We can all breathe a temporary sigh of relief that the Government’s Mid-Year Economic and Fiscal Outlook – or MYEFO for the policy wonks – didn’t slug super, and SMSFs in particular, too heavily.
Prior to the mini budget’s publication, rumours of many changes had come my way. For example:
- Super fund earnings tax would be increased from 15% to 20%;
- Transition to retirement pensions would no longer be allowed and other unspecified changes to salary sacrifice contributions would be made;
- Capital Gains Tax (CGT) would apply when a pension ceases and lump sum money is paid back to the accumulation phase or paid as a lump sum;
- Regulation of SMSFs would move from the ATO to ASIC, APRA or possibly both; and
- Limited Recourse Borrowing Arrangements (LRBAs) would be done away altogether or severely curtailed.
SMSFs are at a delicate stage from a political perspective and I expect this to continue until we have a change of Government. (Remember, however, that the Howard Government was only a slightly better friend to the SMSF sector than the Labor/Green Government.)
When the current super system was being conceived, SMSFs were seen as a niche for small businesses. The boffins at the time failed to see that running your own fund would become the vehicle of choice for many middle-class people who straddle the political divide.
Some management people in large funds think SMSFs have an unfair advantage from a regulatory perspective – they want greater SMSF regulatory oversight to create what they think would be a more level playing field.
The simple fact is that if you want to continue to run your own fund with a reasonable amount of freedom, then you have to make representation to your local and national politicians – especially when the next rumour about potential changes appears in the press. They need to be under no doubt that unreasonably attacking your SMSF will cause them a political headache and may impact how you vote.
You also have to be prepared to continually run your SMSF correctly so that operational failures can’t be attacked as problems that need tight and restrictive regulatory responses, which unfairly impact everyone.
To some extent, I expect to hear rumours about the above list of possible nasties start again as we head towards the 2013 Federal Budget.
As Paul pointed out last week, there were some changes made in the MYEFO that will affect SMSFs. A positive change was that the Government will legislate to allow the payment of a death benefit from super pensions, although nothing was said about super annuities.
The change will apply from 1 July 2012 and the payment of these death benefits will have to occur as soon as practicable after the pensioner’s death.
At present, a super fund death benefit paid with accumulation assets will receive death benefit tax concessions if it’s paid within the longer time period of six months of death or three months of the granting of probate or letters of administration of the deceased estate.
Based on the wording of the Government’s announcement, it’s reasonable to assume this same time period will apply for the CGT concession for lump sum pension death benefits. If the death benefits are paid after this time-frame – which is reasonably common, especially if a super fund has a ‘lumpy’ asset – then the pension interest will have ceased and CGT will likely apply to super fund asset disposals.
So how will the Government’s announcement affect the Australian Tax Office’s (ATO) pension ruling?
Now that the Government has dealt with the CGT death benefit issue, I expect that the ATO’s draft pension ruling as it’s currently written to remain largely unchanged. The two other main issues dealt in the ATO Ruling probably now won’t change too much. These are:
- not making minimum income payments in a particular year will mean your fund hasn’t paid you a pension for that year; and
- the ability to take a lump sum out of the pension depends on the specific written rules that govern the pension.
The ATO’s draft ruling had a commencement date of 1 July 2007. Given the Government’s recent activity in this area, I expect this will be moved to 1 July 2012.
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