News Archives - Page 6 of 9 - Practical Systems Super

Retirement income worry: Who worries and why?

Jan 21,2020 Comments Off

Most older Australians – 53% – worry they’ll run out of money in retirement, research by National Seniors Australia has found.

The survey also found that women are more worried about outliving their savings, 59% compared to 47% of men.

The research report from National Seniors – titled Retirement income worry: Who worries and why? – suggests several reasons for these differeing levels of concern, including the longer life expectancy of women, along with gender inequality in earnings and expected roles, such as caring. The demographics of the survey sample may also be a factor, with partnered men most represented in the sample, followed by unpartnered women.

National Seniors notes that women are more likely to be relying on the age pension, and to have less than $500,000 in retirement savings – below the ASFA ‘comfortable’ retirement standard.

Having superannuation to draw upon reduced worry, with 39% of people receiving income from super being ‘unconcerned’ compared to 27% of those not receiving any money from super, the survey found. This latter group was also the most likely to worry frequency – 23%.

Analysis found that the “gender effect” on the risk of worrying was “strong” – a 47% increase – but less than the effect of not yet being retired – 68% increase – having under $500,000 in savings – 65% increase – or having the age pension as the main source of income – a 53% increase the in risk of worrying.

“Australia has one of the best pension systems in the world, yet Australian retirees are still showing high levels of worry that they will outlive their savings,” said National Seniors CEO, Professor John McCallum.

“This shows a need for better advice and education to help older Australians manage their savings so they can have the confidence to spend their money and enjoy retirement.”

Jeremy Cooper, Challenger’s Chairman of Retirement Income and formerly Chair of the Super System Review, noted that while women live three years longer than men, on average, the “super system doesn’t cater for this difference in longevity”.

“What this and other National Seniors research clearly highlights is that people treat the age pension and their own savings differently. They fear running out of their own money, even though the safety net of the age pension will be there for them. This sends a strong signal that people worry about being solely reliant on the age pension. It’s therefore important that super funds explore ways of providing more lifetime income to their members.”

The report concludes that “an obvious way to relieve the worry of those in retirement is to stabilise the system which has been under constant change or threat of change for over a decade”.

The research was based on a survey of 3,584 Australians aged over 50.

Source: Sole Purpose Test

SMSF-specific education crucial

Jan 16,2020 Comments Off

Advisers wishing to provide SMSF advice should be required to complete an SMSF-specific qualification, the SMSF Association (SMSFA) has said.

In its budget submission for 2020/21, the SMSFA called out the Financial Adviser Standards and Ethics Authority (FASEA) for failing to recognise specific SMSF education as part of its training requirements for advisers looking to provide SMSF advice.

“It is unfortunate new advisers are able to reach the required FASEA threshold to give financial advice and be able to give SMSF advice without specific SMSF knowledge being part of the required learning outcomes,” the association stated.

“This is problematic given that SMSFs are a specialised retirement savings vehicle and are distinctly different to large superannuation funds.”

FASEA’s current “broad, high-level” approach did not provide advisers with the necessary insight to give advice on complicated SMSF matters, it added.

“This is especially pertinent when SMSF trustees, due to the self-directed nature and complexity of SMSFs, are susceptible to poor financial advice with potentially significant detrimental outcomes to individuals,” it said.

“Complex SMSF limited recourse borrowing arrangements, business real properties and related-party transaction issues are not discussed in any material detail in the current education standards for advisers, but involve significant strategic and compliance issues for SMSF trustees.”

It pointed out that in addition to increasing advisers’ knowledge in terms of complex SMSF legislation, raising the bar for the qualification of SMSF advisers would have the knock-on effect of promoting higher standards among new advisers interested in providing SMSF advice.

“There will be many situations where financial advisers who are licensed to give advice may not have many SMSFs in their portfolio of clients,” it noted.

“An SMSF education licensing requirement to provide SMSF advice in this situation will either force the adviser to complete requirements to advise their SMSF clients or force SMSF members to seek licensed advisers whom deal with SMSFs and the specialist issues involved on a regular basis.”

Source: smsmagazine.com.au

SMSFA calls for phase-out of limited licensing

Jan 10,2020 Comments Off

The SMSF Association has called for the phasing out of the limited licensing system for accountants, saying it forces SMSF clients to pay fees that are significantly out of proportion to the complexity of advice being provided.

SMSFA chief executive John Maroney said the association had called to scrap limited licensing in its 2020 budget submission, as the system was preventing SMSF trustees from getting basic SMSF advice at a reasonable cost.

“If an SMSF trustee wants to seek advice regarding the establishment of a pension from their accountant, unlicensed accountants are unable to provide this simple advice,” Mr Maroney said.

