In its final phase, the Cooper Review focused on the structure of super funds, and in particular self-managed superannuation funds (SMSFs). The focus on SMSFs is not surprising, as they are the fastest growing sector of the superannuation industry and now make up 31 percent of total superannuation assets.
While the Review acknowledged that the SMSF sector is largely successful and well functioning, it raised a number of concerns about SMSFs. Trustees will find it useful to understand these concerns and how they may be dealt with.
For instance, there have been questions raised about audit process and independence matters, and whether SMSF trustees should be required to undergo formal education or training or accreditation.
As part of this, the Review looked at whether the existing penalty regime that applies to SMSFs is appropriate, and whether the ATO’s supervisory fee, currently $150, should be increased.
Some of Cooper’s proposals have already been accepted or rejected by the government, but there remains a great deal of debate and discussion around other proposals.
If these recommendations, or a large number of them, become law, SMSF trustees will have to change several of their practices, investment strategies and investment mix. In all, 11 major recommendations were made for the SMSF sector. They include:
The current membership limit of four members for a SMSF should not be increased.
There does not need to be a mandated minimum SMSF asset size because this may act as an artificial barrier to entry.
Compulsory education for trustees is not necessary. Increased knowledge and competency can be achieved through other methods rather than making trustees undertake compulsory education.
Legislation should be passed to provide the ATO with the power to issue administrative penalties against SMSF trustees on a sliding scale depending on the severity of the breach.
The ATO should be given the power to enforce mandatory education for trustees who have contravened superannuation legislation.
The borrowing provisions should be reviewed in two years’ time to ensure that borrowing has not become, and does not look like becoming, a significant focus of SMSFs.
Legislation should be amended so that no in-house investments are allowed. There should be a five year transition period for an SMSF to dispose of in house assets.
The Review also recommended that collectibles and ‘personal use’ assets, such as artwork, should not be allowed in SMSFs, however, this proposal has been rejected.
