Developments in the self-managed super funds space are frantic, and show no signs of letting up. Tony Negline highlights some of the recent key changes.

Recently, I was asked if many changes have been announced since March 2010 in relation to self-managed super funds (SMSFs). The short answer is – absolutely! The following is the first of two articles briefly detailing some of the changes.

Clearing house rules: Legislation acknowledging that employer contributions to certain authorised clearing houses satisfy compulsory super obligations has passed Parliament. This policy is still not fully implemented.

Trauma insurance inside super: The ATO issued a final self-managed super fund determination, which details how a SMSF might be able to own a trauma insurance policy.

Federal Budget 2010: At least four changes are relevant for SMSFs:

• The Australian Taxation Office (ATO) will be able to detail if a super contribution will be an excess contribution prior to issuing a formal tax assessment for excess contributions.

‘In June the Cooper Review made 18 recommendations to the Government about SMSFs’

• The Government will permanently reduce its co-contribution for eligible non-concessional contributions to 100 per cent of a person’s contribution. The maximum Government co-contribution will remain at $1000.

• Super funds will be permitted a tax deduction for terminal medical condition insurance.

• For capital protected products, the benchmark interest rate will be increased for new contracts entered into after Budget day.

Changes to super gearing laws: Several changes have been made to the super gearing laws with effect from July 7, 2010. The most important changes are that a holding trust can only hold a single acquirable asset (or the same assets with the same value) and that the asset cannot be improved whilst held in the holding trust. In September 2010 the ATO released five interpretative decisions about various super gearing issues.

Enduring Powers of Attorney (EPoA): The ATO released a finalised SMSF ruling on this subject. Some key changes were made about the use of EPoAs, especially if a SMSF has a corporate trustee.

Henry Tax Review: In May 2010, the Government announced four changes when it released the Henry Tax Review. These changes are not officially legislated, so precise details are unknown.

• From July 1, 2012 the Government will refund some of the contributions tax for people with “adjusted taxable income” less than $37,000.

• Also from this date, individuals aged over 50 with less than $500,000 in superannuation will have a concessional contribution threshold of $50,000.

• From July 1, 2013 the Super Guarantee will begin to increase, ultimately reaching 12 per cent in the 2019/20 financial year.

• Also in July 2013, the maximum age for Super Guarantee will increase from 70 to 75.

In June the Cooper Review made 18 recommendations to the Government about SMSFs, which haven’t been officially accepted.

Also in June many superannuation and income tax related thresholds were indexed.

In July we had four changes:

• The Government introduced legislation into Parliament which will permit a super fund to acquire assets from another super fund, and not breach the super law which prohibits super funds from acquiring assets from related parties when a couple are formally separating. This same legislation also contained changes for tax deductibility of permanent disability insurance premiums. This proposed legislation was cancelled because of the election. It has now been reintroduced into the new Parliament.

• The ATO released a document about SMSFs running businesses. After years of rejecting the idea that a self-managed super fund could run a business, the ATO now say that it is technically possible.

• The Tax Office released a document which shows the administrative process it will follow to disqualify an SMSF auditor for poor quality work.

• The Government announced that, due to poor performance in financial markets continuing, in 2010/11 account based pensions would be permitted to pay themselves half their normal annual income amounts.

In March the National Tax Liaison Group (NTLG) Super Technical sub-committee met. Among other things, the following items were discussed:

• 10 per cent assessable income test to work out if a person is eligible for a tax deduction for personal super contributions when leave entitlements are expected to be paid in June but are paid in July of the following financial year. The ATO have said that in their view the leave entitlements will apply to the 10 per cent assessable income test in the financial year in which they are received, even when the entitlements relate to a previous financial year.

• Can a portion of an asset be segregated between non-pension and pension assets? Most SMSFs do not bother with segregating assets between pension and non-pension assets because it can be an administrative hassle. The ATO have said that if segregation is used then an asset can be used in both phases of a super fund.

• Must a death benefit be paid as a single lump sum payment for anti-detriment death benefits? The ATO has long argued that in order for the anti-detriment payment to be payable, the death benefit has to be paid as a single lump sum.

• Binding death benefit nominations (BDBNs) versus reversionary pensions. The question dealt with can be pretty well summarised as, “Who gets access to the loot first?” It’s a really good question and no doubt there would be lots of different opinions in the super industry about the better view.

The ATO made the following comment:

“There are no SIS Act or SISR [that is, the SIS Act’s regulations] provisions that are relevant to determining which nomination an SMSF trustee is to give precedence where a deceased pension member had both a valid reversionary nomination and a valid BDBN in existence at the same time of the member’s death.

“While section 59 of the SIS Act and Regulation 6.17A of the SISR place restrictions on superannuation entity trustees accepting BDBNs from a member, as explained in SMSF Determination SMSFD 2008/3, the Commissioner is of the view that those provisions do not have any application to SMSFs. It must also be remembered that section 59 of the SIS Act and regulation 6.17A of the SISR are necessary because of the general trust law principle that beneficiaries cannot direct trustees in the performance of their trust.

“If the governing rules of a SMSF authorise a death benefit nomination, the trustee must follow the fund’s rules and the general trust law and any other legislation which may be relevant.

“Notwithstanding those observations, the ATO’s view is that a pension that is a genuine reversionary pension, that is, one which under the terms and conditions established at the commencement of the pension reverts to a nominated (or determinable) beneficiary, must be paid to the reversioner. It is only where a trustee may exercise its discretion as to which beneficiary is paid the deceased member’s benefits and/or the form in which the benefits are payable that a death benefit nomination is relevant.”

In my view this is a very clever response. It shows yet again the importance of the wording of a super fund’s trust deed.

It also indirectly shows, yet again, the concern most people should have about relying on general compliance and catch-all clauses to run their super fund in between trust deed upgrades.

In June the NTLG Super Technical sub-committee met again. The following interesting items were discussed:

• Acquisition of assets from related parties. In the ATO’s view, SMSFs are not permitted to acquire in-house assets from members unless those assets are company shares or units in a unit trust.

• Registering changes to trustees. The ATO points out that when a super fund needs to appoint a new trustee then there may need to be a Deed of Appointment given to the respective State or Territory’s Registrar-General (or equivalent). Care should be used in this area. Perhaps it also shows, again, the advantages of using a corporation to act as trustee

• Conversion of the geared unit trust to a non-geared unit trust. The ATO says that it is possible for some geared unit trusts, which were exempt from the in-house assets test, to be successfully converted into a non-geared unit trust and remain exempt from the in-house assets test. Again, care should be exercised here and good advice taken.

It’s funny that most people would have assumed that not much has been happening in the SMSF regulatory world!

Tony Negline is general manager, corporate strategy at SUPERCentral – He is also the author of ‘A How to Book of Self Managed Superannuation Funds’. Details about the book are available at

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