 Good morning. Welcome to the FIG Securities webinar. My name is Elizabeth Moran and today we're joined with Tony Neglai, our resident SMSS expert. Morning, Tony. It's a bit of a mouthful. It is indeed. Morning, Liz. So today we're going to be talking about superannuation in 2019, what you need to know. I'd like to just extend a welcome to anyone that hasn't joined us before for a webinar and we appreciate you're on the line. If you miss anything or perhaps want to review something later, we will send a link to the recording after the webinar. So Tony is actually head of superannuation at Chartered Accountants Australia and New Zealand and has had many, many years in the field. He wrote a column for the Australian for over 10 years and is well and truly a national expert, travels widely and speaks widely. So we're really delighted to have you here today, Tony. Before I hand over to Tony, just a couple of house keeping rules, if you like, on the top right hand side of your screen, see an orange arrow. If that's not expanded, if you can click on that, you'll see the panel expands and about halfway down you should see an area where you can type in and ask us a question. We've had a number of questions already in. Most of them are to do with the franking credits and changes there and we do address this later in the presentation. So we'll hold those questions until we've hit that part of the presentation. But without further ado, I'll hand over to Tony. Thanks, Tony. All right. Thank you, Liz. And as Liz said, good morning, everyone. All right. So let's get straight into it. So that's our lovely little disclaimer which I'll let you read at your leisure later on maybe. So what we plan to do is just discuss in relatively short order eight particular issues. One is a quick review of some of the things you might want to think about in relation to the changes the government first announced in 2016. We also want to talk about the downsize of contributions. So there are quite a lot of people who are interested in that now that it has started. We'll also look at something that is at the moment only applying to a very small number of self-managed super funds but may apply to a larger number if the government gets some legislation through. And that's the non-arms length income issues. There is also the government have a policy in place about SMSS potentially only doing three-year audits. And I realise that we already have a question that came in this morning about that particular topic. So we will talk for a little bit of time about that policy, what it might mean for your fund if you're interested in that policy, whether or not you'll save any money and more particularly whether or not it'll actually be legislated. So I'll fill you in on where that is all at. As you would appreciate at the chart of the counting body, we have quite a few members of ours who actually audit SMSS. So I'm reasonably heavily involved in that particular topic. We'll also obviously look at the proposed Labor Party changes. So that there's two issues there. One is capital gains tax and the other is the other is franking credits which causes the big topic of the day or one of the big topics of the day. And we'll look at there are two very interesting court cases. One involves an SMSF auditor and the other involves a deceased estate involving claiming money from a self-managed superfund or self-managed superannuation funds and involves the Hems family which are involved which are involved here in Sydney in running pubs and clubs and other sorts of venues. Lastly, of course we can't leave a session today alone without obviously talking about the Royal Commission which is looking into misconduct in the banking superannuation and financial services industries to give its official title and also the Productivity Commission. So the Productivity Commission is looking at the efficiency and effectiveness of the superannuation sector and they produced a draft report around about eight weeks ago of a mere 500 or 550-odd pages plus quite a lot of appendices. So there's a lot to talk about in relation to that Productivity Commission and where all of those things might lead and timeframe and so on and so forth. So that's our agenda. All right so to crack on with the 2016 superannuation changes here are some things that you need to think about very carefully and I'm going to assume that you run your own fund or to a large extent run your own superannuation fund. The first question is have you submitted your 2017 return for your fund? Most people use a tax agent and if you didn't if you use a tax agent you had until 30 June this year to submit your 17 annual return and I suppose the issue is that there are still some people who are running a little bit late with running their return. The HL were very generous in offering extensions to people beyond 30 June if that was required. Now if you do use a tax agent did they apply for an extension? Have they actually actioned that and if you haven't heard about your return then you might want to get cracking in relation to that. A key component with that in 2017 annual return is the CGT cost base relief that was available for assets that were moving from the pension phase back into the accumulation phase. So that was moving the cost base of the asset the CGT purposes from the original cost base to the prevailing market value. Depending on how you do your accounts there were different rules at different different ways of applying that rule. It is very important that you get those numbers right and it is very important that you get the you understand what is actually being done in your fund and I would encourage you to talk about your to your accountant SNSF administrator so on and so forth to make sure you understand what's being done there and to really get to the bottom of what is going on. By the 30th of June this year all SNSFs should well right now you should be doing what is called transfer balance account reporting or T-VARs and that is that you've started a pension you've stopped a pension there's a range of other transactions as well. There are about nine different transactions where you've actually got to send in the ATR your transfer balance account reporting and what we all what we know from that is that we know that already some errors have been identified in people's records. The transfer balance account and the $1.6 million limit and all those other sorts of things is very similar to the reasonable benefit limit rules that existed before 2007 and all of these sorts of errors that are appearing now under the transfer balance account report were appearing in the old RBL rules and it was a shocking system have to work through. I'm surprised that some of these errors have started to appear already incorrect data being sent to the ATO not being sent by the right time double reporting of pensions double reporting of ceasing of pensions all sorts of errors are already starting to emerge what I encourage you to do is to if you have a pension with in a self-managed fund and potentially maybe a pension in another fund let's say a fund that is regulated by APRA or a government run fund what you should consider doing is going to the ATO and asking for a data download of the records they have so that you can check to make sure it's right and if you find any errors then you can obviously go go around and fix those up so it is very important that you make sure those that that will potentially have an impact on your life later on maybe not for the next few years but if you potentially will have an impact and you need to make sure that data in that transfer balance account report for you is actually accurate as I say will have an impact on your life later on. The next thing is the total super balance. The total super balance is the is the amount of money you have in super both pension and accumulation and it determines whether or not in in the main whether or not additional superannuation a range of additional superannuation contributions in particular non-concessional contributions additional ones can actually be made it's determined on the 30 June of the previous financial year so we're now in the 18 19 year so your total super balance for this financial year is determined on the 30th of June 2018. For SMSS what the ATO do is that they take the data from your SMSS annual return and the member account balance in there now that should be based on net market value now of course you may actually have a different value there when that doesn't include the cost this that in most SMSS there's no tax effective accounting because there's no need to do that what you might find though is of course it doesn't take into account the cost of selling assets and any CGT and so on and so forth it may be worth your while to talk to your advisors about whether