FoFA changes to proceed via regulation and legislation

FoFA changes regulationFollowing the release of the Senate Economics Committee report into the Governments announced FoFA changes, of which the majority report was in support of passing the bill with minor changes, the Acting Assistant Treasurer Senator Mathias Cormann has announced that the changes will proceed largely via regulation with some legislative changes.

In the media release Cormann said that “under the Corporations Act the Government variously has the power to make regulations; some in ‘prescribed circumstances’ or in ‘particular situations’ “, and intends to use this power to give effect the FoFA changes via regulation from “1 July 2014 where that is legally possible”, in order to “provide clarity and certainty for the financial advice industry and for investors seeking financial advice”.

However, speaking to Michelle Grattan of The Conversation Cormann said, with regard to the ability of the Senate to try and disallow the regulations, “that is an option that is available to the Senate and that will be a matter for the Senate to resolve if that occurs”.

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Henry Tax Review – SMSF & Superannuation

 

As it is now over four years since the Henry Tax Review, or to give it the full title the Australia’s Future Tax System Review, was released it seemed like good time to revisit some of the recommendations to see which have been implemented and which have not.

The Henry Tax Review

Announced in May 2008, around the federal budget by then treasurer Wayne Swan the Henry Tax Review was to be a “comprehensive review of Australia’s tax system to create a tax structure that positions us to deal with the demographic, social, economic and environmental challenges of the 21st century“. When the report was handed down, in December 2009 the review panel had made a total of 138 recommendations, including several about superannuation.

Tax on super fund income

Recommendation 19 was to halve the tax rate for super fund earnings from 15% currently to 7.5%. The 7.5% would apply to what is currently Exempt Current Pension Income and also to capital gains, though funds would loose the one-third discount. This has not been implemented.

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What is Super Fund Lookup?

Super Fund Lookup

Super Fund Lookup is an online government-run database of superannuation funds which have been issued with an ABN, including APRA-regulated funds – such as retail or industry funds, and ATO regulated funds – such as SMSFs. It can be found at superfundlookup.gov.au.

What is Super Fund Lookup used for?

Super Fund Lookup is often used to confirm that a super fund is a Complying Fund, either by super funds in order to make a rollover, or by employers so they can make superannuation guarantee-complying contributions.

Super Fund Lookup can be searched either by the name of the fund or the ABN, and will return some or all of the following information:

  • Fund Name
  • ABN
  • ABN Status
  • Fund Type
  • Contact Details
  • Status

SMSFs are added to Super Fund Lookup by applying for an ABN, though this process does take time.

What do ‘Complying’, ‘Non-Complying’ and ‘Registered – status not determined’ mean?

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FoFA changes bill divides Senate committee

FoFA Senate Parliament CommitteeThe Senate Standing Committees on Economics has made its report on the changes to the FoFA reforms, and it appears that the bill will return to the House of Reps with only very minor changes.

The Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 was referred to committee in order to “‘provide a forensic and detailed examination of the legislation and the effects this and previous reforms would and have had on the financial services and investment decisions”. The committee was concerned to “strike the right balance” between consumer protections and the regulator burden on industry. The report includes a report by the majority of the committee and two minority reports.

Majority Report

Best Interest Duty

The majority of the committee was of the opinion that, with small amendments to the bill, “there would be no dilution of the best interests duty, but a greater deal of certainty for both client and adviser”.

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Off-market transfer of shares to an SMSF?

SMSF Shares off-market transferDespite much rumor, and even some legislation, SMSFs are still able to buy listed shares from members, with the same requirements that existed in previous years.

s66 of the SIS Act prohibits SMSFs from acquiring assets from ‘related parties’, unless one of the exceptions applies. The exemption relevant here is exemption A: “the asset is a listed security acquired at market value”.

This means that an SMSF can acquire listed shares from a member, or other ‘related-party’, provided it is at market value. s10 of the SISA defines ‘market value’ as:

” ‘market value’ , in relation to an asset, means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

(a) that the buyer and the seller dealt with each other at arm’s length in relation to the sale;

(b) that the sale occurred after proper marketing of the asset;

(c) that the buyer and the seller acted knowledgeably and prudentially in relation to the sale.”

However the Cooper Review recommended that where an “underlying market exists”, all acquisitions and disposals be conducted on that market. The government of the day agreed “in principle” with the recommendation, pending further consultation on “design and implementation”

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SMSFs: Binding & Non-Binding Death Benefit Nominations

SMSF binding non-binding death benefit nominationBinding  and Non-Binding Death Benefit Nominations form an important part of incorporating superannuation into estate planning, given that a superannuation balance will not automatically form part of a persons estate to be distributed according to their will. However, due to the way nominations are written into the SIS Act and Regulations it is more complicated for SMSFs than APRA funds, though arguably more flexible.

Binding Death Benefit Nomination

A Binding Death Benefit Nomination (BDBN) compels the trustee of the fund to pay a superannuation balance to a nominated person, provided the nomination is valid.

Non-Binding Death Benefit Nomination

A Non-Binding Death Benefit Nomination (NBDBN) is an indication to the trustee of the fund of how the member would prefer the balance is paid. BDBNs provide a higher level of certainty of how the superannuation will be split and can reduce the likelihood of disputes, where as NDBDNs are more flexible – allowing the trustee to take account of facts at the time, including taxation.

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Super Fund Numbers – SPIN, SFN, USI, ESA

There are a number of numbers and identifiers relating to super funds, some of which are relevant for SMSFs, and some of which are not.

Looking for the SPIN, USI, SFN or ABN for a particular super fund. See if it’s on our list of super fund numbers.

SPIN – Superannuation Product Identification Number

As the standard choice form includes the question “Superannuation product identification number (if applicable)” SMSF professionals will often be asked, “What is my SMSFs SPIN number?”.

The Superannuation Product Identification Number (SPIN) is a number used in the financial services industry and by government bodies for electronic communication. The purpose of the SPIN was to provide an identifier at the product level, separate from those identifiers at the entity/legal structure level, such as the ABN or SFN. So a super fund may offer a retail superannuation plan and an employer superannuation plan and each of these would have a separate SPIN for identification purposes. The SPIN was used as part of the superannuation surcharge reporting, and now has some role in the SuperStream system, though this is partially superseded by the USI.

It was not intended that SMSFs have SPINs, and so instructions for forms asking for a SPIN often include ‘if applicable’ or include instructions to write “not applicable”

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End of the Financial Year for SMSFs: 2014

SMSF End of Financial Year EOY Tax TimeWith only a couple of weeks until the end of the 2014 financial year here are some issues you may wish to raise with your SMSF clients.

Minimum Pension Payments

With 2013/14 being the first year since 2008/09 that minimum pension payment rates for account-based pensions have returned to their standard rates, i.e. 4% for people under 65 SMSF trustees should ensure that they have paid at least the minimum pension payments. Failing to do so can mean the pension has ceased, any payments made are lump sums and the fund cannot claim Exempt Current Pension Income (ECPI). See the ATOs FAQ for Minimum pension payment requirements for details of when the Commissioner may allow the ECPI to be claimed even though the minimum payments weren’t made during the year.

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