Shelley and Superannuation and Financial Services Leader Tony Negline discuss what’s affecting the SMSF industry today. Where are we going? And will we be able to get enough into super to retire comfortably?
Shelley and Superannuation and Financial Services Leader Tony Negline discuss what’s affecting the SMSF industry today. Where are we going? And will we be able to get enough into super to retire comfortably?
Voice Over (00:01):
This is an ASF audits podcast.
Shelley Banton (00:10):
Welcome to the SMSF experts, the podcast, the terms complex SMSF issues and legislation into everyday language. I'm your host, Shelley Banton, head of Education at ASF Audits. And as this is our episode, one of our very first podcast series, we're discussing what is the future of super? So what's affecting the industry today? Where are we going and will we be able to get enough into super to reti re comfortably and to help us make sense of it all? I'm very happy to be speaking with one of the industry's most highly respected SMSF experts, Tony Negline. Tony has been involved in the financial services industry for over 30 years. He has written a weekly column on SMSFs for The Australian. He's the author of the Essential SMSF Guide, and he has been the superannuation and financial services leader at Chartered Accountants Australia and New Zealand since 2015. Welcome to the SMSF experts, Tony, and thank you so much for joining me today.
Tony Negline (01:11):
Ah, my pleasure, Shelley. Thank you for asking me to join you. We're
Shelley Banton (01:14):
Gonna kick off by talking about what's happening in the future of, of super, and I guess the latest ATO statistics show that the number of smsf are continuing to grow at a healthy rate of about 2% on average, which is great, but we have seen a reduction in the number of professionals servicing the SMSF industry since about 2018, and we've seen a reduction in the number of tax agents by about 2%. We've seen a whopping reduction of 36% in the number of auditors, and even the quality of advice review said that the number of financial advisors is declining and that there's not enough financial advisors to meet consumer needs. So how can we, as an industry, attract and retain SMSF professionals to ensure that trustees continue to have access to quality, accessible, and affordable services that's gonna enable members to have enough income for a dignified retirement?
Tony Negline (02:07):
Well, I think there, there's two parts to this. Shelley. One is retaining what we have on the books for, want a better term in terms of whether they be tax agents, administrators, auditors, financial planners, and so on. And then the other thing is attracting people to the sector. There is, there is a steady stream of people wanting and I suppose to some extent it starts, let's, let's, if we just look at the accounting profession, it's been told to me that most of the career guidance people at school are at, at secondary schools are obviously teachers. And, and their frame of reference is may, you know, maybe things that they read in the newspaper, their friends, family, so on, relatives, et cetera. They know, they obviously know the teaching profession, but they know very about what accountants do. And quite a few of them probably have the impression that the, a accounting sector is one of those professions that is going to disappear to a large extent, a bit like other professions over, you know, over, over the last a hundred years or so on that have come to the fore and then disappeared.
(03:10):
And one of the reasons why they might think that is things such as automation and machine learning and all of those other sorts of things. Yeah. Now, of course, we all know that accountants do an awful lot more than those sorts of things. So that the basic grunt work, now maybe it might be bookkeepers and so on that maybe the number of bookkeepers required falls because there's, there's greater levels of automation, but someone's gotta do all the coding to make that automation work. And someone's actually gotta be a sense checker to actually say, well, the, the automation is still correct, and then someone's obviously got analyse it. So I think it's incumbent on all of us, if any, for all of us in including me, including you, Shelley, for us to get out there in the highways and byways to say, well, look, you know, accountants are not going anywhere in, in actual fact, we, we are needed in much greater numbers than ever before. And that it is a profession that is, that is not going to die, and that it is still essential to actually be a part of.
Shelley Banton (04:00):
I totally agree with what you're saying, because at the end of the day, we've got a situation where in our, in our industry at least, the more that we remove those barriers in tech, in our audit processes from technology, the more we have to, you know, concentrate on building our relationships with our clients. But it also means that our what we are, what we're doing from an essential service changes as well too, because we are talking, starting moving into sort of analysing that big data help getting technology to help us with it so we can see that there's a change, I guess, in the occupation and the role that financial services professionals have within superannuation. So I think that that's an important point that you make. We are not just sitting there, you know, being counters and the traditional, you know, roles that we've had with those auditors, accountants and financial profession. We are seeing some change in what we are doing, the scope and in the, and, and also the training. And that becomes different as well in terms of what that communication trial needs to be pushed out to those that are coming into the industry or hoping to come into the industry.
