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  • SMSF update - AIOFP National Conference

    Kasey Macfarlane, Assistant Commissioner, Superannuation

    Speech to the AIOFP National Conference

    Hamilton Island - 21-24 November 2017

    (Check against delivery)


    Thank you for the opportunity to talk to you today.

    The theme of your conference ‘embracing change’ is certainly very fitting in the current context of superannuation and of course self-managed super funds (SMSFs). In the past year, we have all seen and been a part of the enactment, introduction and implementation of the most significant super reforms in the past five years.

    When it comes to SMSFs, they are undoubtedly an increasingly important and integral part of Australia’s super system. There are now close to 600,000 SMSFs with over 1.1 individual members, and the number of funds continues to grow, with approximately 2,500 new SMSFs registered every month.

    In addition, the total value of assets held by SMSFs is approaching $675 billion; which means that the value of individuals’ retirement savings in SMSFs now eclipses the value of that held in retail and industry funds.

    Therefore, an increasing number of individuals are choosing to take control of their financial future in retirement by taking an active role in the management of their super savings through an SMSF.

    In this context of the continuing growth of the SMSF sector and the prominence of SMSFs in the overall super system it doesn’t take too much imagination to understand that the impact of the recent super reforms on the SMSF sector is significant.

    Of course, it’s not only the super system and SMSFs that have been undergoing a period of change. Your own profession, in terms of providing financial advice has also been through a series of reforms in recent times; including new registration requirements with the Tax Practitioners Board, the removal of the accountants’ exemption in relation to the provision of financial advice, and the establishment of the new Financial Advice Standards Board responsible for setting educational and competency standards in the profession.

    Recent data shows there are now some 22,300 financial advisers registered with the Tax Practitioners Board as tax (financial) advisers, which is only slightly fewer than the approximately 25,000 tax agents registered with the board.

    Clearly, in the current environment there’s an acute and heightened focus on superannuation across a number of fronts. This coupled together with the fact that individuals are more cognisant of the need to seek professional advice when making important decisions about their super savings, your role as financial advisers and professionals is more important than ever from an SMSF sector perspective and in the context of the super system more broadly.

    Recognising the importance of financial advisers and finance professionals in the super system, and indeed the tax system, we have heightened focus on working with you to understand how we can more effectively engage with you and how we can enhance and improve the services we provide to financial advisers.

    We know that financial advisers desire greater recognition from the ATO as a key intermediary in the tax and super systems, as well as better access to ATO held data and information about your clients so that you can provide them with the best possible level of service of advice. And we recognise that you are seeking more tailored guidance and access to ATO subject matter experts.

    We know that we have further work to do in this area.

    The ATO is actively exploring and will continue to consult with the financial advice profession about how we can improve these things.

    However, like any positive working relationship, it is not unreasonable to expect that there be reciprocal obligations and expectations. The question that we would expect financial advisers to ask themselves in return is what can we do to support the ATO in its role in the superannuation system?

    The ATO is very much aware that the overwhelming majority of financial advisers and professionals act with the highest level of integrity and professionalism and are dedicated and committed to making a real difference to their clients through supporting them with the very important task of achieving their financial goals.

    However, it only takes a very small number of unscrupulous operators to damage the credibility of the whole profession and when these inappropriate and unprofessional behaviours permeate into the superannuation sector then that ripples through to also dent the trust and confidence in the superannuation system and indeed SMSFs.

    Each of our respective roles in the SMSF sector comes from different perspectives but undoubtedly a common objective for us all is that we want SMSFs to continue to thrive and we want trust and confidence in the integrity of the SMSF brand to remain strong.

    Therefore, we would ask that in supporting us in this goal, that the financial advice sector stand with us in calling out and addressing inappropriate behaviours; whether that be the provision of inappropriate advice, the promotion of aggressive planning schemes, or even more serious matters involving the theft of people’s hard-earned superannuation monies through fraud.

    I will now move on to cover some points about the practical implications of the recent super reforms and what the current changing landscape across the whole system may mean for SMSFs both now and into the future.

    SMSFs in focus

    Obviously, a key focus area for SMSFs over the past 12 months has been on preparing for the implementation of the super changes arising from the 2016 Federal Budget; these largely came into effect on 1 July 2017.

