Trustees more open to advice

The latest sector research has shown the economic instability resulting from the COVID-19 pandemic has seen a shift in attitudes toward financial advice, with SMSF trustees now more open to receiving this type of guidance.

The “Vanguard/Investment Trends 2021 SMSF Investor Report” indicated this change in sentiment toward financial advice had mainly come from SMSF trustees defined as validators – individuals who would like a second opinion to affirm their decisions.

To this end, the study showed 56 per cent of this cohort was now open to receiving financial advice as opposed to 49 per cent expressing this opinion in 2020 and 47 per cent doing the same in 2019.

However, despite an increased interest in seeking financial advice, the report revealed the number of SMSFs using a financial planner fell from 185,000 in 2020 to 160,000 in 2021. Further, funds not currently using a qualified financial planner increased from 220,000 in 2020 to 245,000 in 2021.

SMSFs not engaging the services of a financial adviser nevertheless did identify some specific areas they would like to receive advice on.

“What really comes out strongly are SMSF pension strategies (100,000 funds) …inheritance and estate planning (75,000 funds) and contribution strategies (75,000 funds),” Investment Trends head of research Irene Guiamatsia said during a presentation of the report today.

This finding reflects the renewed priority given to these issues, with around 65,000, 58,000 and 48,000 funds respectively nominating these areas associated with advice gaps in 2020.

“Opportunities remain for advisers to demonstrate the value they can offer SMSFs, especially in areas such as SMSF pension and contribution strategies, as well as estate planning, where there exists an advice gap,” Vanguard Australia head of corporate affairs Robin Bowerman said.

The report was compiled from the results of an online survey conducted between March and April that garnered responses from 2523 trustees.

Source: smsmagazine.com.au

Can an SMSF own employee shares?

Employers are turning to alternative methods of rewarding employees as wage freezes become commonplace during the pandemic. With record-low wages growth of 1.4 per cent over the last year, companies are offering employee share schemes (ESS) as an incentive where they struggle to pay high salaries.

The question is: can an SMSF own employee shares?

Essentially, a member can transfer an asset owned personally into an SMSF through an in-specie contribution. The limiting factors include the exceptions outlined in section 66 SIS – acquisition of assets from a related party, the contribution caps and non-arm’s length income (NALI).

Acquisition of assets from a related party

In general, the transfer of share or options from an employee participating in an ESS is an acquisition of assets from a related party. The reason is that the employee is typically a related party to the fund.

The fund must acquire the assets at market value, either in a listed security or in a related entity, with the maximum investment as a percentage of total fund assets shown below:

Asset Type

Max SMSF Investment

Listed Security


Unrelated Shares/Units


Related Shares/Units


To be clear, an SMSF cannot acquire ESS shares in an unrelated private company and is limited to a maximum investment of 5 per cent of the total value of fund assets in a related party entity ESS under the in-house asset limits.

Regardless of the discount or method applied to price the ESS for the employees, the acquisition price from the SMSF’s point of view is the market value when the shares are transferred into the fund.

While it is easy to determine the market value of shares listed on the ASX, the market value of shares in a related, unlisted entity is complex and requires more documentation.

Suppose the shares or options are transferred in for no consideration or less than market value? Where the member takes up the difference as a contribution, the shares are acquired at market value, and section 66 SIS will be satisfied.

Contribution caps

The ATO expects SMSF trustees to know which types of contributions breach the super laws. Returning a contribution is only allowed where the trustee cannot accept the amount under SIS or where the return is authorised by the principles of restitution for mistake — not where the member has exceeded their caps or simply changed their mind.

By way of example, a member is 45 years of age and received $25,000 in employer contributions during the year. She is offered an ESS from her employer, a publicly listed company, with a total market value of $35,000. However, her total superannuation balance (TSB) is above $1.6 million as of 30 June the previous year.

As a result, the member cannot make any more contributions because the concessional cap has been reached, and the non-concessional contributions cap is nil.

In this case, however, the member makes the $35,000 non-concessional in-specie contribution to the fund of the ESS on 2 June 2020.

However, it is not until 12 months later, during the audit, that the trustee is made aware that the member breached its contribution limits.

The ATO’s position is straightforward. A reasonable trustee, acting with the level of care, skill and diligence required of a trustee of a complying fund, would have checked the fund’s affairs.