or not you should self report a different total super balance to the ATO you do that through a transfer balance account report so if you have a total super balance above 1.6 million or above some other thresholds that are in play you might find that when you take into account selling costs of your assets that you actually fall below various thresholds and you report that through your total super balance it's a little bit of a complex topic but talk to your advisors about that because it is it may enable you by doing those sorts of things it may enable you to make some additional contributions that you otherwise could not have done so so it may be in your interest to to send in some additional data we have a question Tony from John he asks what do you suggest should be done if your employer has contributed too much into your SMSS and your yearly concessional contribution has been breached okay so you should just let the system take care of itself so what we'll have so John what you should do is the ATO will write to you and say you have an excess concessional contribution cap issue they give you a short amount of time to you've got you've effectively got two choices you leave the money in there and pay tax at your marginal rate or you take the money you take in say okay to the ATO take that money out of the system and they then tax you at your marginal rate if you do the latter one take the money out of the system they tax it at your marginal rate so they basically add it to your accessible income and tax your marginal rate and then they add on a notional earnings notional earnings and tax that at a difference so this so they they tax you a little bit higher because they shim the money's been sitting in the fund for a little bit of time and make some notional earnings so just let the system take care of itself there's no point you taking the money out what happens what happens is the fund actually sends the money to the ATO the ATO then takes its tax out and then remit the excess to you if there's any money if there's any money left over I will warn you though that if you add the ATO any money what they'll do is they'll swipe that from any refund that you do your do as well okay so all right so that's so that's so that's that all right so let's look at the downside of contribution this is this is largely an opportunity to make some additional super annuation contributions each person can contribute up to 300 grand from the sale of a family home you must have owned the home for at least 10 years you only get one stab at this this this opportunity the 1.6 million if you have assets in super of more than 1.6 million that doesn't matter so this this rule applies to everyone it doesn't matter what your circumstances are you can contribute the proceeds from the sale of your family home into superannuation the sale has to be completed after you reach age you have to be at least aged at least 65 you can be any age you like you can be 85 if you wish or even the older and let's say you're moving to a smaller home you know your downsizing sort of thing what as the and there's no work test so if you want to make a contribution from 65 to 74 now or before age 75 now you've got to satisfy a ridiculous work test you don't have to do that so there's no there's no work test there's no age test other than you've got to be over 65 you've got to be selling your family home now there are right there are some situations where people have lived in a home they've moved out and rented it out and they've moved to another place it's now their principal place of residence so there are rules around that so it's where your place has actually been your former family home or the family home of let's say you have a couple who get married later in life and they moved out at the time from a first relationship they moved out of the home they then moved on to another place there are rules around the ability to access the downsize the contributions in relation to that and there are also rules around let's say my partner owned my wife owned our house and I didn't know I didn't own it instead of being jointly owned then I would still be able to make the contribution so she could sell it we could downsize and we could split the price you know the profitable proceeds and we could then make a make a contribution to that now one of the things you need to bear in mind however is that of course the family home is it's not income tested under Centrelink Centrelink or veteran affairs income test and it's not counted as an asset under the under veterans affairs and Centrelink's asset tests obviously if you sell the family home and you have a proceeds left over from the purchase of another another property another another another home if you have proceeds left over and you contribute those to superannuation they will be counted as an asset and because they're sitting in superannuation they will be deemed so you've just got to you've got to factor that in if that's if that is important to you now the other thing I need to bear you need to say as well is that although you can get the money into superannuation if you have a transfer balance account that pensions of 1.6 million you then can't use that 300 grand to start a pension anyway so you go so it's if you like it goes into your pot you can get it into super it goes into your pot but then you got to work out whether or not you can actually use any of it to start a pension in the first place so you've got to make sure you there are a range of little tricks and tricks and rules there that you need to make sure that you you sort out when you if you're going to use that particular rule all right the next one is non arms length income and this currently applies to a very small number of self-managed super funds I had reason to go and actually have a look at this recently in the tax statistics that the ATO publishes about all taxpayers and for self self-managed superannuation funds and and apro regulated funds no apro regulated fund pays non arms length income less than less than 50 s itself many super funds I added 600 000 funds that are running around in Australia at the moment less than about 50 of them actually pay non arms length income what it is is that it is the highest marginal rate uh to for non arms length income and it might apply to income or capital gains from private company transactions uh distributions from discretionary trusts and other income where effectively you're deemed not to be dealing at arms length and most people have arms length arrangements and so they don't pay this penalty tax a good example of this might be let's say I run my own business and I have sold shares in that company or I gifted shares in that company to the to my self-managed superannuation fund but the current market value with those shares let's say I gift 10 shares to my fund and each share is worth a thousand dollars each in my in my in my company but I gifted those shares to the fund then that is obviously a um that is obviously a gift to the fund and uh and that is seen and as a not that would be seen as a non arms length transaction so chances are uh I would have to do that any any dividends I received any dividends the fund receives um would be subject to non arms length income so let's say that's how it's kind of meant to work what what is in play is that there is actually legislation before parliament which actually expands this rule and it applies to all transactions regardless of when they started or when they when they were actually took place and it'll apply from the 18 19 year onwards now it applies it looks at non arms length expenses and says okay if you have expenses that are incurred in the earning of income and they are not on based on a non arms length basis then you may have penalty tax apply so a good example of that may be let's say you have a limited recourse borrowing arrangement in place for your fund and you've loaned that money to your fund and you have loaned it at zero interest rate which is clearly a not not an arms length transaction uh that's a that the fund is incurring in that situation a non arms length expense of of nothing so what would happen is that this legislation would say well you've got an expense involved in the earning of income from whatever asset is bought with that loan that limited recourse borrowing arrangement that loan is is owning income on you we're going to tax that income that's earned from that arrangement at non arms length income rates i.e 40 at the highest marginal rate so that's the first thing and then the second thing is is so that's the first rule and then the second rule is that you have been able to purchase units in a unit trust at a non arms length income rate in other words you've been let's say you you've acquired units in a unit trust on a non arms length income