Are Your SMSF Clients Ready For 1 July?



The 13th annual SMSF Association National Conference was held in Melbourne on 15–17 February 2017. Unsurprisingly, this year’s event focused on the impact of the upcoming super reforms and how advisers and accountants can guide their SMSF clients through the changes.

With major super reforms coming into play on 1 July, accountants and advisers from around the country met at the SMSF Association’s National Conference to discuss the changes. One of the speakers was Craig Day, Colonial First State’s Executive Manager, Technical Services.

“While the new rules aren’t specifically aimed at SMSFs, they have the potential to impact members in these funds just as much as other funds,” Craig said.

“The thing to remember is that a lot of the rule changes are complex and most SMSF clients won’t be able to manage things themselves. While most advisers are aware of the changes, a lot have been surprised at the scale and complexity, so now they’re starting to realise the amount of work they need to do.”

A new era of SMSF licensing?

It’s no secret that the accounting industry’s response to new SMSF licensing requirements has been sluggish. But Craig believes the upcoming changes to super rules may drive more accountants to become licensed SMSF advisers.

“A lot of people waited to see what would happen, hoping they’d still be able to operate under the same model,” Craig said. “But it’s now quite clear that it’s going to be very difficult to assist your client through all these changes without being licensed.”
Despite the challenges ahead, SMSF professionals who are willing to roll up their sleeves will reap the benefits.

“It’s a huge opportunity for accountants and advisers who either get licensed themselves or partner with a licensee,” Craig said. “Otherwise, they may end up losing business to competitors or having to refer clients elsewhere.”

Prioritising your clients

The current reforms represent the most significant changes to Australia’s super system in the last decade. Many of your clients are likely to be affected – and in many different ways – so it’s essential to look at each client’s individual situation and tailor their strategy as needed.

And while the volume of work may seem overwhelming, Craig says a systematic approach is the best way to tackle the deadline head on.

“If you’re concerned about not being able to do everything in time, you should identify the key actions you need to take before 30 June so you can prioritise those clients,” Craig said. “After that, you can focus on clients whose issues you can address after 1 July.”

Making the most of the CGT cap

At this year’s conference, Craig’s own presentation focused on the lifetime capital gains tax (CGT) cap for small business owners.
Under this rule, Australians can contribute up to $1.415 million to super from the sale of a small business, without it counting towards non-concessional contribution cap. This is designed to help people who are relying on the sale of their business to fund their retirement.

Craig commented: “It will make a difference for many business owners after 1 July, when the three-year cap for non-concessional contributions goes down from 540,000 to $300,000.”

Here are a couple of ways you can help your SMSF clients take advantage of their lifetime CGT cap.

1. Get the timing right

From 1 July, clients won’t be able to make non-concessional contributions once their super balance goes over $1.6 million. While this rule doesn’t apply for small business contributions made under the CGT cap rule, a small business client might run into trouble if they plan to make a non-concessional contribution down the track.

“It’s important to remember that while amounts contributed under the CGT cap are not treated as non-concessional contributions, they will count towards a person’s total super balance,” Craig explained. “So, if a client makes a contribution under the CGT cap in the lead-up to 30 June in one year, it could impact their ability to make non-concessional contributions in the following financial year.”

Other rules around the timing of these contributions depend on a range of factors, including your client’s business structure. Therefore, it will be important for your client to get tax advice from their accountant to ensure the required payments are made by the relevant dates.

“Problems can arise from mistakes as simple as not lodging a document at the required time,” said Craig. “Suddenly your client’s contributions are restricted to $300,000 instead of $1.415 million, which could have a significant impact on their retirement strategy.”

2. Consider streaming contributions

Under the small business $500,000 retirement concession, contributions made from the sale of a small business don’t need to be paid according to shareholding. Therefore, where a couple is selling a business, all of the tax-free gains could be contributed for the spouse with the lower super balance.

This could help even up their balances and maximise the amount that can be converted to the tax-free pension phase. So it’s worth thinking strategically about which proportion of the proceeds each SMSF trustee should receive.

Craig commented: “Just because a husband and wife each own 50% shares in the company, it doesn’t mean you have to split the proceeds evenly under the $500,000 retirement concession. If one has a super balance near $1.6 million and the other’s is much lower, you may wish to consider streaming all of the gains to the spouse with the lower balance and avoid pushing the spouse with the higher balance over the $1.6 million mark.”

Don’t forget estate planning

It’s important to realise that any changes to a client’s super strategy due to the 1 July changes may have a knock-on effect on their estate planning needs. This may be especially the case where they have made large contributions under the CGT cap in the past and used those amounts to commence pensions.

“If a client has a large pension over $1.6 million and they now need to commute part of it due to the new $1.6 million transfer balance cap rules coming in on 1 July this year, you may need to get the client to review their estate planning wishes and make any adjustments necessary,” said Craig.

“For example, where an amount was moved out of a pension and either paid to the member as a lump sum or transferred back to the accumulation phase, they may need to review their wills and binding death benefit nominations. Unless the client’s estate planning arrangements are reviewed at that time, their assets and super could end up being paid not as intended after their death.”