My Mother Hen Chartered Accountants

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Poor Ross Tarrant: He Lost Money Too

Mon, 27 Dec 2010 14:00:52 +0000

Tarrants managing director Ross Tarrant has denied responsibility for the lost retirement savings of more than 200 clients who trusted him with their self managed superannuation fund investments. He claims he too is a victim of the alleged fraud suffered by Trio Capital investors. The troubled Wollongong “businessman”, revealed he and his family lost around $500,000 in the superannuation fund collapse. It is alleged that Tarrants received $840,000 in commission payments for referring SMSF clients to Trio Capital products.Mr Tarrant this week said he was under legal constraints which prevented him from commenting on some matters, and I’m sure it will all come out in the courts. Jack Flader and Shawn Richards are under investigation for fraud, but the question remains to be asked of Mr Tarrant: where did he think those commissions were coming from?

Mr Richard has pleaded guilty to two charges of dishonest conduct in the course of carrying on a financial services business. He told the NSW Supreme Court in July that investors’ money was transferred to overseas hedge funds controlled by Hong Kong businessman Jack Flader.

The lesson for investors out there is to beware of generous referral commissions, as it is the hallmark of all the great “too good to be true” investment company collapses of the last 10 years.

Same Sex Couples Get Super Equality

Sat, 25 Dec 2010 14:05:56 +0000

After a much delayed reform to legislation, Australia’s superannuation laws have become ‘gay friendly’.

If you’re in a same-sex relationship, the main areas of superannuation rules have now changed to your advantage. Heterosexual spouses (married or de facto) and same-sex spouses (de facto) are now treated in a similar way when dealing with certain superannuation entitlements.

For superannuation purposes, a ‘spouse’ now means:

a person you are married to (same-sex couples are not able to marry in Australia),
a person who you are in a relationship with and that relationship is registered under a state or territory law, which would apply to same sex Tasmanian couples.
a person living with you in a relationship as a couple (de facto spouse)

There are special rules when it comes to members and their spouses, and you should seek professional advice if you want to set up a self managed super fund with your same-sex partner.

$1 Billion a Year in Wasted Super Fund Fees

Sat, 25 Dec 2010 14:00:37 +0000

AUSTRALIANS are wasting more than $1 billion a year in fees for unused and multiple superannuation funds, the latest annual superannuation projections report by actuary Rice Warner says. According to the report, there are almost 2.5 super funds for every super member. The administration and management fees are draining millions of dollars from retirement savings.
The report also says industry funds are set to overtake all other fund types to dominate the retirement market in the next 15 years, overtaking the popularity of self managed super funds, which are expected to decline.
Overall, however, our retirement savings pool growth continues, with Rice Warner predicting total super assets will almost triple to just under $3 trillion by 2025. If compulsory contributions increase from 9 per cent to 12 per cent, this figure will be even greater.
There are currently 14 million super members but 33 million individual super funds, which produces an average fund balance of just $37,000, the report says.
The SMSF industry is tipped to shrink in popularity and numbers from their current status as the fastest-growing super funds in Australia, accounting for about 32 per cent of all super funds. Rice Warner expects they will plunge to 22 per cent.
Statistics from the ATO show that more than 50 per cent of assets held within the self-managed super fund segment are held in pension phase.
Fewer new self managed superannuation funds, lower contribution caps and “winding-up of plans as the current generation of retirees in these arrangements dies off” will all contribute to the decline in SMSFs.

The Future of SMSF Auditors

Wed, 22 Dec 2010 14:02:09 +0000

Following the Gillard Government’s response to the recent Cooper Review, ASIC will be appointed as the registration body for SMSF auditors. I believe having a central registration body for SMSF auditors is good for the industry, and I think keeping it separate from the ATO is a good move. A formal registration will enhance the integrity of the SMSF audit industry and will encourage auditors to evaluate their own suitability to undertake SMSF audits.

