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Heffron Blog

Heffron's Blog is a collection of comments related to the latest superannuation comings and goings.

Does scrapping the $500k lifetime limit for non-concessional contributions make sense?

by Meg Heffron

Big news this week with the Government announcing a total backflip on one of its big 2016 Federal Budget measures – the lifetime limit on non-concessional contributions.

Unfortunately – in my view at least – it has replaced an unpopular and unreasonable measure with something that has plenty of weaknesses itself.

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2016 Federal Budget – does it take Australia from the lucky country to the average country?

by Martin Heffron

Last week’s budget and the debate that has subsequently surrounded it suggested to me once again that we Australians currently place a higher value on being the same as each other than rewarding those who excel. We seem hell bent on driving our country towards a mean, an average and want to drive all individual Australians in the same direction.

The forces of globalisation, the mobility of international capital and skilled labour (aka knowledge workers) and the value creating force of the internet have completely changed the world economy over the past 20 years or so but our nation seems to be locked in some kind of neo-socialist time vortex where equal outcomes under the guise of fairness are valued more highly than the provision of equal opportunity and the rewarding of those individuals in our community who leverage their opportunities to the benefit of themselves, their families and others.

We are facing the most competitive world economy of all time.

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What will you tell clients who’d planned large non concessional contributions this year?

by Meg Heffron

It has already been widely reported that last night’s budget saw a lifetime cap of $500,000 announced for non-concessional contributions.  There is a distinct element of retrospectivity in this measure in that contributions right back to 1 July 2007 will be counted in working out whether someone has exceeded the cap.  I imagine the Government will argue that this is not retrospective because those who had already exceeded the new limit at 3 May 2016 will not be penalised.  However, in my view that’s just not good enough.

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What should members and trustees be thinking about pre budget 2016?

by Meg Heffron

The budget is always a tricky time – should we speculate about what might happen and try to pre-empt it?  Or should we plan around the law we know about rather than what might happen in a few weeks’ time on the basis that trying to predict the unpredictable often means we jump at shadows?

I’ve traditionally been in the latter camp.  Even when governments do make big announcements on Budget night, will they necessarily be legislated immediately?  In fact, will they be legislated at all?  Is it worth potentially compromising long term superannuation plans just on the off chance unfavourable changes will be made as part of the federal budget?

This time my view is different.  In the current environment there are several things I believe it would be worth acting on now.

I’ve rashly put my thoughts down in this article and like everyone else, I will be watching the Treasurer’s address on 3 May to see if any were worth acting on!

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How could super be changed to be more focussed on retirement income than estate planning?

by Meg Heffron

Whatever you may think about the ideas outlined in the discussion paper released by the Government on 9 March 2016 about the purpose of super (see here), surely it is great start.  Context is everything.  Without at least a debate aimed at creating some shared understanding of what we’re all doing here with our super system, how can we possibly argue about individual policy measures?

The discussion paper draws heavily on the recommendations of the Financial Systems Inquiry (FSI) and seeks input on whether a number of these should be adopted.

The Government proposes adopting the FSI’s recommendation that primary objective is “to provide income in retirement to substitute or supplement the Age Pension” (emphasis added – I’ve just watched Insiders on the ABC and the latter bit would appear to have already been lost in the discussion…) .

uneven scales

However the paper also highlights that the FSI proposed several subsidiary objectives for super as well and the Government seeks input on these.  There are many interesting points to discuss in there but one is particularly relevant for SMSFs.  It’s the proposal that:

“the purpose of superannuation is not to allow for unlimited wealth accumulation and estate planning”

Renewed emphasis on reducing estate planning opportunities in super wouldn’t be surprising or unreasonable.

Even the foundation of super law, the sole purpose test, is articulated as if this should have been the way we’ve thought all along.  For example the sole purpose test requires that a fund is established for one or more core purposes plus some ancillary purposes (if you want them).  The core purposes are things like providing an income after reaching a particular age or retiring. The only mention of death within the core purposes is death before that time – to protect the families of those who don’t live long enough to make it to retirement.

Providing benefits in other circumstances – including death after retirement – only get a mention in the ancillary purposes.  In other words, even the sole purpose test treats retirement income as the priority.  Everything else is a bonus.