Tony Negline (05:09):
Well yeah, look, I I, I agree with all of that and obviously you know, the CA programme, you know, the chartered accounting programme and, and, and similar with, with the other professional associations, they're all, they're all very important tools, but as, as for retaining workers I, I actually think the SMSF sector is actually a perfect place for people who want a mixed cr. Oftentimes, you know, you can, you can specialise it in work, you know, a hundred hours a week if that, if that's what, if that's what you choose to do. Or you could choose to only do as little as 10 to 20 hours a week if that's your thing. So in other words, you could, you could quite easily have a meaningful career. And, and in that I'm thinking people who may stop work for, you know, look after family, you know, maybe a mother who wants to stop work for a period of time to raise young children.
(05:55):
There's still the ability, do a little bit of work for the, you know, 1, 2, 3, 5, 20 10, you know, a fund a week sort of thing, if I can put it like that. Maybe doing the administration for it or the accounts or doing the auditing, whatever it might be. I think because the nature of the entities are small and they're relatively discreet most of the time ignoring related party entities and all those other sorts of things, but most of them are relatively discreet. It does lend to the ability. So if, if we attract a young person into the sector who then says, well, you know, I wanna, you know, I wanna go part-time for, for whatever reason, or I, I wanna stop work for the, the number of years they can, it is a good sector for them to keep their hands in the workforce because of the nature of the work that is often involved. And I dunno that we necessarily, we probably don't sell that as well as we possibly could, I suspect.
Shelley Banton (06:49):
Yeah. And, and we saw our industry literally pivot overnight when we had covid. So we've seen a whole lot more flexibility being brought into the industry in terms of people having that choice about whether they need to work from home because something's happening, they need to be at home, they need, they've got sick children, a whole lot of different scenarios. And we've rose to, you know, those occasions on, you know, we've proven that that can actually be a workable model moving forward. And it's something that, you know, we need to consider, I guess when we, when, as you say, when we're trying to get people to come into the industry because that's where we need to, to be moving forward.
Tony Negline (07:26):
Well, and, and I don't need to tell you any, I don't need to tell you this, Shelley, as, as you would well know, you know, we're not only, we're not only seeking to attract them, but we're seeking to retain them. And of course, it's not a cost-free exercise, bringing on a new employee and training them up into the things that need to happen. You know, superannuation is a, is a complex animal, and bringing them up to a certain level for that person to then permanently leave the leave the industry is a shame. Not only, I think for the sector, but also potentially for that individual in that all that knowledge base, the cost for the employer to, to give them that knowledge base is, is a sad reflection. I think if, if that's one of the things that results. But as for auditors, I think yes, we have had a large drop in them.
(08:05):
I think in fairness, I think a lot of them that are leaving are probably people who transitioned. So you'll be, you know, as you remember, the government brought in the registration process. A lot of people were able to transition into ASIC registration. They may have got older, they may have fallen away, and so on and so forth. And what we've had is the pipe of those coming in is a lot smaller than the number of people who have drifted away for a variety of reasons. The number of funds they're auditing has fallen, they, they're old enough to retire, whatever it might be. And they, and they just, they, they don't want their registration. So I think that's why the number of auditors is probably falling. Hopefully it's gonna stabilise, but it's, but it's like anything. I, I think when the numbers of these sorts of things small also become smaller, and all of a sudden people might realise there's a business opportunity there, and that's when you might then have people attracted to the sector.
Shelley Banton (08:58):
Well, that's it. It'll be interesting to see what our, I guess our resting number of auditors will be considering the latest stats was put out by the A T O and for June, 2022 shows that there's still about 25% of auditors doing less than five funds. So as you said, from a sustainable point of view, the the amount of training, the legislation, the C P D that you need to undertake to be able to do just five funds, is that sustainable? And so where does our numbers sort of end up resting? And I, I guess it's somewhere around about four, four and a half. Four and a half is probably on the highest side, but maybe either side of 4,000. We'll, wait and see.
Tony Negline (09:37):
I'd like to think you're right. And for 600,000 funds now, just let, let's put to one side the fact that there's somewhere between 10 and 20% of funds who are either never lodges or have cease lodging for a variety of reasons to the ATO. So therefore they may not necessarily be audit being audited. So that sort of brings us back to the, roughly the half a million, half a million funds, three to 4,000 orders puts a lot of obligation on those who have stayed. But it also does show the business potential business opportunity.