A lot of SMSF service providers will be wondering if they will have to change the way they do business, so the million dollar question is: ‘How did the government respond to Jeremy Cooper’s view on mandatory outsourcing of all SMSF audit services to address auditor independence issues?’

The answer is that the government didn’t specifically address mandatory outsourcing. What it did say was that approved auditors would need to meet independence standards as part of their ongoing registration and directed ASIC to examine existing auditor independence standards that may be applied.

The professional bodies already have stringent independence measures in place for their members, but in practice these are not always adhered to. Some of the old ducks out there have been out of school too long, and may see the SMSF audit process as a bureaucratic hurdle they just need to get past. With the severe penalties (financial and otherwise) in place for fund breaches, the self managed super fund audit could be the most important part of the process. It’s time more attention was paid to the often neglected process.

The Problem With Individual SMSF Trustees

Wed, 22 Dec 2010 14:02:04 +0000

There are more than 400,000 SMSFs out there, and they either have a corporate trustee or individual trustees. Here are three reasons why a corporate trustee is a better option:

When an individual trustee dies, and one trustee remains, then the fund does not have enough trustees. Another trustee needs to be appointed, and sometimes this may not be an option. All trustees must be members and all members must be trustees. if your spouse dies, and your kids have their own fund, who is going to be the other trustee?
Ad Valorem Stamp Duty in NSW is payable when a new individual trustee is appointed (http://www.osr.nsw.gov.au/lib/doc/rulings/rrdut37.pdf) so if the SMSF owns property this can be a problem. The reason for this is that the Land Titles Office does not record ownership of property “on behalf of” and so theoretically, stamp duty could be circumvented if trustees weren’t liable for the entire stamp duty amount. A corporate trustee can appoint and remove directors without causing stamp duty issues.
If you have a corporate trustee, the fund may be able to continue long after the original members have died. In this sense, it is perpetual (with normal trust life limitations) so the fund could be gradually transferred to your children. Of course the transfer of benefits would still be subject to the complex transfer rules.

If you have any questions about the best option for you, call the self managed super funds specialist on (02) 9965 7261 and setup an appointment for a free consultation.

Cooper Review

Fri, 17 Dec 2010 14:02:14 +0000

The Cooper Review into the super fund industry is out, and I’ve finally had time to read it. Her are some of the important recommendations that the Government appear to have accepted.

Most of the changes will take affect 1 July 2012.

The new SMSF registration process will commence 1 July 2014, and will be aimed at stopping illegal access to money held in SMSFs. Proof of identity checks will be required for all memebrs before they join (I’ve been doing this anyway, but it’s about time this because law).
There will be new penalties for illegal early release from 1 July 2012. Criminal and civil sanctions to be introduced for illegal early release scheme promoters and amounts illegally released early will be taxed at the superannuation non-complying tax rate, with an additional penalty that takes into account the individual circumstances.
The ATO to be become more powerful against misbehaving SMSF trustees with new regulatory powers. A sliding scale of administrative penalties to be introduced for less serious cases of non-compliance and will be personally payable by the trustee (not by the SMSF). Self managed super fund trustees will be more accountable to the fund, rather than the other way round.
Rectification orders and mandatory SMSF trustee education will be enforced. The ATO to be given the power to issue trustees with a direction to rectify contraventions within a specified timeframe. The ATO to be given additional powers to force education on trustees where there is non-compliance, particularly in less serious matters.
Special knowledge and competency requirements for SMSF service providers in the financial sector. ASIC will develop a mandatory SMSF specialist knowledge component of the Regulatory Guide 146 program.
ASIC will be the registration body for SMSF approved auditors. It will be ASIC who determines the qualifications and minimum ongoing competency and knowledge standards required for eligibility to be registered as an approved auditor, whilst taking into account existing professional competencies and knowledge standards. The ATO will continue to monitor compliance with the approved auditor standards.
There will be improved independence standards for SMSF approved auditors. ASIC will conduct a review of the current independence standards as part of the assumption of responsibility.
Interestingly, there will be a review of SMSF borrowing in two years’ time. This will cover all superannuation funds across the industry, and whether such arrangements should be permitted to continue.
Introduction of tightened legislative standards for storage of collectibles and personal use assets, which will apply to new investments from 1 July 2011, and existing holdings from 1 July 2016.

