How much do you know about your responsibilities as trustee (or as director of a trustee) of a Super Fund?
The Institute of Chartered Accountants has released a very useful training tool for trustees of Self Managed Superannuation Funds: http://www.smsftrustee.com/
This program is designed in line with ATO expectations of trustees.
You can register and do the course on line at the website mentioned above. It will take you about an hour to do, and being fully automated, no-one assesses your results! It’s all about educating trustees. We recommend our clients visit this site and further their knowledge. Particularly in light of the Cooper Review recommendations, it will become increasingly important for trustees to know and be able to discharge their responsibilities.
Reading the materials contained in the program will give all trustees excellent information about:
- the investment restrictions imposed on trustees of a SMSF;
- the rules and limitations surrounding contributions and benefit payments within a SMSF; and
- administration involved with a SMSF.
The Commonwealth Government’s response to the Dr Ken Henry’s Review into Australia’s Future Tax System, released to the public on Sunday May 2, 2010 has been described as “a timid first step towards serious tax reform” by the Institute of Chartered Accountants in Australia.
The overarching objective of the Henry review was to build a stronger, fairer and simpler tax system to meet the challenges that lie ahead. While Dr Henry has delivered on what was asked of him, the Government has addressed only a handful of Henry’s recommendations.
Alan Kohler describes it this way: the Government is proposing to adopt 1.75 of Henry’s 138 recommendations, or slightly over 1 per cent. The Resource Super Profits Tax is one of the Henry recommendations, but the cut in the company tax rate represents only about a quarter of the recommendations about company taxation, and the small business concessions are about a half of what’s proposed.
The centrepiece of the Government’s response is a new ‘super profits’ tax on resources projects along with a boost to the superannuation guarantee and a cut in the company tax rate.
All commentators seem to agree the government’s response to the Henry Review is “short term, election year politics”; a missed opportunity to attempt real tax reform.
It will be interesting to see the debate unfold over coming weeks and months.
Last week’s announcement of the third round of preliminary recommendations of the Cooper Review into Self Managed Superannuation in Australia contains relevant considerations for all Sage Advisers’ clients.
Chief among the recommendations are:
- prohibiting investment in collectables and personal-use assets (such as artworks, stamp collections, wine collections, exotic cars, racehorses and yachts);
- making the ATO's penalty regime more flexible to enable more effective and equitable regulation; and
- reducing the potential to benefit illegally from related party transactions by prohibiting the acquisition of in-house assets and imposing restrictions on the way in which an SMSF can transact with related parties.
It is also proposed that there be an online SMSF resource centre to help SMSF trustees build skills and make better decisions. We will keep you up to date with any legislative changes which result.
Treasury has announced a report indicating the future direction of the financial advisory sector: The Future of Financial Advice, Sen Chris Bowen, 26 April 2010 which aims to abolish commission based remuneration for financial advisers.
Sage Advisers’ clients should feel reassured to know that in all areas of proposed legislative and policy reform in relation to commissions (e.g. trailing commissions) payment structures, professional qualifications and regulations we are already compliant. Indeed, we are “ahead of the pack” in terms of our “fee for service” structure and our independence philosophy. We established our firm in the belief that a financial advisory firm in the 21st Century cannot operate under the commission based structure of remuneration with its inherent conflicts of interest.
We go further by benchmarking our portfolios against industry sector averages.
Sage Advisers welcomes the proposed government changes due for commencement in July 2012 based on what has been mooted to date. It will be interesting to see if the government has the courage to change the life and general insurance industry commission based structures as well?
In our 20 January 2010 post we detailed the Full Federal Court decision in Bamford v Federal Commission of Taxation. The High Court of Australia handed down its decision in this matter in the meantime, on 30 March 2010. The case deals with the basis upon which beneficiaries of trusts should be assessed for tax purposes.
The relevant points to note from the decision are:-
- the term “income of the trust estate” is to be ascertained by the trustee according to appropriate accounting principles and the trust instrument; and
- The “proportionate view” of beneficiaries’ entitlements is the approach to be applied when determining their “share” of the net income of the trust estate to which the beneficiary is presently entitled. Another way of saying this (in the words of Sundberg J) is to say the natural meaning to give to “share” is “proportion” rather than “part” or “portion”.
The practical consequences of this case for discretionary trusts and their trustees and beneficiaries are:
- the annual distribution minutes must be calculated by reference to the trust deed determining the beneficiaries then presently entitled to a distribution from the net income of the trust estate on a proportionate basis rather than on a quantum or “dollar amount” basis; and
- trustees must be aware of the provisions of the trust deed and take care that its administration is compliant with the terms of the deed, particularly in relation to the definition of “income”.
Trust Deed Review
In light of the Bamford decision, it is important that trust deeds be reviewed so they:
- Contain an appropriate definition of 'income' ;
- Contain a power for the trustee to determine whether receipts are to be treated as capital or income and, in the absence of such a determination, that the income of the trust is deemed to be equal to the 'net income' under section 95 of the 1936 Act.
Please speak to us if you are uncertain about the provisions of your trust deed.
Just as the Kenny Rogers classic “Coward of the County” ponders whether to play or to fold the cards, you may be facing a similar quandary in your investment portfolio.
The VIX Volatility Index has risen 30% in the last fortnight based on the debt crisis in Greece and the uncertainty facing the rest of Southern Europe.
There are considerable negative reports in the international press.
In contrast, the Australian stock market has recovered a significant proportion of its GFC related losses and we are constantly being told how strong our local economy is performing with our banks starting to announce extraordinarily strong results. But where are we headed?
The idea that you simply “hold onto your investments because eventually the market will go up” is not the best investment strategy.
Your risk appetite will differ from the next person. You know what keeps you awake at night and your family knows whether you can relax on the weekend. It is of critical importance that you communicate your “risk appetite” to us as your advisers. It may also change over time.
Selling can be a good risk minimisation strategy during times of uncertainty. It is something you should seriously consider. You can always buy back in... the next day, week or in months to follow.
In the May 2009 budget, the Commonwealth Government announced changes to the current R&D tax concession program to increase the level of support available and make the refundable credit available to companies in tax loss with no limit on the level of R&D expenditure they undertake.
The main points of the program are:
- Small firms with less than $20 million pa turnover will receive a tax refund of 45% when they file their tax return (= 150% concession)
- Firms with more than $20 million pa turnover will receive a 40% tax credit on filing their return (=133% deduction)
As an interim step, the R&D expenditure cap for the current tax concession offset will be increased from $1 million to $2 million for 2009-2010. The R&D Tax Credit legislation is not yet in final form but the system will come into effect from 1 July 2010.
