Contents
Overview 3
About SPAA 4
Transitional provisions 4
Related party transactions 4
Inclusion of personal use assets 5
Explanatory Memorandum 5
Further Information 5
Self-Managed Super Fund Professionals’
Association of Australia Limited
(‘SPAA’)
Overview
1. The Self-Managed Super Fund Professional’s Association of Australia Ltd (SPAA) acknowledges that only a small percentage of SMSFs actually invest in non-conventional investments and this often occurs because the trustee has expertise in relation to that particular asset or investment class.
2. Nevertheless, SPAA believes that easily understood guidelines would result in a higher level of compliance in relation to these investments and therefore SPAA supports amendments to the Superannuation Industry (Supervision) Act 1993 (the SIS Act) which will allow regulations to be inserted to that effect.
3. This submission provides SPAA’s comments on the exposure draft legislation and explanatory material released by the Government on 1 February 2011. This submission does not comment on the potential scope or content of the regulations but rather provides comments on the proposed legislative amendments which will permit the regulations to be inserted. It is envisaged that SPAA will provide a separate submission on the regulations once the draft regulations have been released for public comment.
4. SPAA is concerned that the proposed amendments to the SIS Act as outlined in the exposure draft legislation make no mention of the transitional arrangements which have previously been suggested by Government and which is referred to an example outlined in the explanatory memorandum. SPAA believes consideration should be given to amending the SIS Act to also the transitional provisions.
5. SPAA also believes that should restrictions and limitations be imposed on related party transactions involving collectables and personal use assets, consideration should be given to inserting these restrictions in the SIS Act.
6. SPAA also notes that the draft legislation refers to the definition of a collectable and personal use asset in the Income Act Assessment Act 1997. In SPAA’s view the reasons for including the personal use asset definition and its interaction with the sole purpose test and in-house assets provisions needs to be carefully explained in the Explanatory Memorandum. Furthermore, it should not be necessary for the legislative amendments to apply to personal use assets if a SMSF is prohibited from holding such assets under a lease arrangement with a related party.
7. SPAA considers examples, which illustrate how the regulations will be applied, should not be included in the Explanatory Memorandum prior to those regulations being formulated and released for public comment.
About SPAA
8. The Self Managed Superannuation Funds Professionals’ Association of Australia (“SPAA”) welcomes the opportunity to make a submission to the 2011-12 Federal Budget.
9. SPAA is the peak professional body representing the self managed superannuation fund (SMSF) sector throughout Australia. SPAA was established in April 2003 to advance the professionalism and collaboration of professionals working in the highly complex area of self-managed superannuation and to develop and maintain high standards of advice for trustees and members of SMSFs. In September 2010, SPAA was admitted by the Tax Practitioners Board as a Recognised Tax Agent Association.
10. SPAA is committed to raising industry standards and looking after the needs of SMSF professionals across Australia regardless of their other professional affiliations or membership. SPAA’s core focus is to raise the standard of advice provided by all professionals within the SMSF sector. SPAA has developed an accreditation standard to ensure professionals standards are achieved and maintained by practitioners specialising in the provision of services to the SMSF sector. This is the first standard in Australia to offer independent verification and certification of a practitioner’s competency, independence, experience and knowledge.
11. The Association is committed to promoting high standards of education among SMSF professionals and assisting them to work within the regulatory framework. This, in turn, will assist the industry to self-regulate and promote best practice.
Transitional provisions
12. The proposed amendments to the SIS Act outlined in the Exposure Draft will enable regulations to be inserted which will impose rules on SMSF trustees that make, hold or realise investments involving collectables or personal use assets. However, the proposed amendments in the Exposure Draft do not prescribe any transitional arrangements for collectables or personal use assets held the trustees of the SMSF prior to the introduction of the proposed legislative amendments.
13. Although example 1.2 in the Explanatory Memorandum refers to a 5 year transitional rule as specified in the regulations, SPAA believes for consistency reasons and to minimise the complexity of these provisions, consideration should be given to including the transitional arrangements in the SIS Act.
Related party transactions
14. The Cooper Review expressed concerns about the ability of SMSFs to invest in assets such as artwork and collectables. In particular, circumstances where artwork is displayed in the premise of a member was considered to compromise the integrity of the SMSF sector.
15. In response to these concerns, in 2010 SPAA in conjunction with the Arts Association of Australia and the Australian Antique & Arts Dealers prepared best practice guidelines on acquiring and holding artworks in an SMSF. These guidelines were subsequently broadly endorsed by Government. A key component of these guidelines was the general prohibition on holding artwork in a SMSF under a lease arrangement with a related party.
16. Rather then imposing restrictions of this nature via regulation, SPAA believes that related party restrictions should be introduced by amending the SIS Act. This view is predicated on the assumption that the Government considers such a restriction is necessary to uphold the integrity of the sector.
17. In SPAA’s view it is difficult to foresee how restrictions on related party leases involving collectables and personal use assets could be inserted via regulation without first considering what amendments would be required to the in-house asset sections of the SIS Act
Inclusion of personal use assets
18. SPAA notes that the proposed new section 62A of the SIS Act will apply to personal use assets as defined in section 108.2 of the ITAA 1997. SPAA understands the desire of Government to ensure assets which are not caught by the definition of a collectable in section 108.10 of the ITAA 1997 but are nevertheless being used or kept mainly for personal use are subject to the guidelines. However, SPAA is concerned that unless the regulations and Explanatory Memorandum are clearly drafted, the inclusion of personal use assets may be interpreted by some to mean a personal use asset is permitted by the legislation on the proviso that the transaction complies with the regulations.
19. Furthermore, as discussed above if the legislation prohibits a SMSF from holding artwork in a SMSF under a lease arrangement with a related party it should not be necessary for the Act or regulations to apply to personal use assets as define din section 108.20 of the ITAA 1997.
Explanatory Memorandum
20. In SPAA’s view it is unusual for the explanatory memorandum to include examples which illustrate how the regulations will be applied prior to those regulations being formulated and released for public comment. It is difficult to comment on the accuracy or appropriateness of examples in the Explanatory Memorandum, which are intended to illustrate the application of the regulation, if those regulations have not yet been formulated and released for public comment.
21. For completeness and consistency purposes, SPAA recommends that the examples provided in the Explanatory Memorandum should be removed.
Further Information
We would be pleased to provide you with any further information in support of our submission.
Contacts:
SMSF Professionals’ Association of Australia Limited (SPAA)
ACN: 103 739 617
Address: / Contact Numbers:SPAA House / Tel: (08) 8205 1900
Level 1, 366 King William St / Facsimile: (08) 8212 5993
Adelaide SA 5000
Mr. Peter Burgess
Technical Director
Mrs. Andrea Slattery
Chief Executive Officer
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