    Although 1 July 2017 has passed, the changes of course still remain a primary area of focus for SMSFs as the consequences of those changes materialise and SMSFs, in conjunction with their advisers, make decisions in the context of the new caps and limits that apply.

    There are naturally a number of different aspects to the recent superannuation changes. Central and pivotal to almost all the changes are the concepts of an individual’s ‘transfer balance cap’ (TBC) and their ‘total super balance’ (TSB).

    As a reminder, the TSB is the sum of all of the accumulation-phase and retirement-phase interests across all of an individual’s super funds. Relevantly, it is measured and determined annually as at 30 June each year based on relevant asset values supporting accumulation-phase and retirement-phase interests at that date.

    Importantly, an individual’s TSB as at 30 June each year has several impacts for them in the context of financial decisions they make in the following financial year. In particular the TSB impacts a person’s available contributions caps, and ability to access several tax offsets in the following financial year. The TSB of SMSF members can also impact the way their fund calculates exempt current pension income (ECPI).

    In contrast to TSB, the TBC is focused solely on an individual’s retirement-phase interests. The TBC limits the amount or value an individual can transfer into the tax-free retirement phase across all their retirement-phase interests.

    There are real consequences if someone exceeds their TBC, which in the 2017-18 financial year is $1.6 million.

    For example, every day that an individual exceeds this cap they are subject to tax on the notional earnings on the excess amount and those notional earnings continue to accrue and compound on a daily basis. That is, the individual’s tax liability arising when they exceed the cap continues to increase until they take action to remove the excess or the ATO issues them with an excess transfer balance determination.

    There is transitional relief available for those individuals who exceed their TBC by $100 thousand dollars or less and who take action to remove that excess by 31 December 2017. In those circumstances there are no consequences for individuals who take that appropriate action to remove the excess before that date.

    However, beyond this transitional relief that’s provided for in legislation and is available until 31 December 2017, it’s important to note that the ATO doesn’t have any discretion in all other cases where a person exceeds their TBC. Therefore, it’s critical that individuals are in a position to monitor their position in relation to their TBC at all times and to take prompt action to remove any excess if they inadvertently exceed the cap.

    The consequences that flow from both an individual’s TSB and the new TBC represent a paradigm shift in terms of the financial decision-making process for individuals in relation to their super and retirement savings.

    From the ATO’s perspective, the post-super reform environment has highlighted three key important issues for SMSFs:

    1. The importance and clear need for SMSF trustees, SMSF members, and their advisers to have access to early guidance and certainty of position from the ATO in its role as regulator and tax administrator of SMSFs.
    2. The need for individuals to have visibility of and access to up-to-date information about their super interests and account balances across all their super funds so they can make informed decisions based on their particular circumstances.
    3. The importance of individuals being able to make important financial and investment decisions that promote optimal outcomes in terms of their financial future in retirement, with the confidence of knowing that their SMSF is complying with the regulatory and taxation rules and knowing that they are not at risk of overstepping the line into unlawful retirement planning arrangements.

    Early guidance and certainty

    In terms of the journey of implementation since the super reforms that arose from the 2016 Federal Budget announcements were enacted in November 2016, the ATO’s focus has been to engage early with the SMSF sector and the broader super sector to provide practical guidance and support and put in place some transitional arrangements.

    We deliberately adopted a staged approach to our guidance and messaging in the lead up to 1 July, emphasising early engagement; providing as much certainty as possible on the Commissioner’s approach to the various aspects of the changes and seeking to recognise that there were transitional matters that needed to be addressed.

    The superannuation reforms required some changes in approach for the ATO also.

    A key change in approach for the ATO was the very intentional step that we took to issue early guidance about the super changes almost immediately after they were enacted in the form of Law Companion Guidelines. We recognised that the relatively short period of time between enactment of the changes and their implementation on 1 July 2017, meant that past practices (which often meant we took many months to provide public guidance about newly enacted legislation) simply would not do.

    This very early and more general guidance was then complemented by more specific information through the publication on our website of a series of guidance notes and frequently asked questions.

