ATO considers non-compliance notices for lapsed lodgers

The ATO may consider further action to spur on SMSF trustees to lodge their annual returns on time, including making funds non-complying where after repeated attempts to contact them they do not actively engage with the regulator around any problems preventing them from lodging.

Speaking at SMSF Adviser’s SMSF Summit 2019 in Brisbane on Tuesday, ATO assistant commissioner Dana Fleming said the regulator had written to all SMSFs who had failed to lodge a return for the first time and would take more serious steps if these funds did not engage with the ATO to rectify the situation.

“We have explained to them that by not lodging their return, their compliance status is at risk, and advising them of our early engagement and voluntary disclosure service, and to come forward if there’s a problem,” Ms Fleming said.

“If there is no response, we will consider writing to them and making them non-complying, and we are hoping that is a way for us to get them to engage.”

Ms Fleming pointed out that the non-complying status would not be permanent and would hopefully act as a more serious impetus for affected trustees to lodge their returns on time. If they subsequently engage and lodge, the notice of non-compliance would be immediately revoked.

“If we issue a notice of non-compliance, it only applies to the year in which you are made non-complying, so it would enable the person to come forward and rectify that situation before the next return is due,” she said.

Ms Fleming said “lapsed lodgers”, or those that had fallen behind after initially lodging their annual returns on time, made up over 10 per cent of the SMSF population, totaling 71,000 funds.

“They represent $44 billion of super according to their last return lodged, that we don’t know what is happening with,” she said.

She added that the reasons for lapsed lodgement commonly included the trustee encountering a “regulatory hurdle” by realising they had made a compliance breach and not being sure what to do next, or the more active member of the SMSF having passed away.

“We had one case where the trustee didn’t even know they had an SMSF, so it’s important to emphasise that all trustees are engaged with their SMSF, not just one,” Ms Fleming said.

Source: SMSF Advsier

Downsizer contributions offer more than meets the eye

Retiree clients looking to sell their property can often contribute more to their SMSF than expected through the government’s recently introduced downsizer contribution rules, due to the flexibility to split contributions between spouses and use them in conjunction with other contribution rules, according to Fitzpatricks Private Wealth.

Speaking at SMSF Adviser’s SMSF Summit 2019 event in Brisbane, the advice firm’s head of strategic advice, Colin Lewis, said it was possible for clients approaching their 65th birthday in particular to double their contribution amounts by making use of the downsizer and bring-forward contributions and potentially splitting contributions with their spouse.

“Clients must be age 65 at the time of contribution [to use downsizer], not when they sell the house, it’s when they wish to contribute the proceeds into super,” Mr Lewis said.

“So, when they sell the house they can be under 65, but if within a 90-day period they turn 65, they can make contributions, so it’s the timing that is the essence here if you are dealing with a client that is 64 and thinking of selling their home.”

Mr Lewis gave the example of Ron and Paula, who were 76 and 64, respectively, and planning to sell their $1.5 million home before Paula’s 65th birthday in December 2019. Ron had an existing account-based pension worth $1.6 million while Paula had $1 million in accumulation phase, and the couple had a joint investment portfolio worth $1.5 million outside super.

“On 16 October, they enter into a contract to sell their home for $1.5 million with settlement on 27 November,” he said.

“From the proceeds, Ron and Paula make the following contributions within 90 days: Ron makes a $300,000 downsizer contribution; prior to her 65th birthday, Paula makes a $300,000 non-concessional contribution; and after turning 65 she makes a $300,000 downsizer contribution and commences an account-based pension of $1.6 million.

“So, they’ve rearranged their affairs, they’ve now got a new house worth $1.6 million, Ron’s got an accumulation benefit worth $300,000, Paula’s got an account-based pension of $1.6 million, and their money outside super is $500,000. So, what they’ve been able to do is upsize, put more into super and make a downsizer contribution.”

Mr Lewis added that splitting contributions between a couple was another good way to make the most of the downsizer rules, given that a client’s spouse did not need to have been an owner of the property to use the proceeds for their contribution.

“The spouse doesn’t have to be on the title to contribute — with spouses, it all hinges on whether the owner of the property is eligible, and if they are, the spouse can contribute too provided they’re 65 or above,” he said.

Source: SMSF Adviser

ATO urges quick action on transfer balance caps

The ATO is urging SMSF trustees to take quick action around any excess transfer balance determinations or commutation authorities received in October to avoid any accidental non-compliance that could occur over the Christmas holiday period.

