ATO targets boomers with self-managed superannuation funds

ATO assistant commissioner for SMSFs Matthew Bambrick (above) said a boost in compliance work on the nation’s 531,059 – and growing – funds was not a bad idea.  Photo: Dominic Lorrimer

The following is a verbatim copy of an article originally published by Katie Walsh (@katiewalshAFR) in the Weekend Australian Financial Review 17 January 2015.  You can view the original article here: ATO targets boomers with self-managed superannuation funds

The Australian Taxation Office will intensify its focus on self-managed superannuation funds as baby boomers retire and the risk increases that tax-free income could be stashed and passed on to beneficiaries. Read-more

The tax man is concentrating efforts on education and scrutiny of SMSF auditors and advisers.  ATO assistant commissioner for SMSFs, Matthew Bambrick, said a boost in compliance work on the nation’s 531,059 – and growing – funds was “not a bad idea”.

“It is something that we will have to keep an eye on in coming years,” Mr Bambrick told AFR Weekend.

“The baby boomers have started retiring; we’ve got an increase in the number of people moving into their pension phase, which means it’s time to start talking about requirements including making minimum [pension] payments.”

Funds in the pension phase – that is funds paying an income stream – must make minimum cash payments each year to qualify for tax-free benefits. The amount increases with the age of the superannuant. This drawdown rule is partly designed to ensure people use their SMSF to cover the costs of retirement and not as a means of hoarding wealth. The rules are strict and are easy to inadvertently breach.

On Tuesday, The Australian Financial Review revealed that one notable self-managed fund holder – eminent businessman Don Argus – was battling the ATO over tax applied to an income stream of almost $1.2 million earned by his fund in 2010.  The ATO alleges that the minimum withdrawal amounts were not made. The Arguses object. The court case could be worth $177,000 in tax savings if the Arguses win. Mr Argus declined to comment to AFR Weekend.

Asked about the drawdown rule, Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA), said taxpayers needed to ensure that the super concessions were being used to fund retirement and not estate planning. 

“[The government] wants to make sure that their tax dollars are being used in the best possible way,” she said.

Mr Bambrick declined to comment on the Argus matter. But he said as more baby boomers moved from the accumulation phase to the pension phase, more mistakes around minimum payments could be made.

“[With] the increasing number of people going into pension phase, you would expect more errors to be made around pensions,” Mr Bambrick said.

Self-managed funds hold a third of the $1.9 trillion total superannuation assets and are an attractive tool for boomers wanting control over their savings. They are the fastest-growing component of the super system.

Hamilton Wealth Management founding partner and director, Ian Gillies, said that though establishing an SMSF wasn’t hard, management of the fund became more complex once a person moved into the pension phase.

He said that if people wanted to get zero or concessional tax treatment for their super, they must ensure the money is used for the purpose intended – funding retirement.

Also on the ATO’s radar is the increasing incidence of scams and poor advice. Last week, AFR Weekend revealed police detectives are trying to trace advisers who unlawfully used the name of AMP’s flagship North platform to lure millions of dollars into self-managed super funds set up by The Jatobak Group.

The group promised 13 per cent returns, but clients’ funds were lost through gambling.

Chartered Accountants Australia and New Zealand head of superannuation, Liz Westover, said scams in the SMSF sector were isolated.

“The Tax Office is becoming far more sophisticated with its use of technology and data matching; people who do try to circumvent the laws are at risk of being caught in a way that they’ve not been before,” she said.

Demographic trends means tens of thousands of SMSF holders are rapidly moving into retirement. In 2009, just under 20 per cent of such funds were in full pension phase. In 2013, that proportion jumped to nearly 27 per cent.

Dixon Advisory financial advisory managing director Nerida Cole said it was easy for trustees to make inadvertent errors on withdrawals.

“It is quite a strict requirement and there aren’t many allowable concessions. You can understand that, because there are generous tax concessions on pensions.”

Last year, the ATO began efforts to boost SMSF understanding using a range of measures, from what Mr Bambrick describes as “cutesy light-hearted animated videos which explain the basics”, to a clearer website and case study updates.

The drawdown rules are particularly difficult for those with real property or their family business in their super fund.

A far more common breach than failing to make minimum pension payments is the occurrence of loans being made from an SMSF to members.

“I saw a very interesting case this year where people had just forgotten an investment they had,” Mr Bambrick said. “They changed advisers; something got missed.

“It’s not so much the calculation, it’s kind of life.”

Any questions?

If you have any questions about minimum pension requirements or any other information contained in this article, please get in contact with the Superfund Partners team.

Kris-Kitto-low-res3

Kris Kitto

Director

kris.kitto@superfundpartners.com.au

Phone: 1300 889 282

Director at Superfund Partners. I love working in the SMSF space. Self-managed super funds are more than just a savings vehicle - they enable people to truly take control of their financial situation which is key to achieving happiness. Leading the Superfund Partners team is a privilege - they are a great crew and they always put others first.