    One of the key practical initiatives we undertook to assist with practical implementation of the super changes in the SMSF sector was to provide a practical compliance approach in relation to commutations of income streams by SMSF members in the lead up to 1 July so that they could be in the best possible position to ensure they didn’t exceed the $1.6 million TBC when it came into effect.

    We recognised that current administrative practices in the SMSF sector meant SMSFs would not have certainty about asset values and their members’ precise position in relation to the TBC by 1 July 2017. Therefore, through a Practical Compliance Guideline 2017/5 we allowed SMSF members to instruct their fund that they wished to commute any amount they were in excess of the $1.6 TBC; with the exact amount of that commutation to be worked out by the trustee at a later time when relevant asset valuations had been obtained.

    Then as we got closer to 1 July, we were very mindful this was a crucial time in terms of individuals needing to make important decisions relevant to their own particular circumstances ahead of the super reforms coming into effect - which is a convenient segue to a another key matter of importance: individuals being able to access and see information about their super interests and account balances.

    Timely and up-to-date visibility of information about super interests and account balances

    Before 1 July 2017, the ATO communicated directly with those who, based on information we held about their super interests at the time, may have been impacted in the near future by the changes. This included those who were:

    • making non-concessional contributions and were in a bring-forward arrangement
    • approaching or may have exceeded the $1.6 million TBC
    • making concessional contributions over $25,000
    • approaching or may have exceeded the $1.6 million TSB.

    We considered it was important to notify those individuals so they were in a position to further consider their circumstances and avoid any possible unforeseen circumstances when the changes came into effect on 1 July.

    Moreover, in a move to further enhance visibility of information and to facilitate informed decision making, from 1 July 2017 we have continued to provide services that allow individuals to access their TSB based on ATO-held information.

    In fact today, via ATO online within MyGov, individuals can view details of all their super accounts reported to the ATO. The information available through this service includes:

    • account balance and insurance indicators
    • TSB
    • status of bring-forward arrangements relating to non-concessional contributions
    • ATO-held super
    • the ability for individuals to consolidate super accounts.

    As already highlighted, the ATO considers it important to make this information and these services available to ensure people can put themselves in the best position possible, with the support of their advisers, to make informed financial decisions in light of the new caps and limits that apply in the post-super reform environment.

    Of course, we also recognise the need to ensure the provision of this information is timely and as up-to-date as possible. However, one of the challenges we face, particularly in the SMSF sector, is the ‘time lag’ inherent in current annual reporting arrangements.

    Under current reporting arrangements, SMSF account balances, including those in pension phase, are reported annually through the SMSF annual return and for many SMSFs this does not occur until some 10 or 11 months after the end of the financial year. Similarly, currently, members of large super funds and the ATO only receive information about their accounts once a year through the member contribution statements (MCS).

    In the post-super reform environment, it’s clear that static annual reporting of member account information is not conducive to the need for individuals to have up-to-date and timely information about all their super interests in order to make informed decisions and manage their position in relation to the new TBC and TSB in real time when important life events actually occur.

    The risk of individuals not having more timely information about their super interests is not insignificant.

    For example, if an SMSF member inadvertently exceeds their TBC but doesn’t know they’ve done so until some 10 or 11 months after the end of the financial year they will have been continuously accruing an increasing excess transfer balance tax liability for that entire time.

    Just because they don’t hear from the ATO or receive an excess transfer balance tax determination from the ATO doesn’t mean they don’t have an issue. We don’t know someone has exceeded their TBC until the relevant account information is reported to us by the individual’s fund.

    Similarly, if an SMSF member doesn’t know their TSB at the end of the financial year until some 10 to 11 months later, they’re not in a position to confidently make non-concessional contributions without some uncertainty as to whether or not those contributions may exceed their cap.

    Once again, the ATO won’t have access to the relevant data to warn the person they may be at risk of or have exceeded their non-concessional contributions cap.

    In recognition of the need for individuals to have access to more timely information about their position in relation to the new TBC, we’ve been working with the APRA-regulated fund sector to implement more timely reporting of contributions and events impacting members’ transfer balance caps.

    From mid-December all large APRA-regulated super funds will be reporting events impacting members’ transfer balance accounts on an events basis through what is known as the transfer balance account report (TBAR); with relevant events being reported 10 business days after the end of the month in which they occur.