Because the member is also a trustee, the fund effectively becomes aware of whether it can accept the contribution or not when it happened.

There is a strict process to follow as excess contributions cannot be refunded immediately. Technically, this is illegal early access: the member must wait for the ATO to issue an excess contributions determination notice before returning the extra amount.

Ownership of ESS

Some ESS include terms and conditions such that only the employee can own the shares. Others have the requirement that the employer must approve any transfer of the shares to an associate, related party or entity.

Under these circumstances, it may be difficult for the fund to own the shares beneficially.

Depending on the details of the offer, the fund may not be able to legally hold the shares, a potential breach of r4.09A SIS.

Remember, too, that an asset is generally considered a contribution when the SMSF gets legal ownership of the asset.


There may be other circumstances that contribute to the transfer of the ESS into the fund not being on an arm’s length basis.

The offer could include more favourable terms such as an interest-free loan from the employer to purchase the shares or receiving a higher dividend instead of market remuneration.

The SIS rules state that where parties are not dealing at arm’s length and the terms are more favourable to the SMSF, there will be no breach of s109 SIS. 

However, the NALI provisions then apply, which remove the fund’s tax concessions where the SMSF and other parties are not dealing at arm’s length in relation to a scheme.  

Where income is deemed to be NALI, all of the income generated from that asset will be taxed at the top marginal tax rate of 47 per cent, even if the member is in the pension phase.   


There is a lot to consider when a member transfers ESS into an SMSF by way of an in-specie contribution. The trustee must ensure the transaction meets the requirements of s66 SIS by assessing the facts and circumstances of each situation.

The federal government has recently made ESS more attractive by removing the cessation of employment as a taxing point in the May 2021 budget. While the proposal is awaiting royal assent, this advantageous change may see more ESS transferred into SMSFs by members.

SMSF professionals need to pay close attention to the finer details of the ESS offer to ensure any in-specie contributions are in line with SIS, which will then allow an SMSF to own employee shares.

Shelley Banton, head of education, ASF Audits
Source: SMSF Adviser 

SMSF scams are on the rise: Here’s how to fight back

The growing prominence of SMSFs has made them a ripe target for scammers.

More and more Australians are opting to forge their own future with a self-managed super fund.

According to the Australian Taxation Office, self-managed super funds (SMSFs) have continued to grow in value and popularity in recent years. Their latest numbers indicate that there are 593,000 SMSFs in Australia, accounting for approximately $733 billion in total assets.

“SMSFs had assets of over $1.3 million each on average in 2018–19, up by 5 per cent from the previous year and up by 22 per cent over five years,” the ATO said.

One report by IBISWorld suggested that SMSF assets made up almost a quarter — 24.7 per cent — of total super assets as of March 2020.

However, with that popularity has come new hazards for investors.

ASIC issued a fresh warning for SMSF scams back in May, recommending that investors undertake independent enquiries to ensure that the scheme is legitimate if they are contacted by a person or company encouraging them to open an SMSF and move funds.

“Investing in financial products always involves some level of risk, but it is also important to check that investment opportunities are legitimate before investing,” they said.

Speaking to sister title nestegg, Marisa Broome, the chair of the Financial Planning Association, reiterated the classic phrase: if it looks too good to be true, it probably isn’t.

“In a record-low interest rate and post-COVID environment, investors need to remain vigilant and not be tempted by supposedly attractive but questionable offers,” she said.

Ms Broome cautioned that while self-managed superannuation funds can be “a key strategic structural option” for many investors, they are “not for everyone”. 

“They are complex, need active involvement by the members, and can be costly — both in actual fees and lost investment earnings if not managed well,” she said.

In her experience as a financial planner, Ms Broome said she has seen many examples of poor investments where investors are encouraged to set up costly structures within their SMSF to borrow funds. 

These funds are then used to buy property “that is often overpriced, poorly located and possibly may result in a large commission being paid to the ‘introducer’ that is not disclosed to the client”.

Ms Broome said that while ASIC does put out alerts on investment scams, “many of these schemes do fly under the radar”.

“Some may even technically meet all the requirements of the law, but what they are actually selling is an investment that will never provide the promised returns,” she said.

“Seeking advice from a qualified financial planner will help in many areas, including to help you differentiate between a scam and a legitimate offer.”

