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New rules announced within the latest Stronger Super reforms package, banning self-managed super funds (SMSFs) against making in-specie asset transfers, will disadvantage SMSFs and exposes them to greater costs and risks, warns Hewison Private Wealth.
John Hewison, CEO of Hewison Private Wealth, said while the move to introduce MySuper and cut costs for superannuation members has been widely applauded, the ban of in-specie, off-market asset transfers for SMSF investors appears to have flown under the radar and unfairly discriminates against self-managed super funds.
“The issue is that under the new reforms, SMSF investors have restrictions applied, but institutional and industry superannuation funds, which also use these transactions, are exempt,” Mr Hewison said.
“In addition the ban will most likely impose additional brokerage costs on SMSF members and exposes their assets to greater risk, especially given current market volatility,” he said.
In-specie and off-market asset transfers are transactions whereby superannuation funds (not just SMSFs) can transfer assets, in lieu of cash, to or from fund members or their related entities.
Currently, a member of an SMSF can transfer a personally owned listed asset or business real property to their super fund, as a contribution that can be made “off-market”.
Under the proposed reforms SMSFS must now make these transactions through a recognised market, such as the Australian Securities Exchange.
“Using shares as an example, this means the investor must sell the asset on the share market, wait four days for trade to settle, transfer the cash into their super fund and rebuy the shares – taking up to a week to complete the transaction,” Mr Hewison said.
“Given the current market volatility, these measures are an unnecessary gamble for SMSF members which could impact the value of their assets in the process,” he said.
Hewison said the reforms follow speculation under the Cooper Review that SMSFs were using this type of transaction to minimise capital gains tax (CGT) by choosing the transfer date to coincide with a low price for the asset, most commonly publicly listed shares.
“Minister Shorten has said the motive for the change was to ensure ‘fraudulent activity is curbed’. If this is a concern then it should apply equally to any entity, including individuals, trusts and companies that also commonly use this form of transaction, for instance, in lending shares to short sellers which it could be argued is market manipulation,” Mr Hewison said.
“After all, the practice of selling ‘borrowed’ shares allows them to be bought back at a lower price that has been purposely created. Surely this is not an honourable pursuit for which in-specie asset transfers may be used.
“There is no logical reason to have singled out SMSFs, which are audited, when there is little evidence to suggest SMSFs are using in-specie transfers to avoid capital gains and one could argue that institutional investor would have a far greater impact in this regard,” he said.
Hewison says the reforms dismiss other obvious solutions.
“A more effective solution would have been for the Government to simply tighten the time frame for the lodgement of transfer documents, which would have helped to regulate all parties,” Hewison said.
“Overall, this additional red tape goes against the grain of a simplified superannuation system, particularly when there are already systems in place to protect the integrity of self managed super funds and auditors who should be trusted to do their job,” he said.
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About Hewison Private Wealth:
Hewison Private Wealth is one of Australia’s largest independent wealth management firms, specialising in high end financial planning and investment advice to Australian individuals and families, portfolio management, and Self Managed Superannuation Fund administration. The firm manages around 900 individual client investment portfolios currently valued at $340 million, of these investment portfolios 410 are Self Managed Superannuation Funds.
Hewison Private Wealth is a fee based firm which does not accept commissions of any kind. It pioneered Individually Managed Accounts in the early 1990’s and its clients’ investments portfolios are structured in this manner with investment portfolios consisting predominantly of direct investments diversified across the five main asset sectors.
Established in 1985, the firm has over 25 years’ experience in providing clients with unbiased and strategic advice tailored to their individual requirements and for the ongoing management of their financial affairs.
For more information visit: www.hewison.com.au.
Download articleHewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.