SMSFA National Conference ideally timed for Royal Commission final report

The upcoming SMSF Association National Conference will put the final report of the Financial Services Royal Commission under the microscope.

SMSF Association CEO John Maroney said the timing of the national conference was “ideal” to examine the impact of the Royal Commission on financial advisers.

The final report of the Royal Commission is due to be given to the Governor-General by 1 February 2019, though it is as yet unclear if it will be publicly released at the same time. The Government released the interim report on the Friday of a long weekend with two grand finals.

The SMSF Association national conference is being held at the Melbourne Convention and Exhibition Centre from 20-22 February.

“The Association’s National Conference will be the first major financial services event to analyse the report, giving our specialist advisers the opportunity to ask how it will affect their businesses and clients,” Maroney said.

He said that no one was under the illusion that the Royal Commission won’t recommend “sweeping changes”, and said the financial services industry will need to respond “promptly” as politicians react to the final report amid a “febrile pre-election environment”.

“Issues likely to be explored are possible changes to the AFSL model, the future of vertical integration, the possible impact on self-managed super funds (SMSFs), and the role of the regulators,” he said.

“When you consider Labor’s proposed changes to the SMSF sector if it achieves office at the next federal election, which is also a major topic at the conference, it all adds up to a compelling case for SMSF specialists to attend.”

The national conference schedule includes a session with Jeremy Cooper and Bernie Ripoll being interviewed by James Kirby, Wealth Editor for The Australian, titled: What does the Royal Commission mean for financial services in Australia?

Registrations for the conference are open, with an early bird discount offer finishing on Friday 7 December 2018.

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ATO sets out view on Aussiegolfa case in Decision Impact Statement

The ATO has set out its view on the Sole Purpose Test and other implications of the Aussiegolfa Pty Ltd (Trustee) v. Federal Commissioner of Taxation case in a Decision Impact Statement.

Decision Impact Statements are a tool used by the ATO to advise the community on the views of the tax office following from a court or tribunal ruling.

The Aussiegolfa case, which was supported by listed company Domacom, involved questions of the Sole Purpose Test, sub-funds/related trusts and In-House assets. In short, the case revolved around leasing a residential property – held in a sub-fund – to a relative of a member of the SMSF.

The Federal Court initially found that the sub-fund was a ‘related trust’ and the investment in it would be an in-house asset of the SMSF, and that the SMSF had breached the Sole Purpose Test. However on appeal the Full Court found that the first judge had erred in concluding that there had been a breach of the Sole Purpose Test. Neither side decided to appeal to the High Court.

Sole Purpose Test

In terms of the Sole Purpose Test, the ATO says “the Commissioner considers that the decision of the Court is referrable to the particular facts of the case.”

“We do not consider that the case is authority for the proposition that a superannuation fund trustee can never contravene the sole purpose test when leasing an asset to a related party simply because market-value rent is received.”

The ATO notes that the residential property had been leased to two unrelated tenants for two years prior to being leased to the daughter of the member of the SMSF. Also the daughter paid equivalent market rent, and there was “no suggestion” that the leasing to the daughter had influenced the investment policy of the SMSF.

“It is the purpose of making and maintaining a fund’s investments that is central to identifying if there is a contravention of the sole purpose test. We note the observations of the court that a collateral purpose, and a contravention of section 62 of the SISA, could well be present if, for example, the circumstances indicated that leasing to a related party had influenced the fund’s investment policy.”

“For example, in the Commissioner’s view a superannuation fund trustee will contravene the sole purpose test if the fund acquires residential premises for the collateral purpose of leasing the premises to an associate of the fund, even where the associate pays rent at market value.”

Sub-funds / related trusts

The ATO said, in the Decision Impact Statement, that “the decision provides valuable guidance on the factors that might be considered in determining whether a new trust has been created at general law”.

“Whether classes of a trust are in fact separate trusts will depend on the particular facts and circumstances of each case having regard to factors considered by the Court, including the relevant governing and disclosure documents, the ‘terms of issue’ of the class and the general law concept of a trust.”

Though the ATO “does not expect that this case will have a significant impact on traditional multi-class managed funds”.

In-House Assets

The ATO says it will continue to consider using its power under the SIS Act to issue a determination “as appropriate in circumstances where the trustee of a SMSF enters into an arrangement to acquire an asset that would otherwise be an in-house asset under section 71 of the SISA if directly held by the SMSF”.

In light of the ruling the ATO is considering updating its other guidance. “We will review our public advice and guidance on the sole purpose test to see if we can more clearly illustrate factors which may be important in determining whether a fund has been maintained for a collateral purpose.”

The ATO has invited comments on the Decision Impact Statement, with a closing date of 11 January 2019.

