What is a self managed superannuation fund?
A self managed superannuation fund is a concept of investing in a fund designed for an employee’s retirement. The members of these funds are treated as trustees. These trustees control their contributions as well as payments of their benefits.
Latest announcements
The Australian government has made recent announcements on superannuation funds. It has proposed changes to the administration rules, which if implemented, would enable superannuation fund members to consolidate and transfer their assets efficiently and effectively.
Some of the key aspects mentioned in the announcement on March 10th 2010 included:
the selling of instalment warrants to these funds to be specified as a financial product
the tax consequences affiliated to a fund held by a trustee, entering into a transaction, do not belong to the propertytrustee, but to the fund
the superannuation trustee when purchasing an asset, is to be treated as the owner of the asset when entering into non-recourse borrowing arrangement, for income tax purposes
it has been recommended that the property trustee under the arrangement should adopt a more active role in managing the asset
What are limitations of this announcement?
The announcement will not have any critical effect on the competence of Self Managed Superannuation Funds [SMSF], which aid in purchasing real estate as well facilitating that particular purchase. Moreover, the proposal will not extend to arrangements that are 'private' in nature.
What are the other changes?
There has also been considerable debate surrounding the income tax treatment of Instalment Warrants and the impact of section 67(4A) within the Superannuation Industry (Supervision) (SIS) Act.
It has been considered that the Government wants to achieve these changes with the use of instalment warrants. This is an investment that enables the purchase of an asset over time by making an initial part payment and then settling the remaining payment by way of instalments along with interest.
What are the concerns?
Critics have posed certain questions, answers to which do not appear clear at the moment. It is not certain how an instalment warrant trusts will be distinguished from other trusts. Other concerns included the role a trustee was required to play – what reporting requirements will a trustee need to follow in its relationship with a beneficiary.
One cannot assess the impact of these changes just yet but this announcement will encourage practitioners to update themselves and become more familiar with these changes and the exceptions under the proposal. Overall, consistency, transparency and clarity are the keys to seeing a successful implementation of this proposal.