Since self-managed super funds came into existence accountants have been the number one source of advice when it comes to their set-up up and operation. However the actual advice accountants have legally been allowed to give SMSF trustees has always been very limited, and from 1 July 2016 will get even tighter.
So what does this mean for SMSF trustees – especially those of us who are self-directed?
SMSF advice your accountant can (and can’t) give
In general any person or business who advises or deals in financial products or services needs to have an Australian Financial Services License (AFSL). When it comes to SMSFs – most services and advice will be considered financial advice unless it’s specifically related to:
- Taxation advice or services
- Accounting and administration advice or services
- Information regarding compliance with laws and regulations relating to SMSFs
Although the above seems comprehensive, the list is actually quite narrow and excludes advice that are the most important and valuable to us as SMSF trustees!
Take the following scenario of a conversation that may happen between a self-employed business owner (or retiree with passive income) and their trusted accountant in June each year:
SMSF Trustee: “How much more should I put into my SMSF before 30 June?”
Accountant: “I’m sorry, I am not licensed to give you that advice, however I can tell you that the concessional contribution cap for someone of your age is $25,000”
SMSF Trustee: “OK. Can you tell me how much I’ve already put in for this year?”
Accountant: “Yes. Based on your SMSF accounts you’ve contributed $15,000 this financial year so far.”
SMSF Trustee: “So I should put in another $10,000?”
Accountant: “I’m sorry, I am not licensed to give you that advice.”
SMSF Trustee: “Grrrrr. What can you tell me then?”
Accountant: “I can tell you the tax consequences of the contributions you decide to make.”
SMSF Trustee: “OK. I’m going to make an additional $10,000 contribution.”
Accountant: “OK. If you made an addition $10,000 concessional contribution your SMSF would incur an additional $1,500 in contributions tax and based on your expected taxable income for this financial year you would save $3,900 personal tax and Medicare Levy.”
SMSF Trustee: “So you are saying I should put an extra $20,000 into my SMSF before 30 June to save myself $2,400 in tax overall?”
Accountant: “I’m sorry, I am not licensed to give you that advice.”
SMSF Trustee: *Bangs head against wall and hangs up phone*
Jokes aside, the above scenario is exactly how the conversation should happen if an accountant – who is not licensed to provide financial advice – follows the letter of the law. But in reality, the average accountant out there may answer the initial question from the SMSF trustee under the guise of “taxation advice”. The SMSF trustee would go ahead and make the contribution and no one would be the wiser that the accountant has provided unlicensed financial advice.
What’s changing?
One of the few legitimate exemptions that currently applies to accountants is the ability for them to recommend the establishment, or wind-up, of an SMSF. This exemption will be removed from 1 July 2016 meaning that an accountant or SMSF administrator cannot provide this advice.
The real change that existing SMSF trustees will notice will be that the (unlicensed) accountants they work with will become very wary and cautious of what advice and information they provide. Unfortunately many non-specialist accountants are blasé about what advice they are allowed to give to their SMSF clients.
The fact that many accountants have provided the same (unlicensed) advice for years or decades and they’ve never been looked at by ASIC, as well as the fact that limited exemptions exist, has given accountants a false sense of protection when it comes to SMSF advice. With the removal of the limited exemptions on 1 July 2016 they will no longer have this luxury.
I don’t think this change will immediately on 1 July 2016 however. Many smaller non-specialist accountants will keep plodding along providing the same services and (unlicensed) SMSF advice they’ve always done, but as soon as ASIC starts taking action against accountants for providing unlicensed advice, they will have no choice to stand up and take notice. Seeing their peers getting penalised and their names getting dragged through the press will force them to change.
What about Grow?
So what is SMSF ‘advice’ and what is not?
This is probably the most important question that we need to answer.
