HLB Mann Judd Sydney superannuation director Andrew Yee’s interest in all things super, including SMSFs, was piqued when he began his career as a tax accountant with the ATO. He tells Malavika Santhebennur what clients are finding most challenging about the recent super reforms and how much of his work lies in debunking myths and clearing up misconceptions.
How did you become involved in the SMSF sector?
I’m a qualified accountant and I’d been working at the ATO previously, so I’ve come from a tax background. I worked in various divisions in the ATO and one of those areas was superannuation, including super compliance. The year 2000 was quite an interesting time because the ATO was about to take over regulating the excluded funds from the Australian Prudential Regulation Authority pre-SMSFs. I developed that interest in super while I was at the ATO and found I had an interest in SMSFs. When the job came up in HLB Mann Judd as an SMSF auditor, I applied for the role and the rest is history. I have been here ever since, almost 17 years now.
What is your role at HLB Mann Judd?
I am the technical leader and my role is to be the go-to person in the firm on SMSFs and super in general. I assist the staff in the firm on all matters to do with super as well as assist their clients. I also have a portfolio of clients that I look after. My role can be very broad, encompassing audit, accounting and advisory services. I also provide advice to smaller firms on SMSFs and from time to time I speak at seminars and provide content and thought leadership to print and online media. SMSF is the bread and butter of my role, though it encompasses super, but most of our clientele for super is SMSF related. Every day is different. I enjoy the interaction with the clients, which is very different from the public sector.
How has the SMSF sector evolved during your time at HLB Mann Judd?
I’ve seen that SMSFs have just exploded in the super industry. As you can see in the growth of numbers, it’s got a massive amount of penetration in the market. That’s probably come about due to all the tax concessions and the ability to have an SMSF as part of your family tax planning structure. That’s been good because it’s increased the amount of work that’s available for advisers and accountants, so it’s been good for me in the firm.
What has been most challenging in implementing the recent super reforms?
The most challenging from my experience would probably be just being able to get across all of the massive changes. A lot of clients have to get used to these new concepts, such as the transfer balance cap and having this threshold of $1.6 million. We found initially clients felt they could only have a maximum of $1.6 million in their super account. They thought they needed to take the excess out of super and they didn’t know they could put it into accumulation. They thought they would have to take it out or put it in an industry fund or something. And then what happens on death, that was another spanner in the works: having to explain that you couldn’t keep more than $1.6 million in your SMSF if you die, and then only $1.6 million can be passed over or only if you had a reversionary pension. On the capital gains tax front, you have your segregated and unsegregated method, proportional and unproportional. I guess there was a lot of advice out there that a lot of advisers held back also because they probably hadn’t been fully across the new rules themselves. When it all came out, there wasn’t a lot of lead time to get across all the rules and then explain all of that to clients. So there were a lot of new rules and misconceptions out there and it was a good thing to be able to educate the clients on them. From our point of view it was beneficial because it increased the amount of interaction we had with our clients.
What were clients’ reactions when you cleared up the misconceptions?
Their reaction was okay because they thought it wasn’t too bad. Some thought if you had more than $1.6 million, you couldn’t keep it in super and you’d be taxed at the top marginal rate. When we said it’s still taxed at a maximum of 15 per cent, it was okay for them. That softened the initial outrage.
What are your thoughts on the federal opposition’s franking dividend proposal?
It is obviously designed to affect the large SMSFs that are deriving big refunds of imputation credits. Maybe that’s the rationale for the introduction. Having a carveout for pensioners will just make the measure more complicated to administer and comply with. You have to wonder if those that are pension-only funds with a large imputation credit portfolio would move into accumulation phase to at least get the benefit of the offset because they’ll lose 100 per cent in the pension phase. You might also see people moving from SMSFs to industry funds or retail funds where they may still receive their imputation credits notionally or in the form of credit. It could also mean massive changes in investment strategy with people moving away from Australian shares that are paying these imputation credits to more growth-style stocks or overseas stocks.
Do you expect Labor to dabble in more super tinkering if it wins the next election?
It’s one of those areas that can be politically neutral in terms of voters. It’s not a big enough vote killer to stop tinkering with it. That’s why over time it’s always been tinkered with and they keep doing it because they feel it won’t really affect them at the polls. They’re not vote shifters. So far we have only heard about the taxing of income in retirement over a $75,000 threshold and lowering of the high-income threshold to $200,000. You might see perhaps a further lowering of the contribution caps. How low can you go? There might be a two-tiered retirement system made up of fully and overfunded retirees and accumulators, and those eligible for social security. I suspect Labor will be even harder on limited recourse borrowing arrangements. I suspect they will be close to, if not completely, banning it or making it very hard to do it.
What do the new education standards mean for accountants?
I have not digested it fully, but there seems to be no carveout in the reforms for accountants with or without a limited licence. Hence it will make it difficult for existing accountants to go over to the adviser side. Many accountants may give up on the SMSF space altogether as the process to become qualified and licensed becomes too onerous.
How will this change the nature of accountant-planner referral partnerships?
It may perhaps result in more joint ventures being set up between accountants and financial planners. Financial planners may need to provide more incentives for accountants to form partnerships to overcome the reluctance to form these partnerships.
Will people have to go to planners to establish SMSFs?
It seems that way even though they don’t want to. Clients will probably then ask why it’s going to cost them more to manage or set up an SMSF than it was previously. The accountants are obviously the losers in this reform, but sometimes they’re best placed to give advice on the tax and SMSF side. It’s just a tax vehicle and it’s just like a family trust for retirement. So it’s difficult to now make it seem like a financial product. Most SMSF clients don’t really need advice, but they need advice in terms of tax planning. They would have already done the planning in terms of what they have in their SMSFs or they’ll seek a financial adviser to do that. So it’s going to be difficult with all these new changes in education.
Is there anything you’d like to change about the SMSF industry?
I would like to see more collaboration or cooperation between accountants and advisers. Currently there seems to be a divergence between the two groups on SMSFs and perhaps that is a by-product of the current SMSF licensing regime. Hence I would like to see more of a convergence between the two camps. I am not sure how that can happen without having regulatory change. There should be more dialogue between the regulatory bodies and associations of the two groups on how they can best work together for the benefit of the SMSF client.
What do you think will be the biggest challenges in the next 12 months?
Making sure we are across all the new changes when we are doing the compliance work for the 2017 financial year, as well as making sure that we have educated our clients on the new changes. This includes issues such as what happens to super fund benefits upon death now, and whether they should be reviewing their estate plans in light of the new changes. Communicating with clients that there can be more work involved in having an SMSF due to additional compliance requirements, such as transfer balance account reporting, is very important. There may also be a need to factor in proposed tax changes by a Labor government into SMSF planning and strategies.