The fact superannuation law is so different to other areas of the legal profession is what drives Towsends Business and Corporate Lawyers solicitor Julie Hartley’s passion for the SMSF sector. She shares with Darin Tyson-Chan her thoughts on why gearing strategies are likely to make a comeback and how she’d like the superannuation guarantee to be increased.
How did you get started in the SMSF sector?
The opportunity to be involved with SMSFs came straight after I left law school. I was offered the job here at Townsends Business and Corporate Lawyers and I just jumped at the chance of doing something other than criminal law or family law. It was something different, something specialised, it was a niche area and I got into it. I did not regret it for a second. I just loved it because it’s very, very different from what they teach you in law school. You really get to put what you learn in theory into practical application and it’s sort of tricky, but if you like this type of law, it’s just fascinating.
Did you study any sort of superannuation law at university?
No, they don’t really teach it at university. I know they teach it at postgraduate level – [SuperConcepts’] Graeme Colley’s conducting a course on it – but at undergrad level they don’t actually teach it at all. A little bit of law covering wills and estates is taught, but they don’t really touch on superannuation at graduate level. I am hoping it’s something they will start having a look at in the curriculum because it’s an area that is getting more and more relevant and we need more people in the area learning about this.
So with no specific training in this area of the law, what makes you love it so much?
I love it because it applies to everyone. Everyone has super, whether it’s in a retail fund or an SMSF, so it’s relevant to everyone and everyone knows about it. Where I am from we don’t have that type of system, there is no superannuation system, so it is something brand new, something for me to just get my teeth into.
How difficult was it to understand the legislation and how long did that take?
It took a while, but I love this sort of thing. It’s why I became a lawyer – to be able to look at legislation, understand how it works, identify where the loopholes are and how you can make the most of it for your client. When you start talking about things like limited recourse borrowing arrangements, you start to think what is this, but the more you do it the easier it becomes. However, we are now getting a new set of laws and we’re all going to have to get familiar with and learn to use and apply it correctly, so that’s another challenge.
Is there a particular area of superannuation you specialise in?
I do a bit of everything across the board, from changing trustees or putting together limited recourse borrowing arrangements. I do specialise in dealing with transactions where members transfer property they currently own into their SMSF. That involves an end-to-end service that helps them with the documentation and ensuring the transaction goes through with the title registered in the name of the super fund. It can be quite complicated, especially when you are dealing with banks or related-party loans and you have to make sure you tick all the boxes and everything is done correctly. These transactions can take a few months, but they are quite interesting to be involved in.
Broadly what are the services you offer clients?
We provide compliance documentation covering the change of trustees, recording the commencement of a pension or merging of pensions. We also provide documentation for limited recourse borrowing arrangements involving the loans, including dealing with client concerns about bank documents they are being asked to sign and whether there are any compliance issues involved there. We do a lot of transactional work as well, so helping clients where they have changed trustees and have to transfer property into the name of the new trustee, we again help them with that whole process and help them apply for the concessional duty. We do the same thing when a limited recourse borrowing arrangement is repaid and the property has to be transferred back into the fund. We also do a lot of trust work and with all of the new rules being introduced around SMSFs, this service is expanding. A lot of people are looking into discretionary trusts and unit trusts as an alternative to super or using them in combination with an SMSF. Obviously a lot of advice work comes with the changing legislation.
Of all the services you offer, which is the most popular?
It would have to be the services we offer regarding super gearing – that’s still quite popular with clients. A lot of people are showing interest in it again, especially with the new rules as it could be one way to make sure you get more money into super without breaching the contribution caps. We do see a lot of demand for assistance with unwinding of limited recourse borrowing arrangements when the loan is repaid and the property has to be transferred into the fund.
When clients ask for help with transferring assets to the names of new individual trustees, do you encourage them to implement a corporate trustee at that point?
More often than not that’s when people realise a corporate trustee structure is better because they actually see how much more work is involved with individual trustees. In the past three years we’ve had one SMSF that went from having two individual trustees to four trustees, but all the other times funds have always gone from an individual trustee set-up to a corporate trustee arrangement. So it looks like the word is slowly spreading that a corporate trustee is the best way to go.
Have you had a lot of SMSF queries since budget night?
Funnily, we haven’t had that many. I think most people are asking their financial advisers about it more than lawyers because they feel like it’s more something to do with the financial side as opposed to the legal side of things. At the end of the day we can’t say very much because we have got no legislation to stand on, so all we can say to clients is here are your options and it is up to the advisers and the financial planners to decide which option they want to follow or put forward to their clients. So it’s more of a tricky situation for them than for us.
What seems to be causing the biggest concern?
It used to be the lifetime cap, but that’s no longer an issue, so now it’s probably the pension transfer cap. That still remains the change people talk about the most just because it seems to be the most complex one. It will be quite hard to implement and make sure every single scenario is covered. There’s still a lot of uncertainty and there is a realistic possibility you’ll have to contact the ATO to make sure what you’re doing in that area is right.
How do you find your interaction with the regulator?
Generally the ATO tries to be very helpful and generally it is. Basically they are in the same spot as us because they don’t have that much information themselves, so there is only so much they can say in discussion and consultation. But the ATO I think has been doing a great job in helping out where it can and issuing guidance where it can.
What’s the most significant change you’ve seen to the SMSF sector?
It would have to be the budget. It contained huge changes to the whole superannuation system as we’ve known it over the past 10 years and what it’s going to look like is going to be a lot different to what it did over the past decade. Some sort of shake-up was probably needed with some new rules to come through. People might not like it, but at the end of the day a change can be good, so it is just going to be a matter of adapting and making sure we all know those changes.
If you could change one thing about the SMSF sector, what would it be?
Because they are reducing all of the money you can put in as non-concessional contributions, an increase in the superannuation guarantee (SG) rate would be quite beneficial I think. So increasing it to something around 18 per cent to 20 per cent would probably help people in achieving a more reasonable and comfortable retirement than the current SG rate would facilitate. Even though it is supposed to increase in the next few years, we all know that has been put on hold at the moment, so I think that would be the change I would like to see.
Over the next 12 months what do you see as the biggest challenge facing the sector?
I think it’s making sense of the new rules and just restoring people’s confidence in the system. A lot of advisers specialise in super and they need to have clients that have faith in the system. They don’t want to lose that client base, so it’s important clients will still see the benefits of super and don’t just look at the negative things or the bad things. Clients have to focus on the good aspects of super as they haven’t gone away.