Walk the line

The complex changes to superannuation have raised fresh concerns and confusion around demarcation when it comes to the roles of the accountant, tax agent and financial planner for the SMSF client. Krystine Lumanta reports.

While the general industry consensus has been that most accountants have settled down with the new licensing regime that began on 1 July 2016, the significant incoming changes to super have brought about a similar blurring of boundaries, but this time among accountants, tax agents and advisers.

Self-managed Independent Superannuation Funds Association (SISFA) managing director Mike Goodall says he has uncovered huge dissatisfaction with the incoming super system, commencing 1 July, due to the confusion it has created around specific SMSF client scenarios and the role of the professional accountant and adviser.

“It seems our accountant members are the most frustrated; our financial planner members much less so,” Goodall reveals.

“Our accountant members are unsure exactly where the cut-off point is and what exactly they can and can’t advise on. Some are saying their dealer groups and professional bodies are unsure as well.

“There is a view from the accountancy fraternity it was a mistake to label super advice a product. There’s been lots of confusion and frustration.”

An Australian Securities and Investments Commission (ASIC) spokesperson tells selfmanagedsuper that in light of the removal of the accountants’ exemption and the introduction of the limited licence, the regulator is aware people who provide SMSF services, both licensed and unlicensed, are keen to understand the regulation of those services.

“This is why we have published Information Sheet 216: AFS licensing requirements for accountants who provide SMSF services (INFO 216),” ASIC says.
“Although INFO 216 is targeted at accountants, the broad principles set out in the information sheet also apply to other types of advisers. This information sheet specifically deals with the regulation of tax advice on SMSFs and other financial products.”

Further to INFO 216, the regulator issued Information Sheet 205: Advice on self-managed superannuation funds: Disclosure of risks and Information Sheet 206: Advice on self-managed superannuation funds: Disclosure of costs, as well as extensive regulatory guidance about financial product advice in Regulatory Guide 175: Licensing: Financial product advisers -– Conduct and disclosure.

“In addition, we are currently working with the Tax Practitioners Board (TPB) to develop joint guidance which will help to clarify the scope of the exemption from the financial services regime in section 766B(5)(c) of the Corporations Act 2001 for advice given in the ordinary course of, and as a necessary part of, the activities of a tax agent or BAS (business activity statement) agent,” ASIC says.

SMSF Association head of technical Peter Hogan says these information sheets must be used as the guide for accountants and advisers alike.

“ASIC is very strong of the view that that’s the demarcation line,” Hogan warns.

“Now, where it needs to be drawn, you obviously have to take that document and apply it to the circumstances you’re looking at, which sometimes is not as obvious. But nevertheless, ASIC is very strong of the view that these documents are highly relevant for the issues that have been raised now.

“And I think it’s also the case that there’s a strong expectation from ASIC as the regulator of this aspect of the law that the contents of the documents are well understood by the advisers who are affected by it.”

Following recent training sessions for industry professionals, Hogan says he has been privy to several discussions around the potential advice delineation problem as a result of the new super changes.

“It has been raised as an area of concern, that is, whether there was a clear demarcation line or not between financial services-type advice and tax advice, and when they might potentially step over,” he explains.

“The thing is that there’s probably no clear line because you really need to look at the advice in context.”

It’s perhaps a little more difficult for the accountant who’s unable to give financial planning advice anymore, following the end of the accountants’ exemption last July, he says.

“If they don’t have a limited licence or an AFSL (Australian financial services licence) with the proper authority attached to it, then they’re the ones who’ll need to be taking the most care about crossing the line in providing something which looks more like financial advice,” he warns.

“So if they’re not licensed, that’s probably where the major problem lies.”

This, in turn, could lead to a reconsideration of adding an advice capability to an accounting business.

“Given the fundamental nature of the changes that we’re getting on 1 July and the importance of those changes in terms of the way people provide advice – and might I add ongoing advice, as it will clearly have an impact after 1 July in the context of super savings and retirement – it may well cause some accountants who decided to stick to their knitting and not broaden their business to perhaps rethink their position,” Hogan says.

“It may not necessarily mean that they do [end up becoming licensed to provide financial advice], but I suspect it will cause a lot of them to rethink whether that was the right decision they took.

“They might see that they need to start building strategic alliances, or hire someone who is appropriately licensed and qualified to provide financial advice, or maybe join forces with another accountant who’s licensed to provide a specific type of advice.”

