Editorial - Superannuation e-news September 2010

With neither major party winning enough seats to form government in its own right, the election outcome remains unresolved. At the time of writing, the counting in undecided seats is now nearly complete, with an overall count favouring the Coalition by a seat. But, as with Labour it too is unable to form a government without the support of independents. Both major parties are locked in embrace with the independents who will win major concessions from their long wish lists. And while the public's attention over the ensuing days will be focused on the broad question of which party will fall over the line, at issue for many, is what price this new embrace irrespective of the winner? The leaders shouldn't lose sight of the fact that they will be committing taxpayers' funds to the exercise. Parliamentary reform for good governance is also being sought, but the history for both parties on this issue has generally been to embrace it while in opposition but stay lukewarm about it in government. The current deadlock could force them to swallow this medicine and it might emerge as a significant positive outcome among much of the current doom, particularly if more effective parliamentary arrangements and better governance actually transpire.

We have a fairly good idea of the key features of the caretaker government's policies on superannuation, in particular its policy on a progression to the higher 12% SG rate plus other issues outlined in the May 2010 Budget and certain Cooper Review recommendations. On the other hand there are substantial gaps in what serves as the declared policy of the Coalition. It would be extremely useful if the independents' current negotiations act as a catalyst to fully flesh out the respective superannuation policies of both major parties.

Last month we noted the press coverage suggesting a Tax Office crackdown on SMSF trustees with outstanding annual returns. The tenor of the coverage was that trustees who had not submitted their outstanding returns by the 31st of August 2010 were on course to have their funds declared non-complying by the Tax Office. They were therefore on notice to act promptly and submit the outstanding returns by the above deadline. We deplore the attitude of trustees who are tardy in respect of their trustee obligations and clearly where there are a number of returns that are still outstanding this begs the question of why trustees have allowed this state of affairs to develop. Such tardiness must also in our view bring into question a key issue of the trustee's suitability for carrying out their trustee duties and obligations. We would encourage them to make every effort to meet their obligations in respect of outstanding returns and also encourage them to review whether they are suitable candidates for the serious duties and commitments required of fund trustees.

Having stated that, we are also strongly of the view that the Tax Office does not take lightly any of its decisions when declaring a fund non-complying and therefore would not do so purely on the grounds of a late return without having other good reasons. Declaring a SMSF non-complying has the effect of potentially decimating the retirement savings of the member, so this must be avoided. The Tax Office has given assurances in the past that it will behave responsibly on this matter and we have no reason to doubt it. However there is surely a corresponding responsibility on the part of trustees to do the same, after all they do have the discretion in whether they take on the role of trustee in the first place.

Since the introduction of the current superannuation arrangements the issue of excess contributions tax has never been far from the surface and a number of taxpayers having been caught out. While it may still appear early in the financial year, contributions strategies need to be constantly reviewed. Members should take special care to include insurance payments made on behalf of a member by an employer in the calculation of contributions for purposes of the cap or risk a potential excess contributions tax outcome.