Shelley Banton (10:04):
And that's it, that's the specialisation that you can undertake at the end of the day, which is going to be the difference between, you know, just having a career, maybe somewhere in a different industry, in a large firm, in a different industry, as opposed to looking at somewhere where you can really hone those skills and you can, you're going to learn techniques, expertise, decision making, processing, you're going to learn systems. It's a, I guess it's a, about those sorts of skills, regardless of where you go, are going to be taught here. But I mean, you have an opportunity here where you don't have in other industries necessarily because of the nature of it. And, and obviously trying to make sure we keep people in the industry to you know, have that client relationship in the, in the future.
Tony Negline (10:47):
I agree.
Shelley Banton (10:48):
All right. Well, let's move on to another issue that's impacting S m sfs, which is the ATOs ruling on non arm's length general expenses. Now, we know there's been a mora toatorium on the ATO applying compliance action against trustees in relation to general expense, gnarly for the last five years. Not specific asset, gnarly, but general expense. Gnarly. And we've recently heard that the ATO ` are not gonna be extending the date passed the 2023 financial year. So come the 1st of July, 2023, it's game on. And I guess the industry is now looking at facing that factor-based approach. Denali and Treasury has a proposed that rather than tainting all the funding income, the amount of tax is gonna be set at a maximum of five times the level of the general expenditure breach. Confusing, difficult to apply, we don't know, but it's gonna be the difference between the amount that should have been charged in the amount that's been charged. So do you think that's gonna be a fairer income or a fairer outcome, I should say, than having all fund income tainted as gnarly? And if so, if not, is there a better alternative that Cannes thinks it should be put out there?
Tony Negline (11:55):
Well, Shelley yeah, you're right. So the ATO was publicly said, you know, 30 June, 2023 is the end of the moratorium. So the, the government are very conscious of that, and they therefore wanna do some amendments. So together with a range of other industry associations C P A Australia, the the Institute of Public Accountants, the SMSF association, the Tax Institute, and so on the institute of pub professional accountants and so on the nt a a, we sent a, an open letter to the minister Steven Jones, saying that we did not like the, what I call the 2018 amendments, which were legislated in 2019, which it, which is the, generally the whole general expense tainting all of the income of the fund, all the spec specific expenses. We don't like that treatment under gnarly, we think it's over the top.
(12:43):
We also think the five times idea for SMSF is also over the top. And in natural fact, we actually rejected out of hand. We just said, look, five, we, we actually reject this process. So we suggested to the government an an entirely different solution, and we suggested that this whole issue could actually be handled through the CIS Act, and in particular through the non arms length provisions of founding section 109 of the Superannuation Industry Supervision Act. And our, our, our idea behind that is that auditors check compliance. You know, s SMSF auditors or, or, or large fund auditors check compliance with section 1 0 9 every year. Now, if, if an auditor found a mistake in terms of charging, then the auditor could obviously say, look, you've been a naughty trustee, fix it up. This may or may not be material. Now if it is obviously material, then it needs to be reported through the ACR R and has it been fixed?
(13:32):
Has it not been fixed? If, if it's not a material amount, that might obviously get le mentioned in the management letter set up to the trustee to then deal with it net cost over time, I guess if the, the same auditor is finding the same breach, they may then decide, well, look, you're you, you're ignoring me and I may need to take further actioning, such as reporting, reporting an issue to the A T O. But once it goes into the a t o through the ACR process, then it is up to the ATO to decide what the penalty should be. There's no admin penalties, but there is a great obviously grading of penalties all the way from a letter in the mail saying, yes, you've been a naughty trustee, don't do it again. This is your one chance all the way up to you've been, you've been such a, such a fool, and we really don't like you being a trustee.
(14:16):
We're gonna disqualify you and we may even take half your assets of the fund by declaring the fund to be non-compliant. In other words, there's a full grading of penalties as opposed to a massive, what a better term, a massive speeding fine. This, this fine is the, the potential fine is really like being found to be drink driving at a very high range, really for potentially a very minor misdemeanour, such as speeding 10 kilometres over the speed limit. So we think this is way over the top size penalties that apply under the gnarly regime and we want the government to take up our preferred
Shelley Banton (14:55):
Solution. So it's sort of like really a sledgehammer using to kill an ant in a lot of respects. That's how I've sort of looked at it at the end of the day. Well
Tony Negline (15:02):
That's, that's how, that's how we have, we, we didn't do this in the letter, but that, that's pretty much what we were saying, I guess, and in a roundabout way, that yes, it is a sledgehammer. And of course we often know that a
Shelley Banton (15:24):
Yeah totally. And one of the things that I can't understand is why a large APRI funds exempted from the gnarly provisions for general expenses. I just think that, that if, if it's gonna be fair and equitable across the board, it needs to be fair and equitable across the board. And, and if it's not gonna be for ARA funds, that's great. Well then does it need to be for super, for self-managed super funds? Where, where's the discretion that the ATO have applied in that respect?
