Editorial - Superannuation e-news May 2008

If things go to plan the new government’s first budget will be tabled in Parliament on Tuesday 13th May. This should give us the opportunity to gauge its attitude to fiscal policy. We know that tax cuts promised in the lead-up to the election have been included because the relevant legislation has been passed in the Lower House and is currently awaiting passage in the Senate.

We expect that recent claims by the government to steer a tight ship in relation to fiscal policy will result in the maintenance of a significant surplus, reflecting the extent to which the government has publicized the dangers posed by inflationary forces. However, given the likelihood of a further slowing-down in the economy from the recent tightening of monetary policy, special care is needed by the government to ensure that the combined effects of the two do not lead to undue reductions in economic activity requiring the government to possibly do something for those who incur new financial stress as a consequence. This caution follows from an observation that the aggregate impact of recent interest rate rises has noticeably affected the housing market.

As we look back on superannuation and the introduction of Better Super - which to many may now seem like a distant memory - we shouldn’t lose sight of the fact that the new rules have only been in existence for something less than a year! During this period trustees have had to deal with several issues that we believe have been addressed with a good deal of commitment. Despite this view it is disconcerting that statistics from a trustee survey by the Tax Office suggests that large numbers of trustees have inadequate knowledge of their trustee duties! At face value this is worrying but whether it truly is a measure of trustee tardiness may be a separate issue. An examination of contravention reporting may provide a better basis for assessing this. In any event trustees should grasp the need to familiarize themselves with the more common technical terms used by the Tax Office.

With the end of the financial year in sight we remind members of two issues that are not new. The first is the “crystallization of the segment” in the member’s fund which should be completed before 1 July 2008. The other is the broader issue of contribution management. Since excess contributions are taxed at punitive rates members should manage both concessional and non-concessional contributions for the year particularly where these are approaching the relevant cap. Firstly they should ensure that the cap will not be exceeded in the financial year. Secondly consider a proactive approach with their employer to ensure that any planned final payment in the year is received in the fund no later than 30 June 2008, as late contributions will be counted against the following year’s cap. Given the principle of “use it or lose it” for contributions, it is preferable to count a contribution in a current year provided it doesn’t breach the relevant cap! Contribution planning is now obviously a necessary part of Better Super.

Following the instalment warrant legislation being passed last September, the Tax Office recently provided guidance on the legislation, however further clarification of issues still remain. The elevation of the profile of instalment warrants in an environment of rising interest rates and turbulent financial markets is unfortunate. However we believe a cautionary note must accompany any story of borrowings by SMSFs.