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Date of article: 30 December 2010
Last updated: 30 December 2010

Government response to the recommendation of the Super System Review (Cooper Review)

The Government released its response to the Cooper Review in December 2010 detailing that it will supports or support in principle about three quarters of the some 177 recommendations.

For those recommendations that relates to Self Managed Superannuation Funds (SMSF), the Government will implement most of the recommendations. The Government has set a target date of 1 July 2012 for most of them.

What will change

Australian Taxation Office will be provided with more powers:

  • Impose administrative penalties. A sliding scale of administrative penalties reflecting the seriousness of the breach will be introduced and these penalties will be payable by trustee, not from the assets of the fund.
  • Direct trustee to rectify contraventions.
  • Enforce education for trustee where there is contravention of the SIS legislation.

Market value of assets

Legislate to require SMSFs to value their assets at net market value. The ATO will publish guidelines for the valuation of assets to standardise valuation practices.

It is noted that most SMSFs currently value their assets at market value and accordingly, this measure should not have a significant effect on most SMSFs.

Separation of assets

Currently a trustee covenant – requiring fund’s assets to be separated from trustee’s personal assets – to be replicated as a SIS operating standard.

Auditor

SMSF approved auditors will be required to be registered with ASIC. The ATO will police compliance with approved auditor standards.

SMSF borrowing

Current borrowing arrangement to be allowed, with the Government undertaking a broad review of the borrowing provisions covering all superannuation funds in 2 years time to determine the impact and whether such arrangement should be permitted to continue.

Related parties acquisition and disposal

Buying and selling between related parties in SMSF will need to take place via the formal methods. Where there is a market, all buy and sell must be conducted through that market, i.e. off-market share transfers will not be permitted.

Collectables

Investment in collectables will continue to be allowed. However, they will be subject to tightened standards to ensure that such investments do not give rise to current benefits for members. The standards will be developed in consultation with the industry. The new standards will apply to new investments from 1 July 2011 and all collectables to comply by 1 July 2016.

Removal of unnecessary administrative burdens

The recommendation to remove administrative burdens that are identified as unnecessary for SMSFs is supported by the Government. The Government will consult to determine any administrative requirements which are unnecessary and amend the legislation to remove them.

The Government will also try to amend the SIS Act to automatically deem anything permitted by the SIS Act or a tax act to be permitted by SMSF trust deed.

Illegal early release measure

Numerous review recommendations have Government’s support to curb the small number of cases of illegal early release and fraudulent activities. These include a revamp of the registration and rollover processes, and new criminal and civil sanctions will be introduced for illegal early release scheme promoters. Also, amounts illegally released early will be taxed at the superannuation non-complying tax rate and an additional penalty that takes into account the individual circumstances.

What will not change

  • The current membership limit of 4 members.
  • Investments in in-house assets will not be prohibited and will continue in its current form.
  • Australian Taxation Office will not be given the power to issue binding rulings in relation to SMSFs.
  • Current member reporting requirements will remain as is, i.e. no additional information to be required to be produced and provided to members.

More information and contacting us

If you wish to discuss the above, please contact us. Our contact details.