“Licensed advisers can provide this simple advice, but it involves costly documentation disproportionate to the advice sought.”

He added that the SMSFA would be pushing for reform in the advice space that “reduces complexity, improves efficiency and drives harmonisation to better enable the provision of affordable, accessible and quality advice to business[es] and consumers”.

The association’s submission suggests the abolishment of limited licensing in favour of “a new consumer-centric framework that raises advice standards and rectifies the advice gap to allow appropriately qualified SMSF advisers to provide low-cost, simple advice”.

“The desired policy outcomes from introducing limited licensing have not been achieved,” the SMSFA’s submission said.

“Individuals have unmet needs, advisers face high regulatory costs and accountants are strangled by regulation. What we’re proposing is a new consumer-centric advice framework, with improved SMSF advice a critical element of this project.”

In addition, the association’s submission called for advisers to be given access to their clients’ tax information on the ATO’s online services.

“Currently, only registered tax agents (typically accountants) are able to access [the ATO’s] portal to get total superannuation balance and transfer balance cap information that is crucial for SMSF advice,” the SMSFA said.

“Ironically, these individuals are generally not able to provide SMSF advice as they are not licensed with ASIC. Incongruously, those licensed advisers who can provide SMSF advice (such as financial advisers) have no reasonable way of sourcing ATO portal information directly from the ATO as they are not, generally, the member’s personal tax agent.

“The move to open data and increased access to the ATO portal is an essential step for the $750 billion SMSF industry and the only means by which the sector can institute commercially viable operational surveillance to the standard the ATO rightly requires, and we encourage the government to make this an ATO priority project.”

Source: SMSF Adviser

SMSF lifestyle asset breaches under the microscope

Dec 23,2019 Comments Off

The ATO has indicated it will be taking a closer look at lifestyle assets such as marine vessels, fine art and high-value motor vehicles in the new year, identifying possible breaches of the sole purpose test by SMSFs around these assets as an area of focus.

In a statement released on Wednesday, the regulator said it would be investigating SMSFs suspected of acquiring lifestyle assets “purely for the personal enjoyment of the fund’s trustee or beneficiaries”, as part of a wider exercise to match taxpayer data and high-value asset ownership.

The ATO said it would request policy information from 30 insurance companies to ascertain the value of assets owned by around 350,000 taxpayers between the 2016 and 2020 financial years, as part of its efforts to ensure taxpayers were fulfilling their tax and super reporting obligations.

The insurers would be required to provide the ATO with detailed policy information where the value of the asset was equal to or above $100,000 for marine vessels, $65,000 for motor vehicles, $100,000 for fine art, $150,000 for aircraft and $65,000 for thoroughbred horses.

ATO deputy commissioner Deborah Jenkins said knowing who owned such assets helped the agency get a more complete picture about the financial situation of taxpayers compared to what they had reported on their returns.

“If a taxpayer is reporting a taxable income of $70,000 to us but we know they own a $3 million yacht, then this is likely to raise some red flags,” Ms Jenkins said.

“Regardless of your level of wealth, we all need to pay the correct amount of tax, and this data will allow us to ensure those people who can afford these kinds of items are doing the right thing along with everyone else.”

Ms Jenkins clarified that the data would not be used to initiate compliance activity against taxpayers, but to aid the ATO in its investigations against individuals that had already been selected for compliance activities.

“The data is made available to our compliance teams to support their risk profiling of the selected taxpayers,” she said.

“Existence of an insurance policy may or may not prompt the compliance officer to pursue a particular line of inquiry.”

The regulator said it encouraged taxpayers who suspected they had failed to properly comply with their tax or super obligations to speak to their tax agent or make a voluntary disclosure to the ATO.

“Taxpayers who make a voluntary disclosure can generally expect a reduction in the administrative penalties and interest charges that would normally apply,” the ATO said.

Source: SMSF Adviser

Death benefit types affect minimum payments for pensions

Dec 17,2019 Comments Off

When an SMSF member passes away midway through a financial year, the minimum pension payments for that year may not need to be met for the deceased person’s pension, depending on how they have nominated it to be paid out to their beneficiaries, according to Accurium.

Speaking in a recent webinar, Accurium general manager Doug McBirnie said that following the passing of an SMSF member, it was still possible to claim exempt current pension income on the deceased member’s pension for the financial year in which they had passed away despite the fact that the minimum payments may not have been met before they died.

“If it’s non-reversionary, there is no requirement to make a pension payment in that year — the ATO is happy that the ECPI can continue until the death benefits are paid out, as long as they are paid out as soon as practicable,” Mr McBirnie said.

“If the pension is reversionary, the spouse will take the pension, and in that case, if they have withdrawn the minimum pension during the year they can still claim ECPI.”

