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Self-managed super funds are continuing to grow in popularity with the latest figures from the Australian Prudential Regulation Authority (APRA) showing assets increased to $22 billion.
APRA’s quarterly superannuation statistics for March 31, 2013 show <a target="_blank" href="https://www.smartcompany.com.au/superannuation/052307-government-warned-to-back-off-on-proposed-changes-to-smsfs">SMSF assets </a>now make up 33.9% of the total $68.4 billion increase in superannuation assets in the last quarter.
SMSF Professionals’ Association of Australian director, Graeme Colley, said this increase means the total assets in SMSFs now stands at $496.2 billion or about 31.5% of the total $1.58 trillion superannuation pool.
“What these numbers say about SMSFs is positive on two fronts,” he said in a statement.
“First, that the fund trustees and their professional advisors have not missed the upswing in the equity markets in this quarter or over the past year.”
Colley said the investment performance of the SMSF sector has been on a par or better than the other sectors.
“Second, that despite the market volatility of the past years post the global financial crisis, people still want to take control of their superannuation and be responsible for it,” he said.
“This reflects both a growing awareness by trustees of superannuation and their capacity to be able to get professional advice on all issues pertaining to the management of their SMSF.”
A spokesperson from the Australian Institute of Superannuation Trustees said the APRA data showed industry funds were aware of the market competition from SMSFs and are increasingly offering products which compete.
“While the figures also show strong growth in the SMSF sector, superannuation funds are increasingly offering innovative, good value new products and services, which mirror some of the features of self-managed funds and aim to help retain members, particularly those with large balances,” the spokesperson said.
This article originally appeared on <a target="_blank" href="https://www.smartcompany.com.au/">SmartCompany</a>.
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APRA figures show SMSF assets have hit $22 billion

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The SMSF Professionals’ Association of Australia has developed best practice guidelines for self-managed super fund limited recourse borrowing arrangements (LRBA).
This week SPAA announced NAB has agreed to adhere to the two separate guidelines.
NAB is the first lender to sign up to the guidelines for <a href="https://www.smartcompany.com.au/finance/superannuation/22072-20110922-borrowing-smsf-cash-for-property-repairs-the-do-s-and-don-ts" target="_blank">LRBA</a> with the SPAA saying sign up from the other major banks is in progress.
Andrea Slattery, chief executive of the SPAA, said in a statement the association has been “very conscious” of concerns expressed about LRBAs and in particular about a “tiny rogue minority” spruiking this borrowing facility.
“We believe that by publishing these guidelines, and with NAB signing on and other major lenders in the pipeline (the major banks are estimated to have more than 85% of this market), the government and regulators can have a high degree of confidence that LRBAs are being used appropriately and that the industry has best practice guidelines for lending and advice in place,” she says. 
The two guidelines are LRBA lenders’ best practice guidelines and LRBA advice best practice guidelines.
Slattery says adherence to the guidelines by the banking and financial advice industry will ensure LRBAs are being used appropriately by SMSF trustees, and encourages self-regulation in the SMSF lending sector by lenders and advisers.
Jeff Bresnahan, chairman of SuperRatings, told SmartCompany there is a need for restrictions like this in the SMSF sector. 
“If SMSFs are going to come under scrutiny and there is going to be failures, there is a high chance it will be in the property area. There will always be the temptation for unscrupulous behavior in that sector,” he says.   
“The property spruikers are back and are targeting SMSF members so these guidelines can offer protection.”
Bresnahan says he is not concerned that some SMSFs may miss out on loans under the guidelines. 
“If the guidelines are well thought out then there should be an appropriate level of gearing, if people miss out because they were going to do something highly leveraged then that is not a bad thing,” he says.
“That is a positive move to protect people.”
Bresnahan warns the industry, valued at half a trillion dollars, has its risks.
“SMSFs are great for a lot of Australians, but there are a lot of SMSFs out there that have been sold probably inappropriately to people who should not have them and they have to be protected from their own greed and lack of financial literacy,” he says.    
Bresnahan says in mainstream super funds investors are protected by the Australian Prudential Regulation Authority in the event of default but SMSFs don’t have that protection.
“The more restrictions that are put in place the better I believe,” he says.
This article first appeared on <a href="https://www.SmartCompany.com.au" target="_blank">SmartCompany</a>.
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Banks to impose restrictions on SMSF borrowing

