Stronger super:  The Government response to the Cooper Review

The Federal Government has released its response to the Cooper Report in respect of Australia’s Superannuation System.

This Super Hot Spot outlines the main items in the Government’s response to the recommendations that impact Self-Managed Superannuation Funds.

Issues supported by Government
Overall, the Government supports most of the recommendations made in the Cooper Review.

Investments
The Cooper Review was concerned with the new borrowing provisions, but felt that it was too early to make any recommendations, thus suggested a review in two years time.  The Government agrees that a review should be conducted, but will increase the scope of this to include all superannuation funds, not just SMSFs, due to the risks that leverage may pose to retirement wealth.

Funds will also be required to value assets annually to market value, if they don’t already do so.  Valuation guidelines will be developed.

Penalties & enforcement
A sliding scale of penalties will be introduced to match the seriousness of particular breaches, with penalties payable by trustees rather than from the fund’s capital.

The ATO will be given the power to direct breaches to be rectified within specific timeframes, and will be able to enforce mandatory education on trustees who breach legislation.

In response to the increasing occurrences of identity fraud and illegal release of superannuation, the Government will require proof of identity checks (such as those used when opening a bank account) to be conducted and will implement a number of integrity measures to prevent fraudulent and illegal release of superannuation.

Accountants, Auditors and Advisers
Financial advisers that provide SMSF advice will be required to obtain specialist SMSF knowledge in line with a RG146 competency standard to be development by ASIC.  This matter has been referred to the ‘Future of Financial Advice’ advisory panel to implement.
 
The Government noted the recommendations in respect of modifying the current exemptions for accountants providing SMSF advice, and has also referred this matter to the ‘Future of Financial Advice’ advisory panel.

SMSF auditors will be required to register with and be approved by ASIC.  New standards will be developed in respect of auditor independence.

Fund Structure
The Government supports Cooper’s recommendation to keep SMSFs limited to four members or less.

Issues not supported by Government
Investments
The Cooper Review recommended that SMSFs be prohibited from investing in in-house (related party) assets or collectibles and personal use assets such as artworks, etc. 

Neither of these recommendations is supported by the Government on the basis that they restrict investment choice for trustees.

The Government believes there is no evidence that investing in an in-house asset (within the current requirements) is detrimental to SMSFs.

Investment in collectibles and personal use assets will be permitted in line with Government election commitments.  New guidelines for these investments will be developed, applying to new acquisitions from 1 July 2011, and for existing assets from 1 July 2016.

Other issues
The Government does not support the recommendation that the ATO be given the ability to issue binding rulings in respect of SIS matters.  This is on the basis that it could lead to inconsistencies in the regulatory approach between the ATO and APRA (regulator of non-SMSF funds).   This is disappointing as binding rulings would enable SMSF Trustees to seek some certainty in respect of the operation of their fund.

Information
The Government doesn’t support the need for SMSFs to provide additional information to members annually, due to the additional costs this would impose.  Members must be trustees and accordingly should already have sufficient access to information about the fund.

The ATO will continue to collect information from funds via the lodgement of annual returns.

Where to from here?
A consultative group will be established by the government in early 2011 to seek industry input and implement through the period from 1 July 2011 to 1 July 2016.

The Government has indicated that the additional costs of implementing the above will be funded via an increase to the SMSF Supervisory Levy (currently $150), although how much of an increase won’t be known until the total costs are quantified.

A full copy of the Government’s response can be obtained from : http://strongersuper.treasury.gov.au.

You can download a PDF of this Super Hot Spot by clicking here.

Should you have any queries, please do not hesitate to contact your usual Grant Thornton adviser, or:

Dennis Eagles
Director - Wealth Advisory Services
T +61 7 3222 0242
E dennis.eagles@au.gt.com

Bill Stephen
Director - Privately Held Business
T  +61 8 9480 2000
E  bill.stephen@au.gt.com

Ian Lee
Director - Wealth Advisory Services
T  +61 3 8663 6000
E  ian.lee@au.gt.com

Stephen Kuchar
Director - Privately Held Business
T  +61 8 8372 6666
E  stephen.kuchar@au.gt.com