    From 1 July 2018, APRA fund reporting will also move to include the reporting of contributions, including super guarantee (SG) contributions received from employers, on an events basis. In addition, APRA funds will also report information about a person’s TSB including the accumulation- and retirement-phase values of an individual’s super interests on a timelier basis.

    From 1 July 2018, APRA funds will report contributions, TBC events and TSB information through what is known as the member account transaction service (MATS). This will largely allow for relevant information and amounts to be automatically reported through the use of digital technology underpinned by the existing SuperStream infrastructure that has been progressively been implemented in the large fund sector over the past five years or so.

    This more detailed and timely information provided by APRA-regulated funds will remove the current gaps in information and data that exist under annual member contribution statement reporting arrangements and allow the ATO to display real time information about amounts paid to a member’s account as well as information about their position in relation to the TBC.

    In essence, these new digital services will provide APRA fund members with a range of benefits including up-to-date data and information to facilitate more informed decision making by them or on their behalf.

    The enhanced visibility of timely data arising from these digital services will also allow the ATO the opportunity to actively nudge and warn those members who are closing in on the various caps that apply in the post-reform environment; as well as allowing us to readily identify and take timelier action in instances where employers don’t meet their obligations to pay individuals’ SG entitlements.

    Whilst these reporting changes for APRA-regulated funds through the use of technology and automation will provide clear benefits for APRA fund members, the question that naturally arises is: ‘what about SMSF members’? How will they access the up to date real time information they also need to make informed decisions in the post-super reform environment?

    SMSF event-based reporting

    In terms of the use of technology that would facilitate more streamlined and automated reporting and recording of member account information by the SMSF sector, allowing for timelier access and visibility of member account information by SMSF members, the SMSF sector is undoubtedly some way behind the APRA-fund sector.

    In many ways this is understandable. SMSFs have not been on the same journey as APRA funds over the past five years in terms of the implementation of SuperStream and the attendant benefits that particular initiative has provided to APRA funds in terms of streamlining and increasing efficiency through the removal of various manual administrative processes.

    Of course there are also varying levels of sophistication that exist in the SMSF sector, with some SMSFs already having fully embraced technology in terms of full automated software and administrative solutions, while others use more traditional, often manual, methods of record keeping and administration.

    With this in mind, we recognise there needs to be a sensible transition towards timelier events-based reporting by SMSFs; and it’s certainly not a short-term proposition. In this regard we’ve been working with the SMSF industry to identify the best way to progressively move it to more timely reporting.

    In the first instance we’ve been focused on the reporting of events impacting SMSF members’ transfer balance accounts.

    For this reason, on 22 August 2017, we issued for comment a position paper about how SMSFs might report under the new TBC measures in the 2017-18 year and onward, under an event-based reporting arrangement.

    The concept of event-based reporting for SMSFs under the new transfer balance cap is built on the notion that affected funds report only when a reportable event occurs. It is not and was never intended to require SMSFs to report a nil event.

    So, for TBC purposes, reporting will only be required if a member has a TBC debit or credit.

    Pension payments and investment earnings, gains and losses are not events that impact a person’s transfer balance account and don’t need to be reported under these arrangements.

    Indeed our analysis indicated that in a number of cases many SMSF members will only have one transfer balance cap debit or credit in the life of their fund – such as when the first commence receiving an income stream from their SMSF.

    Nevertheless, the feedback we received in response to our position paper issued in August highlighted concerns about the effort and costs that may be associated with the then proposed approach that all SMSFs would report transfer balance cap events closer to the time they occurred; including those members who had lower balances and were perhaps at a much lower risk of ever exceeding the $1.6 million transfer balance cap.

    We carefully considered these concerns and the feedback that we received in response to our position paper and on 9 November 2017 we announced our finalised position about how SMSFs will report for the purposes of the new transfer balance cap.

    Having regard for the need to sensibly balance administrative ease and efficiency with the increased need for visibility and transparency of data across the whole superannuation system, we announced that only those SMSFs with one member or more with a total superannuation balance greater than $1 million will be required to report members’ transfer balance cap events closer to the time that they occur, if and when they occur.