rate and you're thinking that well you know where does where does that in that situation you may incur non arms length income so you've got it if you if you have any of those transactions you've acquired units in a unit trust in your fund for a discount first firstly or you think you may have expenses in your fund that are not based on an arms length basis talk to your advisors about that because you may find already in this financial year you may be one of the people that's earning income on a non arms length income rate so i'm expecting that there'll be a not a not a very large number but a larger number than people expected to incur will actually incur will actually be pinged by this particular rule it's not it's not a nice rule the government have to get it through parliament i'll wear that that's that's that's not easy as we all know when we're you know but by following the media and so on but they do have to legislate it from a legislative perspective this is reasonably non controversial so we i am expecting this to go through so we'll just have to we'll just have to wait until the right so keep an eye on this if you think this actually does apply to you and and if you think it does apply or might apply to start planning for it now i just have a quick question tony and it's from gordon who wants to know and sorry this is pertaining to the previous slide if you move from a house to a new home and rent the old home can the old home still be sold and then funds moved into super potentially yes i would encourage gordon to there is there was a very good law companion ruling legislative companion ruling that the atl issued they issued it it's i think it's might be still in draft form actually but it is available from their law website i would encourage gordon to read that and also speak to his advisers so potentially yes there are some qualification rules around that so just make sure that he's got all it's got lines up all the ducks in relation to that all right okay so and just one other question that's just come through sure about that non-arm's link income jack asked is there a problem for the super fund to lend money at market interest rates to one of its members yes there is a problem and that is a problem in that you are seen to be loaning mum you're giving for what is called financial assistance to a member of the fund and that is actually not allowed and even if it's market rates not allowed okay there you go there you go jack well look unless unless you want your fund pinned by the atl and you want to pay lots of tax so i'm assuming jack let's let's assume duck doesn't want to do that so so the short answer is no you can't do it okay let's move on okay all right so triennial smsf audits now this policy detail is still being worked on we have had a discussion paper released by the by treasury by the department treasury and the idea behind this is that it would allow some self-managed super funds to only be audited every third year it would be a three-yearly audit it is not so there's some confusion as to how this policy might work but the the policy design at the moment is that it would start from one july 19 that would be the first year it starts the government's objective with this policy they say is to cut red tape and potentially reduce compliance costs so if i am running my own fund and i am eligible to have my fund audited only every three years then it would mean that from july 19 if i slip into this rule i wouldn't need to get an external auditor to look at my fund until you know for three financial years and they would look at the 36 months of all of my transactions now what what that will involve is that that will involve the order to then going through what they normally do on an annual basis looking at that whole three-year period of time and let's say it starts in one july 19 they might ask me about a transaction that occurred say on the first of august 2019 and they might be asking me about that three years ago and what's the chance of me remembering what i did through you know what happened three years ago well if you ask me what i was doing three years ago on on the first of august 2015 i wouldn't have a clue uh and why it occurred so you're going to have to have a good memory now there are going to be a range of funds that are ineligible for this three-yearly audit so there are going to be some funds that are going to have to are going to remain annual now they are as roughly as follows people who haven't the fund people as in funds who haven't submitted their who haven't submitted an smsf return by the due date point number one at any stage in in the previous period of time funds who have been reported to the ato for compliance breaches and that is potentially only a small number of funds because only a small number get reported if the percentage terms a small number of funds get reported to the ato for compliance breaches and secondly funds that have certain types of transactions and it's this type of it's the design of all of these specific details that we're still waiting to see how it might work when the government release legislation draft legislation and regulations now the sort of transactions they're thinking this might apply to is that if your fund has a related party transaction so as an example let's say your fund owns commercial real estate and your business rents that out from the fund or there's some other related party transaction you have a unit trust and you're a unit holder you're a personal unit holder and yourself many super funders a unit holder that unit trust is convened to be a related party of your fund so that that would that that arrangement will be out so related party transactions probably not allowed an audit transact not allowed we'll start to get annual audits but also it might apply to funds that if you start or formally start commence or formally cease a pension in any financial year out of not part of the three-year audit or a range of other transactions so we're still waiting to see how many this might apply to now there will be a group of people who say I will will you save money by get only getting an audit every third year well that's the 64 million dollar question our members at Chartered Accounts Australia New Zealand argue that whenever they audit a multi a fund for a multiple number of years it actually costs more than if they did audits for every year on a on a on a single basis so don't necessarily assume that you will save money you may but you may not if this policy comes into play the government have to legislate this change they will have to make regulation changes at Chartered Accounts Australia New Zealand as I said we have members who audit smsfs so we have a range of members who support this policy and we also have a number of probably a larger cohort of members who actually do not like this policy so we're in we're in discussions with the ato well in the main treasury and the ato about this particular policy to see to make sure that if it does come into play that it actually is a workable solution there will be people who will be attracted to it so if I own just listed shares and maybe a range of bonds which are bought from figures or similarly it may be that you know those companies that are listed say on the asex well they're all ordered to buy some external firm and my bonds are ordered to buy by an external firm so why should I you know and all the transactions are coming to me from an independent source chess can verify how many shares I own and I'm just taking the income it goes into a bank account that bank accounts technically audited why why do I why does my fund therefore need an audit my family trust has not ordered it every year my company my bucket company's not ordered it ordered it every year why does my fund need to be ordered to every year it might be that it's just cheap you might just find that it's just cheaper okay we have a question here from Bruno who asks can funds still elect to have annual audits even though they're not obliged to do so yes you most certainly can you get so it won't be a compulsory thing you can get it's it's an sometimes you'll have to sometimes you'll fall out of the system because as I say you've done a transaction of a certain type or your your fund your fund hasn't quite complied with hasn't applied with all of the law so I would I would it's not compulsory so you can stay annual look for what it's worth I think I mean personally and this is just look I don't know anything fancy in our fund at all I would actually be eligible for three-year audit I'm a little bit unsure at this point in time I'd go for it I think I probably stay with annual just because I think it's easier it means you know the data goes through to my auditor if they ask me a transaction I'm more likely to remember it it's just an