subject: The Cooper Review - Final Smsf Recommendations [print this page] On the 5th July 2010, the Super System Review (commonly known as the Cooper review) was released to the public. The Government will now consider the report over the coming months and will make its own decisions concerning the timing of its release and the response to the recommendations made in the report.
Specifically regarding the SMSF sector, there were some big picture comments and a number of specific recommendations which we detail below.
The panel stated that the SMSF sector is largely successful and wellfunctioning , and that while significant changes are not required, there are still a number of issues, which mostly do not directly relate to trustees and members, but instead to service providers and the wider regulatory framework. They state that Trustees are often dependent on service providers whose current minimum standards of SMSF knowledge are inadequate, and that the level and quality of information available on SMSFs and the SMSF sector is inadequate given its significance.
The panel makes a significant comment that while the SMSF regulatory framework is heavily dependent on approved auditors, the approved auditor population has no minimum competency and independence standards, which undermines the ATO's ability to regulate the sector.
The specific recommendations are summarised below:
Recommendation 8.1
The current membership limit of four members for a SMSF should not be increased.
Recommendation 8.2
Legislation should be passed to provide the ATO with the power to issue administrative penalties against SMSF trustees on a sliding scale reflecting the seriousness of the breach. The penalties should not be payable from the corpus of the fund, and may be applied jointly or severally against the trustees or trustee directors.
Recommendation 8.3
SIS legislation should be amended to provide the ATO with the power to issue relevant persons with a direction to rectify specified contraventions within a specified reasonable time. A breach of a direction should be a strict liability offence.
Recommendation 8.4
The ATO should be given the power to enforce mandatory education for trustees who have contravened SIS legislation. Such education should be provided by a body (which could include commercial providers) approved by the regulator and would be at the cost of the trustees and not the corpus of the fund.
Recommendation 8.5
The ATO should be given the power to issue binding rulings in relation to SMSFs, subject to the implementation of the Panel's recommendation to restructure the SIS Act in chapter 10 of this report.
Recommendation 8.6
The Government should task ASIC, in consultation with industry and the 'expert advisory panel', to develop the SMSF specialist knowledge component of RG 146, which would focus on increased knowledge and competency with respect to the SIS Act.
Recommendations 8.7
Government should legislate to require advisers to hold an AFSL where they provide advice in relation to the establishment of an SMSF. The accountants' licence exemption should not be replaced by any new exemption or restricted licensing framework.
Recommendation 8.8
Government should:
(a) appoint ASIC as the registration body for approved auditors and give ASIC the power to determine the qualifications (including professional body memberships as appropriate) required for eligibility to be registered, set competency standards, develop and apply a penalty regime including the ability to deregister approved auditors. The registration requirements for approved auditors should be linked to minimum ongoing competency
and knowledge standard; and (b) task the ATO to police the approved auditor standards and enable information to be appropriately shared between ASIC and ATO so as to carry out their roles effectively.
Recommendation 8.9
Subject to the Government implementing recommendation 8.8, ASIC should develop approved auditor independence standards, which auditors must meet as part of their ongoing registration requirements, as outlined in recommendation 8.8.
Recommendation 8.10
The 2007 relaxation of the borrowing provisions and the consumer protection measures that have recently been announced should be reviewed by government in two years' time to ensure that borrowing has not become, and does not look like becoming, a significant focus of superannuation funds.
Recommendation 8.11
Legislation should be passed to require credit providers to collect and provide relevant data to APRA that would enable the RBA to publish statistics on the level of finance being provided to superannuation funds.
Recommendation 8.12
SIS legislation, in relation to SMSFs, should be amended so that:
(a) the 5 per cent in-house assets (IHA) investment limit be removed so that no IHA investments would be allowed;
(b) SMSFs with existing IHA investments be provided a five year transition period, in which to convert to a small APRA fund (SAF) or, alternatively, dispose of their IHA investments. No acquisitions of IHA investments would be permissible during the transition period; and
(c) APRA regulated funds be exempt from these changes.
