Push for member-to-member sales

The Self Managed Superannuation Members Association (SMSMA) is lobbying the Government to scrap legislation banning selfmanaged super funds (SMSFs) from buying assets from other members.

Section 66 of the Superannuation Industry (Supervision) Act 1993 prohibits a trustee of a regulated super fund from acquiring assets from a related party of the fund, with the exception of listed shares and business property.

The law exists to ensure members and trustees do not collude to transfer assets into super funds at unrealistic prices.

In a submission to Senator Nick Sherry, Minister for Superannuation and Corporate Law, on the Federal Government’s review of taxation and pensions, the SMSMA argues for the removal of the application of Section 66 to SMSFs.

“The prohibition on purchasing assets from members means that members who own residential property cannot transfer their property investments into their SMSFs while owners of commercial or business property can,” the association writes in its submission.

“It is ridiculous to think that a person can sell a property – say, a two-bedroom apartment in a block of 12 identical properties – transfer the cash into their SMSF (subject to contribution limits), and then buy any one of the other 11 units in the complex, provided they are not also owned by a member or relative of a member.

“Clearly, this law results in a bias toward investments that can be transferred into superannuation funds being held in private investment portfolios.”

The SMSMA believes that excluding residential property from the assets eligible to be transferred into SMSFs by a fund member reduces its attractiveness as an investment to implement a lifetime investment strategy.

“Given existing shortages in the stock of affordable residential holdings, this unnecessary ‘negative’ for residential housing needs to be removed,” the submission notes.

Peter Bishell, acting chief executive of the SMSMA, says Section 66 results in some needless restrictions.

“The requirement for super funds to deal at arm’s length is sufficient; there’s no need for an additional ban on transfers,” he says.

According to Bishell, the association’s submission addresses “a couple of micro-issues, things that may well have been put on the backburner as a result of the rather substantial reviews of superannuation that are going on at the moment”.

The association is also lobbying for a provision allowing super benefits paid on the death of a member to be rolled over to the super account of dependents.

Before the introduction of “simpler super”, SMSF trustees could pay death benefits to the children of a deceased member as a pension, regardless of the age of the child.

The recipient could then stop the pension and roll over the balance of the relevant super pension account into an accumulation account.

Under the new system, if a person dies and leaves their super to their adult children, all death benefits must be paid as a lump sum.

“We’re saying it’s entirely appropriate, especially given the Minister’s concern about funding issues, for people to be able to roll over their parents’ super into their own super, rather than having to take it out and maybe not being able to get it back in [as a result of contribution limits],” Bishell says.

In its submission, the SMSMA says the restriction can cause significant problems, including:

• SMSFs with substantial allocations to business property used in a family business may be forced to sell property to pay benefits.

• It may be possible for lump sum recipients to make contributions to enable the property to remain in the SMSF but stamp duty, legal fees and capital gains tax may be difficult to avoid.

• There will be circumstances where assets are transferred or sold within an SMSF to pay death benefits, only to have the same assets transferred back in or re-purchased by the fund when the recipients of the lump sum use the proceeds to make personal contributions back to the same SMSF.

• With increased longevity, super death benefits may be left to persons aged over 65, who are unable to contribute to super.

• The fact that many Australians have insufficient super benefits means that using their parents’ benefits to “top-up” their super is one of the few options available to them to accumulate sufficient funds for retirement.

The SMSMA says allowing the death benefits rollover will overcome all of the problems outlined above, and give recipients of death benefit lump sums the opportunity to add to their super and avoid death benefits taxes.

It suggests limits to the amount that can be rolled over will be necessary to ensure families with large amounts in super cannot abuse death benefit rollovers to achieve tax concessions beyond those necessary to provide a “reasonable retirement income”.