Professionals / SMSF / SMSF Strategy / Trustee education

Self Managed Super Solutions – Final Report of Cooper Review released

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As promised, the government has been quick to release the final report of the Super System Review (“Cooper Review”).  It is a comprehensive report (overview & recommendations are 70 pages alone) covering the review into governance, efficiency, structure and operation of the superannuation industry.

At this stage, it is unclear what the government may adopt from these recommendations.  It is quite clear that the report is now in the public domain for ongoing consultation to develop standards with industry alongside the ‘Future of Financial Advice’ reforms and ‘Future Tax Review‘.

Many of the final recommendations appear in line with the preliminary report issued by the Review Panel on 29 April 2010.  I have outlined below the key recommendations issued in the Final Report (contained within section 8).  I have highlighted in RED, some of the key issues from the review impacting SMSFs:

No. Recommendation
8.1 No change to the current SMSF limit  of 4 members
8.2 Sliding scale penalty regime based of seriousness of breach.  To applied to trustees/directors, not to be paid from SMSF
8.3 Greater ATO powers to enforce rectification of specified contraventions within specified timeframe
8.4 Mandatory education for trustees that have contravened SIS requirements.  Training to be paid for by Trustees, not the SMSF
8.5 ATO to be given powers to issue binding rulings
8.6 Development of SMSF specialist knowledge component of RG146 for licensed advisers
8.7 No replacement of Accountant’s Exemption. Government should legislate to require advisers to hold an AFSL to establish an SMSF
8.8 Approved Auditor registration with ASIC, to be governed by ATO as Regulator
8.9 Complete audit independence. Approved auditor independence standards for auditors to meet as part of ongoing registration requirements
8.10 Borrowing provisions to stay… review in 2 years time subject to impact of recent consumer protection changes announced
8.11 Credit providers to collect and provide information based on level of finance being provided to super funds
8.12 Abolish 5% in-house asset limit. Five year transition period to dispose of IHA or convert to a Small APRA Fund (SAF).
8.13 Prohibition on in-specie share transfers – where underlying market exists, must be conducted through that market.  Sworn valuations required for Business Real Property transfers
8.14 Prohibition on collectables and personal use assets in SMSFs. Five year transition period to dispose or convert to SAF
8.15 Better collection of statistics relating to SMSFs to understand the sector and its performance
8.16 All SMSF assets to be valued each year at market value
8.17 ATO and industry to publish valuation guidelines for consistency
8.18 Amend Corporations law to ensure SMSF trustees provide all members with certain key information on an annual basis
8.19 Amend legislation to remove unnecessary trustee administrative burdens (i.e. trustee minutes)
8.20 Proof of identity checks for all people joining SMSFs, whether establishing a new fund or joining an existing fund
8.21 SMSF registration to capture details of person providing advice in establishing SMSF and relevant service providers (for ASIC & ATO risk assessment processes)
8.22 Limitations of naming rules
8.23 Improved system to provide SMSF information to APRA regulated funds to allow for immediate processing of rollover requests
8.24 Criminal and civil penalties to discourage illegal early release
8.25 Greater penalty rates (non-complying super fund tax rate) for illegal early access
8.26 SMSF rollovers to be captured as designated service under AML/CTF Act
8.27 No need for trust deed updates; automatically deem anything permitted by SIS or Tax Act to be permitted by Fund’s governing rules.
8.28 Covenant set out in section 52(2)(d) of SIS, separation of fund assets to be replicated in a SIS operating standard
8.29 Amendment to investment strategy operating standard so that SMSF trustees are required to consider life and TPD insurance for SMSF members as part of their investment strategy

It appears that the Review Panel has not had to reconsider many issues from its Preliminary Report.  Some of the issues that they appear to have reconsidered include:

  • Providing Small APRA Funds (SAFs) as an alternative retirement vehicle, in particular for those who want to invest in collectables or have in-house assets (subject to 5% limit);
  • Change of view relating to use of Super Complaints Tribunal (SCT) for SMSFs (no longer appropriate)
  • No longer pursing ‘gatekeeper’ mechanism for establishment of SMSFs. Removal of accountant’s exemption provides opportunity to improve overall advice framework for setting up a fund.
  • Slight softening in audit independence requirements, however ASIC to develop approved auditor independence standards for SMSF auditor to meet  as part of ongoing registration.  It will be interesting to see how vigorous the accounting bodies are in pursuing a softening of this complete independence stance of the Review Panel.
  • Bringing the issue of ‘under insurance’ into the SMSF spotlight by having trustees consider as part of the fund’s investment strategy.

It was pleasing to see that there is no place for compulsory education (unless a serious breach has occurred), nor any requirement for particular academic, professional requirements to operate a SMSF.  It will however now be up to the respective professions (SMSF service providers) to provide trustees with the relevant advice, guidance and tools to deliver the retirement objectives that they would like to achieve.

Whilst the Final Report has now been released, it is just the beginning of a range of changes about to impact SMSFs and the industry.

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