17 Feb 2016

Super Snippets: February 2016

The Eviser Team highlight the key developments affecting self-managed super fund trustees over the past month.


  • Rumours around potential changes to super rules in May Budget
  • Update on TTR lump strategy discussed in last month’s Super Snippets article
  • ATO said to be looking at transfers to SMSFs of life estate interests in real property

There’s been plenty of media discussion around what the government should or shouldn’t do with the superannuation rules in the upcoming May Federal Budget. But apart from this broader debate, it’s been a very quiet month on the super front.

We won’t comment in detail on any potential rule changes because at this stage they’re largely thought bubbles and innuendo. However, areas that have been mentioned as possible targets are contributions, contribution caps (including the bring forward ruleThe colloquial term for the rule that allows you to accelerate (bring forward) three years worth of non-concessional contributions to super. See the ATO website for details.) and transition to retirement (TTR) pension strategies.

Typically we’d expect existing strategies to be grandfathered (exempt from the new legislation). If that’s the case, if you’ve been considering making voluntary contributions (either concessional or non-concessional), implementing a re-contribution strategy (see Increasing your tax-free super: The re-contribution strategy) or starting an account based pensionThe 'usual' superannuation pension you receive on retirement. Your account contains an amount from which you can make withdrawals (subject to set minimums). These withdrawals (the pension) are generally tax-free for those over 60. or TTR pension, it may make sense to act before the May Budget. 

As we approach Budget night we’ll take a look at possible changes and recommended actions. For the moment we suggest getting your 2015 financial accounts finalised (if you haven’t already). You should also assess your cash position, in case you want to implement a re-contribution strategy or make a large non-concessional contributionVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information. (including utilising the bring forward ruleThe colloquial term for the rule that allows you to accelerate (bring forward) three years worth of non-concessional contributions to super. See the ATO website for details.).

In the meantime, let’s take a quick look at what has happened in the past month.

Update on TTR lump sum strategy

In our last Super Snippets article we explained the strategy where payments from a transition to retirement (TTR) pension account were treated as a lump sum for tax purposes (including the fact a private binding tax ruling had been issued) and said we’d keep an eye on developments.

The various articles and presentations on the strategy have now piqued the ATO’s interest. As a result it has published an article on its website highlighting some of the potential complications and pitfalls. There have also been rumours that the ATO will issue a public tax ruling.

Action point: As mentioned previously, we recommend seeking tax advice (and probably your own private binding tax ruling) before implementing this strategy.

Transfer of life estate interests in real property

There’s been recent media publicity (for example, see the following article from the Australian Financial Review) around a strategy involving the transfer of a ‘life estate interest’ in business real property to an SMSF (an interest in residential property cannot be transferred between related parties).

A typical real estate transfer is a transfer of the ‘fee simple’ estate (the entire property). A life estate interest is different; it entitles the life tenant (the owner of the interest) to possession of, and income from, the property for their lifetime only. Once the life tenant passes away the property becomes unencumbered and the owner is free to do as they wish with it.

In the context of self-managed super, the effect is to reduce the value of the property being transferred. This can minimise the impact of capital gains taxCapital gains tax (CGT) is the tax payable on capital gains. Where assets are held 12 months or more, individuals are entitled to a 50% discount when calculating the taxable amount of a capital gain. Super funds are entitled to a 33.33% discount. Where assets are held less than 12 months, capital gains are taxed at normal rates. Note also that some assets are exempt from CGT., stamp duty and other upfront transaction costs and make it easier to do an in-specieA transfer of an asset to satisfy an obligation. In-specie transfers are used as an alternative to selling the asset and paying cash from the proceeds. transfer and fit under the various contributions caps. Plus, it can provide greater certainty on estate planning.

However, the ATO is said to be closely scrutinising these types of transactions. Despite the fact it has previously issued private binding tax rulings to some taxpayers it’s apparently examining whether any of the tax anti-avoidance provisions apply. In that case, it may decide to publish a draft public ruling or determination on the strategy containing views that are inconsistent with previous private rulings.

That’s not to say the strategy doesn’t work. But you should certainly seek professional advice and consider seeking a private binding ruling before proceeding with the transfer of a life estate interest.

Action point: If you are considering a strategy of this nature seek professional advice. If you’ve already sought advice, consider the option of getting a private binding ruling from the ATO.

Other developments and reading material

Eviser members may also be interested in the following:

  1. ATO webinars. The ATO has published details of upcoming free webinars on various topics of interest to SMSF trustees.
  2. The robo revolution. If you’ve read The problems with robo advice you’ll know we’re not huge fans of robo portfolios (at least at this point) due to the limited investments they offer and the fact they are not particularly low cost. If you’re keen to read more about the global robo advice market, Finametrica have recently published a detailed report.
  3. Women and SMSFs. Commonwealth Bank and the SMSF Association have released a new study on the dynamics of the self-managed super market, with a specific focus on gender, generational and other demographic differences in relation to managing an SMSF.
  4. Why passive ETFs are likely a poor bet moving forward. An article by Nathan Bell, Head of Research at Peters MacGregor Capital Management, explaining why he thinks passive ETFsThe acronym for Exchange Traded Funds. ETFs are funds (unit trust) listed on a stock exchange. Many ETFs are passive index funds, which simply aim to track the performance of major indices (in the asset class being invested in). may underperform in coming years.
  5. Magellan Global Fund half yearly report. The latest half yearly report from Hamish Douglass, Portfolio Manager for the Magellan Global Fund, looks at the potential impact on global asset prices of ‘quantitative tightening’.
  6. FoMO and the lure of outsized gains. An article by Martin Conlon, Head of Australian Equities at Schroders, on the factors influencing recent equity market valuations.
  7. Managing chronic anaemia. An article by Simon Doyle, Head of Fixed Income & Multi-Asset at Schroders, on the performance of various asset classes during 2015 and the outlook for 2016.


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