    All SMSFs will be required to start reporting members’ transfer balance cap events from 1 July 2018. Those funds who have one or more members with a total superannuation balance greater than $1 million will be required to report such events no later than 28 days after the end of the quarter in which they occur. All other funds will be able to report relevant events annually in accordance with existing SMSF annual return lodgement timeframes.

    As part of normal ATO practice, we will continue to evaluate benefits and risks of this approach to SMSF event-based reporting and as always any future proposed changes to these arrangements would be the subject of community consultation.

    We consider that this approach to SMSF event-based reporting appropriately balances the risk of an individual unknowingly and inadvertently exceeding their transfer balance cap with the need to not overburden the SMSF sector with administrative and reporting processes.

    However, in the flavour of the theme of your national conference here today about “embracing change”, there is arguably a question for the SMSF sector to address in the very near future. That question being, how prepared is the SMSF sector to embrace change, automation and technology in the interests of SMSF members? That is, what changes is the SMSF sector willing to embrace so that SMSF members can experience the benefits of full visibility of data and information about their superannuation accounts on a real time basis. APRA fund members will be able to experience this in the near future.

    Member visibility is an important goal for the entire superannuation industry to work towards to enable and facilitate more informed member decisions as they pursue their financial goals for retirement?

    While it is not for the ATO to be part of the emerging public debate on such matters, considering the broader shifts in the superannuation system environment including the benefits of greater automation and administrative efficiency of SuperStream together with the emerging technology such as new payment platforms to E-invoicing to block chain, as well as the imminent introduction of Single Touch Payroll, the shape of the advice, super and financial sectors will arguably need to continue to reform itself or perhaps face the prospect of being reformed by others.

    With this in mind it arguably appears that now is the time for the SMSF sector to confront head-on the question about how it might reform itself to ensure that SMSF members are in an optimal position when making financial decisions and, importantly, to ensure that the credibility of the SMSF sector as a major component of the overall superannuation system is maintained.

    In this vein, the ATO is continuing to engage with the sector to identify longer term opportunities for the SMSF sector to become further integrated into the broader superannuation system.

    I do want to make it clear that in supporting the SMSF sector to identify opportunities to move towards this longer term objective, we are not trying to equate SMSFs with APRA funds. There are of course clear points of distinction between the respective products; each offering their own benefits depending upon the circumstances and desires of the individual members.

    I also want to re-iterate that any future proposed changes to SMSF reporting or administrative arrangements would be the subject of community consultation.

    However, ultimately regardless of the structure that an individual uses to save for their retirement, whether it is an SMSF or an APRA fund, we do believe the experience should be the same in terms of accessibility of timely information about their superannuation interests

    From the ATO’s perspective as the regulator of SMSFs, we consider that automated approaches that create opportunities for SMSF members to be better engaged, better supported and better informed is in all of our interests.

    Specifically such initiatives have the real potential to compliment the ATO’s overriding desire to prevent and not just detect breaches of the law but to rather encourage willing participation in the first place; as well as, importantly, enabling financial advisers and professionals to better support your clients when they are making important retirement investment decisions.

    Emerging behaviours in the new landscape

    The next matter that I will cover today relates to the importance of SMSF trustees having access to professional advice and clear information and guidance from the ATO to ensure that key investment and financial decisions comply with the superannuation regulatory and tax rules.

    Our number one piece of advice for SMSF trustees and SMSF members when considering key investment and financial decisions in relation to their superannuation savings is that if something seems too good to be true then it probably is and, relevantly and importantly, they should always seek advice from a reputable adviser before committing to any new SMSF investment or arrangement.

    We also consider that it is vital in our role as the regulator of SMSFs to ensure that we provide early warnings and advice about particular arrangements that we consider present significant risks from both a regulatory or income tax perspective.

    Our approach and preference to provide early preventative advice about arrangements that concern us is vital to ensure that people are prepared and informed before making important decisions about their SMSF investments; and to ensure that professional advisers have access to relevant information and guidance to assist their clients to make appropriate decisions.

    Even if SMSF trustees or members accidentally become involved in an arrangement that is unlawful the consequences can be dramatic. In addition to exposing the SMSF and its members to higher rates of income tax and associated penalties, they also present potential regulatory consequences which can include the disqualification of individuals from being an SMSF trustee and therefore resulting in them losing the ability to manage their own retirement savings. In the most severe cases, involvement in unlawful arrangements can result in a fund being made non–complying which effectively results in the fund losing half the value of its assets.

