ATO to continue action against dividend washing

ATO, SMSF dividend washingThe ATO has announced that it is proceeding with action against dividend washing, which the ATO considers to be one of the emerging risks for SMSFs.

Previously the ATO had revealed that in March 2014 3,000 letters had been sent to taxpayers who the ATO suspected of being involved in a dividend washing arrangement. Of these 3,000 original letters approximately 1,300 have “responded by coming forward to make voluntary amendments under which the franking benefits obtained from dividend washing transactions have been removed from their tax returns”.

Now the ATO will be sending letters to 500 of these taxpayers who did not respond to the first letter, along with letters to a further 1,500 based on “updated data analysis” by the ATO. These letters will “ask those taxpayers to self-amend their tax returns in order to reverse franking benefits they may have obtained from dividend washing transactions”.

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$510,000 now required for a ‘comfortable retirement’ says ASFA

ASFA - comfortable retirement, modest retirementNew figures published by the Association of Superannuation Funds of Australia (ASFA) show the cost of retirement has risen, with $510,000 now required to fund a comfortable retirement.

According to ASFA, in the forth quarter of 2013/14 the cost of a ‘comfortable retirement’ rose 0.5%, to $58,128 per year. To fund this would require a superannuation balance of around $510,000 for a couple and $430,000 for singles, based on ASFAs calculations.

To arrive at these figures ASFA has assumed that people “do not retire before qualifying for the Age Pension” and that they will receive at least a part Age Pension.

A large portion of the increase in the cost of retirement was due to the rising costs of medical and hospital services, “which occurred mainly as a result of the increases in private health fund premiums effective from 1 April 2014” said ASFA.

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Government sets out expectations for ATO, ASIC, APRA

Government expectation ATO, ASIC, APRAThe Government has issued a ‘statement of expectations’ to many of the regulatory bodies, including the ATO, ASIC and APRA. These statements outline “the Government’s expectations about the role and responsibilities” of the regulatory bodies.

While acknowledging that the regulatory bodies need to act “independently and objectively”, the Government expects that they will “take into account the Government’s broad policy framework, including its deregulation agenda”.

This includes the expectation the bodies will “look for opportunities to reduce compliance costs for business and the community” to contribute to the Government’s $1 billion “red and green tape reduction target”. They are also expected to make a “major contribution to the deregulation agenda and help to boost productivity”.

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Consumers don’t know who owns their financial planner

Statistics published by Roy Morgan show that consumers perceive financial planners branded differently from their actual owners as far more independent than they rank bank-branded financial planners.

All the big four bank’s financial planners rank low for perceived independence by consumers, as Roy Morgan says “the planners belonging to all the major banks and labelled as such are generally understood to be ‘tied’ rather than ‘independent’”:

  • CBA         14%
  • ANZ         13%
  • NAB         12%
  • Westpac   11%
  • AMP         27%

However consumers view financial planners with different branding, but at least partially owned by the big four banks and AMP, as much more independent:

  • Financial Wisdom (CBA)     55%
  • RetireInvest (ANZ)             37%
  • Godfrey Pembroke (NAB)   50%
  • St George (Westpac)          20%
  • Charter (AMP)                    48%

Perceived independance of bank financial planners

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Number of lost super accounts drops, unclaimed super rises

According to the ATO its efforts, including SuperSeeker and working with super funds, has resulted in a 30% drop in the number of lost superannuation member accounts. A recent statement by the ATO said:

The culmination of these efforts has resulted in the number of lost member accounts at 30 June 2014 reducing by over 30% in comparison to 30 June 2013, with an associated reduction of over 10% in the value on the Lost Members Register.

However this isn’t the full picture of lost and unclaimed superannuation, as per a note to the most recent ATO lost and unclaimed super statistics:

“Lost uncontactable and lost inactive accounts are still held by super funds, whereas unclaimed super money and SHA accounts have been transferred to the ATO. ”

So in the ATO statistics lost superannuation is only superannuation held by super funds, unclaimed superannuation is transferred to the ATO. While the number of lost superannuation accounts did drop by 31% in 2013/14 the total number of lost and unclaimed super accounts only dropped by 1%. Based on the recently released ATO statistics the number of unclaimed super accounts held by the ATO rose by 19%:

Lost Superannuation and Unclaimed SuperannuationSource: ATO statistics

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Higher contributions tax for those on over $180,000: Mercer

Mercer four point plan: higher contributions tax (Div 293), lifetime contributions caps, limit ECPI and changes to LISC.Extending Division 293 tax to everyone on the highest income bracket is one of the four points in a plan to improve the superannuation system released by consulting firm Mercer.

