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The Australian Tax Office (ATO) has again taken aim at self-managed superannuation fund (SMSF) trustees, with possible new fees and veto powers.
At a National Press Club address, Assistant Treasurer Daniel Mulino announced the ATO is considering new fees for SMSFs and giving the ATO veto power over investments. No date has been set for these proposed changes to take effect.
The key changes that would impact SMSF trustees include:
- ATO to receive new veto powers on SMSF investments, “to prevent rollovers into SMSFs where there is a well founded suspicion of consumer harm.”
- SMSFs must maintain “uniquely identifiable bank accounts.”
- New minimum basic knowledge requirements for SMSF trustees.
- New line item in SMSF annual statements to identify advice fee deductions.
- If a financial adviser helps or is in any way involved with establishing an SMSF, the SMSF must disclose it.
- SMSF ATO supervisory levy will increase to pay for the additional admin and oversight these changes require.
- SMSFs must contribute to sector-wide special levies, including the compensation scheme of last resort (CSLR) levy.
Impact of proposed SMSF changes
Introducing new rules and regulations to establishing an SMSF isn’t necessarily a bad thing. The problems trustees may face will be buried in the detail of any new legislation.
New ATO veto powers
When it comes to the proposed veto powers on SMSF investments, some immediate questions spring to mind. For instance, what will constitute a “well-founded suspicion of consumer harm”? What kind of evidence will the ATO need before intervening and will there be an appeals process?
There has always been a requirement that all funds have an investment strategy from the date the fund is established. The problem is that a lot of these ‘investment strategies’ are just generic templates, completed after the fund has been setup just to tick off a compliance box. What matters most is that the trustees have genuinely considered the fund’s investment objectives, risk, liquidity and diversification before any rollovers occur rather than just creating more unnecessary paperwork. Who would be the one to say that a trustee’s investment strategy is right or wrong if it complies with the SIS legislation?
Ultimately, this sounds like more hoops for trustees to jump through simply to have control over their superannuation investments.
Reporting financial adviser involvement
Having to show that a trustee has sought financial advice may be a cost inhibitor to those more astute trustees who would have setup their fund on an execution-only basis previously. However, if advisers are encouraging fund establishments and receiving substantial fees, transparency benefits both regulators and consumers. The proposal may also help identify promotor activity that targets vulnerable trustees.
Basic knowledge for SMSF trustees
We do support trustee knowledge requirements. Frankly, many trustee breaches occur because individuals underestimate their responsibilities. A basic trustee education requirement before registration seems reasonable and aligns with the reality that trustees are taking responsibility for potentially millions of dollars of their retirement savings. At RSM, we would much rather spend time advising informed trustees than fixing avoidable compliance problems later.
SMSF levy contributions
Our biggest concern is about SMSF’s needing to contribute to the CSLR levy, despite the fact some may never receive financial advice or use a financial adviser and wouldn’t have access to the framework themselves. Yes, the contribution may be no more than $20 per levy period, which is quite small in the scheme of things. The issue here is less about the amount paid and more about the principle.
Final thoughts
For genuine SMSF trustees who are already complying with all the rules, our advice is not to stress about these announcements. This is not an attack on SMSFs. On the surface, the reforms appear to target scams, fraud and poorly informed SMSF establishments.
Until we have draft legislation to unpack and analyse, we won’t know how this is going to affect genuine trustees looking to build wealth for their retirement.
In the meantime if you have any questions about your SMSF, please reach out to your local RSM adviser.
