SMSFA advocates simplification, modernisation, and neutrality in super

The SMSF Association (SMSFA) has made a number of policy recommendations for the superannuation sector in its pre-budget submission to the government.

The submission called for inclusive policies that “appropriately consider and balance the needs of all, across the diverse range of sector participants” and more “open and timely engagement on proposed amendments and measures”.

“Robust consultation processes and practical timelines ensure good policy and legislative design, minimising unintended consequences which can cause harm and take considerable time to remediate due to the legislative processes,” it stated.

It added that legislative changes must only be considered “where it is fundamental to the delivery of equitable treatment under the law due to the unique characteristics that apply across the sector participants”.

“The SMSF Association has long held the view that consumer choice is a paramount element of superannuation. This is achieved through a robust superannuation sector with a range of participants and products to meet the varied needs of individual consumers,” it said.

One of its major concerns was the lack of a legislative solution to remedy the misalignment between the provision of accounting and tax agent services and financial advice.

“There is also a need for a fit-for-purpose licensing regime for qualified accountants. The limited licensing model is a dying model,” it stated.

“It is not fit for purpose and most accountants, regardless of their qualifications, are unable to enter the advice regime due to the operation of the professional year.”

Furthermore, it said qualified accountants have a role to play in helping fill the advice gap that exists between financial advisers and the proposed advice regime that will apply to APRA-regulated superannuation funds.

“This vital middle ground has been overlooked throughout the Quality of Advice Review, and financial advice reform agenda that has followed despite the recommendations of the James Review, and the progress of other James Review recommendations through the Government’s current policy agenda,” the submission said.

Of particular importance was the accessibility of advice surrounding the proposed commencement for Division 296 on 1 July 2025 and the need for many clients to obtain crucial advice applicable to their SMSF.

“Not all clients who wish to seek financial advice will have access to a licensed financial adviser and accountants will have a vital role to play in addressing crucial structuring and tax-related matters in assisting their clients,” it said.

“The grey line that exists between what constitutes the provision of a tax agent service and financial advice therefore needs urgent remediation.”

The submission highlighted several key issues impacting the SMSF and broader superannuation sectors, including deductibility of financial advice fees, non-arm’s length expenditure, simplifying transfer balance caps, reducing the number of total super balance thresholds, and protecting unused concessional contribution caps due to late payment.

The SMSFA submission said a law change is needed in regard to the deductibility of financial advice fees to ensure equitable treatment applies to members of SMSFs and to align with the underlying policy intent.  

“The proposed reforms seek to improve the deductibility of personal financial advice fees relating to a member’s superannuation account from that interest and related amendments will also seek to enhance the tax deductibility of those fees within the fund, but the superannuation law does not provide an equivalent measure for SMSFs,” it stated.

The submission continued elements of the non-arm’s length expenditure rules still require remediation particularly the treatment of specific fund expenditure and non-arm’s length capital gains under the current tax law that results in the impost of disproportionate tax penalties.

“These are the result of poor legislative design. The latter is caused through the lack of cohesion across intersecting elements of the Tax Act. As a result, they do not operate as intended. A legislative solution is required as a matter of urgency,” it said.

Further, the SMSFA stated the indexation of the transfer balance caps on 1 July 2021 and again on 1 July 2023 has added further complexity to the superannuation system and the system has shifted from having a single cap to individual caps ranging from $1.6–$1.9 million, which is causing confusion and increased costs across the sector.

“The use of a single cap will reduce costs, uncertainty and benefit all stakeholders. These complexities will continue to grow with future indexation of the cap. Indexation is vital in ensuring the cap keeps pace with inflation,” it said.

The association also recommended reducing the number of total super balance thresholds, stating the introduction of multiple TSB thresholds is unnecessarily adding to the complexity of the superannuation system and has made it increasingly difficult for individuals to understand the system and their options.

It continued that another area of concern for the sector is the design and distribution obligations and target market determinations to SMSFs and said the ambiguity around these should be removed.

“The SMSF Association believes these provisions should not apply to the establishment of an SMSF, when adding a new member to an SMSF, or when commencing a pension in an SMSF,”  it stated.

“This is an increasing area of concern with an emerging trend seeing financial advisers unable to advise SMSF trustees without a TMD or required to attend to unnecessary administration which is adding additional time and cost in delivering advice to clients at a time where Government’s policy focus is on delivering advice efficiently and cost-effectively.”