SMSFs & the Mid Year Economic & Fiscal Outlook

Yesterday the Federal Government released its Mid-Year Economic and Fiscal Outlook (MYEFO) update.

Announcements that will have a direct impact on SMSF’s are as follows:

CGT & Income Tax Relief

With effect from 1 July 2012, super fund trustees will be able to dispose of pension assets on a tax-free basis to fund the payment of death benefits. The announcement states “The Government will amend the law to allow the tax exemption for earnings on assets supporting superannuation pensions to continue following the death of a fund member in the pension phase until the deceased member’s benefits have been paid out of the fund, provided the benefits of the deceased member are paid out as soon as practicable”.

From a practical perspective this announcement eliminates concerns regarding unrealised capital gain liabilities that arise upon the death of a pension member when there is no reversionary beneficiary. The need for trustees to actively manage the cost base of investments is lessened. Further this change will greatly assist those funds with large unrealised capital gains on real property or other lumpy assets. Subsequently the need for an ‘anti-detriment’ reserve to potentially offset the capital gains tax liability for pension funds is most likely not required.

SMSF Levy Increase

The ATO has advised the Government that the annual levy is not fully covering the costs of regulating SMSFs. From 1st July 2013 the annual levy will increase to $259. Total revenue raised will therefore be approximately $125 million. Trustees should expect a significant increase in ATO audit activity and lodgement enforcement. An added twist to the tale is that the Government states it “will reform the levy imposed on self-managed superannuation funds (SMSFs), by ensuring the levy is collected from SMSFs in a more timely way”. So we can expect a move back to the bad old days where the levy was a separate charge, invoiced separately and the collection of the levy was an administrative nightmare.