Print this     

Date of article: 24 August 2012
Last updated: 31 August 2012

More Stronger Super Reform regulations made

Further implementation of the recommendation of the Stronger Super Reform regulation has been passed. The Superannuation Industry (Supervision) Amendment Regulation 2012 (No. 2), was registered and takes effect from 7 August 2012.

The amendments will require trustees of SMSFs:

  • to consider whether they should hold insurance cover for one or more members of the fund.
  • to keep money and other assets of the fund separate from that of the trustee personally or by a standard employer-sponsor.
  • to regularly review the fund’s investment strategy.
  • to value assets at market value when preparing accounts and statements.

Insurance cover

The Stronger Super Reform recommended that trustees appropriately consider insurance cover for SMSF members.

SMSF trustees will be required to consider whether to hold insurance for their members when they formulate and review the fund’s investment strategy.

There is no requirement to take out insurance. The trustee need only consider it. This requirement may be met by documenting the decisions in the fund’s investment strategy or minutes of trustee meetings that are held during the income year.

The decision may be made easier by involving each member to obtain confirmation whether the member wishes to have a particular cover in the fund.

Keep money and other assets seperate

The new subrequlation 4.09A require a trustee of a SMSF keep money and other assets of the fund separate from any money or assets held by the trustee personally or by a standard employer-sponsor.

Prior to subregulation 4.09A, this requirement is established by way of a covenant deemed to be incorporated in the governing rules of the fund. The ATO is unable to enforce compliance with covenants and relies on voluntary compliance by trustees.

By making this requirement a prescribed standard, the ATO can now enforce compliance with this requirement.

Example of breaches:

  • an SMSF is operated using a member’s bank account rather than having a separate account established for the SMSF.
  • where assets are recorded in one or more member’s name personally, rather than in their capacity as trustee of the SMSF.

Regularly review investment strategy

The requirement is met by the trustee reviewing the investment strategy and may evidence this by documenting the review in the minutes of trustee meetings. It does not mean that the strategy needs to be amended if it is still applicable.

No guidance is given about how ofter review is necessary to meet the 'regulatly' requirements. We await guidance from ATO.

Value assets at market value

For year of income 2012-13 and any later year, when preparing accounts and financial statements, assets must be valued at its market value.

"market value" means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

  • that the buyer and the seller dealt with each other at arm's length in relation to the sale;
  • that the sale occurred after proper marketing of the asset; and
  • that the buyer and the seller acted knowledgeably and prudentially in relation to the sale.

Valuation guidelines

With the new regulations, the ATO recently issued the "Valuation guidelines for self-managed superannuation funds" to assist trustees.

The ATO will generally accept trustees’ determination of an asset's value, as long as it was determined in accordance with the valuation guidelines and based on objective and supportable data.

Determining the market value of real property

With real property generally being an asset that carries a degree of subjectivity in the valuation and also representing a large portion of a SMSF's asset base, ascribing an accurate value may be difficult. The ATO has stated that an external valuation of real property is not required each year. A recent valuation however would be prudent if an event occurred that may have affected the value of the property since it was last valued, such as natural disaster.

The ATO will accept a valuation undertaken by a property valuation service provider, including online services or real estate agent.

Need help?

Do you need help with your situation or if you wish to discuss the above, please contact us. Our contact details.