Complexity of proposed new Superannuation rules
The proposed new rules to govern the superannuation industry seem certain to add complexity and expense to the administration of SMSFs’, if enacted by the senate in the next parliament. Chartered accountants and/or accountants would need to determine what un deducted contributions a given SMSF was entitled to receive without breaching the new retrospective contribution rules, and what asset(s) would need to be transferred into an SMSF’s accumulation fund, to avoid breaching the new $1.6 million allowable limit of assets set for pension funds. Some arising queries likely to vex a compiling chartered accountant or accountant are listed below.
The values of shares or property held by an SMSF can rise or fall a lot with market forces, causing a given fund to prospectively breach or else fall well below the $1.6 million cap set on any pertinent end of financial year balance date. Funds in pension mode which must pay 5% of the value of the pension’s assets to members aged 65 and over in the following financial year, and that hold property which is not readily redeemable, could experience difficulties when obliged to transfer surplus assets over the set limit into an alternate accumulation fund.
Cash flow problems may arise regarding the payment of pensions in some circumstances where assets had to be transferred to an accumulation fund, so hopefully this mooted legislation would include some common sense provisions. The additional bureaucracy and expense imposed by the proposals are also regrettable.
One commentator stated that the new rules would enable an SMSF holder who initially had the allowable $1.6M or less in a fund to increase its value from proficient investing and still not pay tax on the pension paid from its increased value. If that premise is correct then an SMSF that increased in size from $1.6M Chartered Accountant: Chartered Accountants in Australia to say $5M, and was paying an annual pension of 5% of the fund’s value, could then receive a tax-free $250g per annul income. Cash strapped governments would inevitably seek a means of taxing similarly successful SMSF’s in that regard.