easier the process is in place I have a feeling my gut feeling is that people might be people might pile into people who are eligible for the three-year audit they might pile into it thinking that okay well let's let's let's just see how we go if we save money good that's great I think I think once they've gone through the experience once they might turn around and go you know what it's actually easy if we just go back to annual so I think there might be allowance for it but I think the number of people actually ultimately end up doing the three-year audit will actually be quite small um it doesn't mean that some people won't be attracted to it because they think they might save money uh and have less less less aggro I'm not convinced that that's the case when the rubber hits the road I think the aggro could just build for three years you've got a you know a big a bigger problem after three years as opposed to just an annual that's what you're saying really well it indeed you think so let's say okay so it starts from my list it starts from July 19 let's say I do something wrong in my fund in August 19 well that's not no one's and I don't know I don't realize I've done something wrong that's not been that may not be being fine found out the three years three years later it's harder to part of a soul where if I've done it I've I've did it six weeks ago or eight weeks ago whatever it is it's easier to tidy up rather than several financial years earlier where the where I've actually signed financial accounts and those accounts that the summary of those accounts have been submitted to the ATO on my annual return so I've actually signed those accounts to say they're accurate so yeah look don't don't think I guess what I'm what I'm going with is that just because you think okay that's a great idea I'm going to save money and it's going to be easier I'm not convinced that's the case all right so let's talk about the proposed labour changes the first of them is the negative is there's two issues there's negative gearing so there's going to be limited for new housing we don't quite know the start date to that and the scope of that and there's there's a harming of the capital gains tax discount for individuals but there's no impact on self-managed super funds we'll have to wait that's going to be based on new purchases and so on so there's going to be a transitional date for that we'll have to wait and see the scope of those the big one is obviously franking credits and franking credits obviously from July potentially from July 19 we did get a question yesterday as to whether or not this would require legislative change both of these changes all of these three changes negative gearing capital gains tax discount and franking credits they all require legislative change that they can't move without without amending the law so they've obviously got to run the government of whatever the makeup of the various houses of parliament are assuming that they they win the next election and although that might seem likely at this point in time based on opinion polls and so on as we know you know the old adage it's an oldie but a goodie you know weak is a long time in politics so they've got they've got to win an election they've got they've only got two minor things they've got to win an election and they've got to be able to legislate so that's not that's not a sure thing now for people who are age pensioners or veterans pensioners on the 28th of March 18 in their self-managed superfund they will still be able to claim a full refund of their franking credits everyone else is out I don't know why why they're out but they are our gut feel is that any self-managed superfund that has more than around about 10 million and earning a very healthy dose of franking credits probably can offset those without you know from from other income potentially not not exclusively potentially depending on the makeup of the fund from from other income they've earned so it does have a wide impact on on individuals and they're hence the rest we've got a lot of questions in relation to that so we do we've got quite a lot mainly people looking for alternatives alternative solutions to how do I derive income you know what other options are there which is where I'm going to talk to the next slide a little a little bit about corporate bonds and how in particular hybrids if you lose the capacity to be able to refund get those franking credit refunds then they become much less attractive as a product yeah 100 correct I think the thing to remember is that I think not thanks to anyone but we're probably all old enough to remember what the system used to be back in the late 90s where franking credits were not fully refundable and how people used to react in relation to that so I think if we can all just maybe go back into a deep but deep dark memory is that is to the sorts of things we might have done when franking credits in the past were not fully refundable all of that all everything old is going to become new again but anyway that's that how about we move to the next slide yeah so this just this table is a simplified bank capital structure and what it shows is the priority of payments in liquidation so you have at the very top of the structure the lowest risk product to being a deposit and moving down through senior unsecured bonds or senior bonds subordinated bonds then hybrids and shares so this structure works in that each layer or level has to be paid out in a liquidation scenario before subsequent levels can be paid so the subordinated bonds and I'm just going to talk mainly about them and compare them to the hybrids because they're the two asset classes I think are most interesting but subordinated bonds have a defined maturity don't interest must be paid on set set dates either quarterly or half yearly and the interest is known so it cannot be changed it cannot the company can say I'm not going to pay those interest payments this quarter for whatever reason it would then be an event of default on the part of the company and that would instigate a like a wind up or a liquidation so very important that payment on time at maturity and of income on the bonds is it's I'm not going to say set in stone but it's it's it must be paid and companies will do all that they can to make those payments in in comparison the hybrids take on a lot of additional risk and a far more complex investments so they have what's known as a call date which subordinate bonds also have a call date but failure to meet the call date of the hybrids and there can be one or two they they then become perpetual instruments so there is no maturity date and investors must sell and take market price to recoup capital so quite a big difference there hybrid income can also be foregone it doesn't ever have to be made up again very different to the bond there's a couple of other terms and clauses there one with the hybrid is a capital trigger clause so if a bank's capital falls below 8% it then starts to the the hybrid distribution then starts to be allocated on a percentage basis so I think it might be 60% you can then they can then distribute 60% of the distribution and that goes down to 5.125% is sort of the base trigger when the hybrids then convert to shares and that is to protect the bondholders senioring the structure and to protect the ongoing survivability of the bank so hybrids are known as loss absorbing instruments really important and if you look you can look that up on the ASIC website they're meant to help the bank survive so quite complex the other clause to talk about and this actually does apply to both the subordinated bonds and the hybrids is a non viability clause where apricon deem the bank non viable and both the hybrids and the subordinated bonds convert to shares again to boost equity and to increase the chances of survival of the bank so you can see there's quite a lot of difference in the terms of conditions and the risk between these two products so if we look across the table at yield per annum the current yields available on these securities you'll see subordinated bonds 4% and you'll also see hybrids 4% but the hybrids can and investors at the moment can claim franking credits so that actually takes the the income to five about 5.7% on the hybrids but if you lose that franking income or the capacity to claim it back you're then only earning 4% equivalent to the bond and this is where we're urging investors to rethink perhaps their asset allocation and if you're invested in hybrids perhaps think about substituting with banks of subordinated bonds I don't want to talk too much about this but I just want to make the point are that corporate bonds and bank corporate bonds are perhaps a place that you can go to get a lower risk investment for a like-minded return if you can't claim the franking