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Self Managed Super Fund (SMSF) Article
ALP gives Better Super the thumbs up

By Tony Negline.

This article may be out of date.

28th February 2007

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The first part of the new super laws has been passed by the House of Representatives.  Whilst this is a milestone, it is very important not to get carried away with the impact of this event.

The law must now go to the Senate for its consideration.  There are other pieces of legislation that also need to be passed and regulations also have to be put in place.

The final passage of these complex new super laws should not be too significant a problem because the ALP has publicly said that it supports the new laws.  The Shadow Treasurer, Wayne Swan, recently told Parliament that the ALP believes these new measures will simplify the current complex system.  He also said that bipartisan support for these measures helps to “maintain a stable and certain environment for savings and investment and retirement income planning.”

The importance of this last comment should not be underestimated.  I may be incorrect but I cannot re-call when any politician has agreed to support all the changes to the super system proposed by his opposition colleagues.  Prior to this comment, the risk of amendment which eroded benefits because there was a change of government was always real.

Hopefully this recent ALP announcement means that the broad brush impact of these latest changes may survive a future ALP government.  It is probably too much to hope that we have moved fully beyond change for changes sake but at least the first signs of some stability are there which means that some long term planning can actually be done.

Mr Swan also said during his Parliamentary speech that one estimate of future superannuation savings has total super asset at $1.8 trillion by 2011 and $3.3 trillion by 2017.  It is unclear if this also includes the Government’s Future Fund (which is intended to cover public sector super liabilities.)  These are really large numbers and if current growth trends continue, Self Managed Super Funds will make up a very sizeable chunk of these numbers.

The tax office says over the last few years the average number of new SMSFs each month is about 2,500.  Many public practicing accountants are saying that they are setting up between five and 10 new SMSFs each week.  It will be fascinating to see by how much this average number of new funds is exceeded because of the massive interest caused by the new super rules and the $1 million undeducted contribution dead-line of 30 June 2007.

The trustees of all these new funds will need to be careful to avoid the common mistakes that are made by their fellow trustees in existing small funds.  The failure to comply with all the rules can lead to the ATO imposing penalties on the fund and anyone involved in the breach.  The biggest penalty involves removing a fund’s concessional tax treatment and imposing a 45% income tax rate on the fund’s income.  Fortunately this happens very rarely (last year the ATO told us that only 12 funds of the 4,500 funds they looked at last year had this high tax rate imposed).

The ATO publishes a lot of information to help these SMSF trustees avoid these pitfalls.  Two documents are particularly helpful – Role and Responsibilities of Trustees and DIY Super: It’s Your Money But Not Yet.

These documents list the common pitfalls, such as not keeping super fund money separate from personal funds; not ensuring that the super fund’s trustee is clearly the owner of all fund assets; not making super that all members of the super fund are trustees; lending fund money to members or their relatives; accessing super before the preservation rules allow and so on.

These documents are updated from time to time and are highly recommended.  The current version is available from the ATO’s website.

In essence running your own super fund is a matter of commonsense.  Don’t try to be too clever or sneaky and make sure you get good advice.  It is rare to find any adviser – accountant, financial planner or lawyer – who knows everything about SMSFs so seeking a second and sometimes a third opinion can be profitable.

It can sometimes be worthwhile talking to the ATO about some of your SMSF issues however the ATO can elect to change their mind in relation to particular matter.  This has happened on a few occasions over the last five years.  Additionally for tax matters the ATO is able to issue taxpayers a Private Binding Ruling.  These rulings detail the ATO’s interpretation of a particular law.  Under the tax laws the ATO must follow an interpretation given to the taxpayer in one of these ruling even if the ATO has changed its mind about how a particular law should operate.  Sadly the ATO cannot issue these types of rules about the SMSF regulatory regime.

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