Death and taxes may be two of life’s certainties, but another seems to be changes to SMSF’s. Despite industry concerns, the government continues to tinker with the system amid speculation that an estimated $30 billion of tax concessions for self-managed super funds are in the firing line.
In this year’s federal budget, the government reduced the tax concession on contributions for individuals with annual income greater than $300,000, increasing the rate from 15 to 30 per cent.
It also deferred the start date of the higher concessional contribution cap by two years to July 1, 2014. This will allow individuals aged over 50 and those with super balances below $500,000 to make up to $25,000 more in concessional contributions than allowed under the general cap.
Currently $25,000 per year, the general cap is set to increase to $30,000 in fiscal 2015, meaning the higher cap would start at $55,000.
For SMSFs, the government has flagged for introduction from July 1, 2013 legislation giving the Australian Taxation Office the power to issue administrative penalties against fund trustees. Power has also been awarded to issue a direction to rectify violations, as well as the power to enforce “mandatory education” for trustees who contravene the legislation.
Another proposed change for 2013 requires acquisitions and disposal of assets between SMSFs and related parties to be conducted through “an underlying market”, or supported by independent valuations if such a market does not exist.
A report showing that less than 13 per cent of SMSFs have insurance apparently sparked new regulations from August 2012 concerning cover for fund members.
Trustees are now required to consider whether insurance cover should be held on the lives of members, and to review the decision regularly as part of the fund’s investment strategy.
While insurance may not be necessary for all fund members, trustees are required to prepare minutes or resolutions that acknowledge awareness of the obligation and show they have considered the issue.
According to SMSF specialist adviser Liam Shorte of NextGen Wealth Solutions, a possible solution may be for trustees to request each member indicate whether they wish to have cover for any or all risks identified in the fund.
“Trustees will also have to reconsider the issue of insurance each time the investment strategy is reviewed and on the occurrence of any significant change to the circumstances of a member or the fund,” says Shorte. What to consider when setting up an SMSF
Also introduced in August was legislation requiring SMSF assets be valued to “market value” each income year, along with new valuation guidelines from the ATO.
All assets must be valued at market value in funds’ financial accounts and statements, with collectables and personal use assets acquired after July 1, 2011 required to be made at a market price determined by a qualified valuer.
In addition, related party acquisitions must be made at market value, with any disposals on an arm’s length basis.
Despite speculation of further reforms, SMSF specialist adviser Toby Winten of Williams Hall Chadwick says major changes are unlikely given the risk of discouraging saving for retirement. Should you switch SMSF?
“All the recent changes have been grandfathered, so people who have abided by the rules to date get the old rules,” says Winten. “If [the government] suddenly gave us no incentive to put away money for later life, all they’re doing is creating a bigger problem for themselves. Hopefully commonsense prevails and they seem to be reacting to feedback.”
For more information:
- Association of Superannuation Funds of Australia (ASFA)
- “Stronger Super”
- Financial Services Minister Bill Shorten
- Australian Taxation Office – SMSFs
- SMSF Professionals’ Association of Australia
Taxation considerations are general and based on present taxation laws, rulings and their interpretation as atthe date of this article. You should seek independent professional tax advice before making any decision based on this information.