The following tables outline the services we provide, and whether they are considered financial services which require licensing:
| SMSF Administration Services | Exempt? | Requires license? |
| Preparing SMSF accounts and tax returns | X | |
| Tracking of member account balances and components | X | |
| Organising the annual independent audit and liaising with the auditor | X | |
| Preparation and maintenance of trustee minutes and records | X | |
| Track and maintain investment valuations and CGT records | X | |
| Monitor compliance of your SMSF with relevant legislation | X | |
| Monitor and track contributions made to your SMSF against limits | X | |
| Monitor and track pension payments out or your SMSF against limits | X | |
| Provide you with general advice about the administrative aspects of running your SMSF and ensuring compliance with applicable laws | X |
| Contributions | Exempt? | Requires license? |
| Recommend you make a specific amount of contributions (concessional or non-concessional) | X | |
| Recommend you enter into a salary sacrifice arrangement | X | |
| Recommend a re-contribution strategy | X | |
| Recommend and implement a contributions reserving strategy | X | |
| Track contributions you make to your SMSF against contribution caps | X | |
| Advise you of the tax implications of contributions you make | X | |
| Liaise with the ATO is cases of excess contributions | X | |
| Prepare contribution minutes or s290-170 forms | X | |
| Discuss the tax benefits available to you regarding the small business CGT concessions | X |
| Pensions | Exempt? | Requires license? |
| Recommend you commence a pension (account based pension or transition to retirement pension) | X | |
| Recommend you enter into a transition to retirement strategy together with a salary sacrifice arrangement for the same take home pay | X | |
| Recommend you draw a specific pension amount from your SMSF | X | |
| Recommend you make lump sum payments | X | |
| Provide you with information on what your minimum pension drawdown requirement is | X | |
| Track pension payments you take against minimum and maximum annual pension limits | X | |
| Prepare the documentation for the commencement or variation of a pension where you have obtain written advice (in the form of a Statement of Advice document) from either ourselves or another licensed financial adviser. | X | |
| Provide you with information regarding the taxation consequences of taking a lump sum rather than a pension payment (prior to that payment being made) | X | |
| Obtain an actuarial certificate for your SMSF | X |
| Establishment and Windup of an SMSF | Exempt? | Requires license? |
| Recommend you establish an SMSF (after 1 July 2016) | X | |
| Recommend you wind-up and SMSF (after 1 July 2016) | X | |
| Provide you with general advice that compares SMSFs with other superannuation options such as retail and industry superannuation funds. | X | |
| Recommend you rollover or transfer your current superannuation benefits from another superannuation fund into an SMSF. | X | |
| Assist with the establishment of an SMSF where you have obtained written advice (in the form of a Statement of Advice document) from either ourselves or another licensed financial adviser. | X | |
| Assist with the establishment of an SMSF where you have provided us with written instruction to establish the SMSF and you also sign a detailed disclaimer document outlining that we have not provided any advice whatsoever in regard to the establishment of the SMSF or the acquisition or disposal of any related financial product. | X | |
| Assist with the reporting and compliance obligations relating to the windup of an SMSF where you have provided us written instruction to windup the SMSF and you also sign a detailed disclaimer document outlining that we have not provided any advice whatsoever in regard to the windup of the SMSF or the acquisition or disposal of any related financial product. | X | |
| Assist with the completion of the forms required for you to rollover your superannuation benefits to an SMSF where you have provided us written instruction to assist with the rollover forms and you also sign a detailed disclaimer document outlining that we have not provided any advice whatsoever in regard to the transfer of your superannuation benefits. | X |
| Investments and Insurance | Exempt? | Requires license? |
| Recommend the acquisition or disposal of a specific investment including basic deposit products such as cash management accounts | X | |
| Recommend you purchase property via your SMSF | X | |
| Recommend you enter into a Limited Recourse Borrowing Arrangement (LRBA) | X | |
| Recommend you undertake an in-specie (off market) transfer of an asset | X | |
| Recommend a specific investment strategy or asset allocation | X | |
| Recommend a specific amount of insurance or the type of insurance the trustees of an SMSF should take out | X | |
| Prepare the investment strategy of the SMSF | X | |
| Document the investment strategy of the SMSF where you’ve obtained written advice (in the form of a Statement of Advice document) from a licensed financial adviser. | X | |
| Advise of the tax implications of the acquisition or disposal of a specific investment owned by the SMSF | X | |
| Discuss the types of investments that an SMSF can acquire under applicable legislation including what can be acquired from a related party. | X | |
| Assist with the preparation of forms to transfer assets between parties or accounts including off-market transfer forms where you have either obtained written advice (in the form of a Statement of Advice document) from a licensed financial adviser or have signed a detailed disclaimer outlining that we have not provided any advice whatsoever in regard to the acquisition or disposal of any financial products. | X | |
| Report on the investment performance of your SMSF where there is no recommendations made regarding underlying investments held by the SMSF. | X |
Where the applicable service requires licensing, it means you as trustee of your SMSF must only speak to an individual who is appropriate licensed to give that advice. In addition different individuals are authorised to give different levels of advice by their license holder.
How does SMSF advice and administration intersect?
When it comes to SMSF administration, not much will change at all – our services will still be delivered in the most efficient and personal way possible.
Areas where you will notice change will be around the strategic / non-accounting services we provide. In general they will become a lot more structured and systematised.
Some examples of this systematisation may include:
- Additional disclaimers on emails and on the website and online forms;
- More formal ‘quotes’ where you sign (electronically) before we provide you with written advice on taxation and compliance matters;
- We will ask you specific ‘yes / no’ questions to determine whether you actually require personalised advice or just general information
- Making you sign disclaimers when you engage us for certain implementation only services that don’t include personal financial advice
- Where necessary we will refer you to an appropriately licensed financial adviser;
- More joint meetings / advice delivered in conjunction with an adviser of your choosing;
3 comments
Joyce Knight
November 28, 2015 at 5:32 pm
This tax advise is very interesting to read specially to those people who looking accountant to manage their super funds. Thanks for sharing and keep it up. Cheers!
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