In the third part of our predictions for 2024, our experts offer their opinions on which changes they believe could most hurt the sector.
Meg Heffron, director, Heffron
The tax on people with balances of more than $3 million. I think the fundamentally poor design of sacrificing fairness and good policy for simplicity will have more impact on trust than the actual tax increase. I don’t want to speculate on anything further in case I bring bad luck.
Grant Abbott, LightYear Group chair, director, and founder
We’re not sure where the Labor government is going to strike but obviously, their favourite solution always is going to be industry super and as younger people move over the SMSF that will spark an interest from the government.
That’s why I think the government has left accountants out of the loop when it comes down to financial advice and that is a huge contextual change.
The other one is with interest rates going up, the impact on the economy will be one to watch. It takes about a year or 18 months for that to come through and people don’t view the savings and their credit cards.
My feeling is that it’s going to come to some tough times, especially in things like shares. The Australian stock market hasn’t done particularly well in 2023 and is probably not going to in 2024.
There’s also a huge issue around property, and it would be great to know if the rent-to-build idea is on the cards.
I’d like to see, much the way the government did with infrastructure bonds many years ago, the government offer money for infrastructure bonds, which would be used for domestic housing and allow SMSFs to invest in it.
Aaron Dunn, CEO, Smarter SMSF
I revert to the Division 296 rules but the reality is, interest is still pretty strong for the SMSF sector and it continues to grow. So rather than the sort of the things that are going to hurt the most, whilst there will be pockets of that which the industry and naturally the government is focused on, we are seeing an uptick in the net rate of new entrants coming into the sector. We’re still seeing that younger cohort of trustees moving in as well.
Going back to the objective of super, there may be some things that the government may look at imposing at a broader level.
The only other one, and this goes to the previous comments I made around the fact that we’re still seeing fairly strong activity within new entrants coming into the SMSF sector is, of course, the overhang of limited recourse borrowings.
We know that the Council of Financial Regulators has, and continues, to report on the use of LRBAs and borrowing within the superannuation sector and while there are no major concerns, so no major risk to the superannuation industry at large, there are still some pockets of concern that the Council has highlighted.
I guess it may be a bold government to try and pull the trigger on some sort of prohibition around that but that would naturally be one that if the Labor government wanted to target, they would.
Fatuma Akalo, financial adviser at Wattle Partners
I’m wary of anything focused on higher taxation of income and returns, though nothing is in the pipeline thus far. Once issue may be the higher minimum pension amounts coming at a time when returns are weaker than normal, requiring drawdowns of capital balances.
Tim Miller, head of technical and education, Smarter SMSF
Given that Division 296 won’t be in effect until future years I think the NALE changes have the greatest capacity to hurt SMSFs in the year ahead if for no other reason than funds and SMSF professionals will waste a lot of time determining the nature of often somewhat insignificant transactions trying to identify:
- What capacity are they being performed in?
- What is an arm’s length rate?
The tax impost itself is less significant for general expenses than originally introduced. There’s no doubt that specific fund expenses and the link to capital gains tax need to be cleared up as this could certainly impact SMSFs.
Shelley Banton, head of education ASF Audits
Any changes to legislation affecting the retirement wealth of SMSF members could hurt SMSFs in the year ahead. It could include changes to the minimum pension drawdown rules, broadening the definition of a related party to reduce investment opportunities, and changes to the taxation rates of superannuation death benefits.
Ensuring that any changes equally impact all members of the superannuation industry, not just SMSFs, will provide a level playing field that will allow Australians to select the retirement vehicle that best suits them and not get cornered into a one-size-fits-all approach.
Michael Hallinan, special counsel, SUPERCentral
First, the Better Targeted Superannuation Changes. The introduction of Division 296 tax will cause many advisers and SMSFs to consider moving large real estate assets out of the superannuation environment.
Secondly, the “Superannuation Objective” legislation. The proposed objective can be used to justify any adverse change to super such as non-indexation of thresholds or used to not change any fixed threshold by reference to the fairness and sustainability requirements.
In this regard it should be noted that some thresholds are fixed and not related to indexed thresholds. For example, in the Disregard Small Fund Assets, the dollar threshold is $1.6 million and is not related to the value of the transfer balance cap. The Downsizer Contribution Cap is not indexed. The entry threshold to utilise the unused concessional contributions cap is fixed at $500,000.
