Tag: Accountants Exemption Solution

The article below by Miranda Brownlee appeared in SMSFAdviser Tuesday, 17 November 2015.

Accountants who are currently unlicensed have run out of time to have in place the correct processes required for providing compliant advice by 1 July 2016, warns Smithink founder David Smith.

Mr Smith told SMSF Adviser that while accountants may already be providing the type of advice they intend to provide under the limited licence next year, the licence will require additional processes to be incorporated into the advice they currently provide, something which many accountants are not prepared for.

“There’s a lot of activity around licensing at the moment but what a lot of accountants are not thinking through is what they actually have to do from a process perspective come 1 July,” said Mr Smith.

“All of a sudden they’ll need to have different processes because they’re actually going to need to generate statements of advice and engage with a client to ensure they’re gathering all the information they need to provide the advice.”

Mr Smith said he is concerned that few accountants have actually thought through these processes and so will not have enough time to introduce them before the accountant’s exemption ends mid-next year.

“Anyone who isn’t currently licensed won’t be following the processes they need to follow come 1 July,” he warned.

“A lot of firms will get the licensing piece right because that’s what people have been telling them to do, to go out and get the training and the right licence, but I think many of them haven’t thought about this processes piece.”

Mr Smith said the cost of certain processes is one of his major concerns.

“Many of the licensees are requiring fairly lengthy statements of advice, which could add significantly to cost and make it difficult for accountants to be able to charge their clients and recover those costs from their clients,” he said.

Mr Smith added that those who are not planning to become licensed at all may also find it difficult to provide advice that is in their client’s best interest.

“Come 1 July next year, a good accountant will be able to have a broad-based discussion with their client about everything to do with their business and financial affairs, and it will be very hard for an accountant without a licence to have that discussion without discussing things like superannuation, which is getting into the realm of needing a licence,” he said.

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Part II of III

In the first of a series of three articles James looked at the government’s response to the financial inquiry and surmised it was good news with LRBA’s being left on the table, albeit with a new review scheduled for 2018.

In this article he looks at Tax and Super Laws to bring accountants seeking a solution to the Accounting exemption expiry up to date.

Tax and Superannuation Laws Amendment (2015 Measures No. 2) Act 2015

This Act received Royal Assent on 16 September 2015.  The intent of the legislation is to confirm the look-through approach to the taxation of income derived from assets held on trust for superannuation funds.

Where a SMSF acquires an asset that is subject to a LRBA, legislation prescribed that the asset must be held on trust for the SMSF. This is generally achieved by establishing a “holding trust”, “bare trust”, “custodian trust” or “property trust” (they all refer to the same trust structure but are named differently by different banks) to hold the title to the asset.

From a taxation perspective, the practice has been to hold the title to the asset in a holding trust, but to treat the income derived from that asset, and capital gains in the case of a disposal of the asset, as income of the SMSF. This new legislation simply confirms this current practice, an exemption to the in-house asset rules is provided for in section 71(8) of the Superannuation Industry (Supervision) Act 1993.

Basically the exemption precludes an asset held on trust, and subject to a LRBA, from being treated as an in-house asset.

Once the debt has been paid, the in-house asset exemption no longer applies. To overcome the need for assets to be immediately transferred to the SMSF on discharge of the debt, the ATO altered the legislation to enable the asset to remain in the holding trust, after the debt is repaid, and still be exempt as an in-house asset – happy days. Why? It may eliminate the need to pay additional stamp duty (depending of the State where the asset is held) by allowing the asset to remain in the holding trust but take care with improvements.

Under a LRBA, the trustees are prevented from making improvements to an asset that is subject to a LRBA. While repairs and maintenance are fine, improvements or changes that result in an asset becoming a “different” asset are prohibited. If the intention is to make improvements to an asset held on trust for a SMSF, improvements should not be carried out until after the loan has been discharged.

As the title to an asset may now remain in the holding trust after the debt has been repaid, any improvements (such as subdividing the asset) should not be made while the title resides in the holding trust.

If the intention is to make improvements to an asset once it is debt-free, the title should be transferred to the SMSF before making such improvements. Failure to do so may result in the improved asset being treated as an in-house asset.

Importantly, if improvements are planned for an asset following the discharge of a LRBA, ensure the title is transferred to the SMSF from the holding trust before any improvements are commenced.

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Lawyer warns SMSF industry about ‘litigation bomb’ by Miranda Brownlee

This article appeared in the SMSFAdviser this morning (16 November 2015).  Finance wise is committed to offering a simple, clear and cost effective accounting exemption solution and this includes correct documentation in our Statement of Advice.

An industry lawyer has advised SMSF practitioners to conduct an inventory of all binding death benefit nominations (BDBNs) for clients, with the number of cases in the courts involving incorrect wording or terms now “out of control”.

Speaking at the SMSF Adviser Strategy Day in Sydney last week, Perpetual senior legal counsel Caroline Harley said cases such as Munro v Munro [2015], in which the binding death benefit nomination was held not to be binding, demonstrate the importance of checking the wording in BDBNs.

“I can’t say this enough: if you haven’t already done an inventory of all of your binding death benefit nominations, if it’s paying to the estate, go back and check the wording – this is going to be a litigation bomb,” she warned.

“The minute anyone finds out that ‘legal personal representative’ is not what’s written on there, that’s a means of contesting it.”

“We’re already seeing it with the Superannuation Complaints Tribunal – I’ve been told they’re only starting to look at cases from 2013 so this area being contested is absolutely out of control,” she said.

“Do everything you can to dot your Is and cross your Ts – and don’t use ‘executor’, use ‘legal personal representative’.”

Another important aspect of this case of which SMSF practitioners should be aware, Ms Harley said, is the fact that the presiding judge, Justice Mullins, made enquiries during the proceedings as to who was responsible for preparing the binding death benefit nomination.

Cases such as Hill v Van Erp, Ms Harley added, indicate that a practitioner could potentially be sued if a will or binding death benefit nomination is incorrectly drafted.

“[In this case] a will was drafted by a lawyer but it wasn’t signed correctly so the beneficiary missed out because it wasn’t executed properly,” she said.

The beneficiary, who missed out, was able to sue the lawyers because they did not draft the will correctly.

“My strong recommendation is that you handball all of this liability nicely over to an estate planning lawyer who knows about superannuation and get the death benefit nomination prepared with the will, the enduring power of attorney and all of those other documents – shift the liability,” she said.

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