Addressing the SMSF Professionals’ Association of Australia national conference in Brisbane yesterday, AMP SMSF’s Peter Burgess said the current residency rules are “not very effective” in ensuring Australian residents benefit from tax concessions in super.
“Let’s hope that as part of the financial sector review the industry will have another chance to push for reforms around the residency rules in SMSFs,” Mr Burgess said. “Certainly, reforms, in my view, are needed.”
“If your client fails the central management control test or the active member test, the penalty is loss of complying status,” he added.
“When you think that the active member test is a very difficult test to understand and it is very difficult to apply, most breaches of the active member test are inadvertent breaches. And the penalty is loss of complying status.”
Mr Burgess also said that as a result of the ATO’s final ruling on when a pension begins and ceases, a more disciplined approach to pensions, particularly in relation to when a pension starts and when a partial commutation request is received, is needed.
“In the past, in some instances, the industry may have been a bit blasé about pension start dates and clients making partial communication elections. However, going forward, and particularly in light of the pension ruling, we can expect the ATO to be taking a close look at these issues,” he said.
However, Mr Burgess added that the SMSF industry’s support for the measure to introduce more flexible penalties for trustees who breach the rules demonstrates the sector’s “maturity”.
Other nonsense rules regarding super includes the 10% rule that stops someone from claiming a deduction for self employed super when 10% or more of their income comes from employment. Why not just apply the aged base maximum contribution limit to all instead of discriminating against the self employed.
It is simply unfathomable why an Australian who due to work relocates overseas has to exit their SMSF and crystallise gains/losses simply because there is a rule that says the fund will not comply. Its OK to maintain your super with an institution but you can’t manage it the same way as if you were still living in Australia. We live and work in a global economy. The government wants to tax income earned outside of Australia so why can’t it treat people equally.
The same problem, but in a different form, exists for any one who is deemed no longer competent to manage their super. They can’t simply allow their enduring power of attorney to take over responsibility. The assets have to be sold up and the SMSF closed even if it might be the most efficent way to fund the beneficiary’s ongoing lifestyle needs.