From 1 July 2016, accountants who wish to continue to provide clients with advice on SMSFs require an Aus-tralian Financial Services Licence (AFSL).
At Brentnalls SA, we have a separate entity, Brentnalls SA Advisors Pty Ltd, which obtained a full AFSL in 2004, which allows us to continue to provide advice to you in relation to your SMSF.
The SMSF advice we provide is now regulated by the Australian Securities and Investments Commission (ASIC) which provides us with a framework for how to provide this advice to clients.
From 1 July, the advice we provide to you will be documented in a formal statement of advice along with providing you a Financial Services Guide.
The decision made by voters in the United Kingdom (UK) last month to leave the European Union (EU) – known as "Brexit" – had an immediate and momentous impact on financial markets across the globe. The UK leaving the EU is one of the most significant political events in recent years, and has implications for the UK and European economies as well as the broader global economy.
As widely predicted, "Brexit" increased uncertainty of the UK's economic future and also that for Europe more generally. Financial markets do not like uncertainty and this was reflected in the immediate falls and increased volatility seen in stock markets and currencies around the globe, including Australia's financial markets.
So what does this mean for your SMSF?
In the short term the increased uncertainty and volatility may have had a negative effect on the value of your SMSF's investments. Over the longer term it is more difficult to predict how Brexit will continue to shape financial markets as it is not clear in what way it will affect economies in the future.
As an SMSF trustee, your best defence against this uncertainty is to have a clearly defined, well rounded and long term investment strategy. Not only is your SMSF legally required to have an investment strategy it can be your best friend in guiding your fund through uncertain times.
A key aspect of an investment strategy is to consider the diversification of your SMSF's assets. Diversification of your retirement savings across different assets and regions is a key in protecting your fund from volatile financial markets over the long term.
While it is important to keep track of events that affect financial markets and your superannuation savings, it is important to remember that superannuation is for the long term and that sometimes, short term decisions can do more harm than good. A good investment strategy that keeps us disciplined and focused on the long term is essential.
If you want to take the opportunity to discuss your SMSF investment strategy or your SMSF's strategy more broadly please feel free to give us a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
"Old collectables" and 1 July 2016
The 1 July 2016 deadline has passed for those trustees with "old collectables".
This deadline relates to trustees having to satisfy the "five collectables" rules in respect of collectables which were purchased before 1 July 2011.
Trustees have had to comply with the "five collectables" rules since 1 July 2011 in respect of "new collectables"-those collectables acquired on or after 1 July 2011.
What is a collectable?
There is a detailed list of things which are defined to be collectables set out in the SIS Regulations (13.18AA). The list includes:
- Coins, medallions or bank notes
- Motor vehicles
- Postage stamps or first day covers
- Recreational boats
- Memberships of sporting or social club
- Wine or spirits
What is not a collectable?
Both valuable metal (that is, gold or silver bullion ingots) and gemstones (that is, precious and semi-precious stones and minerals whether in a raw state or polished and cut state) which have no means by which they could be worn or attached to clothing.
What happened on 1 July 2016?
Essentially, collectable and personal-use assets which were acquired by a superannuation fund before 1 July 2011 (collectively called "old collectables") must from 1 July 2016 comply with the following five rules:
Rule 1) A collectable cannot be leased to or used by a related party;
Rule 2) A collectable cannot be stored or displayed in a private residence of a related party;
Rule 3) The decisions of the trustee as to the storage of collectables must be documented in a trustee resolution and kept on file;
Rule 4) Each collectable must be insured in the name of the superannuation fund and the insurance must be effected within seven days of 1 July 2016;
Rule 5) If a collectable is transferred to a related party (whether purchased or applied as an in-specie benefit payment) then the value used for the transaction must be a value provided by a qualified independent valuer.
While these rules were introduced in July 2011, a five-year transitional period was given before the rules applied to collectables which were acquired before July 2011.
This five-year transitional period ended on 1 July 2016.
Can collectables still be acquired?
While collectables can still be acquired their acquisition must satisfy the SIS investment rules-in particular the rule that they cannot be acquired from a related party and once acquired the "five collectables" rules detailed above must be satisfied.
Can collectables be acquired on a geared basis?
Yes-so long as the SIS asset acquisition rules are satisfied (that is, they cannot be acquired from a related party) and the gearing rules are satisfied (that is, the collectable is an individual asset or forms part of a collection).
The start of a new financial year coupled with proposed superannuation changes means it is an especially good time to review your SMSF arrangements and make any changes or updates that are required to ensure your fund is compliant and able to implement any future changes easily.
You, as SMSF members and trustees, should assess whether you can take advantage of current opportunities, such as the generous transition-to-retirement (TTR) rules, which may cease at the end of this financial year.
Any changes that are introduced by the government will be easier to manage and less costly to implement if your SMSF is up to date.
