In August 2012, some new Superannuation Industry (Supervision) Regulations took effect following recommendations by the Cooper Review of Australia's superannuation system. One of these regulations focus on improving the level of governance of Self Managed Superannuation Funds (SMSFs), particularly in relation to how trustees manage and review their investments.
So how will the other new regulations for SMSF affect you?
1. Regularly Review Investment Strategy
Under the new regulations, trustees need to ensure that they undertake regular reviews of their investment strategy. Whilst for many funds this will not have a huge impact, since their funds already undertake regular reviews (at least annually), it was imposed to ensure trustees remain continually updated on the investment environment and ensure their fund’s strategy reflects that environment. The new regulations do not define regular, but depending on the size and complexity of the fund, trustee reviews will need to be taken, quarterly, twice a year or on an as needed basis. Importantly, funds aren’t obligated to make any changes to their investment strategy, upon each review.
2. Value Assets at Market Values
Linked to regularly reviewing the fund’s investment strategy, is the need to have an up-to-date value of the fund’s assets to see how individual assets are performing. Previously, trustees have been able to choose to report the value of their assets at either market or historical values. Trustees are now required to value the fund at ‘market value’ when preparing accounts and statements, commencing for the 2012 – 2013 income year. The requirement to value assets at ‘market value’ already exists for funds that have in-house assets, or are paying a pension, although the new regulations create a uniform approach to asset valuations across all SMSFs. Additionally, forcing the SMSF to be valued at market value rather than historical value should ensure SMSF members receive more accurate information of their fund’s financial position.
3. Separation of Assets
The separation of assets under the new regulations requires a clear distinction be maintained between a fund member’s personal or business assets and their fund’s assets. Failure to adequately separate assets is one of the most common breaches reported to the Tax Office by SMSF auditors. Basically, the new operating standard will require a fund’s trustee to keep the assets of the SMSF separate from their assets owned personally, or that of the fund’s employee sponsor, or some other associate of the fund. This is particularly relevant with cash in bank accounts. Trustees should ensure that the fund’s cash is held in a bank account in the name of the SMSF, not the personal or business accounts of members. Whilst separation of assets in many ways has already been an established requirement under the Superannuation Industry (Supervision) Act, the new regulations will give the Tax Office the power to enforce it.
4. Insurance Strategy
Under the new regulations, insurance for members of the SMSF will need to be considered. Many SMSFs already hold insurance for their members, however as part of the regular review of the investment strategy of the fund, SMSF trustees must now consider whether they hold insurance for one or more members of the fund. Importantly, the new regulations don’t mandate that member be insured through their fund – you only need to consider it as an option. However, the fund members will need to ensure the chosen insurance strategy is documented in their investment strategy and be reviewed regularly.
It is important that you consider how the new regulations impact your SMSF. Westpac can help. To find out more visit www.westpac.com.au/smsf
This information is general in nature and provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not constitute a securities recommendation, financial or taxation advice. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.
© 2012 Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.