Tony Negline (15:53):
Well, it's, it's not so much the ATO it's, it's more the, it's more what the government have proposed and their rationale and, and you know, I'm, I'm the messenger here. I'm not the I'm not, it's, it's not, it's not my idea. It's not their, it's not my statement, but their rationale is that oftentimes the trustee of a, of an ARA fund will get involved in a transaction with either related or unrelated parties and not pay a genuine arms length rate at a, for a general expense because they're seeking to reduce costs and therefore increase member balances. That's, and that's why they don't want to include general expenses. Now, funnily enough, I actually thought that's why SMSF trustees might be doing much the same sort of thing, but they didn't necessarily reach the richest, similar conclusion at the moment in relation to SMSFs. Now the problem that large Ara funds have is what the definition of specific expenses is compared to general expenses. And I don't think they have one as much as they think they have time being, you know, we obviously haven't seen any legislation at this point in time, but at this point in time, my gut feel is that they haven't won as much as they think they have. Although winning something is better than nothing. I guess
Shelley Banton (17:04):
Tony Negline (17:42):
I, I think everyone needs to be a bit sensible here. I agree with you that it, this is a very difficult issue for auditors because, you know, with without overstating things audit in the superannuation space is a grudge purchase. No one really wants their fund audited. And so they're, and so that's why there is tends to be audit and, and the trustee is not responsible for the quality of the work of the person they employee. So in other words, there's only one incentive for a trustee and that is to pay as little cost as possible. Now over time, they might realise the benefit of maybe paying a higher, you know, that it, it's an education thing. My higher fee is gonna generate a better, you know, presumably a better quality of work and that's gonna help you stay within, within your lanes and therefore, you know, the ATO is not necessarily gonna be looking at your fund compared to someone else's.
(18:33):
But some people don't approach life like that. They say, well why would I spend 500 bucks when I can get away with only spending a hundred bucks? Cuz it's a grudge purchase, no one wants to spend the money. Oh, I'm very few anyway. So I think, I think the issue is that how do you actually find these transactions? And I think during your data gathering process, I think trust, I think auditors are going to have to say in the trustee representation letter, I think something has to be along the lines that you have a revealed to meet every related party transaction that may be relevant to the taxation liabilities of this fund. Sorry. And, and, and my saying that is based on the fact that we end up with gnarly legislation in play, it becomes a different issue if it's an arms, if it, we are dealing with the arms length solution that we have suggested to government, but as, as long as it's a tax measure and it potentially influences the financial accounts, in other words it's not a true representation of the fund's financial situation, then I think the, the something has to be in the trustee representation letter and your data gathering and then your management letter.
(19:29):
I think you have to say, well you told me that you had told me what all of the related party transactions are and based on what I've seen, you know, I I haven't, I have or I have not identified anything that may or may not be ever concerned depending on where we're at. But I think the thing to remember whether we like it or not, you know, relationships fail. You know, that's, that's a thing of modern life, sadly. And then when that happens, oftentimes the entity or entities that that relationship had, whether it be super funds or businesses or trusts or whatever it is, they become weapons. Same way. Some people in these situations, they use their children as weapons. And yeah, if that involves attacking professionals who have provided services, then so be it. That's, that's what people will do.
Shelley Banton (20:21):
One of the things that we can actually look at in terms of mitigating that litigation, we can also be including some information in our, in terms of engagement letter as well. So there's another option for auditors too.
Tony Negline (20:35):
I would, I would agree with that. Yeah, Shelley, I think your trustee representation letter, your MA management letter and so on, all of those need to be carefully analysed and reviewed saying, okay, well I I, I agree that Nelly is not a compliance issue, it's not a CIS issue, but it comes down to that the financial accounts are a true representation of, of what is going on in a fund and that's the danger for the auditor. So in other words, it's a part a issue in terms of the report that goes to trustees
Shelley Banton (21:01):
And, and that's the extent of our obligation. Now it was interesting that recent court case, high Proprietary Limited, which suggested that auditors may not have to check gnarly cause the auditors required to check compliance with CIS and not the fund's tax obligations. But that's at obvious the auditing standards, which is requiring us to confirm there are no material misstatements in the tax expense. So I guess while my money's on the A U A S B, what are your thoughts here and are there any implications also for SM s f accountants within that particular case?