CGT relief: an example

The transitional capital gains tax (CGT) relief contained in the new super legislation, to be introduced on 1 July, provides a key scenario where practitioners are confused with the depth of advice they can provide within their licensing limitations.

Specifically, advisers are worried about providing CGT relief advice if they are not a registered tax agent due to the issue being not only a complex financial planning one, but a scenario that is also linked to an intricate tax calculation.

Hogan points out that while CGT relief is one of the key concessions provided by the new super legislation, it has created the most work for practitioners in terms of its application due to every client’s circumstances needing to be carefully assessed to determine the outcome.

“This is a mix between financial advice and tax advice, so yes, there is definitely a demarcation issue,” Hogan confirms.

“There are absolutely some aspects that are just pure tax advice, which really should just be dealt with by a tax agent as it is more tax commentary than a financial adviser would normally provide their client.

“There is certainly the potential for people to get confused about which hat they’re going to be putting on here, and probably more so for people who are providing an accounting/tax agent service and a financial advice service as well, which has always been a dilemma for people who wear both hats.”

From 1 January 2016, financial advisers were required to be registered with the TPB to provide tax financial advice services.

Hogan believes most financial planners are comfortable with this level of tax advice and would otherwise refer to a qualified tax agent for specific advice.
“Tax is such a highly specialised skill set,” he explains.

“I really think the chance of advisers being interested in going beyond that level of tax advice is probably limited to those who are accountants anyway and have that skill set.

A TPB spokesperson reiterates: “Where a person or entity is appropriately licensed with ASIC or has been authorised as a representative by their licensee and the person or entity holds registration with the TPB as a tax agent or a tax (financial) adviser, the person or entity can advise their clients on the tax consequences of the financial advice they provide.”Another element to consider is that the CGT relief is a one-off concession, therefore the demarcation dilemma will eventually fade. However, the decision made by SMSFs will flow through to the accounts and annual return preparation period.

“So the CGT issue is not something that’s going to disappear at 30 June, though certainly it will pass once we’ve covered all our reporting obligations for the 2016/17 financial year,” Hogan says. “And there are other issues and matters within the new super regime that we’ll also need to be mindful of when we provide advice and [consider] which hat we’re wearing.”

A collaborative effort

While there will be some confusion around where exactly the line needs to be drawn for accountants and advisers in relation to the incoming super changes, an SMSF client’s needs cannot be completely fulfilled by one type of adviser alone, Hogan emphasises.“If you’re talking about someone in an SMSF as opposed to someone who’s in an alternative super arrangement, it’s always been our position as an association that anyone who’s advising an SMSF trustee does not exclusively own that client and cannot exclusively provide all the advice that the client needs,” he says.

“Even a trustee who has both a financial adviser and an accountant to provide advice obviously can’t get the extra bits such as legal advice, so they still may have to employ other service providers for quite a bit of the work that’s required at various stages – I think that idea is inherent in the SMSF market and there’s no doubt that will continue on indefinitely.”

Accountant concerns

The regulations state that changing the level of super contributions of a client must be covered by a limited or full licence, except for changes to reflect a change in super guarantee charge obligations.

“So can an accountant advise a client to reduce their level of super contributions to meet the new, lower $25,000 annual concessional contribution (CC) limit without having to do a statement of advice (SOA)?” Self-managed Independent Superannuation Funds Association (SISFA) managing director Mike Goodall poses.

“After all, it’s just a legal fact.”

The following issues have also cropped up among SISFA members:

  • Can the accountant advise a client to reduce their salary sacrifice element to take account of the lower CC limit without doing an SOA?
  • Can the accountant advise a client to cease their salary sacrifice entirely due to the defined benefit fund notional contributions now being counted against the $25,000 CC limit, without an SOA?
  • Where a client has a defined benefit pension that counts well over the $1.6 million pension cap, can the accountant advise the client to turn all other pension accounts in other funds back into accumulation phase without an SOA?
  • Where a client has a defined benefit fund pension that runs close to the $1.6 million cap and has multiple other super fund accounts in various phases, can the accountant help choose which other funds get converted back into, or are left in, accumulation phase without an SOA?

“These decisions are largely mandated by the law and the client has no choice but to do something; but there is no evident exemption from the licensing and SOA process to advise a client around these issues,” Goodall says.

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