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Three superannuation Bills up for debate in last sitting week of 2018

The Government, may, put three of its superannuation Bills up for debate in the Senate this week – the last sitting week for 2018. But it might not have the votes to pass the Bills, and is running out of time before some of the measures are meant to be in place.

Update: The Senate passed the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 on Wednesday, with amendments – meaning it will need to return to the House.

The Government appears to have narrowed its focus to three of its superannuation Bills:

These three Bills are included in the most recent Draft Legislation Programme for the Senate, though they were also on the Programme for last week and didn’t get to a vote. The last time the Bills were debated was in late June 2018.

The likely explanation for the delays is that the Government doesn’t have the votes to pass the Bills, at least at this stage or in this form. The Australian reports that Senator Fraser Anning plans to vote against the superannuation Bills.

Some of the measures in the Bills start on 1 July 2019, though arguably the most time-sensitive is the proposed 12 month amnesty for employers who haven’t paid Super Guarantee. As drafted, the amnesty would have started on 24 May 2018 if the Bill passes. If the Bill doesn’t pass this week there are only three Senate sitting days in February 2019, followed by more in April – though time to pass the amnesty Bill may be tight with the Budget on April 2, the need to pass supply Bills and the likely calling of a May election.

Assistant Treasurer has said the Government would be moving amendments to the three Bills in mid-November, though these amendments have yet to be published on the Parliament’s website. A revised Green’s amendment to the Protecting Your Superannuation Bill has been published.

In November the Government included six Bills on the Senate Programme – the other three Bills would expand Super Choice and close the Salary Sacrifice ‘loophole’, another would require large super funds to have at least one-third independent directors and the third would change MySuper reporting.

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Grattan Institute “just doesn’t get it”, says BGL’s Ron Lesh

The Grattan Institute’s recently released report – Money in retirement: more than enough – has received more criticism, this time from BGL Managing Director Ron Lesh.

“Reading the report, you get the idea that Australians are not allowed to accumulate wealth” said Mr Lesh.

“The Grattan Institute just doesn’t get it.”

The Grattan Institute accused the financial services industry of being a “fear factory”, driving people to put more in superannuation than they need. The Institute called for keeping the Super Guarantee rate to remain at 9.5% and a lowering of the contribution caps, while also including the home in the Age Pension assets test and potentially raising the pension age to 70.

Mr Lesh said, on the BGL website: “Grattan seems to want everyone to be poor in retirement or rely on government handouts – maybe this fits their view of the world – but it is not the way most Australians want to live – they want to put away enough to have comfortable retirement – not a mere existence as Grattan suggests.”

“Grattan would rather Australians get a handout from government or pay more tax for our governments to blow on farcical projects so they can cry poor when pensions need to be paid.”

“You can’t expect that every person will save money beyond compulsory super contributions, salary sacrifice or be able to buy a house before retirement age. So, when you launch a report like that you need to be careful not to give false hopes that everything is under control, when in reality it is not.”

Mr Lesh appears to support a 15% SG rate – it is currently only legislated to go 12% and later than was planned following changes made by the Coalition.

“All the serious modelling by the retirement industry tells us 9.5% super is definitely not enough, 12% is closer to the mark, but really 15% is what is required to give Australian’s a comfortable retirement.”

John Daley, CEO of the Grattan Institute, while responding to criticism from Paul Keating said that increasing the SG rate would further stagnate wages.

“We think that when government already requires you to put 9.5 per cent of your income into superannuation, there’s no need to depress wages today any further,” Mr Daley said.

“Our research showed that even if the Super Guarantee stays at 9.5 per cent, most people will have enough income in retirement to fund a lifestyle at least as good as when they are working.”

“If unions and those on the left start thinking and reading our analysis more carefully, they will realise that increasing the superannuation guarantee will primarily benefit the top 20 per cent of Australians.”

But Mr Lesh disagrees with the assessment of the Grattan Institute, saying: “I honestly don’t get how Grattan can suggest 40 and 50 year olds who don’t have super will have an income in retirement of at least 70% of their pre-retirement earnings. For this to happen in real world, workers would need to compulsorily contribute at least 15% to superannuation AND develop a serious non-super saving plan.”

Mr Lesh is not the first to criticise the report. Industry Super Australia said the claim that a 9.5% SG rate is enough was “deeply flawed” and the modelling was “dubious”. ASFA said it was an “unprecedented attack on the retirement aspirations of ordinary Australians”.

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13 charges for alleged transfers from clients’ SMSFs

A former financial planner has been charged with 13 offences relating to alleged transfers from the SMSFs of clients.

ASIC announced that Mr Bradley Grimm has been charged with 13 dishonesty offences in the Melbourne Magistrates Court.