There is also recommendation for an increase in the $150 supervisory levy, due to the extra compliance onus on the Government. For more information, visit the stronger super website.

Don’t Die Without A SMSF Will

Wed, 15 Dec 2010 14:05:53 +0000

The Commissioner of Taxation has ruled that binding death benefit nominations will not apply to Family Superannuation Funds, and has also stated that a normal Will cannot deal with a superannuation member’s benefits. Therefore the only safe, secure and certain solution is a SMSF Will created by a legal professional. The SMSF Will allow a member to provide directions to the trustee of their SMSF in relation to the distributions of their superannuation benefits. This would include the distribution of different superannuation interests such as pension and accumulation superannuation interests to various beneficiaries including dependants, non-dependant children, grandchildren and the member’s legal estate.

The SMSF Will also allows the member, where the trustee runs separate investment strategies for a member, to transfer assets of the fund to beneficiaries rather than having to sell and distribute cash.

For more information, call us on (02) 9965 7261.

Planned Overhaul of Superannuation System

Wed, 15 Dec 2010 14:05:49 +0000

The Government will today give the green light to an overhaul of the superannuation system by creating low-cost investment products that require greater disclosure of fees and fund performance, simultaneously streamlining back office functions.

Bill Shorten, the Assistant Treasurer, will announce the government’s response to the Cooper review this morning. The Government have accepted 139 of the Cooper review panel’s 177 recommendations. One of its central proposals, a low-cost ”MySuper” default product, is one of the recommendations accepted.

The government has estimated the reforms will lower costs in the superannuation system by a cumulative $65 billion over the period to 2035, with the savings passed on to fund members in lower fees.

SMSF fees are expected to be cut by approximately 40 per cent over the long term, which should result in an average fund member reaching retirement age with an extra $40,000 in their retirement balance.

Some of the other reforms include strengthening the independence of smsf auditors, and giving the Australian Prudential Regulation Authority new powers to set prudential standards for the superannuation sector.

The Government’s response to the review may result in the most significant structural reforms since the inception of industry superannuation in the 1980s.

Mr Shorten claims that despite Australia having the fourth biggest pool of retirement savings globally, the superannuation sector does not have a single super fund in the top 25 retirement funds internationally, largely because they are being burdened with unnecessary costs through lack of scale and fragmentation.

MySuper product offerings are expected to have lower compliance costs than current products on the market and will have less onerous administrative requirements on trustees.

185 SMSFs Made Non Complying in 2010

Tue, 14 Dec 2010 14:06:00 +0000

The ATO has announced it made 185 self-managed superannuation funds non-complying in the 2010 financial year for serious non-compliance with the super laws.

The main breaches involved super funds providing loans to a related party, illegal early release of super, serious breaches of the in-house asset rules, and refusal to lodge income tax returns.

The ATO acknowledged that most trustees were trying to do the right thing and that in most cases, even when there had been non-compliance, the ATO would still seek to work with trustees to fix the problems.

“While we may work with these trustees to get them back on track, where the breaches are significant we have been imposing serious sanctions such as making the funds non-complying,” an ATO spokesman said.

Meanwhile, SMSFs should not be registered until assets are held by the fund, the ATO said.

For funds other than those established under Commonwealth, state or territory statutes, a super fund comes into existence after the trust deed has been signed and assets, for example a first contribution, have been set aside for the benefit of identified members.

The ATO said it had also made changes to its systems and that from January 2010, the SMSF annual return would not be able to be processed if there were no assets in the fund.

“Trustees of SMSFs which cease to hold any assets must notify the ATO that the fund has been wound up.”

“Only SMSFs which have been wound up and are lodging their final annual return can report ‘zero’ assets,” the ATO spokesman said.