SMSF regulation – roadblocks or kinks in the road?

Is regulation a roadblock?

It seems as if hardly a week goes by without some form of criticism in the media aimed at SMSFs and their trustees.

Are the powers to be really out to make it hard for people to establish and manage their self-managed superannuation funds (SMSFs) or are we just imagining it?

It seems as if hardly a week goes by without some form of criticism in the media aimed at SMSFs and their trustees, be it calls for minimum fund sizes, investment restrictions, increased taxation, mandating trustee education or some unfair advantage they enjoy over the large APRA-regulated funds.

But is the bias real or perceived? After all, all super funds operate under the same tax and super laws.

There are, however, a few further restrictions creeping in from the periphery to differentiate between funds both large and small.

For example, SMSFs have additional restrictions on holding art and collectables as investments compared to the large APRA regulated funds.

They cannot be used by related parties or stored in a related party’s private residence and must be insured. Any assets that were held before 1 July 2011 not meeting these requirements must be sold before 1 July 2016.
 
SMSFs have to value their assets at market value, which in itself is not a bad thing to be doing. However, it had been proposed that any related party transfers, i.e. in-specie transfers, would have to be conducted through a recognised market. This would have resulted in significant costs and made it next to impossible to sell some more exotic or unwanted assets. Luckily, this requirement was dropped at the last minute from legislation going through Parliament last year.

Then there are the barriers to entry that keep being thrown up. Size is the most common one, with proponents arguing that an SMSF needs to be at least $200,000 to $500,000 in size to be cost-effective compared to the large funds. This completely ignores the fact that cost should never be the sole driver for establishing an SMSF and there are many other legitimate reasons why someone may establish one with a small balance.
"Is the bias real or perceived?"
When an SMSF is first established and registered with the Australian Taxation Office, there can be a delay of a few days before the fund appears on Super Fund Lookup. Other super funds will not transfer rollovers to your SMSF unless it appears on Super Fund Lookup so there may be some delay before you can actually get money into your SMSF when you start it.

Every so often a call for mandatory education for SMSF trustees is made, which would be a significant barrier to entry. A whimsical notion when you consider the range of experience and knowledge across the spectrum of trustees. From very experienced self-directed investors to complete novices, a one-sizefits-all requirement would be a waste of time for some and too hard for others, not to mention the level of support trustees may get from their advisers and service providers.

Then there’s added regulatory burden impacting on SMSFs.

From 1 July 2014 large employers can pay super contributions electronically and must do so by 1 July 2015. This means SMSFs receiving these contributions must have an electronic service address (ESA) to do so. This means additional costs to obtain an ESA from an ESA provider.

Michael Davison is CPA Australia's senior policy adviser - superannuation

April 2020
April 2020

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