In an update posted to the ATO website on Monday, the office noted that any excess transfer balance determinations or commutation authorities issued to trustees in October would have due dates during the Christmas/New Year period, increasing the risk that trustees could accidentally fail to comply with such notices due to the holiday shutdown.

“We encourage SMSF trustees and members to respond early to this correspondence to avoid adverse consequences,” the ATO said.

“Commutation authorities need to be actioned by the due date to avoid losing access to the income tax exemption on the assets supporting the pension.

“If SMSF members don’t respond to excess transfer balance determinations by the due date, we’ll send a commutation authority to the fund specified in the determination.”

The office added that if an SMSF member had concerns about a determination issued, they or their tax agent could view the events making up their transfer balance account through the ATO’s online services.

“If any information is missing or incorrect, provide it or correct your reporting as soon as possible to allow us to revoke the determination,” the ATO said.

“If your member is concerned about information reported to us by another fund, they should discuss this with the fund.”

While the commissioner did not have discretion to grant an extension of time to respond to a commutation authority, members could contact the ATO by phone to request time extensions around excess transfer balance determinations.

Source: SMSF Adviser

What is Salary Sacrifice and is it still relevant?

What is Salary Sacrifice and is it still relevant?

Under the current rules, the maximum amount of “concessional” superannuation contributions that can be claimed by an individual is $25,000.00 per annum. This is referred to as the “Concessional Contributions Cap”. Concessional contributions refer to those contributions that are claimable as a tax deduction by the person or entity paying the contribution. They include employer contributions, salary sacrifice contributions and personal deductible contributions.

A salary sacrifice arrangement is where an employee agrees with their employer to reduce their gross salary in return for the employer making a larger contribution (above the normal 9.5% of salary) to the employee’s superannuation fund. The benefit that arises is due to the difference in tax rates between that of a superannuation fund (which is 15%) and the marginal tax rate of the employee which is usually much higher. The following table illustrates the benefit from a typical salary sacrifice arrangement.

Note that in this example, the take home pay is reduced by $9,403 but the amount in the employees super fund has increased by an additional $13,175, an overall increase in after tax income/savings of $3,772 or 4.6%.

One of the obvious downsides of salary sacrificing is the reduction in take home pay. These arrangements are also “prospective” in that they must be put in place only in relation to future earnings and can’t be used to make lump sum contribution amounts out of past earnings such as accrued leave entitlements.

Up until 30th June 2017, the so called “10% rule” applied where you could only claim personal contributions if your income from employment was less than 10% of your total income. This restriction meant that for many employed individuals, the only way to make deductible personal contributions to reduce their taxable incomes was via a salary sacrifice arrangement. With the changes applying from 1/7/2017, employees can now make additional personal contributions to their superannuation fund at any time during the year and this can be an alternative (or supplement) to salary sacrificing. The important thing is to remember that total concessional contributions should not exceed the cap of $25,000 and this cap includes; superannuation guarantee contributions by the employer, salary sacrifice contributions and personal deductible contributions.

Bob Locke – Chartered Accountant & SMSF Specialist

The information provided in this article is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this article, you should consider its appropriateness in relation to your personal situation and seek advice from an appropriately qualified and licensed professional.

Reversionary pensions v BDBNs: Advisers’ risks

There has been a number of commentators suggesting that if a pension reversion nomination conflicts with a binding death benefit nomination (BDBN), the pension reversion nomination prevails.

While we acknowledge the answer is not necessarily black and white, as it depends on a careful examination of all the relevant documentation and each supplier’s documents differ in certain respects, we recommend that advisers should be mindful that they are comfortable with the way the documents they use are drafted and that they understand the legal risk and implications of using those documents entails.

In particular, advisers should ensure the strategies in the documents they supply their clients are legally effective and are supported by relevant legislation, case law or similar authority. An adviser procuring a document, for instance, from a web-based supplier is implicitly warranting that it is suitable for their client’s use. Hence why advisers need to be careful on what document supplier they use. Naturally, merely using a non-qualified supplier (that is, not a law firm) exposes an adviser to risk.

Indeed (pun intended), if the SMSF deed is silent, there is a strong argument to say that the BDBN overrides any conflicting pension reversion nomination.

However, there are certain SMSF deeds that expressly specify that a pension reversion nomination (e.g. a resolution in pension commencement resolutions) prevails over any conflicting BDBN. In that circumstance, there is a fair chance that a pension reversion nomination may prevail over a conflicting BDBN.


