SMSF expert, Head of superannuation at Chartered Accountants Australia and New Zealand, Tony Negline takes a closer look at the budget changes affecting super funds, and how you can prepare your SMSF
There is a lot of confusion and misunderstanding about the government’s far reaching and substantial superannuation changes. But with many of the changes now legislated, its important to understand the implications.
Some will bury their heads in the sand, while others might fight the changes - its time to face the reality and weigh up the options.
Arguably, the more money you have in a super fund, the more care you need to take. In this series we will look at some of the important details across several changes, and what you need to understand to make an informed decision about your personal circumstances.
A recommendation – be cautious
This is not a recommendation about any financial products, but rather a suggestion about how you should approach the super changes.
Many of the government policy changes are interlinked – in some cases indirectly – so it’s important to approach them cautiously and consider your options before deciding on an appropriate course of action.
Here is a brief summary of some of the points we will cover in future articles:
1. Capital gains tax (CGT) cost base uplift concession
This is a very important and complex opportunity – it’s important to understand how these work and when it is available. Before we really discuss how these new rules apply – or don’t apply – to you, we need to discuss important concepts such as segregated and unsegregated assets. There are also some foundational rules about CGT and how it applies to super funds that you need to appreciate, that we will discuss before looking at the government’s concession in detail.
2. $1.6m Transfer Balance Cap and Account
How much you can have in super pensions and annuities.
3. Total super balance of $1.6m
Despite being the same amount as the Transfer Balance Cap, your total super balance is different and important for those wanting to make a range of different types of super contributions including after tax super contributions (that is, non concessional contributions).
4. After tax super contribution rules
2016/17 is the last financial year in which you will able to get after-tax money into super based on the current rules. After 30 June 2017 new, more restrictive, rules will apply.
5. Estate planning considerations
Everyone with super will need to consider what happens to their money and the options available following their death
6. Changes to Transition to Retirement pensions
We will also discuss existing rules you might need to know about, such as:
1) Contribution rules
The key age based rules that you need to satisfy if you want to make super contributions, including splitting contributions with your spouse
2) Benefit splitting with your spouse
What you need to know about taking money out of your super and contributing to your spouse’s super account
An important overriding message
If you run your own SMSF, then before you make any changes to the operation of your fund, you need to make sure that your fund’s trust deed allows the change to take place. At the same time, any decisions or actions you take as a trustee should be completed in accordance with that trust deed.
In addition to trust deed requirements, if your super fund has a corporate trustee you must also ensure the decisions you make as directors are made in accordance with that company’s constitution and, if necessary, the Corporations Act.
I urge you not to dismiss these comments as something you can ignore.
Whenever there is a problem in any SMSF, the deed is the first step of the review. Often, the very first question is whether a trustee has done something permitted or prohibited by their deed? The next question is whether a trustee action was completed in accordance with the deed and, if relevant, the corporate trustee’s constitution.
For example, many trust deeds demand all trustees unanimously agree to any act or transaction. Scenarios where this might occur include buying or selling fund assets, paying benefits, and allocating fund expenses between members accounts to name a few.
One particular area where trustees fall down is in demonstrating that trustee meetings have been:
- Called correctly
- Conducted appropriately
- The decisions made in those meetings were fair and in the best interests of all members and beneficiaries
- Everything has been properly recorded
Once a weakness in any of these areas is identified, it is easy to call into question how your super fund has been run and to seek to invalidate any of your actions.
None of the above seeks to be alarmist, but will simply help you understand how super funds work and how some people make mistakes.