Funds with market-linked pensions
SMSF News Alert 2018/3
The ATO has provided an update on an unintended consequence resulting when a capped defined benefit income stream that commenced before 1 July 2017 is commuted to start a new market-linked income stream. This increases the value assessed against the client’s transfer balance cap and may create an excess.
The ATO advised it will not take compliance action at this stage if the fund does not report the transfer balance implications arising from the commutation or new pension.
Concerns with SMSF advice
ASIC Report 575: SMSFs – Improving the quality of advice and member experiences
An Australian Securities and Investments Commission research project has reviewed advice provided on SMSFs. This involved 250 client files from 102 Australian financial services licensees (AFSL). The findings indicated some concerning results, including:
- 10 per cent of files reviewed indicated the advice was likely to make the client worse off in retirement,
- 91 per cent of files reviewed indicated the adviser did not comply with the best interests duty requirement under the Corporations Act,
- advisers from 97 of the AFSLs included were assessed as providing non-complying advice,
- property one-stop-shops were identified as areas of significant concern due to the potential conflicts of interest and promotion of geared residential property, and
- 32 per cent of SMSFs were set up with a balance below $200,000 and often without a reasonable explanation for setting up with a low balance.
The report also includes practical tips for advisers to improve the quality of SMSF advice.
Member experiences with an SMSF
ASIC Report 576: Member experiences with self-managed superannuation funds
The Australian Securities and Investments Commission has carried out research into the experiences of clients with SMSFs. The study was conducted through interviews (28 members) and an online survey (457 members) to explore why an SMSF fund was set up and the experience with running the fund.
Key findings included:
- overall the main prompt for setting up an SMSF was friends and family,
- the main motivations were to have greater control and to invest in property,
- 32 per cent of the members found running the fund was more expensive than expected, while 38 per cent found running the fund to be more time consuming than expected, and
- many members lacked a basic understanding of their obligations as trustee.
Central management and control
Tax Ruling 2018/5 and PCG 2018/D3
This ruling clarifies the ATO position on determining whether a company is considered to be resident in Australia. This has relevance for an SMSF when determining the residency test for meeting the central management and control requirements.
If members are overseas and appoint someone under an enduring power of attorney to take over as director, it is important the appointed directors are using their own knowledge to make the decisions, not just rubber-stamping them. This should be reflected in trustee minutes.
The ATO also issued Practical Compliance Guideline PCG 2018/D3 as an explanation on how to apply its view.
Treasury Laws Amendment (2018 Measures No 2) Regulations 2018
Draft regulations tabled in Parliament extend SuperStream requirements to SMSFs. These changes will allow an SMSF to receive rollovers through electronic transfer.
It is proposed SMSFs will need to obtain an electronic service address (ESA) and provide it to the ATO if the fund receives contributions from a non-related employer or entity other than a member, rollovers or transfers of a member’s withdrawal benefit.
SMSFs that do not receive rollovers and only receive contributions from members or related-party employers may not need an ESA. Affected SMSFs will have until 30 November 2019 to comply.
Inquiry into removing refunds on franking credits
The government has announced the House Standing Committee on Economics will conduct an inquiry to evaluate the implications of removing refundable franking credits as proposed by the Labor Party. Submissions are invited until 2 November 2018.