This article focuses solely on this issue. More specifically, this article asks whether you actually want a situation where a pension reversion nomination prevails over any conflicting BDBN.

This article concludes that — unless you are a lawyer — a pension reversion nomination overriding a BDBN is risky and that you should not use this type of documentation as there are more practical options available (more about this soon).

Why is there, on first glance, an appeal for reversionary pension nominations overriding BDBNs?

We have heard from some accountants and financial planners (which we will refer to from here on as “advisers”) that they favour reversionary pension nominations overriding conflicting BDBNs. When we ask why they have that preference, they typically maintain that it will allow them to implement the following sort of situation:

  • they can document a pension that, upon death, reverts to a spouse, for example; and
  • they can then document a BDBN to cover the remainder of the member’s SMSF benefits, which the BDBN might direct to be paid to, say, the estate or perhaps to a child.

However, there is a risk that recommending this arrangement could amount to a crime and give rise to other risks.

Recall the rules about ‘engaging in legal practice’

Each jurisdiction prohibits non-lawyers engaging in legal practice. In Victoria, for example, the Legal Profession Uniform Law Application Act 2014 (Vic) (the “Act”) provides that (sch 1 s 10(1)):

An entity must not engage in legal practice in this jurisdiction, unless it is a qualified entity.

Penalty: 250 penalty units or imprisonment for 2 years, or both.

We note that the Act defines “entity” to include individual, an incorporated body and a partnership. Accordingly, if you are, for example, an adviser, this prohibition applies regardless of how your business is structured.

This then raises the question of what it means to “engage in legal practice”. Section 6(1) of schedule 1 to the Act provides that “engage in legal practice” includes practise law or provide legal services.

There is no “bright line” demarcating with exact precision where “practising law” begins and ends, and where the “provision of legal services” begins and ends. However, we are of the view that there is a real chance that an adviser is practising law and/or providing legal services if:

  • he or she determines how a client’s death benefits should be structured (e.g. a pension that automatically reverts to a spouse and the balance to a child or the estate); and
  • he or she documents such a strategy (e.g. drafting the pension documentation and completing a template BDBN for the client).

We are particularly of this view as implicit in the above is that the adviser probably has led their client to believe that there is no need for the input of a lawyer. Indeed, an adviser who has not recommended that their client have all the relevant documents and advice reviewed by the client’s lawyer to check they are legally effective and are consistent with the client’s legal and estate planning position, would have provided legal services as the documents affect the client’s legal rights and obligations.

What else can commonly go wrong in practice?

Consider an accounting or financial planning firm that provides pension commencement documentation.

Now assume that the adviser provides such documentation to SMSF members of a particular SMSF whose deed states that a pension reversion nomination will override any conflicting BDBN. The pension commencement documentation states, among other things, that the pension is reversionary in favour of the member’s spouse.

Now assume that one such member did in fact have a BDBN in place, which was in favour of their legal personal representative (i.e. estate). The member then dies.

The SMSF trustee wishes to pay the deceased’s death benefits to the spouse, based on the pension commencement documentation. The executor of the estate might assert that the adviser is liable to the estate as the deceased did not properly understand the effect of the pension documentation. The adviser could try to counter this by responding that they advised the member of all relevant rights and liabilities and then drew up the documentation accordingly. However, if this indeed occurred, there is a real chance that the adviser has contravened the Legal Profession Uniform Law Application Act 2014 (Vic). Again, this is a serious crime.

Alternatively, the adviser may claim that they did not advise the deceased of all relevant information, rights and liabilities but nevertheless drafted the pension documentation. If so, the adviser may well have breached its duty of care owed not just to the deceased, but also to the deceased’s dependants, executor and any beneficiaries of the deceased estate (see Hill v Van Erp (1997) 188 CLR 159 where a lawyer was liable in negligence to potential beneficiaries of a deceased client’s will). The adviser may be liable to them under, among other things, the tort of negligence for any loss, damages and costs suffered.

We also note that some have asserted that since SMSF members typically also consent to various information in order to be trustees, they are taken to know all relevant information. We consider it high-risk to place much confidence in such an assertion based on cases like Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502, which illustrate that a judge may not hold a member/trustee/director to having a sophisticated level of SMSF knowledge. Also, there is no information regarding succession planning in trustee declarations.

Naturally, each of the above two choices is an unfavourable outcome.

If advisers wish to rely on a deed that provides priority to a reversionary pension nomination, they should undertake sufficient due diligence to ensure that they do not cross a prior BDBN or interfere with their client’s succession planning. This analysis also attracts the risks that the adviser engages in legal practice.