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Continued legislative tinkering to the superannuation system is forcing individuals <a href="https://www.smartcompany.com.au/superannuation/052307-government-warned-to-back-off-on-proposed-changes-to-smsfs">to abandon super and self-managed super funds</a>, leading to $16 billion not being placed into SMSFs, according to research published this week.
The research by the SMSF Professionals Association and Russell Investments found that as a result of lower contribution caps and continued changes to super, 54% of SMSF trustees would change the decisions they are making currently about their strategies towards their retirement.
Launching the research, SPAA chief executive Andrea Slattery said, of those who would change, 75% said they would invest in things other than super.
“That would be outside of super, not inside of super, and so that leads towards $16 billion not being placed in the superannuation system in this last 12 months,” she says.
“It shows there are big numbers in the SMSF sector which are mainly professionals, small business and the self-employed that are not putting money into super and if they are not putting it into super they are putting it elsewhere or spending it.”
Slattery says negative gearing has been the main benefactor of the movement out of superannuation, with confidence amongst SMSF trustees low.
In July last year the amount of pre-tax income people over the age of 50 may put into super each year was halved to $25,000.
Trustees now have to deal with legislative risk, according to Alan Schoenheimer, chief executive of Russell Investments in the Asia Pacific.
“I think trustees are learning a new risk called legislative risk, which they used to ignore in the past but now it is becoming clear this is a major dilemma,” he says.
“You put your money into the system and once it is in it is locked in, and you can’t reverse that decision, and now it is there for the government to raid.”
Schoenheimer says 10 or 15 years ago people were encouraged to contribute more than the required amount into superannuation and they were given incentives to do that and told it was a good thing.
“It is in a system where you can’t hide it by the way, it is there for all to see and Australian Prudential and Regulation Authority or the Tax Office or someone have your statistics and can look at it all the time and you can’t hide it out, you can’t get it out and all of a sudden the rules change.”
“I would have thought there were a lot of angry people right now.”
This article first appeared on Smart Company.
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Government tinkering with superannuation proving costly

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Australian investors have benefited from almost $70 billion in dividends throughout 2013-2014 with $10 billion going to self-managed superannuation funds, according to analysis by Credit Suisse.
Fairfax reports the dividend haul is a record $67.8 billion, up from $61.3 billion in 2012-2013.
“This is what investors want now, especially ‘selfies’ [SMSFs] who are collecting more than $10 billion of dividends themselves,” Credit Suisse equity strategist Hasan Tevfik <a href="https://www.afr.com/p/business/companies/epic_billion_dividend_haul_for_investors_CbbhL0wc7v8D1UY6TWk4VK" target="_blank">told Fairfax</a>.   
Jordan George, senior manager of technical and policy at the SMSF Professionals’ Association of Australia told SmartCompany his research shows that as of the end of 2013 SMSFs held 11.5% of market capitalisation of the ASX.
“If you look at that in context of a $70 billion flow of dividend, $10 billion to SMSFs seems right,” he says.
“We know SMSF investors have a preference for franked dividends as it helps them provide an income stream in retirement and that’s important to consider when we know 35% of SMSFs are in pension stage and are taking an income stream.”
George says SMSF trustees at the pension stage need to generate cash flow to fund paying a pension so dividends are important to maintain that.
“But it’s important to recognise for all super funds there are the same incentives to invest in franked dividends, it is not just an SMSF issue,” George says.
This article first appeared on <a href="https://www.SmartCompanycom.au" target="_blank">SmartCompany</a>.
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$70 billion dividend payout with $10 billion to SMSFs

