"Stronger Super" reforms and the Government response to the Cooper Review

The Australian Government has released its responses to the recommendations by the Cooper Super System Review on 16 December 2010. Of the 177 recommendations submitted by the Cooper Review, 139 were accepted and supported by the Government through a package of “Stronger Super Reforms”. This reform is aimed at improving the governance, efficiency, structure and operation of the superannuation system.

The reforms will include a new low-cost and simple default superannuation product called "MySuper” scheduled to commence on 1 July 2013. Reforms also include heightened duties for superannuation trustees, and support for the Review's "SuperStream" proposals from 1 July 2011. It was estimated by the Government that the proposed reforms could potentially boost the retirement savings of a 30 year-old by up to $40,000.

SMSFs

One of the highlights of the reforms is those affecting Self Managed Super Funds (SMSF). Although the Government agreed with most of the 29 SMSF recommendations by the Cooper Review, it has rejected some of the proposals.

Key areas affecting SMSFs are:

Investments in lifestyle assets - the Government rejected the recommendations to prohibit in-house assets and ban SMSFs from investing in collectables and personal use assets. Consistent with its election commitment from 1 July 2011 the Government will instead introduce legislation to tighten the legislative standards on SMSF investments in collectables and personal use assets. Any existing SMSF holdings of collectables and personal use assets that cannot comply with the legislative standards will be required to be disposed of by 1 July 2016
Tax Office rulings - the Government rejected the recommendation to give the Tax Office the power to issue binding rulings in relation to SMSFs. Rather, the Tax Office will continue to provide non-binding advice to SMSFs
Approved auditors - the Government agreed that ASIC should be appointed as the registration body for approved auditors and given the power to determine the qualifications (including professional body memberships), set competency standards and develop a penalty regime. The Government said ASIC, in consultation with stakeholders, will determine whether there are existing standards that can be used and will develop new auditor independence standards if necessary
Administrative penalties - the Tax Office will be provided with new powers to issue administrative penalties against SMSF trustees on a sliding scale reflecting the seriousness of the breach. The Office will also be given the power to issue a direction to rectify a specific contravention and enforce mandatory trustee education
SMSF registration and rollovers - the SMSF registration and rollover processes will be amended to require proof of identity checks for all people joining an SMSF, whether they are establishing a new fund or joining an existing fund. However, identification measures will not apply retrospectively except for existing SMSFs wishing to organise rollovers from an APRA-regulated fund
Illegal early release- new penalties will be introduced and the existing tax laws will be amended so that superannuation amounts illegally released early are taxed at the superannuation non-complying tax rate (rather than the individual's marginal rate)
Licensed SMSF advice - the Government agreed that the accountants' AFSL exemption for providing SMSF advice should be removed. The Government is consulting with the industry on an appropriate alternative to the exemption as part of the Future of Financial Advice process, including a restricted licensing framework.

Date of effect: Most of the SMSF measures are proposed to commence on 1 July 2012. The tighter legislative standards for investments in collectibles and personal use assets will apply to new investments from 1 July 2011. Proposed amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 will commence on 1 July 2013 and amendments to the SMSF registration process will commence on 1 July 2014.

For further information about the changes to superannuation and SMSFs, contact us