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Heffron Blog

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

What do the 2017 super changes mean for SMSF accountants & administrators?

by Meg Heffron

The current superannuation changes present the most profound adjustment to the strategic landscape for SMSFs since 2007.   Like any change, they highlight the importance of good guidance from accountants and advisers for all trustees.  In the coming months, there will be a lot of questions asked of anyone advising trustees but also of those of us implementing the new strategies via a compliance or fund administration role.

Five questions I know we will be asked that immediately spring to mind are:

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Clarity or more complexity on CGT relief?

by Meg Heffron

Last Thursday (24 November) the ATO released Law Companion Guide (LCG) 2016/D8.  It is designed to provide some extra insights into how the ATO will apply the CGT relief accompanying the 1 July 2017 changes to superannuation pensions.

The law itself has already been passed and is quite complex – there are some odd cases of people who will miss out despite being obvious candidates for relief and others where they will fall within the rules despite not really being affected by the changes.  So like any law, it’s not perfect.

The Explanatory Memorandum that accompanies it is covered in references to Part IVA of the Income Tax Assessment Act 1936 (which deals with schemes to avoid tax).  This makes it pretty clear that those who manipulate their circumstances to get access to the CGT relief will be at significant risk of being pursued by the ATO.

To my mind the latest guidance from the ATO actually makes the situation even more confusing because it takes this one step further.

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New Super legislation passed – 6 steps to be taking right now

by Meg Heffron

The new superannuation legislation flew through both houses of Parliament so quickly that I expect most people are still catching their breath about their scale rather than focusing on what next.

But there are some important things to be thinking about right now if you are affected by the changes or advising people who are.  Here are just six:

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Is 2016/17 a golden year for transition to retirement income streams in SMSFs?

by Meg Heffron

In a word – yes.

That might seem like an odd position given the significantly detrimental changes due from 1 July 2017. (From then on, these pensions will lose one of the key benefits of being in “pension phase” – the ability to pay no tax within the SMSF on any investment earnings including capital gains on the assets on which it is relying to pay the pension.)

However, there’s nothing like the imminent demise of a tax concession to focus the mind on its value!

Clients eligible to start one (anyone born before 1 July 1960) have just one last year to make the most of three important opportunities.

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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 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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