Tony Negline (21:33):
Well, look, I, I, I think there are, because every, every accountant, you know, don't forget we have APES one 10, the A Accounting Professional and Ethical Standards and APES one 10 is obviously, you know, our job is to be a professional in everything we do and obviously, you know, in in including avoiding conflicts of interest and blah, blah, blah, all those, all those things. But, but our job is to do a quality job regardless of whether or not we are the administrator, accountant, tax agent, auditor, whatever our functions are, our job is to, is to do the best job we possibly can, obviously within the time constraints we have in order to get all of our work done. And so I think you're right. So there's the auditing standards and accounting standards and so on as on top of vapes one 10 and so on and so forth. So yes, although, although as I said, gnarly is not a CIS act issue, there is the, the trustee is declaring effectively that the financial statements that are being audited are a true reflection of what has gone on in the fund. So that is gonna flow through to the indirect, directly or indirectly into the advisors of the trustees.
Shelley Banton (22:33):
Yeah, so it's about, I guess looking at your processes, looking at your procedures and making sure that you've got yourself covered in relation to that, depending on what the outcome is when we finally get fined out what we are going to or how gnarly's gonna be taxed at the end of the day for, in terms of general expenses.
Tony Negline (22:51):
Agreed.
Shelley Banton (22:51):
Alright, let's move on and discuss the elephant in the room, which is that proposed tax on the earnings for member balance is over 3 million, which is going to apply from the 2026 financial year. So we know that the formula is going to apply to, that excess balance will be subject to 15% tax. And it's basically that difference between the members total super balance for the current and the previous financial year adjusted for net contributions and withdrawals. Now the interesting thing here is that treasury has re-engineered its definition of earnings to include unrealized gains and losses. And while that formula is probably the easiest way for the ATO to calculate the tax, is there a better option or formula or calculation for members who are liable to pay the tax, which has to be done personally, although as we know it can be paid for by the funds similar to a DIV 2 93 tax. So what would Cannes like to see? How, how should play out in the SMSF world?
Tony Negline (23:47):
Well, it's, it's early days Shelley, and so we, we have to wait until we see some rules from the government, you know, negotiate and talk and all those other sorts of things. And I guess, you know, the, the race is on amongst associations to, to have a chat to the, to the ATO. But the issues that we, so we actually don't like this measure and the reason why we don't like this measure is that yes, we acknowledge that there are equity issues, but the reason why we don't like this measure are that there are a range of individuals who have ended up with higher, higher account balances in their superfund. The vast majority of those people have ended up with large account balances because between the late eighties or mid, mid to late eighties, 1980s and 2006, you were allowed to put in unlimited amounts of after tax money into super.
(24:39):
And funnily enough, you know, at the time, you know, there was reasonable benefit limits in place, you know, all earnings were retracted and assessed against the reasonable benefit limit process. Now, the Howard Costello government got rid of reasonable benefit limits cuz the ATO told them that the R B L system was incredibly complicated. And yeah, in order to administer it efficiently, the ATO was gonna have to spend an awful lot of money on system development. And chances are the amount of re revenue raised by the R B L system was probably never gonna cover the, the ATOs administration system, let alone the superannuation sector's administration of RBLs. You could put in unlimited during that period of time, late eighties, 20 20 0 6, roughly 20 year period, unlimited amounts of after tax money. And guess what some people did that cause of the text conditions that are within the superannuation environment, they decided, okay, well, you know, we'll give it a go, you know, contributions are 5, 10, 20, 30, maybe more billions of dollars.
(25:35):
So those people followed the rules and really did nothing wrong. Now they are an older cohort, they may have as much as, you know, apparently there's someone with somewhere between four, four and 500 million bucks in their fund. I have no idea who that individual is or their age, but most of the people in this cohort or or are older, they, when they die, then all of their money, including their multimillions of dollars, has to leave the superannuation system. So yep, it's an ageing cohort that is slowly but surely going to disappear. So what we would prefer, so I agree with you that the only way for the ATO to administer this, because you may have $5 million in super across five superannuation funds, if we followed this policy of, you know, 3 million accounts, which account was gonna pay high tax on, which would not. So the only way to do this is through the total super balance. There's two issues that I see with the formula, or at least two issues which you raised. One is the taxation of unrealized gains. And you know, I'm not aware of of that being applied in the, in the, in the past in any Australian taxation law. So therefore that is something that we can't lie
Shelley Banton (26:43):
That was gonna be a question. There's absolutely no precedent in anywhere in tax law where, which includes unrealized gains and losses in calculating tax. So really that definition of earnings is being completely redefined, hasn't it?
