regulated the sector thus far.
Old age and health
In my view the most important research released this year was by the Australian Institute of Health and Welfare (AIHW).
It found, after analysing Australian Bureau of Statistics published and unpublished data, that we’re not only living longer on average but can expect to have healthier lives.
The AIHW said “not only are people living longer, but … older people, on average, gained more years of life without severe or profound limitation than with it.”
It found that our active years later in life have been growing at a faster rate than the increases in average life expectancies.
This helps to explain why the government proposed increasing the age pension age.
Estate planning
The usefulness of binding death benefit nominations was emphasised by several court cases involving disputes about the payment of death benefits.
Generally longer lives and potentially reduced mental capacity, and how a SMSF can continue to function properly, have gained traction as an issue that needs to be addressed.
Excess super contributions
The former Labor government had put in place measures to limit the number of taxpayers who would face excess contributions tax on concessional contributions.
The Abbott Government has announced measures to limit exposure to this tax for non-concessional contributions. The amending legislation is before the Parliament.
ATO SMSF supervision
The ATO’s supervision of SMSFs has stepped up a notch with its new ability to apply penalties automatically for breaching a wide range of superannuation laws.
It can also send you back to school to complete an approved course that details your various trustee obligations. Once that course is completed it would be hard for you to claim you don’t know the super laws.
On two occasions the ATO asked the Federal Court to impose monetary penalties against trustees who had ignored the super laws requirements.
Pensions
There were a few changes here:
- Deeming – You would need to be hiding under a rock to not know that pensions commencing after December 2014 are going to be deemed under the Age Pension and Commonwealth Seniors Health Card income tests.
- Minimum Pension Payments – the ATO reminded everyone that minimum pension income payments must be made each financial year; a failure to meet this requirement might see you fined.
Financial advisers
The problems for financial advisers continued to mount throughout 2014. The Abbott government sought to water down some new and stricter rules for financial advisers introduced by the Gillard government. Initially it seemed that the Coalition would get its way but it was then side-swiped in the Senate when two senators unexpectedly changed their minds and voted the government’s reforms down.
In addition, throughout 2014 there was an almost constant negative stream of reporting about the financial advice industry coming out of Court cases and Parliamentary inquiries.
Until the financial advice industry effectively self-regulates and removes all real conflicts of interest, including perceptions of conflict, especially from a remuneration perspective, the negative press will continue.
Limited recourse borrowing arrangements
Everyone seems to have an opinion about LRBAs. The Murray Inquiry has recommended they be banned and the government has called for feedback. Presumably an official decision will be made sometime in 2015.
The real estate, property development and investment banking industry are running hard on the opportunity presented by these borrowing arrangements. For how long will it continue? I don’t know but I think a blanket ban would be an extreme reaction. Can the government, for once, amend some useful rules without using a sledgehammer? I certainly hope so.
Important: 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. Consider the appropriateness of the information in regards to your circumstances.
