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Three things I learned at the SMSF Association conference

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Last week I attended (and presented at) the SMSF Association’s national conference (‘SMSF Conference’) in Adelaide, joining around 1,500 professionals to talk about most things ‘SMSF’. The two and half days provides a great opportunity to hear from Government, Treasury, ASIC and ATO representatives on the direction of policy and reforms.  Add into the mix a range of highly technical content on SMSFs from many of my peers, and you can begin to see why it is the pre-eminent SMSF event in Australia.

Regardless of your level of SMSF specialisation, the conference always provides valuable insights into current topics and the future direction of the industry – this year was no exception.  So, I thought that I would outline the three things that I learnt at the SMSF conference last week:

1. Some certainty will remain, but change is ahead

For the first time at a SMSF Conference, the Federal Treasurer presented and provided an update to the current Government’s thinking on superannuation policy in the lead up to expected changes on Federal Budget night.

In his speech (and conversation with CEO, Andrea Slattery), the Treasurer appeared to all but ruled out any changes to member’s drawing pensions within superannuation.

One of our key drivers when contemplating potential superannuation reforms is stability and certainty, especially in the retirement phase. 

This was a positive outcome for retirees who have ‘played by the rules’ since the Simpler Super reforms were introduced on 1 July 2007.  However, I do believe that we will see some adjustment to the excesses in the system, in particular where approx. 2,800 SMSFs have balances in excess of $10m.  It has been previously argued that the tax concessions to a member with a balance of $2.5m in superannuation receives the same benefits as somebody on a full age pension.  We’ve already seen in ASFA’s report on ‘The equity and sustainability of government assistance for retirement income in Australia’ a recommendation to remove tax concessions beyond account balances of $2.5m.  It will be interesting to see where this all lands… we keep hearing that the Government is ‘close’ but things remain on the table for discussion and debate.

What is clear however is that change is upon us when it comes to making contributions into superannuation, in particular the way in which contributions will be taxed. This goes to the very core of the distribution of tax concessions argument where half of the tax concessions goes to the top 20% of taxpayers.  A concept to tax superannuation contributions was recommended by the former Secretary of the Treasury, Ken Henry as part of the Future Tax System Review in 2010 that would effectively tax contributions at an individual’s marginal tax rate, adjusted for a contributions tax offset – this has been mooted at somewhere between 15% – 20%.

The diagram below shows how this might work is re-weighting tax concessions on concessional super contributions.

reweighting super contribution tax concessions

NB. There is some debate where individuals earning up to $18,200 (tax-free threshold) should also receive a 15% benefit, thereby in effect receiving a 15% tax credit towards their contributions made into super.

You can read more about Scott Morrison’s speech from the conference here.

2. The Regulators aren’t providing anymore time!

With strong representation at the SMSF conference from the Regulators, it was interesting to hear the messaging from both ASIC and the ATO into two areas that expire at 30 June 2016.

In the plenary session on what the future holds for superannuation and SMSFs in Australia, ASIC Commissioner, Greg Tanzer made it abundantly clear that the three-year transitional window for accountants to move into the licensing framework to provide advice on SMSFs will not be extended.  With a significant number of professionals still considering their options, it provided a clear message for those accountants still contemplating their position from 1 July 2016.

In addition, we saw Kasey McFarlane, Assistant Commissioner, SMSF Segment at the ATO also sound a warning for trustees that have collectibles and personal use assets within their SMSF, with the transitional period to comply ceasing at 30 June 2016.  Any pre-1 July 2011 assets that have failed to comply with the new rules by this date will not have any extension of time granted by the ATO, given they have had 5 years to meet these requirements.

You can find out more about the collectable rules on the ATO website.

3. New guidance for LRBA related party loans not far away

After the ATO published updated guidance on the application of the non-arm’s length income (NALI) provisions in relation to certain related party loan arrangements for LRBAs (see ATOID 2015/27 & ATOID 2015/28), the industry has been waiting for further guidance from the Regulator on what features of the loan will reflect the arrangement being dealt with on commercial terms.

Following a recent Super Industry Relationship Network (SIRN) meeting, the ATO is now working on providing guidance as to what they would perceive as commercial terms for these related party loans.  This guidance is expected to include information about:

  • A benchmark interest rate (e.g. Division 7A rate);
  • Maximum loan-to-value (LVR) ratio;
  • Term of the loan
  • Whether personal guarantees are required?
  • The frequency of payments; and
  • Security required to be taken by the lender

It is important to remember here that the focus of these changes are in relation to income tax law requirements (NALI provisions in s.295-550 of ITAA 1997), not the arm’s length provision of the SIS Act (s.109), as terms more favourable to the fund still meet the requirements of dealing on an arm’s length basis.

This year is again tracking as an interesting one for superannuation and the SMSF sector.  I look forward to sharing with you many of the key issues and stories via my blog that will shape the sector this year and into the future.

Did you attend the SMSF Association national conference?  I’d like to hear from you the key things that you got from the event…

Comments

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2 thoughts on “Three things I learned at the SMSF Association conference

  1. Aside from blisters (due to all of the walking), my takeout was also from the Treasurer. “Super is not for estate planning”. My gut feel is that they will remove the Tax Free element on death benefits to non-dependents.

    • Yeah, good point Brett. The charts that Scott Morrison showed were quite interesting, in so far that people weren’t really drawing down on their benefits – in the first five years and the last five years. I’m not convinced that they’ll apply tax on a tax-free component, but we may see an increase in the death benefits tax to non-dependants as a deterrent to keep it within the fund.

      To this today, I still can’t comprehend the logic behind the legislative change to a proportioning rule – the additional tax concessions achieved by those with high tax-free proportions is unbelievable, rather than reducing the tax-free amount over life expectancy as we knew it pre-July 2007.

      Anyway, as they keep saying ‘everything is on the table’ at the moment 😉

      Cheers,
      Aaron

      PS. The walking between sessions was a killer – wish I’d had a Fitbit.

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