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Former chairman of BHP Billiton and chief executive of the National Australia Bank, Don Argus, is embroiled in a legal battle with the Australian Tax Office over his superannuation.
The ATO wants to charge tax on almost $1.2 million in income earned by the $15 million self-managed superannuation fund of <a href="https://www.smartcompany.com.au/leadership/profiles/21793-20110906-the-selling-of-reform">the elder statesman</a> and his wife, Patricia.
Argus, who is now chairman of the Bank of America Merrill Lynch Australia Advisory Board, claims the income should be tax free.
On 16 April 2014 the Argus’s objected to the ATO’s assessment of income tax issued to their SMSF for the year ended 30 June 2010.
On 29 September 2014 the ATO disallowed the objection and so the Argus’s have now filed an application for the decision to be varied in the Federal Court.
The Argus’s are seeking an almost $1.2 million reduction on the tax paid by them for the 2010 tax year claiming the assessment of $2.25 million in tax is “excessive” because it wrongly concluded the SMSF did not pay out the minimum amount required.
Graham Colley, director of technical and professional standards at the SMSF Professionals’ Association, said with a $15 million fund value the minimum amount of pension to be paid should be around $900,000. 
“[SMSF trustees] need to make sure you pay the minimum amount of your pension for the year,” he says.
“You can do it simply by making sure you have direct debits into your bank account.”
Colley advises SMSF trustees also need to make sure the valuation of the investments are made so the calculation of the amount has been correctly done. 
“Even if you have underpaid a small amount the commissioner will exercise his powers of administration providing you make up the shortfall as soon as it is discovered,” he says.
“Make sure you know when your pension starts, make sure you know when it stops and one of the standards to qualify as a pension is to make sure you pay the minimum amount.”
<a href="https://www.afr.com/p/national/don_argus_takes_on_taxman_over_super_JwuiiKK4asPzKTku9UdW9K" target="_blank">Fairfax</a> reports the dispute is scheduled for a court hearing in Melbourne on 2 Februrary.
SmartCompany contacted Argus but did not receive a response prior to publication.  The ATO declined to comment.
This article first appeared on <a href="https://www.smartcompany.com.au/" target="_blank">SmartCompany</a>.
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Former BHP chairman Don Argus takes on the Tax Office over his $15 million SMSF 

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The number of self-managed superannuation funds in breach of borrowing requirements increased over the past year, according to research by the Partners Wealth Group.
<a href="https://www.partnerswealthgroup.com.au/wp-content/uploads/2015/01/2014-Partners-Wealth-Group-Audit-Survey.pdf" target="_blank">The research</a> is based on over 600 SMSFs across Australia audited in 2014 and found 23% of funds with a relevant breach were in breach as a result of borrowing requirements.
This is a significant increase from 12% of funds the year before.
However, overall the number of SMSFs requiring a contravention report to be lodged with the ATO has fallen over the past year in line with the past seven years.
<table style="width: 460px;" border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="77">
Year
</td>
<td valign="top" width="77">
2014
</td>
<td valign="top" width="77">
2013
</td>
<td valign="top" width="77">
2012
</td>
<td valign="top" width="77">
2011
</td>
<td valign="top" width="77">
2010
</td>
<td valign="top" width="77">
2009
</td>
<td valign="top" width="77">
2008
</td>
</tr>
<tr>
<td valign="top" width="77">
% funds in breach overall
</td>
<td valign="top" width="77">
5
</td>
<td valign="top" width="77">
5.3
</td>
<td valign="top" width="77">
5.3
</td>
<td valign="top" width="77">
5.5
</td>
<td valign="top" width="77">
3.4
</td>
<td valign="top" width="77">
7.2
</td>
<td valign="top" width="77">
11.3
</td>
</tr>
</tbody></table>
 