One key point to consider, if you have reached your preservation age*, is whether to start a pension from your SMSF this financial year as the rules could change from 1 July 2017.
Under the current superannuation rules, if you have reached your preservation age you can start a TTR pension and draw up to a maximum of ten per cent of your member account balance for the year, irrespective of whether you continue to work or not.
Below are some reasons why you may wish to commence a TTR pension:
- Gaining partial access to your super without the need to retire
- Reducing your work hours without affecting your net cash flow
- Salary sacrifice more of your pre-tax salary to increase your super while not affecting your net cash flow
- Receive a tax free income stream (if over 60 years old) reducing your overall tax position
If your super fund is already paying pensions to members over 55 who are already retired (not on a TTR), or to members over 60, your fund will continue to receive the tax exemption.
In addition to ensuring your SMSF is maximising super contributions, in your capacity as trustees, you should also review current and future cash flows in the fund.
With the proposed changes to super that would severely restrict the amount of money that can be contributed to super, in particular the $500,000 lifetime non-concessional contributions cap backdated to 1 July 2007, you may need to restructure or change the asset mix of your fund in order to maintain cash flow.
As an example, if you are receiving a TTR pension and you have already reached your $500,000 lifeline non-concessional limit and you do not require the income stream to subsidise your lifestyle, it should be considered as to whether the TTR pension should cease at 30 June 2017 as the tax benefit may no longer be applicable and you may be better off leaving the funds in a tax effective superannuation account (where earnings are taxed at 15%).
Your SMSF must also plan for the $1.6 million pension cap, your SMSF trust deed will need to be reviewed, consider converting to a corporate trustee if you do not already have one, review your death benefit nominations and any collectable investments in your fund to ensure you are compliant.
Due to the significant changes likely to commence from 1 July 2017, the current financial year is shaping up to be a year of transition and change for superannuation planning, therefore, all SMSF trustees should consider seeking specialised advice from our team so you are prepared for whatever changes do take place.
Foreign Resident Capital Gains Withholding Payments Regime
From 1 July 2016 amendments to the Taxation Administration Act 1953 (Cth) ("Act") that impose a stringent new regime requiring purchasers of certain Australian assets to withhold 10% of the purchase price and pay it to the Commissioner of Taxation come into effect.
While the intention of the legislation is to ensure that any foreign resident vendors comply with their obligation to pay Australian tax on the realisation of Australian assets, the practical effect is that all Australian resident vendors will need to comply with the prescribed regime prior to settlement in order to receive the full proceeds at the time of settlement.
The starting position for parties is to determine whether the transaction relates to an asset to which this regime applies.
- What is a relevant asset?
The rules apply to transactions relating to:
- a direct interest in Australian real property;
- an indirect interest in Australian real property, which includes the sale of shares in a company which holds Australian real property where the market value of the Australian real property assets of the company is more than the market value of it's other assets; and
- the grant of an option or right to acquire a direct or indirect interest in Australian real property.
Australian real property includes mining, quarrying or prospecting rights and leases over Australian real property.
We will only address the application of the amendments to the sale of a direct interest in Australian real property.
- What is the value of the relevant asset?
Where the market value of the land is $2 million or more (GST exclusive) then the parties are subject to the new regime.
- Is the CGT asset excluded by section 14-215?
Section 14-215 of the Act excludes some CGT assets including transactions on an approved stock exchange and assets sold from the administration of a bankrupt estate, personal insolvency agreement or scheme under Division 6 of the Bankruptcy Act 1966.
If the transaction involves the sale and purchase of a direct interest in land with a value of $2 million or more then the purchaser needs to ensure that the relevant contractual document permits the purchaser to retain 10% of the purchase price for the land under the contract if required by law to do so.
- When does a purchaser of a land contract withhold?
A purchaser is obligated to withhold 10% of the purchase price if the vendor has not provided to the purchaser before settlement a clearance certificate issued by the Commissioner for a period covering the time that the transaction was entered into and certifying that the vendor was, at that time, not a foreign resident. For this purpose, foreign resident has the same meaning as under the Income Tax Assessment Act 1936 (Cth).
While the intention of the legislation is to place the onus for compliance on the purchaser, practically parties to transactions will find that the onus is on the vendor to obtain and provide to the purchaser a valid Clearance Certificate.
What is the process for obtaining a Clearance Certificate?
The vendor must apply to the ATO for a Clearance Certificate. The portal for making an application for a Clearance Certificate is now live on the ATO website (see website portal link below) and an application can be made at any time before a transaction.
Note that the Certificate is only valid for 12 months and must be valid at the time that the transaction is entered into.
Where a vendor is not entitled to a Clearance Certificate, either the vendor or the purchaser can apply to the ATO for a variation to the amount required to be withheld, for example if the vendor will not have a capital gains tax liability as a result of the sale because the land is being sold at a loss.