A guide to upcoming changes to SMSF rules

In light of the new rules coming into force on 1 July, David Court provides a list of the changes and a reminder of one that will not be happening.  

A number of new rules affecting self-managed superannuation funds (SMSFs) will either come into force from 1 July 2013 or have been announced to take effect from that date.   

In order to keep ahead of the game a list of these changes – and a reminder of one change that will not be happening – are set out below.

Please note that some of these changes have not yet been formally enacted and may not proceed either in the form set out below or at all. 

Changes in their first year of operation

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New regulations applicable to SMSFs in the following areas came into force in August 2012.  

Being new, it makes sense for SMSF trustees and advisers to give particular attention to complying with these obligations in the period leading up to the end of this financial year: 

• An SMSF trustee must consider whether the fund should hold insurance cover for one or more members of the fund.   
• In addition to the existing requirements to formulate and give effect to an investment strategy SMSF trustees must now “review regularly” that strategy.   
• The existing obligation for SMSF trustees to keep the assets of the fund separate from personal assets is now also a prescribed operating standard, so that a breach is now an offence and can lead to the loss of complying fund status (or one of the new penalties described below). 

Asset valuations

In the financial accounts for the 2012-13 and future financial years, SMSF assets must be valued at “market value” (rather than historical value).

The new rule will require SMSF trustees to determine the market value of the fund’s assets as at 30 June 2013. 

While doing so should be relatively easy in relation to investments having a ready market (such as securities), it could pose difficulties in valuing personal-use assets or real property, and professional valuations might need to be obtained. 

New ATO penalty regime  

The new SMSF penalty regime is due to commence on 1 July 2013. It will allow the Australian Taxation Office (ATO) to impose rectification directions, education directions or administrative penalties on SMSF trustees that breach the SIS legislation – in addition to the pre-existing ability to make the fund non-complying. 

This will result in much more “lower level” enforcement action being taken against SMSF trustees that breach the rules. 

Professional licensing  

New licensing rules are due to take effect from 1 July 2013 for the following professions: 

• SMSF auditors will need to become registered (and new audit report timing rules will also apply); 
• Accountants providing financial advice in relation to SMSFs will need to determine whether to obtain the proposed “limited” Australian financial services licence (AFSL), obtain a “full” AFSL or cease providing financial advice in relation to SMSFs. 
• Financial advisers providing tax advice will need to meet the applicable requirements of the Tax Agents Services legislation. 

Special transitional rules for professionals presently practising in these areas will apply in all cases. 

Superannuation Guarantee 

The superannuation guarantee contribution rate is due to increase in stages from 9 per cent to 12 per cent by 2019. The first 0.25 per cent increase will apply from 1 July 2013. 

Taxation changes 

A number of changes to the taxation of superannuation are due to apply from 1 July 2013: 

• Unlawful payments received from superannuation funds (eg, illegal early release payments) will be taxed at 45 per cent rather than the marginal tax rate of the recipient. 
• The additional contribution tax for high income earners (those earning more than $300,000) is due to commence. 
• The concessional contribution tax refund for low income earners is also due to commence. 
• The minimum payment percentages for account-based pensions and annuity payments will increase from 1 July 2013.

Banning of off-market transfers 

This change will ban off-market transfers of assets by SMSF trustees. Draft legislation has been released for consultation and it is likely that the new rules will now apply from 1 July 2013.  

Essentially, assets will need to be acquired or disposed of through an exchange (if a listed asset) or at an independent valuation for other assets.  

SMSF supervisory levy 

The Government has announced various changes to the amount and the timing of the payment of this levy.

There is a transitional period for moving to the new arrangements and SMSF trustees and advisers should take care to ensure that the right amount is paid at the right time. 

And one change that is not happening

Indexing of the contribution cap thresholds for excess contributions tax usually occurs annually. However, the Government has removed indexation until the 2014-2015 financial year, so that the concessional cap will remain at $25,000 (with the non-concessional cap being $150,000) for this financial year and the next.   SMSF

David Court is a lawyer at Holley Nethercote Commercial and Financial Services Lawyers.