SMSF advisers must exercise caution when advising on contribution splitting strategies, particularly for the $1.6 million transfer balance cap, as potential lawsuits could arise where clients miss out on bringing in larger amounts to pension phase, a technical expert has warned.
“We need to be aware of what these rules do, how they work but also potentially the strategic implications that they bring out,” Colonial First State FirstTech executive manager Craig Day told the Chartered Accountants Australia and New Zealand National SMSF Conference in Sydney last week.
“With the transfer balance cap coming into play, it’s going to be very important for you to think about the $1.6 million not just from an ability to make a contribution but, where you have a couple as clients, who you should be making it for.
“If you have two clients who reach retirement with very different retirement balances where they’re going to be impacted by the amount they can get into retirement phase, for me, that’s probably negligent advice going forward.”
From 1 July, spouse equalisation should be a top priority for advisers, Day said.
“If you get amounts going into the wrong account, and you’ve got limited ability to fix that up, that client may now be impacted in terms of the total amount they can get into their tax-free pension phase,” he warned.
“That’s actually a very easy loss to calculate – you could get $1.8 million [into pension phase] but you could’ve gotten $3.2 million or $2 million into retirement phase but because you have very unequal balances, your clients have become impacted.
“So these rules start to cause lots of headaches, in terms of the rules as they currently apply, but also with your advice going forward.”
Day believes the introduction of the new super rules has meant acknowledging that the level of complexity for the super system has increased.
“Because now, we’re not only thinking about the caps that apply and bring-forward rules, but also the $1.6 million transfer balance cap and a total super balance that we need to think about every 30 June,” he said.
“So there are a number of things that you’re going to have to do before recommending any sort of concessional or non-concessional contribution strategy going forward.”