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Cooper Review must not burden SMSFs - Editorial

Thursday 11 March, 2010 by Roger Timms - Head of Tax and Superannuation

The closing date for submissions to the Cooper Review - Phase 3: Structure - has now passed. This phase of the review includes self managed superannuation funds (SMSFs). Many readers will no doubt be either members of, or service providers to, SMSFs.

The Cooper Review is welcomed and current activities might reasonably be described as ‘fact finding', however some of the questions raised by Cooper in relation to SMSFs warrant close attention, even at this early stage of the process. Many questions could be construed as laying the groundwork for increased oversight, regulation and compliance costs for the SMSF sector.

Trustees
All members of a SMSF must be trustees. There is a certain logic to that requirement. Cooper poses questions which, if answered in the affirmative, would impose significant additional regulatory burdens on SMSF trustees. For example:

• ... should there be some minimum level of financial and compliance knowledge required?
• Should SMSF members undergo some ongoing level of formal education and training or accreditation to become better educated on their trustee obligations and how to invest?

SMSF reporting
In relation to member reporting, Cooper poses the question:

• Should SMSFs be required to complete general purpose financial reports so that assets are annually marked-to-market?

Regulation
Various questions seem to contemplate increased regulation which would remove points of difference between SMSFs and APRA-controlled funds, a situation which may not be in the best interests of most SMSFs. For example:

• Should there be restrictions on the investments that can be held by SMSFs ... should SMSFs be restricted to ‘financial assets'?
• Should the in-house asset investment concessions, allowing trustees limited investment in related parties continue within SMSFs?
• Is there benefit to be gained in seeking to increase the regulatory burden here ...

(referring to the investment strategy adopted by SMSFs).

Family members establish SMSFs typically because they want the capacity to control their own financial destiny and maintain maximum flexibility when investing to achieve that objective.

It is true that there have been some well publicised cases of illegal early release schemes which invariably involve the use of SMSFs. However, there are in excess of 400,000 SMSFs in Australia and the percentage of fund trustees  involved in such activities is miniscule; therefore a compelling case can be made for the argument that the actions of a few should not be used as the rationale for a ‘clamp down' on the SMSF sector.

We are strong supporters of those who operate SMSFs in accordance with the law and therefore urge others of like-mind to be vigilant in resisting any attempts to place significant additional burdens, be they by way of regulation or cost, on SMSF participants.

Our submission to the Cooper Review in relation to Phase 3, as it relates to SMSFs can be viewed here.