credits of course the other option is to go the other way and to invest more in shares but our research and in fact industry research suggests investors have too much invested in bank shares at this point I'll leave you to perhaps come back and have a look at that table and we'll continue on we we have got some of those questions regarding franking credits so I will post some of those and we'll have a go answering them so Gary asks for warned is for in the event Labor wins the next election and assuming they can introduce the legislation on imputation credits is there anything an SMSF can do either now or at that time to ameliorate the effects apart from keeping some assets in accumulation mode yes certainly well pension phase is obviously nil taxed and so there's no offset the other thing is of course accumulation phases taxed at 15 so of course the 15 is going to be going to be offset there so it's going to it's going to come down to how much tax the how much tax is actually payable in the in the accumulation phase those with more money in their fund are obviously going to be able to offset offset you have more ability to offset so you need a reasonable sum of money in there the other the other option of course is to you know as we all know reassess whether or not a self-managed superfund is the right place to be holding these assets actually there is there is there is a concept that I was just just thought of which we'll talk about in a moment is that one of the things you could look at doing is maybe closing down the self-managed superannuation fund because we know that we pay more tax in our own marginal rates but of course older people have have the benefit of the senior Australian pensioners tax offset and so on and so forth but often have access to that and so have a much higher effective much much higher effective tax-free threshold than than ordinary wage and salary earners so that that may not necessarily work the other option is that you in a fund you just stop paying pensions whatsoever and so the whole fund becomes taxed at 15 so you then have more more ability to wash you know to claim some of these franking credits the third option is that you try and get rid of a whole bunch of money become an aged pensioner that's that's another option but I'm not entirely you know you're not necessarily exempt in the fund because you may not necessarily make that threshold date of March at the end of March this year the third option is is shut your fund down and move to an APRA fund if you want to retain the shareholding investments blah blah and of course that's that's a you know there's lots of decisions to go through there but if you if you do think you're going to have access franking credits one of the things you could do was move to an APRA fund that actually has the ability who is who has a much larger fund that is a much larger tax liability and you might still be able to get the same asset allocation it's probably going to cost you more money to run the fund you got to stay planning issues and so on so you but you might find that the large fund can actually make use of all of your franking credits which otherwise would have been lost in your fund and then obviously as Liz was saying you might want to look at changing your asset allocation completely and working out what what works from there so there's a range of different options so I agree with that four wanders four armed and I think anyone you know if you if you're a casual observer of politics I think you should be you should be factoring this into the future because it will impact it will likely impact your income levels there's a lot to think about so if you had hybrids now could you sell them and put them into some sort of managed investment scheme or something else that might then protect the you know like I know they're a hybrid for example hybrid funds not that I would choose to invest in that but well hybrids are generally listed aren't they they are listed yeah so because they listed on the exchange now it'll depend on whether or not a large fund is actually what is so some you'll find some large funds will only accept certain type of ASX listed securities they won't necessarily accept all of them right so if you want if you have hybrid if you're saying okay well I've got hybrids in my in my smsf and I would and I and I like the idea of closing my fund out or whatever it might be you know what are your circumstances or even transferring some of my money out of the fund or even my pension money blah blah whatever you decide to do and you go okay I'll move the money into the apricot you want it whatever fund you move to you want to make sure that they can accept whatever your asset holdings are right a lot of them can but some of them can't you know some of them choose not to so as an example there are a range of apra funds where they only accept a small range of listed investment companies some exchange traded funds and the ASX 300 now that's not hybrids no yeah so you want to you want to check with a fund whether or not they actually would be able to take those across you know you can transfer them across through the chest system that they would actually take them on and they can actually let it minister those behind the scenes into your into your account we've got so many questions here and I'm going to just apologize if I don't get to yours I'm hoping we can cover it fairly fairly broadly um people talking about transferring um in specie from the fund to themselves so holding the assets in a different way is that yes so what so you can do that now what you would be doing is you're actually making a lump sum payment out of the fund so you're actually doing if it's in a pension you've got to stop the pension then you've got to make you take the money out now depending on you if you're let's assume you're over 60 in which case the lump sum the money comes out tax free you've got the set you've got effectively the fund is selling the assets so that is you know you've got to make sure you you uh you sort that out um and you've got to make sure you you fix everything up there appropriately within the fund itself in other words do proper account not only the financial accounting but the tax accounting but you're actually making a benefit payment and you can make benefit payments in specie as long as it's done at market value okay great we've got a question from vis vis war is there a difference between how frankincrow that's a paid back to funds through an smsf and an apra regulated fund uh in principle vis war no there's no there's exactly the same so the whole the process is exactly the same the difference is is that an apra fund has lots of members with lots of employer contributions it probably has more money in accumulation phase and it has in pension phase and just has more ability to soak up any frankincredits that they have in the pension phase as people as as more and more of us get older though that will change in in in apra funds so there'll be a cohort of apra funds that actually already i actually know of some apra funds which actually um have exactly the same a lot of smsfs there are some apra funds that have exactly the same problem because they have more pensioner members and they have the accumulation members of course yes so it's it the principles are exactly the same right so there are some funds out there you know a lot of them are closed you know maybe only for you know in a variety situations we have about time to talk about how these funds have been created but there are apra funds where they would have 99% of their members maybe even 100% of their members in pension phase so that's exactly the same issue we've all got it we all have to deal with yeah correct yeah whereas whereas you'll have other other funds where they might have 80% of their members in accumulation phase and 20% in pension so that that fund in that member make up they've got a much greater because they're getting lots of employer contributions they've got much greater abilities so you know much more tax to pay in the fund they can suck up that tax liability all right um i think we'll move on okay all right it's a big it's a big topic and think about and certainly see your financial advisor so many options i think yeah look indeed and look i would be encouraging you to talk to your administrator and accountant about what the impact for your fund might be and i know you know that the the policy itself hasn't been fully designed there may be some more concessions that they offer along the way maybe not before the election a lot of find a lot of people find this a very complex topic so i think the ability to talk about this in you know on the tv and the radio it's somewhat limited because we're talking about complex tax truck you know relatively speaking relatively