Source: SMSF Adviser

Balancing discretion and direction approaches for death benefits

With the increasing number of court cases involving death benefits in SMSFs, greater care should be placed in evaluating discretion or direction approaches when it comes to death benefits.

With increasing disputes and legal battles around money and SMSFs, particularly among siblings when their parents have passed, numerous court cases could be potentially avoided with better planning, and the focus also weighs in the ideal approach to reduce the risk of client estate planning errors.

In a recent TopDocs technical webinar, TopDocs head of training Michael Harken said, as time has gone by, advisers preferences have moved constantly between trustees having discretion or direction when it comes to how death benefits are going to be applied.

Mr Harken noted that, in prior years, the thinking was that with the BDBNs lapsing after three years, there might not be so much value in putting them in place and it may be better to maintain discretion with the trustee at the time.

“However, the issue with discretion has sort of popped up a little bit more favourably of recent times since the introduction of the transfer balance cap on 1 July 2017,” he said.

“The reason for that is it provides flexibility to determine based on the circumstances applicable at the time whether the benefits should be or can be paid as a pension, and if they can, how much can be paid and whether other money should pass to individuals as a lump sum, or to the estate and then possibly to go into super proceeds trust or a testamentary trust.

“Those decisions where there’s a discretionary aspect can be made at the time based on the circumstances.

“Whereas if we go back to the direction approach, it’s all going to depend because the quality of the documentation is going to have a bit of a bearing on whether the direction was good or bad, effective or not, and a lot of the cases fall into those areas.”

Mr Harken said that advisers should consider that, basically, all of the estate planning documentation and including wills must complement each other because, if they don’t, there are higher chances to enter into conflict situations that bring about legal action.

“If they are complementary, it goes a long way to removing any potential conflict,” he noted.

“When it comes to conflict, advisers need to note that the conflict can come from the competing interests that are looking for some money from the deceased benefits, and there are issues that arise from that and particularly in relation to where there is discretion.

“But meanwhile, even where there’s direction, the trustee may not act impartially, they may decide to pay themselves and that provides a significant conflict, and effectively, some of the cases have shown us that trustees should not act in a conflict position.”

Even where the deed might provide some authority to the trustee to look after themselves as a first call, Mr Harken noted it may only mitigate the risk and not fully absolve the trustee from looking after themselves.

SMSFs in blended family situations are also very often at risk and it is also because there is no one-size-fits-all approach.

“The competing interests are also generally going to be dissatisfied potential beneficiaries, and they can be an accident waiting to happen,” he said.

“In particular, we note that trustees are subject to very strict duties. These duties include the duty to properly inform themselves.

“Further, trustees must take great care to ensure they exercise discretion in good faith, upon real and genuine consideration, and for the purposes for which the discretion was conferred.

“As advisers, we don’t know what the intentions of the deceased were and that’s where that planning is essential and it can at a larger extent at least cut off any sort of uncertain claims in the future.”

Source: SMSF Adviser

ATO offers interim six-member solution

The ATO has announced an interim solution for the creation of six-member SMSFs as it finalises the necessary changes to the Australian Business Register (ABR) that will allow funds to register more than four members.

The SMSF Association noted the solution being offered by the ATO was due to the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 only receiving royal assent on 22 June, days before the end of the financial year and when the change took effect from 1 July 2021, despite the draft legislation being introduced into parliament in September 2020.

Updated information added to the ATO’s website in relation to registering an SMSF recommended fund registrations be postponed until the ABR was updated due to potential delays in registering funds or additional members.

Where that was not possible, to begin the process of including additional members, the regulator advised that an SMSF with up to four members should be registered using the existing process.

Afterwards, trustees can then lodge the new members’ details via the Change of Details for superannuation entities form (NAT3036), which is accessible through the ATO’s website.

The SMSF Association stated once this form was processed, the ATO would update its system to allow members to request rollovers into their new SMSF, and when the ABR functions matched the requirements of the new law, an SMSF’s details would be updated on the register and there will be no further action required from trustees.

“With approximately 93 per cent of SMSFs having either one or two members, we remain of the view that these changes are unlikely to affect many SMSFs. However, for the minority that cannot wait any longer, one last administrative hurdle remains,” the association said.

Source: smsmagazine.com.au