Tony Negline (26:59):
Correct and respect, you know, we can't, we have to say something about that if for no other reason than if it's done within the superannuation environment. What would, what would stop the government doing it somewhere else? And you know, it is a dangerous place. So if you, if you think about it, if I make a dollar of capital gains this year, then under this measure, I then that then plugs into the my, my total super balance formula that then gets taxed under this process. But then next year, if I then sell that asset, the tax that I have paid, okay, so I've, I've got tax that's come off the top, but there, there is effectively potentially double taxation going on here. So that's, that's one issue with the formula. The second issue is that if you look at the formula for you, you're allowed carry forward losses.
(27:45):
I think the, I think treasury have that formula wrong in terms of carry forward losses when you, when you get a loss from one year to the next in terms of total super balance. And the third issue is the, what the definition of withdrawal means. Now if it means pension income payments, then effectively that will mean that pension income payments are gonna be taxed for those who are over 60. Now that's a significant policy change based on what we've had to date. So we would like to see, so there, there's some of the things that are going through our mind. So, so to some extent, see this is a little bit like reasonable benefit limits. Huge, great big bureaucratic thing for not, probably not a lot of revenue affecting a small number of taxpayers gonna be very costly for everyone to be involved in.
(28:26):
You know, if you have a, if you run a master trust account, you know, an APRA fund, you run smsf, there's a lot of work work to do. just putting to one side, people have lumpy assets in their fund such as, you know, farmers or whatever it might be. One thing it will do where you have a lumpy asset, you can be assured that the HTL will be looking very carefully at valuation reports and so on and so forth. So that'll, that'll, that'll put the that'll put the focus back on the work that you do, Shelley, no question about a
Shelley Banton (28:52):
Hundred per a hundred percent. And that, that's a question that I did actually have to ask you in terms of this really does redefine I guess, valuations once again and you know, what auditors will and won't accept, especially in relation to those lumpy assets. And also in relation to unlisted investments as well. That's always an issue trying to get sufficient appropriate audited evidence to substantiate the market value and financial statements. So it makes it a little bit sort of difficult, especially when this, the year that this gets implemented, everybody's gonna be wanting a very high valuation in the 2025 financial year, and then 2026, they're gonna want a very low valuation. So we are gonna have a lot of extra pressure within the audit industry on make, you know, having to accept basically potentially information that's not gonna be able to substantiate the methodology that's been used for those valuations. So it's something that we're, I guess, thinking about in terms of this entire proposal. And it makes it very difficult for everybody because, you know, it, it just means that the auditors just get a bad rap once again, which is we're just trying to do our job properly at the end of the day.
Tony Negline (30:07):
I think Shelley, the issue will be is that you obviously can't use a different valuation for tax reporting purposes than what you can use for financial reporting purposes. So you've got, you've got one valuation for an asset. So assuming this comes in and it's legislated as as it's been announced, and there's no doubt in my mind that I think the government will try and legislate something like this. I, I can't imagine that they won't. But stranger things have, you know, stranger things have happened. It's a, it's a dangerous game predicting anything in, in terms of what will happen at a political level. But let's assume, let's assume that it's leg for the sake of the argument, let's assume it's legislated. It doesn't come until July, 2025. We will have reporting of total super balance for the 24 25 year. So we're not far away. So I think, I think the good auditors will be talking to their clients with higher balances saying, okay, well let's look at the assets that you've got and whether or not, you know, what sort of audited evidence are we going to be happy with?
(31:05):
So that action could be taken, as you say, unlisted assets let's say private companies, private trusts, especially where the trustee may be, not necessarily, you know, the trustee or related parties, does not control that trust. I think the valuation of those, those, those entities will be very important as will, as indeed will be the valuation of real estate and what you would expect to see as, you know, sometimes you can from year to year, you can kind of produce your own report if you're a trustee saying, well, look, you know, here's my evidence of what I think the thing's worth, you know, looking at, looking at the various websites out there that say what the valuation of various different types of property may be in the local neighbourhood, will that be enough? Or whether or not you need to get a formal written valuation or valuations depending on the type of real estate and entity.
