The latest statistics released by the ATO for March 2013 showed a decline in the establishment of new SMSFs. It went from 9,748 setups in the December 2012 quarter, to only 5,840 setups in the March 2013 quarter. Further to this, it was only half the rate of new setups from earlier in the financial year.
This led to some financial commentators announcing that the growth of SMSFs had ‘peaked’, and some inferences made that its kind of downhill from here for the sector.
Here’s the thing though – this sort of drop off from one quarter to the next (or within a financial year) in SMSF establishments is not a new phenomenon.
With the end of the financial year fast approaching, SMSF trustees need to be aware of a few important issues to ensure fund compliance and avoid potential problems. More information on each strategy or technical area is available in the SMSF Technical Education & Strategies section of the website.
For those in Pension phase:
For those trustees receiving an income stream (pension) from their SMSF, ensure that the correct amount of pension will be taken.
A while ago the ATO came out with an interpretation that the tax exemption on superannuation (and SMSF) income streams ceased at the time of death, unless the pension seamlessly reverted to another beneficiary.
This caused significant issues within the industry and much disagreement, such that the Government agreed last year that the tax exemption should in fact continue until the original pension had been dealt with (i.e. paid out either as a lump sum or pension to beneficiaries). Draft legislation was released in January this year, and now the final regulations have been registered this week on the 3rd June 2013.
Back in February we wrote an article about the Government releasing draft legislation in December around the issue of in-specie transfers of listed securities into a SMSF (CLICK HERE for the article).
It basically said that these off market transfers could only happen subject to new regulations that were going to be formulated, and would apply from 1 July 2013.
This issue has been around for a while (since it was brought up in the Cooper Review) and has been continually pushed back and put in the too hard basket.
Well, it appears it has been dropped altogether for now.
The Federal budget for 2013 was presented last night, and there are a number of issues for SMSF trustee to be aware of.
Thankfully, there were no major other changes announced last night. It was basically a confirmation of the previous announcements, however there was a ‘non-announcement’ that also caught our attention.
No extension to the draw down relief of Super pensions
Conspicuous in its absence was any announcement of the extension of the drawdown relief for minimum pension payments for Super income streams. You may recall that in the last few years the minimum amount needing to be paid for an account based pension has been reduced due to the hit may people took to their account balances in 2008 and the difficult markets that endured for a few years thereafter. Obviously the last 12 months have been very kind to investors in traditional assets, and as such there is no further extension to the draw down relief.
Quick review of the main changes
Whilst we did look at these back in April, lets just do a quick review of the main proposed changes for SMSF trustees in this budget:
Back in 2007 when the so called Simpler Super changes came about, we received what was thought of at the time to be an incredible concession from the Government.
After age 60, you could withdraw your SMSF and you did not have to worry about those pesky lump sum tax rate tables anymore. It would all be tax free, and pensions would be tax free too. This fact is (dare I say it) fairly well known and gets fairly well publicized.
Here’s the problem though - the preservation rules still apply.
As you no doubt already know, the Government recently announced its intended changes to superannuation (Click Here for our summary). This was welcomed in that it ended the ridiculous amount of speculation that was going on around what they were thinking, and with SMSFs generally.
The thing is………I’ve just read where the Government have pretty much conceded what some of us already thought - that there is very little chance of them getting much (if any) of this through parliament before the election in September.
So given the polls are suggesting we are almost certainly getting a change in Government, is there any point whatsoever in us analysing this stuff ?
To be honest I just don’t know, so I’m going to take the middle ground and be very brief with our thoughts on each proposed change, and provide some general comments.
Again note we already have an article that explains the proposals. We are not going to rehash it all below – just provide brief comments. So here we go:
The Government today has thankfully ended the constant speculation around proposed changes to Super by announcing the changes they are seeking.
In summary, today’s announced changes include:
Changes to tax exempt income streams
Currently, all investment earnings on SMSF assets supporting income streams are tax-free. From 1 July 2014, it will only be the first $100,000 of income earnings per person that will be tax free, with anything above that taxed at a rate of 15%. The $100,000 threshold will be indexed to CPI and will increase in $10,000 increments. Members of defined benefit funds (including federal politicians) will also be treated in the same way via actuarial calculations.
A couple of weeks ago I was invited to provide some live SMSF education to some DIY investor groups in Brisbane, Sydney and Melbourne. I don’t normally do these anymore (as I’ve done my fair share over the years) and I now prefer the online vehicle to reach a far greater audience. But the guy who organized it is a friend of mine and (to cut a long story short) I relented and off we went.
Suffice to say I’m glad I did.
Having been behind the computer for a while, it was actually good to get back into the ‘live’ format.
Anyway, there were some key ‘take outs’ from these events that I’d like to share with you – and get your feedback if I may.
New regulations have been released that will now limit the types of insurance that you can hold in your SMSF (well, any super fund actually, not just SMSFs), subject to some transitional provisions.
The overriding theme is that the insurance cover will only be allowed where it is consistent with a superannuation condition of release such as death, a terminal medical condition, permanent incapacity, and temporary incapacity.