Measures such as the First Home Super Savers Scheme, the allowance for retirees to contribute part of the proceeds from the sale of the family home into super, and the amended treatment of limited recourse borrowing arrangements (LRBA) were likely to create greater administrative complexity while providing uncertain incentives for SMSF members, according to industry technical experts.
In announcing the 2017 federal budget, Treasurer Scott Morrison stipulated individuals would not have to set up a separate account within their super fund if participating in the First Home Super Savers Scheme.
Under that edict, determining the portion of a member’s balance dedicated to the scheme would be very difficult to administer, SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said.
“To segregate that portion and what the amount plus income would be on that amount, it would seem to me you would need to record that in some way. It would be hard to put it all in with the concessional contributions and identify that part of it that would represent the First Home Super Savers Scheme contributions,” Colley told selfmanagedsuper.
He suggested in practice a separate account would have to be established within the SMSF “otherwise it’s going to be too hard to administer”.
From a strategy perspective, he pointed out there was no clarity around the length of time the maximum scheme contribution of $30,000 would have to be left inside the SMSF to accumulate a large enough sum to make a first home deposit.
“While there is no age limit, you wonder how long you’re going to leave money in the superannuation fund before you commence to buy your first home. Is it going to be a case of an 18-year-old not buying a home until they’re 30?” he said.
In regard to the inclusion of LRBA assets as part of an individual’s total super balance, he was critical of how the allocation of the asset value to SMSF members would be applied.
“It’s just saying the outstanding balance is included in the member’s total super balance.
But if there are two members or three or four members in an SMSF, it doesn’t get split, so it’s counted against everybody’s account, which seems a little bit inequitable,” he noted.
He predicted the changes could act as a disincentive for SMSF members to consider entering into LRBAs.
“I think it makes LRBAs a very sour proposition now for anyone simply because of the way this works,” he said.
Miller Super Solutions founder Tim Miller said the measure would apply additional fund administrative stress.
“I think it’s very manageable from a total super balance point of view, but I think it’s going to be very difficult from a transfer balance cap point of view because it’s going to result in an expectation of more frequent reporting,” Miller said.
Commenting on the ability to make non-concessional contributions when retirees downsized from the family home regardless of their total super balance, he said SMSF members had to look at the net profit made from the exercise to assess the effectiveness of the $300,000 limit.
However, he pointed out a potential disincentive existed here too.
“The issue is the contribution will count towards the age pension qualification, which is then going to be the disincentive when people downsize because the family home doesn’t count toward the age pension,” he said.
From an administrative perspective, Colley said the measure was currently problematic as no definition of downsizing had been provided.
Miller noted the measure to confirm related-party transactions were conducted at arm’s length by ensuring normal commercial expenses applied to the transaction again required more detail to determine how it would be administered.
“They’ll probably deem an expected expense rate or something like that, so if you go above it, you can only claim a certain amount of the expense recorded,” he said.
