Keeping self managed super fund (SMSF) clients up to date on investment restrictions and rules is an ongoing commitment, according to financial advisory firm Centric Wealth.
Ill-informed SMSF trustees risk breaching tax legislation and breaches being reported to the Australian Taxation Office (ATO).
The most common breaches include SMSFs lending money to members, breaching in-house asset rules, not keeping assets of the fund separate and non-compliance with the fund’s investment strategy.
“SMSFs will continue to be an attractive form of investment vehicle, however, planners need to be competent to recognise the suitability and relevance of establishing an SMSF or winding down an SMSF,” Centric Wealth technical research analyst Virakone Sengchanh said.
“The decision isn’t made lightly and requires careful consideration with the client and other circles of influence – accountants and lawyers.
“On top of the fundamentals, trustees and financial advisers will need to keep abreast of changes that assist in making an SMSF an attractive retirement vehicle.”
Most recently these changes include amendments to residency rules, capital gains tax (CGT) relief available on marriage breakdowns, SMSFs being allowed to invest in instalment warrants and contracts for difference, changes to in-specie contributions and changes to treatment of fund reserves.
Previously under the temporary absence rule, SMSF trustees could be absent for up to two years, but had to return for 28 consecutive days within that period.
The 28-day requirement has been replaced with the rule that the central management and control remains in Australia.
“The implication is if trustees have no intention to return within two years, they should consider appointing an independent trustee or winding up the fund,” Sengchanh said.
In the case of marriage breakdown, tax changes have broadened the CGT relief available.
Previously the rollover relief has been available for CGT assets that are subject to a payment split and transferred out of the fund to another SMSF.
But relief was not available for the CGT assets held in the portion of the member’s interest that was not subject to the payment split.
Under the changes, the CGT exemption is extended to the whole of the member’s interest in the fund.
This allows SMSF trustees to go their separate ways without incurring a CGT liability within the fund.
From July 1, 2007, employer in-specie into an employee’s fund will no longer be subject to fringe benefits tax.
In other changes, the treatment of reserves and allocations has been clarified. The type of reserves will determine their taxation treatment from July 2007 onwards.
