Submission on Superannuation Legislation Amendment Bill (No.3) 1999
Australian Retirement Income Streams Association Limited (ARISA)
Introduction
The thrust of our submission revolves around the additional burdens being
placed on small business, the narrowness of the draft legislation and
technical matters. The points we have listed below illustrate these issues.
In light of the present Government's commitment to support for small business,
particularly in terms of simplifying compliance with a range of legislative/regulatory
requirements, it is disappointing to note that there is no significant
evidence of simplification in the proposed measures. In fact, the process
of transferring regulation of self managed funds from APRA to the ATO
involves additional time consuming administrative tasks. Moreover, these
will be of an ongoing nature, and not just limited to a transitional period.
It is our view that serious consideration should be given to the impact
of the proposed arrangements on this important sector of the community.
Definition of self managed funds
Number of Members
Given that all members must be trustees, and that family or business
relationships must link all members/trustees, it is not clear to us why
the number of members must be limited to four. In many instances, there
are more than 2 children in a family, thus precluding the whole family
from belonging to the same fund. This situation is exacerbated once Mum
and Dad retire and become pensioners (because they remain members of the
fund, cf., amendment to s.10 of SIS), and where there are 2 or more children
with spouses (working in the family business) who would like to be members
of the family super fund.
If it is felt desirable to place an upper limit on the number of members,
a number closer to 7 should be considered. There is an argument for having
no cap on the number however it would be impractical for operational purposes
to have too large a number of trustees. In our view the increase in member
capacity will eventually have a limiting effect on the number of funds
in existence, and hence mean that there are less funds to regulate.
Requirement for family/business relationships.
Some flexibility in the application of the rules would achieve a more
stable, orderly environment for small business, and reduce costs and time
spent on administrative tasks. The introduction of a discretion beyond
6 months would assist in situations where business arrangements are fluid,
and, for example, partnerships are temporarily suspended or amended. Often
changes in business arrangements take considerable time to implement and
the superannuation arrangements of the partners are of lower priority.
The case of business partners retiring from the workforce needs to be
addressed also. Under the Bill as drafted, members with business links
who are not related would be forced to split their funds when the business
relationship ceases. This could occur at any time, but would have particular
impact at retirement. We recommend that either, the business relationship
test be a once off test (ie if members have business links at the time
of becoming a member) and it not apply thereafter, or, that retirement
is not considered to be a cessation of the business linkage.
Technical drafting issue
It is suggested that the wording in 17A(e) should be changed to delete
the second occurrence of `each', and replace it with `an'. While we agree
that the original wording does not represent the allowed relationships
as illustrated by the Explanatory Memorandum, we do not believe that the
amendment reflects the intention of the legislation. It would allow for
example, a husband and wife, and another husband and wife, without the
need for any relationship between the two couples.
Wallis recommendations
Wallis sought to rationalise regulation of the financial services sector
and improve the efficiency and simplicity of financial services. We believe
that this Bill does not offer any significant operational efficency or
simplicity for the small business community or financial services providers
with respect to SMSFs.
CGT rollover relief
It is quite surprising that the issue of CGT rollover relief has not
been addressed by the Bill.
Initially, some SMSFs may have to involuntarily terminate the membership
of some of their existing members (eg., employees). The fund will therefore
be likely to incur a CGT liability because disposal of assets will necessarily
take place. This situation will be ongoing where business arrangements
change, and where divorce leads to breach of the family relationships
requirement. Disposal of assets will therefore be forced because
of legislative requirements.
We urge you to give consideration to CGT rollover relief to provide a
reasonable solution. Further, we urge that a swift decision be
made, so that doubt and uncertainty over the coming months can be avoided.
In terms of the Government's Retirement Incomes Policy, certainty in relation
to superannuation is a crucial factor in maintaining/re-capturing the
confidence of the public.
Some rollover relief exists where trust deeds are amended to meet the
SIS legislation, however this does not appear to extend to situations
where a member may have to be removed from the fund with assets changing
ownership as a result.
Ownership of assets
Where there is a change of trustee (because the small fund will be regulated
by APRA and use a corporate trustee, or because members(who are also trustees)
are forced to leave the fund due to breach of the relationship requirements),
an enormous administrative burden is placed on funds to ensure that ownership
of the fund's assets is correctly recorded on all the relevant documentation.
Consideration should be given to any relief that may be provided within
SIS in such circumstances.
Stamp Duty
Transfer of ownership of assets (see previous point) may require the
payment of Stamp Duty, thus incurring additional costs. Even where additional
costs are not incurred (ie., documents need to be stamped, but no duty
is payable), the administrative burden on small super funds will be an
ongoing problem. We urge the Government to consult with the States on
this matter to determine whether stamp duty relief would be forthcoming
in circumstances where assets change ownership only to comply with this
legislation.
Simplification
This issue is raised in our introduction. One very easy way of reducing
complexity is to find simple ways of naming categories/types/components
etc., in the SIS legislation generally. As far as the current Bill is
concerned, consideration should be given to determining simple, short
names for the different types of super funds.
Trust deed issues
It seems clear that at some point in the process of transferring SMSFs
to the ATO, SMSFs will need to examine their trust deeds. At least as
a temporary measure, pressure on small business would be alleviated if
some deeming provisions could be inserted into the legislation to enable
such amendments to be attended to at a later date.
Seamless transfer
The Bill provides for a transition period for funds to meet the trustee/member
requirements. This period closes on March 31 2000. We recommend that this
be extended to 30 June 2000 to fit in better with accountants normal cycles,
or that the notice under section 252 be made part of the 1999 APRA return
to minimise paperwork and compliance effort.
Approved trustee rules
Where small funds are regulated by APRA because they do not meet the
new definition of `self managed fund', for whatever reason, we request
that consideration be given to amending the rules for approved trustees.
Acting as a trustee of a small fund (which would, presumably, be defined
as a fund with fewer than x members), while perhaps requiring the same
level of knowledge of the SIS provisions, should not require the level
of financial backing (NTA) required for trusteeship of large funds. There
would not appear to be any reason why a less onerous approved trustee
category could not be introduced for small funds.
Non-Resident Members
There is a conflict between this Bill and the provisions dealing with
non-resident funds. Under existing legislation, it is possible that a
fund can become non-resident, and hence non-complying, where a trustee/member
becomes a non-resident. This Bill requires the member to be a trustee
(individually or as a director of a trustee company) and hence may force
a situation where the fund became non-complying. This must be addressed
as it is obviously an unintended consequence.
One Person Funds
For a one person fund, the member must be a trustee and one other linked
person must be trustee (individually or as a director of a trustee company).
There does not seem to be any reason why there could not be more than
one linked trustee other than the member. For example, this may be useful
in circumstances where the member is older and relies on children more
to manage their affairs.
Contacts
- Tony Negline 0412 109 256
- John McIlroy (02) 9247 6380
- Deane Russell (0419) 444 112