complex tax structures which is a very you know it's pretty dry and it's difficult to talk about that in a very simple way so i'm not entirely sure that this has much cut through from a from an election perspective if that makes sense it does obviously in some cohorts you know there's a lot some people who are impacted very greatly others not at all um so there might be some concessions later on but once once the they get to the legislative design phase uh so but i would encourage you to talk to your advisors and accountants as required and fully understand what this might mean for you and then if necessary considering what adjustments you might make um fortunately we have enough we all have enough time to adjust but you know time waits for no no one so we've got to make sure that we're ready to ready to roll if we need to ready to rumble if we need to right all right okay so interesting court cases now cam and bear versus mcgaldry this was actually written up in the financial review recently this court case so there was two court there was actually two court cases here one was uh one was in the supreme court of the new south vile supreme court and then the other one was in the court of appeal uh the new south vile's court of appeal so cam and bear was the trustee it's actually cam and bear proprietary limited cam and bear was the trustee of the self-managed superannuation fund mcgaldry was their auditor um the cam and bear the people in the the members of the of the cam and bear superannuation fund elected to put their money into certain types of investments uh the investments that they put the money into unfortunately went bad and were described in the financial accounts as cash now they were described as cash but they weren't really they were actually unsecured it was actually unsecured lending they were actually loaned on an unsecured basis huge difference in risk there indeed and they loaned it to an entity that was related to the administrator of the fund and the administrator recommended the auditor the recommended said okay well how about we use mr mcgaldry to order their funds and the person they gave the money to on an unsecured basis went belly up so cam and bear said look mcgaldry said we were quite happy with this we thought cash meant cash uh we didn't think it meant unsecured borrowings and if and if mr mcgaldry had done his job properly we would have we would have acted accordingly now the new south vile supreme court said yes mr mcgaldry hasn't done the right thing he should have investigated should have worked out that this was was incorrectly described uh he didn't do what you know was was negligent but he also said to the trustees of the fund even if mcgaldry had turned around to you and said um you are a bit naughty you have done the wrong thing um he said even if i said this is not this stuff's not cash you still would have you still would have done what you were planning you still would have done what you were planning to do um and so in other words they're basically saying you wouldn't have listened to him so the court said court initially the court said to cam and the cam and bear trustees cam and bear proprietary limited said yep you won the court case uh but your problem is is that we're not going to give you any compensation and you can pay mr mcgaldry's court costs so although you won the case you get to pay mcgaldry's court costs and your own court costs and you get no compensation so the trustees weren't very happy with that so they appealed to the supreme they appealed to the court of appeal and they won that case three nil so of course there's three judges here in that particular case they said yes mcgaldry is negligent we still don't know what the compensation is there so the reason why this is an interesting court case is this is the first time to the best of my knowledge that action has been taken by the trustee of a self managed superfund against the work of the auditor of the fund for not making sure that the assets have been accurately described in the financial accounts so it's a very interesting case uh and one that is being being looked at very carefully by a lot of snsf auditors um because you know how do you know you know their job is to make sure that the assets are accurately described as so it's very easy uh if my fund owns let's say uh you know a large company listed on the on the asex you know one of the top 20 companies let's say it's very easy for them to go to the chess system and see that okay yes well actually you know we can actually confirm that you know the shares aren't so on and so forth but when you get away from things like that or bonds or whatever my beats much harder to verify so the um the more complex i guess your fund is in terms of the assets and owns expect your auditor maybe to be doing a little bit more work to verify that what you say it is it actually is if that makes sense all right so that's the first court case the second court case involves the um the deceased estate of a gentleman by the name of mr hems uh as i said um the hems family are involved in owning pubs and clubs in here principally here in sydney in the in the sydney uh metropolitan area now what happened was is that mr hems died with um owning my as i understand it according to the court case died owning more owing more money than he actually had in his in his own name his family live in however his family live in a reasonably nice residence in in our ball clues or somewhere near ball clues here in here in sydney um but he didn't actually personally own any of that real estate as i understand it now he had a child uh out of wedlock he's been married to the to the same as i understand it to the same same woman for very many years and from that marriage had two children two adult children uh both of whom i think run the the this pub and club empire he had a child out of wedlock um whom after after because of a family law court case actually part child child maintenance too but otherwise apart from paying child's maintenance had very had no relationship with this particular individual so uh mr hems just died uh and then his his uh for one of our attorneys estranged son elected to say he was there was no allocation in the estate for him and so what he did was that he said well i don't think that's very fair and commenced legal action against the estate uh and what the estate agreed to do was that they agreed to take money out of a out of self-managed superannuation funds plural i don't know how many funds because it doesn't the court case doesn't say but took money out of the self-managed super funds agreed to hold it in their scroll until this court case was determined and the son was able to acquire some of that some of that money out of those self-managed superannuation funds now in here in here in new south wales where where we are um we actually have what is called the family provisions act part of the family there are family provisions uh where if you if transactions have been done over a period of time uh and you're not happy with your allocation if you can show that you are a relative of the deceased you can seek to get the will overturned on the basis that inadequate provision have been made for you now there has been some doubt as to whether or not those family provisions rules in the wilson estates legislation here in new south wales actually applied to superannuation this is the first one of the first major cases where it seems and there's actually been a second one in time where it would seem that the that the money that you might be putting into superannuation can also be extracted in order to satisfy the the um the what the court deems are legitimate claims of um of people you haven't made provision for so this is something that i the reason why this is an interesting court case is that if you live in any state but or have assets your own assets here in new south wales and you have a situation whereby you you've had uh one or more relationships and you you have family who you think might claim on your estate just make sure you factor in okay well i have money in my self-managed superfund or another superannuation fund just factor in the just factor in that it may be that your that that family member can actually claim on those superannuation assets so speak to your wills and estates lawyers and talk to them about whether or not they can that can be claimed on and what you might be able to do in order to um not not not allow that to happen or or kind of mediated in some way so make sure make sure you understand how how all of that fits together fascinating yeah look this is um this hems case and as i say there was a second case recently which of which we didn't which we're having detail here because it's actually a little more complex even than this hems case um uh i wouldn't