A practical solution

DBA Lawyers has long considered that there is a simpler practical solution, which is to have a deed that expressly states that a BDBN overrides any conflicting pension documentation. This overcomes the immediate need for an adviser to undertake the due diligence discussed above, which is associated with an SMSF deed that provides the reversionary pension nomination priority. Simply stated, documenting a pension under this type of SMSF deed does not impact a BDBN.

Moreover, BDBN templates typically come with new deeds or deed updates and product disclosure statements. Thus, members can prepare and finalise their own BDBNs without adviser input. Accordingly, if a member wishes to make a BDBN under an SMSF deed providing a BDBN with priority, it is more likely that a member would expect that to impact their estate planning and be more informed as:

  • there is usually a product disclosure statement or other relevant material that comes with a template BDBN, and
  • the formalities that accompany the execution of a BDBN (e.g. two independent adult witnesses).

If you are not a lawyer, you do assume risk if you prepare a BDBN without recommending the client obtain a lawyer’s input. We anticipate that some readers might roll their eyes at this comment and think “typical lawyers — trying to create ‘jobs for the boys/girls’”. However, it is a simple fact that each profession has its limits and professional indemnity cover typically excludes advisers acting outside them.

Thus, it is best practice for advisers to always recommend that their clients have their BDBNs and similar documents impacting their legal rights and obligations, especially their succession planning, reviewed by a lawyer.


There is — if the deed is silent — a sound argument under many SMSF deeds that the default position is that a BDBN will override a conflicting reversionary pension nomination. However, if the deed expressly states that the opposite will occur (i.e. a reversionary pension nomination will override a conflicting BDBN), this may be the case. However, if your SMSF clients have a deed that stipulates that a reversionary pension nomination will override a conflicting BDBN, each time you prepare pension documentation there is a real chance that you could be “engaging in legal practice” and exposed to other legal risks.

The safer solution is to have a deed that expressly provides that a BDBN overrides a conflicting pension reversion nomination. This avoids these risks when documenting a pension.

Manage your risk and do not expose yourself or your firm where your professional indemnity insurance cover is not available.

Written by: Bryce Figot, special counsel, DBA Lawyers
Source: SMSF Adviser

Morrison dumps associations on code monitoring

The federal government will introduce a single disciplinary body for financial advice, forcing the FPA and AFA to abandon their attempts to become a code monitoring body for the industry.

On Friday, the Morrison government announced that it is accelerating the establishment of a new disciplinary system and single disciplinary body for financial advisers, as recommended by the royal commission.

The government will work towards establishing the new body in early 2021, subject to the passage of legislation that will be introduced into the Parliament next year.

A long-term sustainable solution based on commissioner Kenneth Hayne’s recommendations will replace the role of code monitoring bodies, which were due to be established by industry associations under professional standards reforms.

Following the government’s announcement, the FPA wrote to members informing them that it has withdrawn from code monitoring following concerns about member cost and compliance duplication

“Despite receiving conditional in-principle approval from ASIC, the FPA has made the decision to withdraw the application for Code Monitoring Australia (CMA),” FPA chief executive Dante De Gori said.

The FPA had been working on a joint initiative with five other professional associations to establish CMA. Following 18 months of development, a final application was lodged with ASIC on 16 August 2019 for CMA to become an approved code monitoring scheme for the FASEA Code of Ethics.

“The driving force behind CMA was our strong belief that it’s in the best interests of the profession and consumers to have one compliance scheme run by financial planners for financial planners, rather than a commercial provider,” Mr De Gori said.

“However following recent discussions, the government has now confirmed that it will progress a single disciplinary body as recommended by commissioner Hayne in the financial services royal commission in place of code monitoring.

“Given this, we do not think that it is prudent to establish CMA as a new monitoring scheme that will be superseded within a short period, resulting in a duplication of costs and compliance obligations for our members and the financial planning profession broadly.

“Though we are extremely disappointed that code monitoring will not proceed with CMA, we continue to strongly support the introduction of a comprehensive, compulsory Code of Ethics for financial planners to ensure consumer protection.”

The AFA also informed its members that it was important to avoid uncertainty and unnecessary duplication of costs.

“Financial advisers and their clients have been subjected to enormous demands and uncertainty. We need to avoid adding complexity, further duplication and cost to the regulation of financial advice,” AFA CEO Phil Kewin said.