Accurium technical services manager Melanie Dunn said it was important to note that if the deceased member had opted for their pension to be reversionary on death, the minimum payments still needed to be met for the financial year in which they had passed away.

“The ability to not pay the pension payment is only where the pension is not automatically reversionary,” she said.

“Where it is reversionary, you must pay a minimum payment in the year, and if the client has not made the minimum payment, the income stream would not have met the minimum standards.”

However, Ms Dunn said the death of the member would not affect the amount that needed to be paid out of the pension during the year of the member’s passing.

“It’s based on the same minimum pension payment calculated back at 1 July — it doesn’t need to be pro-rated or anything like that, it’s the same minimum payment calculated on the income stream at the beginning of the year,” she said.

Source: SMSF Adviser

ATO flags Christmas shutdown for SMSF functions

Dec 17,2019 Comments Off

The ATO has advised SMSF professionals that its systems will be unavailable during the period between Christmas and New Year due to planned upgrades.

In a communication on its website, the regulator said that from midday Australian eastern daylight time on 24 December, its systems would progressively become unavailable as it prepared for “major systems upgrades”.

“You should consider what reporting or activities you can lodge with us before the outage period starts,” the ATO said.

“We expect services to be restored from 6.00am AEDT on 2 January 2020.”

Between these dates, it would not be possible to notify the ATO of any changes of SMSF details or check the registration details of an SMSF, the regulator said.

“The electronic superannuation audit tool used to lodge an auditor/actuary contravention report will also be unavailable during this period,” the ATO said.

The announcement follows previous reporting by SMSF Adviser sister title Accountants Daily that noted the ATO was set to undertake its Activity Statement Financial Processing project during the annual Christmas/New Year closure period.

The major system upgrade would see more than 17 million activity statements and franking deficit tax accounts move into the accounting system currently used for income tax.

As such, the ATO advised that all Standard Business Reporting, including the practitioner lodgement service, and ATO online services, including Online Services for Agents, would be unavailable from 24 December to 2 January.

Commenting on the shutdown, ATO assistant commissioner Colin Walker said it would be a good opportunity for practitioners to take a well-deserved break.

Source: SMSF Adviser

Christmas Trading Hours

Dec 16,2019 Comments Off

Merry Christmas from the team at Practical Systems Super

We wish you and your family a joyous and safe Christmas.
Thank you for your wonderful support throughout the year, we look forward to working with you in 2020!

We will be closed from 5:30 pm, Monday 23rd December and reopen at 8:30 am on Thursday 2nd January.

If you have any questions regarding our services, please contact our office via email [email protected] or call the office on 1800 951 855.

Australians not prepared for ‘largest’ transfer in history

Dec 9,2019 Comments Off

Despite being the largest transfer of intergenerational wealth, the vast majority of Australians are not prepared, according to new figures.

Perpetual has revealed that 76 per cent of Australians do not have a current will, while 53 per cent of parents have not discussed their will and legacy with their children.

Perpetual Private’s Andrew Baker, general manager of private clients, believes the majority of parents wish their children would use their inheritance wisely and build for the future, but research shows the opposite is happening.

He conceded, however, that the rising costs of living, slow wage growth and a volatile property market is painting a different picture of wealth today than it was 30 years ago.

“It is estimated that 70 per cent of families will lose their wealth by the second generation and 90 per cent will lose it by the third,” said Mr Baker.

To offset risks of families losing their wealth, Mr Baker advocates for discussions around wills and inheritance be broken down so all parties can be prepared and have a plan in place.

“As humans, we tend to shy away from discussing money amongst our families and friends.”

“However, as we approach the largest intergenerational wealth transfer in history with more than half of Australians expecting to inherit, why have only just over a third discussed their wishes with their children?” Mr Baker said.

The wealth manager believes normalising discussions around money and the future can preserve wealth across generations.

Source: SMSF Adviser

Tax Institute calls for delay to enforcement of NALE rules

Dec 5,2019 Comments Off

The Tax Institute has called for enforcement of changes to non-arm’s length expense (NALE) rules to be delayed until 1 July 2020, suggesting the ATO’s interpretation of the laws should be referred to its General Anti-Avoidance Rules (GAAR) panel as the powers handed to the regulator are too broad.

In a submission to the ATO this week in response to its Draft Law Companion Ruling 2019/D3, which outlines the ATO’s interpretation of the NALE laws, The Tax Institute suggested compliance guidelines released with the ruling, which indicated resources would not be allocated to policing the general expense provisions until the 2021 financial year, should be extended to all SMSFs caught by the changes.

“The PCG should apply across the board to any taxpayers where the ATO seeks to apply the new NALI/NALE provisions for any of the FY2019 and FY2020 periods,” the institute said.