(31:51):
So trustees may now, may, may now need to engage with business valuers, especially where they're investing in you know, private companies and stuff like that that, you know, sometimes a difficult to value. So I think, I think there are all of those things that people are gonna have to think very carefully about. The last thing that anyone with a high balance will wanna do is attract, obviously no, no one wants to have a Barney or, or, or whatever with the ATO as much as they possibly can, or very few do anyway. I think it's interesting times ahead mm-hmm.
Shelley Banton (32:25):
So you've been widely quoted in the industry as saying investing in superannuation in this country is like trying to shoot a moving target, flying in circles over shifting golf posts. So that's, that's a mental which
Tony Negline (33:01):
The current government policy is that it's not in the, the 3 million threshold is not indexed. And incidentally, the $250,000 threshold for D 2 93 tax is also not indexed. And so that's stuck at 250 grand or, you know, that's not, the indexation is not built into it. So the 3 million, let's, let's go out 20 years or 30 years, whatever it is now, you know, I've got kids who are in, you know, their early twenties, 20 years ago, I don't think there were, you know, I, I live in Sydney, so I, I would, I'm guessing that 20 years ago there were not many houses in Sydney that were going for a million dollars apiece. Now the median value in Sydney is over a million dollars for a residential home. So just the sheer increase in the valuation of assets, the current cohort will die off. And then over time, if the 3 million bucks stays, stays flat for the next 30, 40 years, then there's gonna be a lot of young kids, current young kids now, such as, such as my children who will probably be caught up in the 3 million threshold unless it gets indexed or changed or whatever it might be.
(34:05):
Now, of course, if the, the current government loses the election, then the, then the, the coalition have said that they'll repeal this legislation. Now whether or not they can do that as another, assuming it passes and whether or not they can do that as another matter. So there is a lot of uncertainty and yes, I do think that this is probably the start, I think a very quick win for the government come, the federal budget is to not index the transfer balance cap. I think that is a really very simple, and I'm not suggesting that they should do that. It's, I I look if I was, if I was them and they turned around and said, look, we can't afford it at the moment, you know, that, that that's their line now for doing this $3 million thing, you know, it's a, it's a good easy line.
(34:42):
and it's a quick win now how much money it'll save the money, I really, I, I couldn't say probably not a lot of money, but it, you know, they'd probably bank everything and they possibly count at the moment. So yes, it does, it is very difficult. And I do think, you know, there's, there's two types of people at the moment. Some people will be looking at it going, right, okay, they'll take their batten ball in relation to super, they'll take their Batten ball and go home and say, okay, I'm not gonna do anything until, until I know where things stand because I, you know, I really don't trust them. They, you know, it's, it's unknown. I will invest somewhere else for the time being, whether it be my family home or negative gearing into a residential real estate or margin loans or whatever their fan, you know, crypto or whatever their fancy fancy fancy is.
(35:20):
Or then there's people who'll, who'll say, well, yeah, okay, super's still okay, but I'll stay on the sidelines for now just until I wait until, until I get some clear air. maybe the next year or two, the, the taxation of super on a year to year basis is concessionally taxed. But the issue that everyone's gotta remember is that superannuation is not a year to year investment. It's a long-term investment. In other words, you've, and as a result, the tax that I paid this year, the impact of that is accumulative. So what we've actually gotta consider is the tax that the, the net tax and the impact of that net tax that I have paid over the life of the investment. And it is that, that most people miss. So they just look at the tax on a, on a discreet year to year basis, forgetting about any tax that they may or may not apply, you know, over the rest of the investment period. So I can understand why people do that, but it's probably erroneous. And,
Shelley Banton (36:14):
And look, as you said, there's a long time between now and when that proposal, you know, becomes law. That's, that's a very long timeframe. So to, you know, knee-jerk react to anything that might be just a proposal at the moment could be to your detriment you know, much, much later in the future. So I, I guess regardless of the, the issues, potential issues that we've discussed today and the uncertainty of those outcomes, what do you still think about SMSFs? Is they still the most advantage advantageous concessionally tax vehicles available to us and especially in super, I mean, we, we need to make sure that people are well set up for their retirement and our quality retirement and that they have dignity in that retirement. So, you know, I mean, in, in spite of everything we've discussed, what are your thoughts about that, Tony?