“The AFA continues to have concerns about the current wording of the FASEA Code of Ethics as it stands, and has voiced those concerns to both FASEA and the government. We are expecting further guidance from FASEA in this regard.”

While the FPA and AFA expressed their disappointment, AIOFP executive director Peter Johnston praised the decision, saying that the association never attempted to be a code monitoring body.

“Our board thought the AIOFP should be acting in the best interests of members and their clients at all times. The royal commission debacle over Sam Henderson clearly demonstrated that associations are not equipped to become a code monitoring body. It was embarrassing,” Mr Johnston said.

Written by James Mitchell 

SMSF numbers triple in 20 years

SMSF numbers have tripled over the past two decades and assets held within them now represent a third of Australia’s total superannuation pool, according to new ATO statistics.

The data, released to mark 20 years of the ATO regulating the SMSF sector, revealed that SMSF numbers had grown from 197,000 in October 1999 to 600,000 in June 2019, while SMSF membership had more than tripled in that time from 387,000 members in 1999 to 1.125 million in 2019.

SMSF assets were now valued at $748 billion, or approximately a third of Australia’s $2.76 trillion super sector, according to the office’s statistics.

The data also looked at the ATO’s recent regulation performance, revealing that it had referred 145 auditors to ASIC over the past six years, with 51 of those having been referred in the 2019 financial year.

The office had also seen an upsurge in voluntary disclosures of breaches by super trustees, with 353 having come forward in the 2019 financial year compared to 246 in 2018 and 265 in 2017.

ATO assistant commissioner Dana Fleming said the office would continue to take its role as an SMSF regulator seriously.

“The importance of good governance in the SMSF sector cannot be underestimated. As the sole regulator of SMSFs, we are conscious of the significant responsibility of safeguarding 1.1 million Australians’ retirement savings,” Ms Fleming said.

“Our aim is to help trustees to be able to make informed decisions by understanding their responsibilities and, of course, where necessary we will take action to maintain the integrity of the SMSF sector for all other SMSF members.”

Source: SMSF Adviser

Retirement alliance endorses government review

The Alliance for a Fairer Retirement System (the Alliance) has welcomed the federal government’s Review into the Retirement Savings System and has put forward five questions the process should answer.

The first question the Alliance would like answered as part of the review is how can the retirement income system include incentives to encourage Australians to save enough for an independent retirement without introducing savings disincentives along the way.

“At present, only 30 per cent of the population over 65 is independent of government support. The remaining 70 per cent is comprised of 42 per cent on the full age pension and 28 per cent on a part age pension,” Alliance spokesperson John Maroney noted.

“As the superannuation system reaches maturity and balances at retirement increase, reliance on the age pension will reduce. Over the same time period, the number of people and the proportion of the population, in retirement will increase,” he added.

“The Alliance calls on the Review to consider the adequacy of super to support retirees into the future.”

Another question the Alliance has asked of the government in its review is what the defined objectives of superannuation and the age pension are and how can these two elements complement each other to ensure sustainability and intergenerational equity in the retirement system.

To this end the Alliance pointed out constant change to the system erodes confidence in it and can result in unintended consequences that threaten the retirement income system’s viability.

As such the group has called for any future changes to the system be made only after a full regulatory impact statement has been prepared that will consider the effects the change will have on the other components of the system and assess appropriate grandfathering provisions that will allow retirees to change their strategies over a reasonable timeframe.

Other questions the Alliance would like to addressed during the review are:

  • What is an adequate level of retirement income commensurate with their pre-retirement standard of living that older Australians should seek to attain?
  • How can retirement income policy settings ensure the maximum degree of certainty for those planning for retirement over decades?
  • Where are there gaps or issues that indicate a lack of fairness in terms of either horizontal (between people with similar circumstances) or vertical (between different generations) equity in the existing three-pillar retirement system?

The Alliance also took the opportunity to congratulate its former spokesperson Deborah Ralston on her appointment as a review panellist.

The federal government formally announced its intention to hold a review of the current retirement savings system and revealed the terms of reference to be used late last week.

The Alliance is made up of 11 industry bodies being the Association of Financial Advisers, SMSF Association, Australian Investors Association, Self-managed Independent Superannuation Funds Association, Gold Coast Retirees Inc, Association of Independent Retirees, Listed Investments Companies and Trusts Association, Australian Shareholders Association, National Seniors Australia, Stockbrokers and Financial Advisers Association, and WA Self Funded Retirees.

Written by Darin Tyson-Chan
Source: smsmagazine.com.au