In light of new complex super changes, Madgwicks Lawyers special counsel Rebecca James believes in providing SMSF advisers explanations and guidelines that are as clear and practical as possible. She reveals her top queries to Krystine Lumanta, as well as what she thinks it takes to deal with the constant changes to super legislation from a legal standpoint.
How long have you been working with SMSFs and how did this career path come about?
I’ve been working in this area of the law for more than 10 years now and still find the work challenging and interesting. I also like dealing with advisers and clients, and building ongoing relationships. Practising in this area requires a diverse skill set and knowledge of a range of different areas of law. I participated in a number of mock trials during my senior years in high school and really enjoyed the experience so I decided to study law at university. I started working as a qualified lawyer in 2006 when the Simpler Super changes were introduced. It was a critical change in super and tax law, and presented an opportunity to learn about an area from the inception of the new provisions. SMSFs in particular were growing rapidly and there were a lot of really interesting transactions and activity at that point in time. It was a fantastic time to start working in the area and the changes to the law really levelled the playing field in terms of the taxation of super.
Super law is a complex and highly technical puzzle where the pieces need to be put together to understand the whole picture, except that the rules keep changing every year.
What qualifications have you completed?
I have a Bachelor of Laws (Hons) and a Bachelor of Arts. I’ve also completed my Master of Laws with Melbourne University and am an accredited SMSF Specialist Advisor.
What are your responsibilities as special counsel at Madgwicks Lawyers?
I’ve recently moved to Madgwicks Lawyers and I’m really enjoying the challenge of a new role working within the commercial team. Madgwicks is a Melbourne-based law firm with more than 40 lawyers and 100 staff that provides advice to local, national and international clients on their private, corporate and commercial legal issues. My clients include SMSFs, public offer super funds, fund managers, accountants, family-owned businesses and high net wealth individuals. Madgwicks provide a complete legal service to SMSFs, from establishing and varying fund deeds, documenting pension arrangements, including legacy-style pensions such as market-linked pensions, and advising on change of trustees, including where trustees become non-residents or are disqualified for super law purposes. We also advise on and assist with ATO disputes, audits and the objection process, and dealing with the regulators more generally where we have achieved some great outcomes.
Any particular areas of focus or expertise?
Structuring complex investments involving super fund borrowing arrangements, property development and investments in related and unrelated companies and trusts, including pre-11 August 1999 unit trusts, as well as structuring and advising on the super and tax aspects of in-specie contributions of shares and property to super. We also advise on superannuation guarantee obligations and choice of fund requirements, including the distinction between common law, deemed employees and independent contractors and the director penalty provisions. My practice also advises on commercial and business matters involving super, funds management and private wealth management.
What do you enjoy about the SMSF side of law?
I enjoy the intellectual challenge of practising in this area. Super law is a complex and highly technical puzzle where the pieces need to be put together to understand the whole picture, except that the rules keep changing every year. To work in this area, I think lawyers need to have a comprehensive knowledge of super and tax laws, and should also have a good understanding of trust law, property law, succession and general commercial law principles. Working at a firm like Madgwicks with experts in each of these areas makes a huge difference when advising SMSFs. Superannuation, though, at its heart is fundamentally practical and helping trustees and members navigate the rules to ensure they maximise their retirement savings in the most tax-effective and compliant manner is deeply rewarding on a personal level. I think the best lawyers in this area have an aptitude for comprehension, analysis and strategic thinking and the ability to take complex concepts and distil them down into advice that is easily understood and accessible to trustees and members. My goal is to make difficult topics easy to understand, while still providing technically accurate advice that considers the commercial and practical reasons for the strategy, structure or transaction.
When you present at super seminars or conferences, what’s usually your main takeaway from the audience?
A key issue for SMSFs currently is the payment of super death benefits and how to correctly structure binding death benefit nominations to pay an account-based pension up to a beneficiary’s retirement-phase cap. Issues around structuring the payment of the balance of the super death benefit, control of the SMSF on incapacity and death and estate planning considerations for amounts required to be paid out of the super environment are also hot topics at the moment. When presenting, my aim is to highlight the issues in a straightforward and systematic manner, and to provide practical guidance and solutions that advisers can apply when communicating with clients.
What are the key issues taking up most of your time?
In our practice we are currently dealing with advising on non-arm’s-length income and investments through trusts and property development structures. Restructuring defined benefit pensions, such as market-linked pensions, and dealing with flexi-pensions has also been taking up a lot of my time. We have also been advising on reserves within super and how to deal with these reserves in light of the recent changes to super laws. Advising on binding death benefits nominations and possible death benefit disputes is a key component of my practice and has also been occupying a lot of my time.
What are your thoughts on all the new super changes and their impact on SMSFs overall?
The super changes are unnecessarily complex and difficult to administer. It will be interesting to see if the transfer balance cap and amounts that can be contributed to super vary over time. In particular, it would improve the system if there was increased flexibility to make contributions to super when members have the ability to do so over various life stages, rather than being locked into rigid contribution caps.
What’s the biggest change you’ve seen in the industry, positive or negative?
A significant change is the ATO’s increased use of the media to communicate with the public on its interpretation of super and tax laws. This is positive to the extent that advisers and members are aware of the ATO views, but there is also a risk of law by media release and policy-based interpretation, rather than an analysis of the actual text of the legislation. While it is useful for advisers and trustees to understand the ATO’s interpretation of the law, it is also important that the basis for that interpretation is the wording of the legislation and case law. Without significant resources, it’s difficult for trustees to challenge the ATO interpretation of a specific provision.
What’s one thing you’d change about the SMSF industry?
The consultation process when changes are made to super and tax laws certainly has scope for improvement. I would also like to see changes around dealing with member disputes in SMSFs. Fund deeds often weight voting power to member account balances in a deadlock scenario, which is highly problematic and creates issues around the management and operation of the SMSF and unfairly disadvantages some members. A cost-effective and efficient method of dealing with member disputes would improve the overall operation of the system.
What are the challenges for the industry in the next 12 months?
Succession planning in light of the retirement-phase caps and the amount of money being forced out of the superannuation system presents a real challenge, especially when coupled with the risk of increased litigation in connection with the payment of super death benefits. There will be a substantial amount of money being paid out of the super system in the next 20 years and that will alter the strategies around super and the payment of death benefits. Managing transition-to-retirement pensions, particularly when a member satisfies a full condition of release or on the death of a member is also difficult given the current ATO interpretation of how the law operates.
What are your thoughts on the ATO’s transfer balance account report, or TBAR, regime?
The new reporting requirements for transactions including pensions and commutations, and the time frame for reporting, will also present new challenges for fund trustees and advisers. Communicating these changes to members and ensuring they seek advice and notify the ATO within the respective time frames will be critical to ensure penalties are not imposed. The constant legislative changes to the taxation of super, particularly if the legislative changes are not well considered, represent an ongoing challenge to professional advisers practising in this area. It is important to be across all aspects of the changes, but also to communicate the changes in a way that draws out the practical implications and is easily understood by trustees and members. The legislative changes can also make a huge impact on members and how secure they feel in retirement, so it’s important that professional advisers work together to assist members in navigating any changes to super law.