So, if the Government really did want to ensure super was used largely or exclusively for retirement income, what could it change?

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Can accountants provide advisory services?

by Meg Heffron

I read with interest a recent article in accountantsdaily with the somewhat provocative headline “Accountants lack confidence to offer advisory services”.

It quotes research by Bstar which says that 81% of accountants lack confidence in their ability to provide advisory services.  Unfortunately the full report isn’t out yet but the executive summary is available on Bstar’s website http://www.bstar.com.au/ and makes for an interesting read.

While the research focuses on accountants, I expect you could change the language a little and it would apply to almost any business of any size.  Is there really anyone completely immune from concerns about reducing fees on compliance (or similar) work, government regulation and technology?  This last one is a great enabler and capability enhancer on one hand but also a mighty leg up to new competitors with no legacy systems or processes to change.

But the article does highlight a specific concern about moving into advice.  Why would accountants be shy about this when they are already filling the role of trusted family and business adviser in so many relationships.  Isn’t it the most natural evolution in the world?  In fact why hasn’t it happened much faster already?

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What do AMP’s recent purchases mean for the rest of the SMSF industry?

by Meg Heffron

On 30 October, AMP announced that they had purchased the remainder of SuperIQ and Supercorp (they already owned part of both businesses).

Both were described as SMSF technology businesses but are actually quite different.

SuperIQ has a substantial fund administration business in its own right with over 4,000 funds.  In addition, it licenses SMSF business software to other administrators – including other AMP brands such as Cavendish.  Its software combines with Class (the underlying tax, accounting and data system) to provide a full business solution for SMSF administration (set up, workflow, documentation, member and adviser communication etc).

Supercorp, on the other hand, owns SuperMate – a long term SMSF administration package.  This system is a direct competitor of Class.

Why did they do it?

Of course, I don’t actually know.  But we could speculate:

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LRBAs – when does a ban become a ban?

by Meg Heffron

It’s no secret that there are some within government, regulators and even the superannuation industry itself who would quite like to see a ban on limited recourse borrowing arrangements.

The most common arguments against LRBAs are that they introduce a level of risk within the superannuation system that the community could do without and they encourage over investment in property.  While the law doesn’t specifically limit LRBAs to SMSFs, they are often talked about as a SMSF phenomenon because at a practical level, it’s generally these funds that use them.

This makes APRA’S July 2015 announcement that it would alter the value it placed on credit risk associated with loans for residential property particularly relevant for SMSFs.  The net outcome is that most banks lending for this purpose will now have to hold more capital for each $1 of loan than they did in the past.  In effect, unless they have a magic pool of untapped capital, it curbs their ability to make residential property loans.

While the change wasn’t specifically targeting SMSFs or even limited recourse borrowing more generally, it has an interesting flow on effect.

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What is cheap and what is good value?

by Meg Heffron

Accountants daily published an interesting article earlier this week about the ATO targeting low cost SMSF auditors (http://www.accountantsdaily.com.au/breaking-news/8339-ato-targeting-low-cost-smsf-auditors-says-superauditors).

(And then with irony that must have been deliberate, there was an ad about an offshoring conference right in the middle of it in the on-line version I read!)

It got me thinking though – if the ATO really is targeting particular suppliers on the basis of cost, it’s presumably because they don’t think it’s possible to do the job they expect to be done at that price.  I wonder how they decide that without knowing how that cost is achieved? And when is a low cost supplier worrying rather than just a sign of great efficiency innovation?

The article makes some good points – including the fact that the “headline rate” isn’t the only cost to weigh up when looking at any supplier.  If the low cost is achieved by skimping on the job, the new ATO penalty regime makes that a dangerous strategy for everyone – the auditor, accountant, adviser and trustee.

However, low apparent costs can come in many other ways – none of which are inherently evil, they just require a clear understanding so that any arrangements are approached with all eyes wide open.

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Hanging on to the Commonwealth Seniors Health Card

by Meg Heffron

There are two big dates in 2015 for holders of the CSHC:

  • 1 January 2015 – the date from which all new account-based pensions became subject to the deeming rules when it comes to calculating “income” and assessing eligibility for the card; and
  • 30 June 2015.

Why is today (30 June 2015) so important?

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