Looming changes in the SMSF sector

Australia's superannuation sector continues to attract a considerable amount of regulatory and legislative change and with the financial year-end fast approaching, it's paramount that taxpayers are aware of any new or upcoming developments.  

The inherent need for Australians to have their superannuation in order not only assists with getting the most out of investment opportunities, it also pays to be across any changes in ensuring consumers aren't unknowingly hit with penalties for not adhering to any new rules in place.

Not only are the superannuation laws subject to change; so too are the penalties applied to any infringements, deliberate or otherwise.  

With an ever-increasing proportion of Australians electing to assume greater control of how their super is invested via a self-managed super fund (SMSF), trustees in particular should be familiarising themselves with new rules set to come into effect  over the next 12 months. 

Businesses also need to be prepared for the changes to their superannuation obligations.  

Upcoming key superannuation amendments relate to the following:  

• Compulsory employer superannuation changes 
• New Centrelink rules   
• ATO penalty regime  
• Contribution cap changes 
• Non-lodgement of SMSFs.  

Introducing SuperStream 

In a move to improve the efficiency of the superannuation system framework, from 1 July 2014 all superannuation funds, including SMSFs, must receive contributions electronically under a government reform known as SuperStream (there is a 12-month deferral for funds receiving contributions from small employers - less than 20 employees). 

The ATO will be focusing on providing support for SMSFs during the introductory period of SuperStream, with SMSFs set to attract benefits including more timely and reliable flow of contributions, improved record keeping for both tax and audit purposes, and a reduction in data and payment errors.   

Changes to pension assessment  

Changes to the assessment of pension entitlements by Centrelink are also scheduled to come into effect, with normal deeming rules applied to superannuation account-based income streams which are currently concessionally assessed.  

Grandfathering rules will apply to all products in place before the 1 January 2015 and will continue to be assessed under existing rules.

All new superannuation pensions, from 1 January 2015, will be affected, and the impact of these changes could be significant on Centrelink entitlements afforded to retirees.  

Increase in red tape 

To protect the retirement incomes of Australians held in SMSFs, the ATO has introduced a new penalty regime with the changes taking effect from 1 July 2014. There will be significant penalties for SMSF trustees who fail to comply with the new rules.

Failure to comply may result in administration penalties of up to $10,200 per trustee, enforced education courses to improve their ability to meet trustee obligations, rectification direction and also civil and criminal penalties for persons who promote illegal early release schemes.  

Opportunity to increase final retirement balance 

With a high proportion of Baby Boomers approaching retirement, many are now contemplating final superannuation balances.

With the right strategy in place, many individuals will be able to have higher retirement balances due to the government announcing that the super contribution caps will increase, effective from 1 July 2014.  

Given the complexities of the rules governing these changes, to make the most of this opportunity, individuals should be having conversations with their advisers.  

Impact of non-lodgement 

It is more important than ever to ensure that a client's SMSF compliance is in order, as the ATO is getting serious about non-lodgement of SMSF information. SMSFs that have two or more returns outstanding will be treated as a 'non-person'.  

This has the potential to have a serious impact on an SMSF, including the ability to receive contributions from employers, rollovers and transfers. It could also mean that they will not be able to borrow for property.  

Preparation is key 

Individuals running SMSFs now control nearly one third of Australia's total superannuation assets and in order to protect this asset pool, the Federal Government will continue to closely monitor activity and change the rules accordingly.  

SMSF advisers should be using this time to ensure clients are sufficiently prepared for the changes to both boost and protect the level of funds they will have on retirement. 

Planning is an important part of this process and could be the difference between capitalising on these key changes or potentially being caught unaware. 

Kathy Evans is principal of superannuation & SMSF at Crowe Horwath. 

Originally published by SMSF Essentials.