Tony Negline (37:08):
I think super is still concessionally taxed, just, but a as I said, I I think, I think the taxation over the life of the investment, you know, if you are, if you are starting work now in your early to mid twenties, chances are you will live until your 100. So that's, you know, give or take roughly a period of 75 odd years. So that's really your investment timeframe. Now, what the total taxes you'll pay in super compare to other vehicles is a bit hard to judge. I think for low income earners, superannuation is a dud deal. Chances are you are paying very low tax personally, but you're getting taxed at 15 in the fund. If you are a very high income earner, I think superannuation is a good deal for middle income earners. Yeah, and by that I mean somewhere between 40,000 and a hundred thousand, I think superannuation is not too bad, but it's not as good as everyone assumes that it is.
(38:01):
It's still tax is still advantageously taxed year to year compared to other things. But, and so in other words, it's people need tax incentives because they're denying themselves access to that money for an extended period of time based on, based on the rules really, I think the tax of super needs to be flipped on its head. What we have is we have tax contribution level tax fund earnings, and e and to a certain extent, exempt on the way out. What we need is we need exempt contribution wise, we need exempt during, and then we need tax on the way out. But changing to that, changing to that formula is, is, you know, would have to happen time. And I can't see that happening. But look, yes, smsf are a good vehicle for a whole variety of reasons, not only necessarily some of the tax concessions that are good, but they could probably be better given that the taxing packs are humility.
(38:51):
And that's one thing that I think people need to concentrate on or, or factor in before they, before they jump in in relation to super and, and whether or not it's the right place to hold, it's obviously a good place for business assets to be held which is a good thing about SMSFs. The other, the other thing about, the other thing about SMSFs that I think people need to realise is that large corporations don't wanna talk to you. So if you wanna contact a large retail fund or a large industry fund, good luck. But with sfs, because it's done at a business level, you know, my fund is administered by my accountant. Now if I need anything done, I contact him and I get a response directly from him straight away. Yeah, straight. Well, you know, within the, within 24, 24 hours, whatever, yeah, let's say, let's say 24, 48 hours.
(39:40):
whereas good luck, good luck trying to get your issues solved by a large entity. And it is that specific nature control and the ability to get your issues dealt with by someone who's actually the bus who's helping you make serious decisions. That's one thing that's a point that I think most people actually miss. And that's, that's the beauty. I, I actually think that's the biggest beauty of, of sn sfs. And I think that's the thing that we actually need to talk, talk about in that if you need an issue in a self-managed super fund, you can get it solved. Whereas in a large fund, if you've got an issue, you are just a number. You are literally just a number. And, and we all know, you know, electricity companies, water companies, government, no one wants to talk to you, banks, no one wants to talk to you anymore. And that's, and I think that's the issue.
Shelley Banton (40:27):
And a great example of that is if you meet a condition of release and you've got access to your superannuation within an SMSF, if you need some money for, well, I don't know, to fix a fence or do whatever in the house, you can actually take that out as a lump sum or it could be part of your pension, whatever. And you can get that money literally overnight because you are in control of it. Try doing that with an industry fund. You're at least six to weeks a out of, you know, time trying to get that pension or lump sum implemented simply because you've got paperwork, you've got timeframes, you've got monthly cycles that the superannuation fund, the retailer and industry funds work off. So it's not a matter of being able to just access that overnight. So really, you're right, that timing, convenience makes a hell of a lot of difference to, and will do to a lot of people when we're talking about superannuation. So
Tony Negline (41:20):
I think it's called service and, but, and wanting to be treated as a human being. And I think, I think, you know, really as a sector, I think we really need to, we all, we all know, you know, none of these large, they don't like customers
Shelley Banton (41:57):
I agree with you and I think we've come a full circle in terms of, we initially started to talk about building those client relationships and trust and making sure that we're, you know, getting our clients serviced in, in a, you know, correct way and the, and the best way that we possibly can in a professional way. So Tony Neegle, thank you so much for being my very first guest on the SMSF experts. and thank you for all your insights and advice today.
Tony Negline (42:22):
Thanks, Shelley.
Shelley Banton (42:23):
Well, that's all for this episode of the SMSF experts. We hope you enjoyed our discussion on what is the future of super. I'd like to take the opportunity to thank our guest, Tony Neegle for joining me today because there's nothing better than talking all things s m SF with an industry giant, which means the time just flies. So thanks Tony, and just remember that what we've discussed today is for SMSF compliance and information purposes only and shouldn't be used as financial advice in any way. If you like this episode, be sure to subscribe to our podcast and also head to the ASF audits website where you can sign up to my monthly newsletter, access our fact sheets, and follow us on social media to stay up to date on smsf.