uh so we've had two cases in the last three three months four months or so where this this is where self-managed superfund money has actually been used to satisfy a family provisions case here in new south wales um uh new south wales is the only state that has the family provisions laws but it doesn't mean that in other states you can't run a similar action and of course there are a lot of people who live who don't live in new south wales who own assets based here in new south wales just a few more complexities for the bucket indeed indeed okay all right so that's that's the call cases so let's now talk about the raw let's uh let's finish off just very quickly with the um with the raw commission and the productivity commission i'll start with the second one first if you don't mind lis no go for it okay so the productivity commission as i said they released a very brief 550 page draft report they've called they call for submissions in relation to that draft report and many people made submissions to it you can go onto their website and read those at your leisure if you wish um now they made some fairly uh fairly interesting findings uh changing things that we probably you know now is not the time to be talking about but this is but the productivity commission what will happen is that they will uh they will issue a final report towards the end of the calendar year more than likely uh and then the government will assess that and then make some decisions going forward and um we will then have to wait and see what what ultimately the government will then consider it um and either accept or reject any of the any any or all of the um any all of the the recommendations that it receives from the productivity commission we will have to see where all that goes um as i say they made some fairly interesting findings um there will be no fund i think there will be no fund that is not impacted by the product how i can't say because it's a bit too early but there will be no no fund ultimately that is not impacted by the product commission findings in one form or fashion there will be flow on impacts for a number of years i think i know i was reading just recently people were making submissions to the commission that an smsf had to be a minimum amount so one one i'd read it had to be a minimum a million dollars which seems quite high but they were arguing small smsfs didn't make enough money or not high enough returns yes now there's there is some there is some doubt about the um uh it's a bit difficult to know how the how the productivity actually made their determination looking at the looking at how they you know compare let me go back on step i am not i'm yet to be convinced that the productivity commission was looking at the right data to make that make that assessment um i have a suspicion that there was some so they relied on ato data and i think the ato data includes some expenses and some items that are not included in apra data when they work out annual returns and they were comparing like for like at that particular point in time so i'm not convinced they were comparing like for like um we will have to wait and see whether or not that is the case but that is the suspicion at this point in time so um would the product so the productivity commission might make a recommendation to the government yes there does need to be a minimum amount of assets what we know what we what we know is that there are a lot of people who start their fund with not a lot of money in the fund and over time build it up um i remember we started our fund with a thousand bucks and then we transferred money in from our other fund so the primer facie then does that mean that i'm starting that under those rules i couldn't start my phone because it didn't have the money available at the point on um i think there are a lot of people who start their fund with not a lot and as i say they either get money from other funds or they contribute large amounts of money over the first one or two years it's just the way it's the natural evolution of how the fund is run they've got a plan about how they're actually going to use this thing start small and then and then go from there however there are a cohort of people who are running small funds who should reevaluate why why do i have this thing um and they should be looking and saying is this actually worth my while there was also a cohort of people who run a very small a fund with a very small account balance because it makes sense for them personally they might own a particular type of asset in the fund that they want in there they might be a day trader and you know they think okay well i'll i'll hide off part of my retirement money into a special little fund and i'll i'll muck around with that you know it'll be my feel like my playground from an investment perspective so there's a range of people who legitimately have a small fund um but i don't i look i'd be surprised if that rule comes into play so i'm not far away from me to say what will i want but i'd be surprised all right now the royal commission again um you know the next uh the remainder of this week and all of next week the superannuation sector is going to be reviewed by the commission the commission will issue an interim report towards the end of next month which will not involve its findings in relation to superannuation that will come later this year so they'll they're gonna they want to go away and think about what they've found in relation to the superannuation industry uh just as the first two days of hearings the if you read the handset or listen to it or watch it it hasn't been very pretty the remainder of this week and all of next week also will not be pretty for the for the sector that is the reality um and well that's my prediction it's about the remainder of the period of time um again i don't think any fund in Australia will not be impacted any financial transaction will not be probably impacted by the findings of the royal commission again they have to make recommendations the government have to consider it then we have to let the legislation and so on so we're a long way from anything really happening in relation to this um there are a lot of people who are expressing surprise about the royal commission what it's what it has actually revealed um personally i'm surprised that people are surprised uh so i i just think you know what rock have you been living under that you that you haven't worked out that conflict of remuneration make creates conflict um uh and that you know whether whether we like it or not there are some people who are in the financial game for their own benefit and if their clients do well out of it well that's that's great but i'm i'm here for me so i i just think um we shouldn't be surprised by what comes i don't think we should be surprised by what the royal commission finds it is it is good that these things are talked about a little bit more openly uh i personally haven't really been that surprised as i'm probably indicating by what by what's actually being discussed um but we're like it'll be so it'll be years before this this stuff washes through the system in terms of formal rules but certainly more compliance for banks and there was just that discussion this week about um opera putting putting their stuff into the banks yeah opera and as well i think it's as yeah so so the well the regulators anyway putting themselves into you know being physically present um uh as as as we all know um the banks are very large organizations that are in a lot of places um so i don't know how thinly the the asset people have been spread on the ground amongst all the various offices that the banks all the banks have um i guess they'll have to work that they'll they'll work all that out plus reporting and so on and so forth so we'll we'll see we'll see what that where that leads to okay um probably time for a couple of questions sure um so we have a question here from david please comment on the proposed amendment to the work rule allowing a one-off relaxation in the rule in restricted circumstances okay so um that is a proposed change we haven't seen any any draft rules in relation to that that was an announcement in the in the budget um the government will allow for people with a relatively a smaller amount of money not to have to set once only not to not to have to satisfy the work test once they get to at least age 65 and less than 74 this is not the downsize of stuff this is actually in addition to that um as i say we we haven't seen any draft rules so all we have is the announcement that was in the budget so that's why you know it was very very uh thin on the ground for what a better term as far as how it would actually work in in specific detail so we're going to have to wait and see how that rule actually works in principle but that's