Heffron's Blog is a collection of comments related to the latest superannuation comings and goings.
When will they get a new record?
An article in the Australian Financial Review on Saturday (“DIY Super : an uncontrolled gravy train”, 3 September) trotted out just some of the many arguments against SMSFs that are frequently mounted by detractors.
I won’t be able to resist returning to this article for future posts but I wanted to start with my favourite criticism of SMSFs – that they get better tax breaks than other superannuation funds. The article highlights that in 2008/09, SMSFs paid $1bn in tax whereas all other funds paid $4.5bn. In other words, SMSFs paid less than 20% of the nation’s superannaution taxes despite accounting for over 30% of total superannuation savings. In particular – or so the article says - they get a unique and fantastic deal that they can convert to pension phase and avoid capital gains tax.
If you’ve read the parts of the Tax Act that deal with superannuation, you’ll see that this is simply not true (although I wish it was).
It’s all about attitude
When a SMSF trustee breaks the rules, there are a host of things the ATO can do to deal with it – enforceable undertakings, disqualification of trustees, removal of the fund’s complying status to name a few.
But when we look at the numbers, these things don’t happen very often. According to the latest ATO statistics, 2010/11 saw 85 funds stripped of their complying status, 181 enforceable undertakings, 330 trustee disqualifications and 10 auditor disqualifications. Over the same period, the ATO received som 8,400 Auditor Contravention Reports (ACRs).
What this suggests to me is that ACRs are something to avoid but are certainly not a one way ticket to superannuation oblivion – most funds that receive an ACR suffer no long term detriment.
So what’s the secret to being one of the lucky ones that escapes further sanction when something does go wrong?
Really irritating scaremongering
There’s naturally been a lot of comment about TR 2011/D3 – most of it negative. That’s entirely understandable as it doesn’t contain any good news. The ruling :
- confirms some things we don’t like but knew the ATO thought (eg capital gains tax on asset sales after the pensioner dies if the pension is not reversionary);
- raises new issues and expresses a view that isn’t particularly favourable to taxpayers; or
- takes an issue we knew it had a negative view on (eg losing the super fund’s tax exemption when a pension is underpaid) and takes it a whole lot further (concluding that this means the pension has “stopped”).
So I suspect that very few people read this ruling with a big smile.
However, some of the commentary and scaremongering that has come out about it is just plain wrong.
Classic Bill Shorten
Not many news articles give me a genuine belly laugh but Financial Standard on line (“Industry brawl erupts over industry super ads”, Alison Bevege, 15 July 2011) had me cackling loudly. It covers the ongoing and ever present spat between the retail and industry fund sectors but the part that really amused me was a quote from Bill Shorten :
“Retail funds bag industry funds, corporate funds bag industry funds, industry funds bag retail funds, everyone bags SMSFs and SMSFs don’t really bag anyone, they just get on with business”
Andrea Slattery (SPAA CEO) picked up on this in her most recent correspondence to SPAA members – with good reason as it will give most readers of her emails a good laugh too.
Should the SMSF be a “whole family” affair?
I quite like my children but I don’t think I will invite them to be members of my self managed fund.
There are plenty of reasons people suggest it but none of them do it for me.
Superannuation & charitable giving
Last weekend’s (4 June) Australian Financial Review had a long article about charitable giving in Australia. The uncomfortable conclusion was that relative to other countries (notably the US) we don’t do it much.
I don’t really have any idea whether Australians are good or bad when it comes to helping the needy voluntarily (rather than compulsorily via the tax system) but it did get me thinking about how best to do that when superannuation is the major “asset” held by many retirees.
The “unregulated” SMSF sector
Periodically one hears representatives of the large superannuation fund sectors (retail and industry) describe the industry as “two thirds regulated and one third unregulated”. Most recently I heard this trotted out at an ASFA event this week. No prizes for guessing which sector is identified as “unregulated”.
I suspect those of us who work in the “unregulated” wild west of the superannuation world can happily point to a million and one regulations that we have to work with every single day so I think I will let that one pass.
The argument that does always pique my interest, howwever, is the idea that this vast (one third) unregulated bunch is likely to cause the end of the world as we know it any day now by going completely off the rails and bringing the superannuation system to its knees.
Minimum pensions – where to for 2011/12?
For the last three years, a special concession has applied to anyone drawing a superannuation pension (other than defined benefit pensions) : the statutory minimum payment has been set at 50% of the normal rate. This has been a boon for SMSF members in particular. Many started pensions to get some generous tax concessions (ie their fund stopped paying income tax) even though they didn’t really need any income. The fact that they could get away withdrawing less pension income than usual was extremely useful for them.
The 10 May Federal Budget fell short of extending this 50% reduction indefinitely but did provide some ongoing relief.
For 2011/12, minimum pension payments will be set at 75% of the normal levels. In other words, someone aged 60 will be obliged to withdraw 3% rather than 4% from their pension balance during 2011/12 (and for the last three years they have only been obliged to withdraw 2%).
The minimum amounts will return to normal from 1 July 2012.
Of course none of this affects the maximum amount which can be drawn from these pensions – transition to retirement account-based pensions are still subject to the usual 10% limit on drawings.
Contributions caps – budget changes
Well the good news is… there WAS something on contribution caps in the May 2011 Federal Budget.
Perhaps it is just the lateness of the hour that is making me cynical but while the proposed change looks reasonably sensible, it could have been a lot better.
SMSFs & Trio
The headlines on this have been great - “DIY super funds given cold shoulder in Trio payout” , “Trio shows up DIY super’s shortcomings” and “Fraud compensation leaves SMSFs out in the cold”…. need I continue?
Are these a bit of a beat up or do they reflect a genuine weakness in the current legislation?