The SMSF borrowing rules and requirements can seem strange and unnecessarily complex; understanding how these rules were developed can help explain why, though the system would have been better if it was designed from the start to allow for SMSF borrowing, instead of tinkered with piece by piece.
Recently published APRA statistics show that large APRA funds are growing, in terms of total assets, faster than SMSFs. Over the period March 2013 – March 2014 the total assets held by large APRA funds increased by 18.79%, whereas the assets held by SMSFs grew by 13.38%, or 5.4% faster:
The governments proposed FoFA changes have split opinion amongst industry participants, based on submissions received by the Senate committee tasked with considering the changes. The Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 which “implements the Government’s election commitment to reduce compliance costs imposed on the financial services industry” was referred to the Senate Economics Legislation Committee for consideration. The committee has now published the submissions received, ahead of reporting on the 16th of June 2014.
There are several aspects of the amendments to the FoFA reforms which are controversial, including:
- Conflicted Remuneration
- Removing the ‘catch-all’ provision from the best-interest duty
- Removing the two year client ‘opt-in’
The Bank of Queensland, in its submission to the Senate committee investigating proposed changes to the FoFA reforms, has raised the issue of increased regulation to protect consumers, including SMSF real estate investors, from property promoters. Calling the different regulatory approaches between real estate and other investments an “anomaly” BOQ recommends that “advice on the purchase of real estate, other than for owner occupiers, be included in the definition of financial advice”. This would provide a “consistent framework” and there is no “valid reason for the financial services licensing system not to apply to advice with respect to real estate investments”. Part of this concern comes from BOQ seeing unregulated real estate investment advice driving consumers into SMSFs which are inappropriate for them, including because the “fund too small to be economic” or the “consumer is not equipped to be a trustee”.
SMSFs do not have access to the compensation scheme that available to APRA funds, as discussed in the article SMSFs can’t access the Superannuation Compensation Scheme. In this article we discuss the options that are open to a SMSF under the SIS Act to seek compensation.There are two main avenues under the SIS Act for SMSF trustees seeking compensation, under s55 for a breach of the ‘Governing Rules’ or as part of Civil Penalty Order proceedings.
The Federal Government is empowered to compensate super funds for losses as a result of fraud or theft under Part 23 of the Superannuation Industry (Supervision) Act 1993. However s229 excludes SMSFs from this compensation.
Following the release of the 2014 Budget this week we have decided to publish a White-label Client Newsletter for you to send to your SMSF clients. The newsletter covers the following changes: Slowing of Super Guarantee Increase Withdrawing Excess Non-Concessional Contributions Superannuation Pensions to count for Commonwealth Seniors Health Card You… Read More »White-label Client Newsletter: Budget 2014 – Superannuation
Industry response to the 2014 Budget has been mixed, with support for changes allowing withdrawal of excess non-concessional contributions and providing certainty for the increase of the Superannuation Guarantee to 9.5% from 1 July 2014. However the response has been broadly negative to the slowing of the SG rate beyond that which was contained in the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013.
Industry Super Australia says the changes in the budget will “result in a 25 percent reduction in total retirement incomes for someone aged 45 today on average earnings”, and instead proposes revisiting the recommendations of the Henry Tax Review.
The Abbott government promised that there would be no “adverse unexpected changes to superannuation during our first term”, and now that Joe Hockey has presented his first budget it seems this promise has been broken. While they didn’t all make the budget speech there are important changes to superannuation buried in the budget papers, the most wide-reaching of which is a slowing in the increase to the Superannuation Guarantee.
Superannuation Guarantee increase to slow
The current legislation has the Superannuation Guarantee increasing to 9.5% from 1 July 2014. The government had intended to delay this to 1 July 2016 under the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. However after this bill failed to pass the senate the government has decided to not change the currently scheduled increase in order to “give certainty to employers and employees”. However the increase in the SG rate will be further slowed – with the 9.5% rate to stay in place until 30 June 2018 and then increase at 0.5% per year until it reaches 12% in 2023/24. This is an even slower increase than that proposed in the Repeal bill, as shown in the following graph:
The ATO has released statistics compiled from the 2011/12 tax returns, including for SMSFs:
“Taxation statistics 2011–12 is a report presenting an overview of the different taxes administered by the ATO, as well as a look at the important role the ATO plays in superannuation. In these statistics, we look at the income tax returns for the 2011–12 income year and other information provided to us, such as goods and services tax and business activity statements, relating to the 2012–13 financial year.”
There appears to be a clear trend for increasing Concessional contributions, with a sharp increase leading up to the GFC and subsequent drop: