ATO / Contributions / Limited Recourse Borrowing Arrangements / Pensions / Professionals / SMSF / SMSF Compliance / Trustee education

Reflecting on SMSFs in 2011

As the 2011 year comes to a close, it’s a time to ponder where the SMSF industry has come from in the last 12 months and also where it is heading…

This time last year, we had just seen the Government’s response to the Cooper Review, with many of these reforms now only 6 months away (although there does appear for some work still be done on FoFA and the Approved Auditor registration reforms).

In reflection, here’s some of the interesting things impacting SMSFs from 2011:

  • Total SMSFs grew by 7%*  to 450,498
  • Total assets grew by 3.4% to more than $397 billion; predominantly driven by an increase in cash held by SMSFs.  Property also grew in asset value for the year, however shares on the other hand, were the asset class hard hit due to the continued global financial problems.
  • Excess Contributions Tax continued to grow as a key industry issue, with an increased number of assessments by the ATO… and to think that the most recent published statistics showed that the ATO had only just started on the 2009-10 financial year, where the Labor Government halved the concessional contribution cap!!
  • We did however see some sort of olive branch by the Government, with a proposed ‘once-off’ refund of Excess Contributions Tax.  This was not retrospective though, taking effect for the 2011/12 financial years and onwards.
  • We continue to await details of the proposed concessional contribution cap extension for those 50 years of age and over with account balances of less the $500,000.  A budget commitment in 2010 and re-affirmed in 2011, we currently appear no closer to an outcome from Government to this administrative nightmare!!
  • The year also saw two important rulings issued, although the industry responses to these could not have been any further apart.  The views expressed by the Commissioner on key concepts of limited recourse borrowing arrangements were embraced by many who were pleased in the practical approach taken to the single acquirable asset definition and also the ability to make improvements to an asset using the SMSFs own resources.  The more controversial ruling issued in July 2011 was when a pension commenced and ceased.  Many of the views expressed by the Commissioner, whilst not necessarily having changed since a previous interpretation in 2004, were broadly criticised with their interpretation and also of the unintended consequences.  With all responses to the ruling also in the hands of Treasury to review, it is quite obvious that further action will be taken here ensure there is no ‘revenue leakage’ if the industry is found to be correct.
  • The year also saw the introduction of section 62A and SISR 13.18AA relating to collectables and personal use assets acquired from 1 July 2011.  These new rules implemented from the Stronger Super reforms intend to address the legitimacy of SMSFs acquiring these assets for investment purposes, rather than gaining a current day benefit (e.g. hanging a painting on your wall at home).
  • Streamlined TPD insurance tax deductions have also been introduced, distinguishing the level of deductibility based upon whether an insurance policy is classified as ‘any occupation’ or ‘own occupation’.
  • A range of ATO interpretive decisions impacting pension payments, death benefits with stepchildren, and assets acquired where a charge already exists.
* these figures were using Sept-10 to Sept-11 ATO statistics as these are the most recently published by the Regulator.
In my view, 2011 has been more talk than action…  I’m not suggesting that it’s necessarily been a bad thing; however it has been a year where the Future of Financial Advice and Stronger Super reforms have been heavily debated, with most of these reforms expected (but not yet assured) to take effect from 1 July 2012.  Add to these reforms, unresolved discussion papers on extended contribution caps, refund of excess contributions, amongst other things that reiterate my views on the year.
Many people in the financial services industry are already “reformed out” from 2011, however the real challenge lies ahead in 2012.




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