SMSF Alert: April 2015

Liam Shorte and Richard Livingston highlight the past month’s key SMSF developments.

Key Points

  • Government releases ‘tax white paper’
  • New court decision shows you must get the legalities of estate planning right
  • Is your SMSF superstream ready?      

The past month has provided a number of important reminders and lessons for SMSF trustees and other super investors. Let’s take a look at recent developments.

Tax white paper

On 30 March 2015 the Treasurer released Re: think(the ‘tax white paper’). The paper doesn’t make any specific suggestions about how superannuation should be treated, but simply raises questions of equity and fairness.

Since then various rumours have been circulated through the mainstream media about various measures the Government has been considering in light of the upcoming Federal budget. We’ve seen suggestions of limiting lump-sum withdrawals, or a re-introducing of a ‘pension tax’ on large account balances.

New taxes are always a possibility, although we expect greater consultation before more meaningful structural change is introduced. But the white paper is another reminder that we can expect things to get tougher for super – especially large account balances – in the future.

Action point: If you’re planning a lump sum withdrawal or re-contribution strategy, it might be better to do it before Budget night if there’s no downside in doing so.

Court decision: Munro and Munro

A recent Queensland Supreme Court decision highlights just how important it is to make sure your SMSF paperwork is done properly, especially when it comes to estate planning matters.

In the Munro and Munro case, a binding death benefit nomination form filled out by the deceased member was held not to be a binding death benefit nomination for the purpose of the fund’s trust deed.

As earlier death benefit nomination forms completed by the deceased were outdated, the invalidity of the last form meant he passed away with no binding instructions on the SMSF trustees. As a result, the remaining trustees were free to act as they saw fit.

There were a number of technical issues considered in the case, but a fundamental problem was that the latest form hadn’t been filled in correctly. The member had written that the trustee was to pay his death benefit to the ‘trustee of (his) deceased estate’.

It is reasonable to assume the member intended for his death benefit to be paid to the executors of his estate, to be dealt with according to his will. However, the form provided clear instructions on how to achieve this – including stating that the death benefit be paid to the member’s ‘personal legal representative’ – and the SMSF’s trust deed required a nomination to be completed in this manner in order to be legally binding. As the form didn’t comply with the trust deed, it wasn’t valid.

The lesson is that, when it comes to SMSF death benefits, your wishes and intensions count for nought (legally speaking). If you pass away, any surviving trustee is free to make their own decisions as to who gets your super balance, unless they’re legal compelled to act through a binding death benefit nomination that complies with the trust deed and super laws.

Action point: Review your estate planning arrangements if you haven’t done so recently. Your fund’s trust deed is the starting point and any instructions you give must comply with it if they’re to be effective. If you want to be confident you’ve got it right, seek legal advice on your overall affairs. Getting your accountant or financial adviser to pull together some paperwork may not be enough.

Superstream data standards

In Superstream data standard: Is your SMSF ready? we explained the new data standards that apply to payments to super funds. Large employers (under transitional provisions announced after that article – see SMSF Alert: May 2014) were given until the end of the current financial year to comply.

If you work for a large employer (those with 20 employees or more) it means you will need to obtain an electronic service address (ESA) for your SMSF by 1 July 2015 if you haven’t already. The register of messaging service providers can be found on the ATO website.

1 July is also the date for small employers to start transitioning over to Superstream. They have until 30 June 2016 to comply. More information on Superstream can be found on the ATO website.

Other recent developments

You may also be interested in the following:

  1. Ioppolo & Hesford v Conti – In an earlier article (Where will your super go on your death?) we discussed the case of Ms Conti, another situation where a deceased member failed to ensure her wishes were legally effective. The decision in that case has now been confirmed on appeal.
     
  2. New deeming rates – From 20 March 2015, the deeming rates for the age pension income test were reduced to 1.75 per cent for the first $48,000 of assets (for singles, or $79,600 for couples) and 3.25 per cent for the excess. Prior to 20 March, these rates were 2 per cent and 3.5 per cent respectively.
     
  3. Loan arrangements that contravene super laws – The Tax Office has advised that it is currently scrutinising loan arrangements being promoted to super investors and believes many will be found to contravene super laws.

Liam and Richard are founders of Eviser.

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