<table style="width: 460px;" border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="205">
Key breaches 
</td>
<td valign="top" width="205">
% of funds with relevant breaches in 2014
</td>
<td valign="top" width="205">
% of funds with relevant breaches in 2013
</td>
</tr>
<tr>
<td valign="top" width="205">
SMSF borrowings
</td>
<td valign="top" width="205">
23%     
</td>
<td valign="top" width="205">
12%
</td>
</tr>
<tr>
<td valign="top" width="205">
Loan to members
</td>
<td valign="top" width="205">
23%
</td>
<td valign="top" width="205">
38%
</td>
</tr>
<tr>
<td valign="top" width="205">
In-house assets
</td>
<td valign="top" width="205">
20%
</td>
<td valign="top" width="205">
31%
</td>
</tr>
</tbody></table>
Partners Wealth Group director of SMSF consulting and auditing, Martin Murden, attributes the increase in breaches to a misunderstanding of the rules.
SMSFs are entitled to borrow under limited circumstances in order to pay benefits, settle on investments and acquire investments via a limited recourse borrowing arrangement (LRBA).
“Because borrowing via a LRBA is relatively new and has been subjected to several rule changes since inception, my suspicion is that there has been confusion, resulting in some SMSF trustees thinking it was permissible to use their fund to borrow to overcome a short-term liquidity problem – much like a small business seeking a temporary extension to a bank overdraft in difficult circumstances,” Murden said in a statement.
Two other key areas of transgression highlighted by the Partners’ research came from funds taking personal loans for members and funds breaching the in-house assets rule.
Murden said, periodically, loans occur by mistake. For example, using the wrong cheque book (that of the SMSF) to pay a personal expense. On other occasions members are simply in need of money and there is no one to stop them from borrowing from the fund.
“However, it is important to remember that while the loan may appear small in dollar terms and when compared to overall fund assets, personal loans are simply not allowed under super legislation. They’re an absolute no-no and size is no excuse,” Murden said. 
Graeme Colley, director of technical and professional standards at the SMSF Professionals' Association of Australia (SPAA), said the spike probably means auditors are being more fastidious in analyzing the operation of SMSFs.
“Hopefully with requirements for the registration of auditors, the auditors that are left in the registration group are taking their jobs more seriously as they have greater obligations in reporting to ASIC,” he says.
“We may see an increase again simply because of the thoroughness of the audits that are conducted.”
Colley says the types of breaches identified by the Partners Wealth Group are not surprising.   
“The main issue is people taking money out of their funds, in-house assets which is next and then separation of assets,” he says.
“Mixing assets is really serious as it means SMSF trustees may be putting their hand into the operation of the fund.”
This article first appeared on <a href="https://www.smartcompany.com.au/" target="_blank">SmartCompany</a>.
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Spike in number of SMSFs in breach of borrowing requirement

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The self-managed superannuation fund sector is soaring, with the Australian Taxation Office revealing it expects more than 1,000 applications a week to be lodged for SMSFs in May and June this year.
Speaking at the annual <a target="_blank" href="https://www.smartcompany.com.au/superannuation/054815-asic-sounds-warning-bell-on-smsfs">Australian Securities and Investments Commission</a> forum in Sydney yesterday the ATO's commissioner for SMSF, Stuart Forsyth, said the rush was already on with the office receiving a record 500 applications to set up new funds in one day last week.
"It is the highest we have ever seen on one day," he said.
"It is an illustration of the growth that is out there."
This last minute surge before the end of the tax year will take the total number of <a target="_blank" href="/property-observer">SMSFs</a> to half a million, although Forsyth said the ATO rejected about 68 of the 500 applications as being unsuitable.
Graeme Colley, director of education and professional standards at the SMSF Professionals Association of Australia, told SmartCompany a surge in applications for SMSFs was "not surprising" towards the end of the financial year.
"You can get a tax deduction of up to $25,000 on your contributions, so traditionally there is a spike towards the end of the year," Colley says.
"People are disillusioned with larger funds and there is more interest in SMSFs generally, which influences people to set up their own funds."
Colley believes speculation about the budget and the impact of what will happen means people are trying to protect themselves from any superannuation changes by setting up an SMSF.
He says the ATO receiving 500 applications in one day last year is interesting and he assumes people are setting up the SMSFs for the right purposes.
"The concern is that people are panicking or rushing in to set up an SMSF and hopefully the advice they are getting is for the right purpose to provide retirement benefits; they need to look before they leap," Colley says.
The ATO also revealed at yesterday's forum that it will seek to close down as many as 10,000 self-managed superannuation funds this year, targeting funds that are inactive and have not been lodging annual tax returns.
Forsyth told the forum the closures come at the end of a year-long review of the SMSF sector.
According to Colley this shutdown of SMSF funds is not something SMSF trustees should be concerned about.
He says "every now and again" the ATO goes through its database and looks at those funds which are inactive or have been closed down and it undertook a similar exercise a few years ago.
"When you look at shutting down 10,000 funds out of half a million it is only 2% of the total number, it is a very small proportion," he says.
"The ATO will notify trustees a number of times before closing down a fund, it's not like opening and shutting a shop."
This article first appeared on <a href="https://www.google.com.au/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;ved=0CDMQFjAA&amp;url=http%3A%2F%2Fwww.smartcompany.com.au%2F&amp;ei=qVJSUYTyLcnYigeQxIDQBQ&amp;usg=AFQjCNHpZnYFW6OgdohnBFaGGjvpykD8CA&amp;bvm=bv.44342787,d.aGc" target="_blank">SmartCompany</a>.
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