The Self-Managed Independent Superannuation Funds Association (SISFA) expects more attacks on SMSFs in 2014 from industry funds and those parts of the public offer sector neither embracing the SMSF aspirations of their members nor seeking a way to offer direct ownership and an investment choice strategy.
The planned departmental review of limited recourse borrowing arrangements (LRBA) for property assets held inside SMSFs has yet to surface and continuing negative comments about the appropriateness of rental property purchases leaves a question mark over this sub-sector of investment strategies.
The concern is that even if the evidence for these messages is representative of a very small proportion of the SMSF market, they may unduly influence policy to the detriment of SMSF trustees who want the right to choose.
This matter, along with the following, form SISFA’s priorities in 2014.
Off-market share transfer ban abandoned – or is it?
There are lingering concerns the government’s recent abandonment of the related-party transaction restrictions for the transfer of listed shares in or out of SMSFs is not completely off the agenda.
Despite recent indications the proposed ban on the off-market transfer of listed shares has been abandoned, SISFA remains concerned and considers this a live issue. The continuing rhetoric that in-specie share contributions to superannuation funds have resulted in tax and contribution cap manipulation continues to raise concern.
SISFA believes there is no basis for this or evidence to this effect.
Fine-tuning of LRBA arrangements
SISFA believes the strong interest in borrowing for direct property purchases will continue to grow and should be simplified as a transaction process. Market forces have reduced the cost for funding property purchases by SMSFs, but the complexity of borrowing has not been addressed.
The promotion of heavily geared property schemes is a continuing worry and SISFA is pleased this is now on the radar of the Australian Securities and Investments Commission and other regulators. The current need for a holding trust is not serving a clear purpose, particularly if trustees were allowed to borrow, acquire and legally own assets up to a regulated, capped gearing limit or loan-to-value ratio (LVR) as at date of acquisition.
The removal of the holding trust requirement and allowing an SMSF trustee to legally and beneficially own the asset or even a return to gearing through a related trust within an LVR would further reduce complexity and costs without materially exposing the assets to greater risk.
Softening contribution cap rules
Why not introduce a bring-forward rule similar to that used for non-concessional contributions?
Softening the concessional contribution rules to meet the life-cycle costs/issues that inhibit consistent saving by individuals for their retirement would enable the individuals to fund for their retirement to an appropriate level. Ultimately, this would result in much less pressure on the public purse.
Many baby boomers will still miss out on meeting their retirement savings targets even with a rising concessional contributions cap of up to $35,000.
Australians should be allowed to play catch up with a permitted level of concessional contributions to not disadvantage those who bear the cost of raising a family or who struggle with a mortgage for many years. A bring-forward rule could create much-needed flexibility.
Removal of contribution work test and 10 per cent test
SISFA has long advocated the complete de-linking of the contributions rules from workforce participation. That is, remove the antiquated contributions work test for those individuals aged 65 to 74. Let them contribute if they so wish.
Removing the under 10 per cent deductibility rule would also provide further incentive to contribute and enable greater contributions to be made and provide greater equity between the employed and the self-employed.
Minimum fund balance
In SISFA’s view, imposing a minimum holding balance for SMSFs is inappropriate. Provided there is full and transparent disclosure regarding the consequences, costs and benefits of retaining or changing from one superannuation fund to another, then surely it is the member’s right to choose.