“The Tax Institute rejects the ATO’s position that the PCG be limited so as to apply only in the instance where a general expense taints all the fund’s income.

“We recommend that given the delay in introducing the NALE reforms, the ruling in relation to the NALE measures only take effect from 1 July 2020.”

The institute warned that the ATO’s ruling had “serious ramifications” for many SMSF trustees because of the degree to which “substantial adverse tax implications” could result from small matters, such as an accountant assisting with their own fund’s tax returns, and as such should be reviewed to the GAAR panel before it was applied to any taxpayer.

Tax Institute Superannuation Committee member and DBA Lawyers director Dan Butler said the ruling as it currently stood gave the ATO “very broad power” and could result in affected clients being caught up in costly long-term legal battles to fight excessive assessments from the ATO.

“In some circumstances, it takes years of information gathering and correspondence with the ATO to work through these matters, and it inflicts great costs on the taxpayer to prove that the NALI assessment is excessive,” Mr Butler told SMSF Adviser.

“We don’t like that the legislation has provided the ATO a lot of discretion. There is not much protection for a taxpayer, and to get the system right, there should at least be independent representation given to the ATO’s GAAR panel which then decides whether to pursue a NALI assessment, because of the costs and the consequences that follow.”

Clarification needed around who will be caught

The Tax Institute also suggested in its submission that the ATO provide more specific clarification around which trustees would be caught by the rules, by applying a “de minimis” principle and providing guidance around which activities constituted trustee and non-trustee services.

Mr Butler said the industry would benefit from guidelines about what constituted a “material” expense, which could also reduce the administrative workload required from the ATO to police the laws.

“Why are we talking about expenses at $100? The administrative side of it is too great,” he said.

“We need a guideline from the ATO to say we won’t go looking for bits and pieces, it’s material items. Let’s say an administration service may be $2,000 a year — I would consider that immaterial, so perhaps it should be above $20,000. You need a benchmark where people can say we’re above the limbo bar.”

Equally, while the ruling mentioned the distinction between services performed in a trustee capacity or an individual capacity as a key factor in whether an expense would be considered non-arm’s length, Mr Butler said there needed to be clearer guidance as to what these services were.

“In the ATO’s 2013 NTLG super committee minutes, the example they gave of when something becomes a non-trustee service was a builder, because it’s someone who’s got specific skills and they are adding a lot of material value to the fund,” he said.

“The ATO may say as an adviser you have investment skills, but because the adviser is a trustee and under trust law they have to do the best for the fund, it’s hard to start splitting hairs about what is their role as a trustee and what is their role as a planner.”

Catch-up contributions can release assets from defined benefit pensions

Dec 3,2019 Comments Off

New catch-up contribution rules can be used to assist clients with large amounts of assets locked in to defined benefit pensions, according to Colonial First State (CFS).

Addressing SMSF Adviser’s recent SMSF Summit 2019 in Perth, CFS executive manager Craig Day said the new rules, which allowed fund members to access unused concessional contribution balances up to five years ago, could be used to reduce sometimes large reserves of assets stuck in defined benefit pensions for older clients.

“If the client’s got no other concessional contributions, you can allocate up to the cap, which is currently $25,000, but the interesting thing about the concessional catch-up rules is you get [access to] those rules regardless,” Mr Day said.

“If a client hasn’t worked for 20 years, what level of salary sacrifice and SG contributions has he got? Zero. So, all these clients are accumulating unused concessional cap amounts of $25,000 a year and a client’s concessional cap may be up to $100,000.”

Mr Day said CFS was receiving an increasing number of calls from advisers who were concerned about what to do with clients that were advancing in age and had large amounts of assets locked up in defined benefit pensions.

“If your clients did commence one of these fixed term defined benefit pensions, they could only be one of two types: a lifetime, and the people are dying; or a life expectancy, and you’re getting to the end of the term,” he said.

“The ATO has told us that if the person dies or the term comes to an end, the assets backing that pension don’t belong to that member, they simply fall into a reserve. If you want to get that back to the members, you’ve got to allocate it out of the reserve back to members’ accounts, and if it goes above 5 per cent, you have an amount counting towards the concessional cap.”

Mr Day said for some defined benefit pension types, part of the pension could be commuted into a term allocated pension without counting as a contribution.

“There’s a strategy that simply involves rolling over to commence a complying term allocated pension, and if you do that, the allocation will not count towards the concessional cap, but there are some catches here,” he said.

“If you’ve got one of the non-complying defined benefit pensions or a complying life expectancy, the commutation value is limited — it might give you $100,000, but the amount of assets you’ve got sitting on reserve is $200,000, so you can only allocate $100,000 that doesn’t count towards the caps.

“With the lifetime pensions, there is no commutation and that can make a massive difference.”

Source: SMSF Adviser

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