ASIC alleges that in 2015 Mr Grimm “engaged in dishonest conduct on six occasions when he transferred funds between his clients’ self-managed superannuation funds (SMSFs) to three separate companies of which Mr Grimm was the sole director” and to “a superannuation fund of which Mr Grimm’s financial services business was the administrator”.

“ASIC also alleges that on a further seven occasions between 19 October 2015 and 11 November 2015, Mr Grimm dishonestly transferred shares owned by his clients’ SMSFs to Equity Capital Partners Hedge Fund Pty Ltd, a company of which he was sole director.”

The matter, which is being prosecuted by the Commonwealth Director of Public Prosecutions, was adjourned for a committal mention on 31 January 2019.

According to ASIC, the charges follow from action to wind up a number of companies in 2015.

“Mr Grimm and his company Ostrava Equities Pty Ltd were until 21 October 2015 authorised representatives of Australian financial Services licensee Marigold Falconer International Limited (previously known as Falconer & Company Limited), whose AFSL was cancelled in August 2016,” said ASIC.

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Over half of AFCA firms haven’t notified ASIC as deadline approaches

Over half of AFCA members haven’t provided details of their membership to ASIC, as required, with the deadline tomorrow.

ASIC warned that firms that are members of the Australian Financial Complaints Authority (AFCA) – which replaces the complaint bodies SCT, CIO and FOS – must notify the corporate regulator of their membership by Friday 30 November 2018.

“Licensees who fail to do so will be in breach of their licence conditions and will face fees for late notification,” said ASIC.

But more than half of AFCA’s 37,000 members haven’t yet notified ASIC with their membership details.

“It is essential that licensees provide updated details to ASIC. Financial firms have been given an extension of time to notify ASIC and we will not be extending the final notification date beyond 30 November 2018.”

AFCA seeks “proof-of-life” for 231 firms

Meanwhile AFCA is seeking “proof-of-life” for financial firms that may need to be members of the new dispute resolution scheme.

AFCA has published a list of 231 financial firms that may need to become members because they were members of the CIO (Credit and Investments Ombudsman).

AFCA CEO and Chief Ombudsman David Locke said: “We have been working with ASIC to contact and communicate with these firms about their requirement to take out AFCA membership since August. Despite several communications, these firms have not yet joined AFCA”.

“Please be aware that if you are not now a member of AFCA, and you are in fact obliged to be a member, you are likely to be in breach of your legal obligations,” he said.

The Authority said it had been “liaising closely” with ASIC about firms that had not become members, and that ASIC would take “appropriate action against these firms”.

“AFCA is the new one-stop-shop for external dispute resolution of financial complaints, and membership of AFCA is central to ensuring there is public trust in the financial services industry,” said Mr Locke.

“To protect this trust, it is critical that you ensure your organisation is an AFCA member if it needs to be, and that consumers and small businesses are able to make a complaint about your organisation.”

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More super fund mergers could boost member balances by $22,000

Merging more superannuation funds could boost retirement savings by $22,000 per member, if the resulting savings are passed on as fee reductions, the Productivity Commission has found.

The Productivity Commission has been releasing research as part of its inquiry into the efficiency and competitiveness of the superannuation system. The latest paper is on economies of scale.

The paper finds that “large cost savings can still be realised, especially from further consolidation”. It “conservatively” estimates that merging the 50 highest cost APRA-regulated super funds with the 10 lowest cost funds would save at least $1.8 billion a year.

“Even modest economies can materially reduce costs. A one basis point reduction in administration expense ratios for funds with more than $10 billion in assets would result in annual savings of around $130 million.”

Passing on the median cost savings, of around 10 basis points (0.1%), on to all members as lower fees and holding all other costs the same would leave the average super fund member about $22,000 better off at retirement.

The Commission found that there have been “significant scale benefits” realised over recent years, of $4.5 billion between 2004 and 2017. Though there is “little evidence” that these savings have been “systematically” passed on to members through lower fees

“Despite the realisation of economies of scale since 2004, the reduction in fees charged to members by the median fund did not fall. Though some funds have likely passed through at least some of the scale gains.”

The Commission says the savings may have been used to increase operational reserves, improving member services or spent on new compliance and regulatory requirements. But issues with data make it difficult to reach a conclusion.

Some super funds – in particularly not-for-profit funds – may have used the savings to increase investments in unlisted assets which boosted returns for members,.

“It is also possible that data limitations (including under-reporting of expenses and patchy fee data) are muddying the analysis.”

The Productivity Commission is due to give its final report on efficiency and competitiveness in the super system to the Government in late December 2018.