    I want to affirm that there is nothing to suggest that there is widespread use of unlawful planning arrangements in the SMSF sector.

    However, we do recognise that to the ill-informed some arrangements may, on the surface, appear attractive because they promise to deliver a reduced tax bill or to help people stay under the various caps and limits that apply, but the consequences are significant if they are in breach of superannuation and tax laws.

    For this reason, just last week we announced an update to our Super Scheme Smart program to warn people about three emerging arrangements that we are concerned about.

    We have previously raised concerns about dividend stripping arrangements and contrived arrangements involving diversion of personal services income to an SMSF. The additional arrangements that we brought to people’s attention last week, include:

    • Artificial arrangements involving SMSFs and related-party property development ventures.
    • Arrangements where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.
    • Arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF. This results in the rental income from the property being diverted to the SMSF and taxed at lower rates whilst the individual or related entity retains legal ownership of the property.

    I do want to emphasise that these arrangements are not specifically related to recent superannuation changes. However, recognising the current focus on superannuation and the fact that people are considering how they might maximise outcomes from their investment decisions in light of the new caps and limits that apply under the super changes we were mindful of the need to provide people with a timely warning about these arrangements.

    In terms of the first of these arrangements involving SMSF investment in related party property development ventures it is relevant to note that there is no specific prohibition against SMFS investment in property development and it is not the property development aspect that concerns us per se.

    Rather what concerns us are arrangements that seek to put complex and artificial structures around an existing or new property development enterprise being carried on individuals or related entities, often involving a series of interposed unit trusts, with the income from the property development being distributed to their SMSF where it is taxed at a lower rate. These arrangements not only raise concerns from a taxation perspective but also raise significant risks from a regulatory point of view in terms of the sole purpose test and related party rules.

    The second arrangement we warned people last week through Super Scheme Smart is arrangements where people deliberately contribute an amount beyond their non-concessional contributions cap in order to manipulate the taxable and non-taxable components of their superannuation balance when they withdraw the excess.

    We are concerned that there does not appear to be any explicable reason why someone would deliberately exceed their contributions caps other than to create an opportunity to reduce the tax payable when benefits are ultimately paid from the fund as result of the re-proportioning of the taxable and non-taxable components of a member’s account balance upon withdrawal of the excess amount.

    The third arrangement addressed in our recent update to Super Scheme Smart is concerned with arrangements where an SMSF acquires a legal life interest in business real property as opposed to obtaining full ownership of the property. The SMSFs interest in the property ceases upon the death of a nominated individual.

    In other words the SMSFs interest is transient, uncertain and the SMSF does not enjoy the benefits of full ownership of the property and the returns are uncertain because they are contingent upon the term of a specified person’s life span which is unpredictable. However, whilst the SMSF’s life interest prevails it is entitled to the rental income where it is taxed at a lower rate.

    We are concerned that these arrangements inappropriately seek to divert rental income to the lower taxed environment of the SMSF in an uncommercial and artificial manner.

    Often these types of arrangements that I have just highlighted might appear attractive to SMSF members and individuals who are approaching retirement. Often people hear about these types of arrangements from family or friends and on the surface they might seem like a good idea.

    Financial advisers provide a vital role in supporting us to ensure that people don’t put their retirement savings at risk through inadvertently becoming involved in one of these arrangements.

    Our Super Scheme Smart materials can be accessed via the ATO’s website and I encourage you to have a look at these materials if you have not already done so.

    The materials not only provide illustrative case studies that explain in a straight forward manner the nature of the arrangements we are concerned about, but also provide material specifically targeted to support advisers to know what to look out for when advising your clients as well as providing practical advice about how you can assist your clients if they have inadvertently become involved in an unlawful planning arrangement.

    Key points of consideration for SMSFs the coming months

    As a final note today I will highlight some key decisions and points that SMSFs will need to consider in the coming months.

    The first key decision that many SMSFs will need to make in the coming months if their members were impacted by the new transfer balance cap or changes to the taxation treatment of Transition to Retirement Income Streams is whether or not they wish to use the transitional capital gains tax relief that is available.