that's what it's so it's a once it's a once only rule so david asks with reference to hems would binding debt benefit nominations in favor of other beneficiaries have prevented the claim on the smsf that's a very good question david it's a that's that's difficult to know um i look i um uh the the how the how the funds themselves was structured and the way way benefits were going to be paid out of the funds was actually not discussed in the court case uh and it would be i it would be you know i haven't sent any of the documentation you know that i haven't sent any of the court documentation so i'm not privy to any of the finer detail so i don't know that um looking at how they elected to use the proceeds in the fund to satisfy the the claim by the by this by the uh the step son or well not the step son but the son the son not born from mr hems marriage uh i don't know so i don't know how they actually came to make that decision that they'll use those proceeds rather than maybe some of the other money that the family may have had access to i don't know how they came to to make that decision um now if you had a binding nomination the whole principle behind a binding nomination is that the money goes out straight away to the beneficiaries as nominated as long as the trustee deems that that nomination to be accurate and effective so that may that may have that may have worked or maybe uh look it's it's complicated i don't know we'd need to see some of the document further documentation to know if that would work okay a couple of quick questions i think here um uh col asks uh do you believe an smsz should be breached if a bank account is not exactly named as per the trustee uh well um what you are required to do col is that you have to have the assets of the fund in the name of the name of the trustee and if we let's say we have a corporate trustee so we have x y z proprietary that is trustee of the smith family superfund or smith self-managed superfund that's how you should ideally have it should have x y z proprietary that's trustee trustee for the x the smith smith superannuation self-managed superannuation fund so you should ideally have that um without that how how can the auditor be sure that we're actually talking about the right bank account um i think it makes it a lot clearer um i think it makes it a lot simpler your auditors in my view your order to be should probably be saying something to you that you don't have the asset a major asset of the fund in the in the name of the name of the fund itself so i i think that's i think it should be it should probably be done great um william has a question um let me just uh what advice would you give a couple with an smsf that is managed by one partner and the other party is passive and the active partner is no longer able to do the management uh okay well let's let's uh let's not talk about why they're not able to do it so that might be for mental or physical you know incapacity um that is a that is a very common thing um in in those situations you should either be looking at uh so so firstly do you need to get the court to a court to agree that the individual themselves cannot act for themselves anymore uh and you know that often does involve you know going to the court and getting the court to sign off on that so you know someone can't legally act for themselves anymore due to mental or physical reasons that's first thing then then should you be saying okay well i personally don't have the capacity to run this fund because i don't have either the knowledge or the scope or the time or whatever it might be you know you might be busy looking after your your your spouse on a relatively full-time basis uh in which case you don't have the time ability or scope to manage the fund in which case you maybe consider should consider closing the fund down and winding up the fund uh i'll just warn you though that winding up the fund it is a bit it's it's a trick it's a itty bitty process to be honest with you it's it's trick you know there's lots of lots of moving parts um and uh and it takes time so it's not it's not something you know you can't say you can't decide today i'm going to wind my fund up and tomorrow it's done it does take time you've got to sell the assets you've got to pay tax liability you've got to get the fund ordered you've got to do this you've got to do that you've got to stop you may have to stop pensions there's a there's a there's a bit of mucking around to do talk to your advisor and accountants about that i think but your your best court of action might be to close the fund down uh you might get a guardian appointed by the court uh and you might have someone who can help you run the fund that may that may be an option as well so there's a range of options for you but closing the fund is down getting someone else to be run the fund first part of first part of call though is to consider whether or not you actually need to get the um the court to a point to say yes this person can't act for themselves if that's an appropriate thing okay um neville's asked a whole range of questions and neville i just want to thank you but we might um take those aside from from the webinar today uh and i just wanted to um put forward a question from chris and i won't say it in your exact words chris but chris is wondering is if he has a one million dollar super fund uh and he wants to can he give away some of his assets how can he um reduce the amount let me see if i can get this right um if he can't put any excess into accumulation mode um which is the makes the amount not accessible and bring my assets down to all level which gets me he's after the healthcare card and depending on the math maybe um a pension amount so he's probably looking at china move his assets around yeah to try and get the benefits of pension and and accumulation he's trying to do what's called gifting right okay trying to give the money okay so uh under center link and veteran affairs there are um anti-avoidance rules in relation to gifting um so what he should do is make sure he's fully understand those gifting rules because there are you know they start before you retire so you know let's say i'm 61 62 and i try and give money away then it may trap my money but if i'm if i'm currently an age pensioner so over 65 at least uh and i uh want to give money away so i get hold of the age the healthcare card and the age pension then um there are as i say they're a gift what i call gifting and what i call gifting anti-avoidance rules but they really they're called the gifting rules so um just make sure you google those and and have a read of them and talk to center link about it too okay um i think that's getting close to finalizing the presentation do you have anything else you want to chat about tony any advice or suggestions do you want to give to our listeners today yes look um i would just go back to um i if you don't mind um i just think it's very important that people make sure that the the um the morrison term below Dwyer changes from the first announced in 16 legislated with pretty much with effect from july 17 were very far reaching were quite complex uh and i would encourage people to make sure that they actually do review to make sure that they actually really understand they really make sure they got all that squared away properly just do a very do your own review do you know talk to your advisor and accounts to make sure that everything's been squared away really finely because you know the the consequences are getting it all right it's it's not very not very nice um so that's the mate that's my main takeaway um the other one is is really understand whether or not the family provision rules might apply to your your your fund uh and then of course with frank you know obviously with franking credits there's a lot of things to decide as well about this actually policy so and and and keep enjoying keep enjoying watching the royal royal commission i think so they might they might three three or four takeaways it can be very entertaining um i just want to thank you very much on behalf of all our clients and potential clients on on the line today thank you for joining us and imparting your wisdom pleasure i know we've raced through some of these topics and hopefully at some future date we might have tony back to answer more individual questions but thank you so much and thank you for joining us today we will be sending a a copy of the recording to you either later today or tomorrow so you can re-listen slow down check the slides check some of the names of the court cases etc um thank you very much for joining if fig anyone fig myself or anyone here at fig can help you if you're interested in corporate bonds please let us know but that now concludes the presentation good morning have a have a good rest of the day