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Refundable franking credits wouldn’t be part of tax system designed today

The Institute of Public Accountants (IPA) says that if the tax system was designed from scratch it likely wouldn’t have refunding of franking credits, but doesn’t support stopping refunding the credits without broader tax reform.

IPA CEO Andrew Conway says: “If we were designing a new tax system today, you would most likely not have full imputation where the taxation is assessed in the hands of the recipient and any excess franking credits are refunded.”

“In today’s economic circumstances it would be difficult to justify from a fiscal sustainability perspective,” he said.

However the IPA doesn’t support Labor’s policy of stopping refunds of franking credits, unless it is linked to “holistic” changes to the tax treatment of savings.

“The case for removing dividend imputation is not strong and any tinkering needs to be assessed against some alternative benchmark tax system such as removing dividend imputation entirely and replacing it with a discounted tax rate,” said Mr Conway.

The IPA has welcomed the establishment of a Parliamentary inquiry into the implication of removing refundable franking credits – which held two public hearings last week, with a third scheduled for this week. Mr Conway said the inquiry will “heighten community understanding of a well-established feature of our taxation system”.

“The Labor Party is proposing to change the rules to remove the ability for individuals and superannuation funds to claim their full entitlement to franking credits,” he said.

“The inquiry will highlight the significant implications attached to any change in government policy on refunding imputation credits.”

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Advance Australia campaigns against Labor franking credit refund policy

Advance Australia, a new lobby group that has been likened to a conservative Get Up!, is campaigning against Labor’s franking credit policy.

The Advance Australia website currently lists only two campaigns: one opposing Labor’s policy to stop refunds of franking credits for many taxpayers and other around not changing the date of Australian Day.

“Having certainty means you can plan for your future with confidence. So when politicians keep re-writing superannuation laws, it suddenly makes your hard-earned retirement less certain. Once again, politicians are seeking to move the goalposts on superannuation,” says the webpage for the Hands off My Super campaign.

Advance Australia claims that “Labor believes scrapping the tax credit will give them billions of dollars a year to increase Government spending on welfare.  They are taking the money off hard working pensioners and retirees to give it to others – that’s not fair”.

Labor tweaked its policy to exclude Age Pensioners and SMSFs with members receiving the age pension at the time of the announcement. The Coalition has increased taxes on superannuation with its changes in recent years, for instance by more than $5.2 billion over four years via the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.

According to reporting by the ABC, Advance Australia is supported by business leaders and its national director, Gerard Benedet, was the chief of staff to Queensland LNP Tim Nicholls. He told 7.30 that the group is “not aligned to any political party”.

The petition – which asks for email address, phone numbers and address – reads:

Dear Bill Shorten,
Together, with many other hard-working Australians, I’m calling on you to abolish Labor’s new superannuation tax laws that will force many Australians to work longer and harder before retiring.

It’s shifting the goal posts on retirement—and that will leave many people fearful about their future. It’s just not fair.

My fellow Australians and I need certainty in order to plan for a secure retirement—so Labor needs to scrap its plans to abolish the imputation tax credit refund.

Please take action to help us Advance Australia—and scrap your super plans that will put my retirement funds in reverse.

The petition has over 2,200 signatures at the time of writing, with a current target of 5,000. Another petition against Labor’s policy, run by Wilson Asset Management, had over 25,000 signatures earlier in November, according to Chairman Geoff Wilson.

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Government narrows focus to three superannuation Bills

The Government has narrowed its focus to three superannuation Bills for this sitting week – the second last for 2018.

In the Senate-only sitting week earlier in November the Government put six superannuation Bills on the Programme for the Senate. However none reached a vote.

The Government has seemingly narrowed its focus to only three superannuation Bills for this sitting week, based on the current Draft Legislative Programme for the Senate:

Tuesday:

Wednesday:

Earlier in November Assistant Treasurer Stuart Robert announced that the Government intends to amend three of its superannuation Bills. If passed, the Protecting Your Superannuation Bill would be amended to retain opt-out insurance for young people in dangerous occupations, the Measures No. 1 Bill would be amended to add penalties for non-payment of Super Guarantee, and changes would be made to the new rules in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017. However this third Bill is not included on the Programme for this week.

Also, none of the amendments have been published on the Parliamentary website, though at least some have reportedly been circulated to the cross bench.

The other Government superannuation Bills will likely remain stalled – none of them have been debated since June 2018, some much earlier. Measures in these stalled Bills include requiring at least one-third independent directors for large super funds, expanding super choice, closing the Salary Sacrifice ‘loophole’ and setting objectives for the superannuation system in legislation.

The Programme notes that it is “indicative” and subject to change – as was seen in the previous Senate sitting week.

Following this week only one sitting week remains in 2018. The 2019 sitting calendar has yet to be published.

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