    If SMSFs wish to avail themselves of the available relief and they are eligible to do so they must elect to do so in the CGT schedule accompanying the fund’s 2017 SMSF Annual Return. Importantly, this election is irrevocable and must be made no later than the due date of the fund’s 2017 SMSF Annual Return.

    To reaffirm, it has been said that this CGT election needed to be made before 30 June 2017. This is not the case. Provided that the election is made by the due date of the fund’ 2017 SMSF Annual Return, SMSF trustees still have time to determine whether or not they wish to avail themselves of CGT relief.

    Further, we have also heard it said that an SMSF’s application for CGT relief will be linked with their transfer balance cap reporting. This also is not the case. As a transitional measure, we simply require SMSFs to report whether they are electing to avail themselves of CGT relief and, depending on the method they are using, the total amount of any deferred CGT that has arisen from applying relief. There is no intention to incorporate CGT relief reporting into broader ATO systems.

    It is up to the fund to keep the individual records in relation to each asset to which CGT relief has been applied, what the reset cost bases are, and the amount of any deferred gains for each individual asset.

    Secondly, those SMSFs who have members who took advantage to the practical compliance approach to commutations prior to 1 July 2017 by requesting that any amount they were in excess of the $1.6 million transfer balance cap be commuted prior to 1 July must ensure that relevant asset valuations are undertaken and the precise amounts of those commutations are calculated and recorded in the fund’s 2017 financial statements before the due date of their SMSF Annual Return.

    Finally, all SMSFs must ensure that the assets in their fund are appropriately valued and relevant valuations are supported by objective evidence and data.

    Asset valuations have been a key element of the SMSF regulatory and tax landscape for quite some time now. It is relevant to note that the superannuation reforms do not introduce any new rules or special requirements in relation to SMSF asset valuations; the ATO’s SMSF asset valuation guidelines still apply and can be relied upon.

    However, the new transfer balance cap and the consequences that flow from the total superannuation balance measure do mean that there are now additional consequences that flow from SMSF asset valuations.

    Appropriate asset valuations are crucial to ensure that SMSF members have an accurate picture of their position in relation to the transfer balance cap and their total superannuation balance when making key decisions about starting a pension or making contributions to their fund.

    As a reminder, the 31 December closing date for transitional relief for individuals who have exceeded the transfer balance cap by $100 thousand or less is fast approaching. Up to date SMSF asset valuations will be important for those SMSFs members who may be in a position to avail themselves of this relief.

    Similarly, for individuals who may have inadvertently exceeded the transfer balance cap by a greater amount, the sooner their fund has up to date asset valuations undertaken that provides an accurate picture of the amount of any excess, the SMSF member is able to take action to remove the excess and stop the clock on the excess transfer balance tax liability that they will otherwise be continuing to accrue.


    Whilst much of the emphasis about what I have spoken about today has been on the superannuation reforms announced in the 2016 Federal Budget, there have also more recently some further reforms that will impact SMFSs in either the immediate or longer term.

    In the 2017 Federal Budget the Government announced further reforms to superannuation primarily to assist housing affordability through the proposed first home super saver scheme and the ‘downsizer’ contribution measure that is proposed to take effect this financial year.

    Whilst these measures are not yet law, the ATO is progressing to have systems ready to make payments to first home buyers and to accept reporting of downsizer contributions from 1 July 2018.

    Subject to the legislation’s passage through Parliament, we will begin broader consultation and user testing for individuals aged over 65, as well as prospective first home buyers.

    Of course, going forward we will work in close collaboration with industry to develop appropriate administrative designs and processes for each of these measures. And early engagement and guidance will be key part of our approach to providing certainty to individuals and their professional advisers.

    In terms of the future policy in the superannuation sector, a potential influencer is any reform recommendations that may arise from the Productivity Commission Inquiry into the superannuation sector.

    Regardless of what the future holds, I can confirm that the ATO will remain to seek to operate in ways to support the SMSF sector and indeed the superannuation industry more broadly and, and importantly, advisers in the important task we all have, which makes a real difference to people and their future retirement plans.

      Last modified: 21 Dec 2017QC 54137