The four points of the plan are:

  1. Division 293 tax to apply to everyone on the highest tax rate bracket
  2. No-one in the 19% tax bracket to pay contributions tax
  3. Introduce lifetime contribution caps in addition to annual contributions caps
  4. Limit tax-free status of income supporting a pension via an asset cap

Currently Division 293 tax increases the contributions tax for high income earners, those earning more than $300,000, by 15%. Under Mercer’s plan this would extend to people earning more than $180,000. Based on the the 2014/15 tax rates these people would pay 30% on their contributions and have a marginal tax rate of 45%.

Mercer recommends that “nobody pays more tax on their concessional contributions than they do on their income”, and a key part of this would be changes to the Low Income Superannuation Contribution (LISC), so that the contributions tax for someone on the 19% tax bracket or lower would be 0%. However this is unlikely to find favor with the Government, given the announced intention to repeal the LISC as part of the Minerals Resource Rent Tax repeal.

Mercer also recommends implementing a lifetime contributions cap while keeping the annual contributions caps to “limit the cost of the tax concession in any one year”:

“for example a person’s annual cap could be increased by half the unused amount from the previous year but with a limit of say three times the annual cap in any single year. A similar approach cap could apply to non-concessional contributions thereby removing the existing complex three year rule.”

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The 3 Rs of SMSFs: Responsibility, Related parties and Rules

ATO three Rs of SMSFs - Responsibility, Related- party transactions and rulesAccording to the ATO the three Rs for SMSFs are Responsibility, Related party transactions and Rules. This was the topic of a speech given by Stuart Forsyth, ATO Assistant Deputy Commissioner for Compliance, Strategy, Risk and Delivery, Superannuation to the Australian Investors Association Annual National Conference 2014.


SMSFs mean taking responsibility for your retirement savings. As Mr Forsyth said in the speech “SMSFs are far from ‘do-it-yourself’ or ‘set and forget”, instead they “require significant time, attention and expertise”.

Mr Forsyth asked that people remember the ATO isn’t a prudential regulator. Prudential regulation “governs the conduct of people and institutions in a position of trust over other peoples’ money”, instead SMSF trustees must be “vigilant in protecting their fund’s assets”.

Estate Planning

Mr Forsyth highlighted a number of things SMSF trustees need to consider as part of the responsibility of running an SMSF, the first was succession planning – including binding death benefit nominations, reversionary pensions and enduring powers of attorney.

The SMSF deed also needs to be checked, as it should “reflect the requirements of the fund and be tailored to meet the fund’s objectives and the members’ needs”.

Trustees were also encouraged to “consider the advantages of appointing a corporate trustee” as it would likely result in a “smoother succession”.

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Broad agreement with Financial System Inquiry interim report

Financial System Inquiry (FSI) / Murray Inquiry - industry responseThe response by the financial, tax and superannuation industries to the release of the Financial System Inquiry (FSI) has been generally positive, though some particular points have received criticism.

KPMG was “disappointed” that the report contained so little consideration of tax issues, as “just 14 pages out of 460 are devoted to tax” with most issues were left to the tax white paper.

Taxpayers Australia also disagreed with the inquiry’s concern over SMSF borrowing, saying that the organisation “would not go as far as saying the ban should be re-introduced” as it was “too early to say that allowing borrowings has introduced excessive risk into the system”. Taxpayers Australia did say they “would welcome greater regulation to ensure that any borrowing is safe and in the best interest of the fund members” and suggested this could come from requiring advice on borrowing in SMSFs being a financial product, or caps on the “maximum percentage of a fund’s assets” that SMSFs could use for borrowing.

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Financial industry shifting focus from regulation to innovation

Financial industry moving from regulation to innovationA survey released by FSC and DST show that financial industry CEOs are looking to refocus efforts from meeting regulatory requirements to product innovation.

Martin Spedding, CEO of DST Bluedoor, said in the 14th annual FSC-DST CEO Survey that:

“Preparing for MySuper, SuperStream and FoFA has been disruptive and costly, diverting resources and attention away from other more productive areas. As this implementation phase nears its end-point, the industry’s leaders are re-focusing on the opportunities of the future.”

However there are impediments to introducing something new, with 42% of respondents saying they were unable to release a new product or process due to regulation.

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