Opinion piece written by John Maroney, CEO, SMSF Association
First published in The Sydney Morning Herald on 07 December 2021. Licensed by Copyright Agency.
The Productivity Commission’s Superannuation: Assessing Efficiency and Competitiveness report in 2018 lamented that super fund members were often sold short when getting financial advice.
In one of its recommendations relating to Self-Managed Super Funds (SMSF) it said: “Specialist training [should be required] for persons providing advice to set up an SMSF; require persons providing advice to set up an SMSF to give prospective trustees a document outlining ASIC’s ‘red flags’ before establishment; and extend the proposed product design and distribution obligations to SMSF establishment”.
Since then, there have been a myriad of changes to regulations and legislation underpinning SMSFs.
The need for SMSF trustees to have access to specialist financial advice continues to grow along with the regulatory complexity. Fund members now total 1.1 million, spread across about 600,000 funds. Their assets as at June 30 stood at $822 billion.
There is no shortage of recent examples where specialist advice can be beneficial.
From July 1, the rules changed to allow SMSF membership to increase from four to six, with clear advantages for families and business partnerships. However, there are also risks, with more decision makers potentially leading to additional disputes.
New rules relating to downsizer super contributions also take effect from July 1 next year, with the minimum age being lowered from 65 to 60.
It will allow those nearing retirement to make a one-off post-tax contribution of up to $300,000 per person (or $600,000 per couple) when selling the family home.
Downsizer contributions, which don’t count towards the concessional and non-concessional contributions caps, are another reform where getting an informed opinion has merit.
One of the attractions of having an SMSF is being able to engage in related-party transactions. It could be doing the bookkeeping, acquiring a business premise that is then leased back to a related party, or investing in related entities.
However, the Australian Taxation Office (ATO) rules around such transactions are complex.
SMSF trustees need to be across the latest ATO ruling on non-arm’s length expenditure, following changes to the non-arm’s length income rules. Those that fail to do so can find themselves hit with significant tax penalties, with some or all a fund’s income being taxed at 45 per cent, instead of super’s concessional rates.
The SMSF Association’s 2021 Investor Survey Report found that 74 per cent of SMSF trustees sought professional advice. That is a reassuring number, especially when almost 50 per cent of their members are in retirement phase, and the average balance for funds under management exceeds $1.3 million.
However, the headline number does not tell the full story.
Delve a little deeper and the picture is murkier.
More than 60 per cent of survey respondents said they want advice on inheritance and estate planning. Does this mean they can’t get advice, haven’t looked for it, or don’t know where to find it? It is the same with exchange-traded funds, with 55 per cent saying they want more information.
A common catch-cry of almost everyone in the super industry is to simplify the system.
The Retirement Income Review said this should be a priority but no-one is holding their breath. Most new legislative and regulatory change renders the system more complex.
For SMSF trustees who want to avoid the onerous penalties that can befall those who stray outside the regulatory fence, specialist financial advice seems like a sensible option.