Recommendation 8.13
SIS legislation relating to acquisitions and disposals between related parties in SMSFs (but not APRA regulated funds) should be amended so that, either:
(a) where an underlying market exists, all acquisitions and disposal of assets between SMSFs and related parties must be conducted through that market; or
(b) where an underlying market does not exist, acquisitions or disposals of assets between related parties must be supported by a valuation from a suitably qualified independent valuer.
Recommendation 8.14
SIS legislation, in relation to SMSFs, should be amended so that:
(a) the acquisition of collectables and personal use assets by SMSF trustees be prohibited;
(b) SMSFs that own collectables or personal use assets be provided a five year transition period, in which to convert to a SAF or, alternatively, dispose of those assets. No acquisitions of collectables and personal use assets would be permissible during the transition period; and
(c) APRA regulated funds be exempted from these changes.
Recommendation 8.15
Government should provide the ATO with a specific mandate to collect and produce SMSF statistics, the details of which be developed in consultation with industry, which provide greater understanding of the SMSF sector and its performance.
Recommendation 8.16
The Government should legislate to require SMSFs to value their assets at net market value.
Recommendation 8.17
The ATO, in consultation with industry, should publish valuation guidelines to ensure consistent and standardised valuation practices.
Recommendation 8.18
Government, after appropriate industry consultation, should amend the Corporations Act to ensure SMSF trustees provide all SMSF members with certain key information on an annual basis.
Recommendation 8.19
Government, after appropriate industry consultation, should amend legislation to remove SMSF trustee administrative burdens that are identified as unnecessary.
Recommendation 8.20
Government should legislate so that:
(a) proof of identity checks be required for all people joining an SMSF, whether they are establishing a new fund or joining an existing fund; and
(b) identification measures should not apply retrospectively except for existing SMSFs wishing to organise rollovers from a large APRA fund.
Recommendation 8.21
The Panel recommends that the SMSF registration process capture the details of the person who has provided advice in relation to the establishment of the SMSF and the service providers who establish the SMSF (if they are different entities). This information should also be available to ASIC to assist in regulating AFSL holders and form part of the risk assessment process for both ASIC and the ATO.
Recommendation 8.22
Controls should be put in place to ensure SMSFs can be neither established with, nor subsequently change their name to, the name of, or a name similar to, an existing large APRA fund and that other naming rules applicable to bodies corporate under the Corporations Act be applied to SMSFs.
Recommendation 8.23
Government should provide a system (Super Fund Lookup or an alternative) to:
(a) provide appropriate SMSF information to large APRA funds (which would include member level details, confirmation that identification of member/trustees has occurred and the SMSFs bank account number) to enable the large APRA fund to verify the details of SMSF membership before processing rollover requests to SMSFs; and
(b) require the large APRA fund, upon appropriate confirmation, to immediately process the request and electronically transfer the rollover to the validated SMSF bank account.
Recommendation 8.24
Legislation should be passed to provide for criminal and civil sanctions to enable the ATO to penalise and discourage illegal early release scheme promoters.
Recommendation 8.25
The Government should amend existing tax laws so that:
(a) amounts illegally early released be taxed at the superannuation non-complying tax rate; and
(b) an additional penalty, based on a sliding scale of penalties that takes into account the individual circumstances, should apply.
Recommendation 8.26
Legislation should be passed so that rollovers to an SMSF be captured as a designated service under the AML/CTF Act.
Recommendation 8.27
The Government should amend the SIS Act so as to automatically deem anything permitted by the SIS Act or a tax act to be permitted by SMSF trust deeds.
Recommendation 8.28
Legislation should be passed so that the covenant requiring separation of fund assets from personal or employer assets, as set out in section 52(2)(d) of SIS, be replicated in a SIS operating standard.
Recommendation 8.29
The Government should amend the investment strategy operating standard so that SMSF trustees are required to consider life and TPD insurance for SMSF members as part of their investment strategy.
by: Graham Parkes
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