Licensed advice traps flagged as SMSF tax planning kicks off

In a recent webinar, Smarter SMSF chief executive Aaron Dunn said with the new financial year fast approaching, that SMSF professionals will be thinking about what tax strategies can be implemented for SMSF clients including contributions.

Mr Dunn said that with the eligibility age for downsizer contributions dropping from 65 to age 60 from 1 July, this may open up new opportunities for some clients.

SMSF professionals will also be considering strategies such as utilising carry-forward contributions for those with a total superannuation balance of less than $500,000, which allow members to access unused concessional cap amounts from previous years.

“So there may be that ability to go back and use unused amounts in those years where they didn’t use either a $25,000 cap or the $27,500,” he explained.

Where clients have an abnormally high level of income, Mr Dunn said there may be the opportunities for them to make a contribution in June and receive the deduction for this financial year but allocate the contribution to the following financial year.

Speaking in the same webinar, Holley Nethercote general manager Kath Bowler said where SMSF professionals are discussing these types of topics with SMSF clients, its important they consider where those conversations fit within the advice framework and whether they fall under general or personal advice.

“There is that licensing line and where it sits hasn’t changed for years and years,” cautioned Ms Bowler.

“If you're giving a statement of opinion or a recommendation intended to influence about a product or class of products or a reasonable person would think that you are, then you're in the space of licensing but it will be called general advice.”

She reminded SMSF professionals that superannuation is regarded as a class of product.

“If you have considered or a reasonable person thinks that you might have considered one or more of their objectives, financial situation or needs, then you're in the realm of personal advice, which triggers statements of advice (SOAs), best interest duty obligations and various other requirements,” she said.

Ms Bowler explained that from a licensing perspective there are no issues simply informing clients about the changes that have happened with downsizer contributions and changes around the work test. There are also no issues with informing whether or not they are eligible, she added.

In terms of informing clients about the impact of making additional contributions on their super balance, this may depend on how far this goes and whether the professional is stepping into advice, she said.

Following the repeal of the work test, Mr Dunn said another discussion around tax planning for the next financial year will be around the ability to use pensions at the same time as making contributions for a much longer period of time and the strategies that creates.

“Where a client is taking more than the pension minimum, they may make a conscious decision to treat those amounts above the minimum in a multitude of ways. That’s going to be subject to whether they have an accumulation account and whether there are potential transfer balance considerations,” said Mr Dunn.

“The conversation there ordinarily was to take the minimum pension first to ensure the tax exemption for the year, then you might look at the accumulation account because we want to increase the level of tax exemption in the fund and then three, we’d look at the commutation requirements.”

One of the points raised by Meg Heffron in her session as the SMSF Association National Conference, said Mr Dunn, was whether this order might change for certain clients following recent changes, where the commutation strategy might move up to number two and the accumulation account to number three.

“This will be based upon personal circumstances but there may be some rational as to why you might flip that commutation strategy and the accumulation account might come out at three.”

Ms Bowler warned that a discussion like this may fall into the realm of advice.

“If there's multiple factors at play in making that decision, then that very much suggests you're considering one or more of their personal needs or objectives and coming up with the decision as to which order,” she explained.

“If there's any discretion and you're giving advice on that, then it's going to tip into the advice bucket.”

Tips and tools

Ms Bowler said there are some useful tools that SMSF professionals can use to help provide clients with information and determine whether or not they are actually giving advice.

Fact sheet templates, for example, can be useful for both unlicensed and licensed accountants when the practitioner just needs to impart the facts, she said.

Ideally, the fact sheet should include a section with a decision box where the client specifies what they want to do.

“[However], if the clients want help filling out the decision box, then its not their decision anymore,” she said.

“That’s a subtle way that you can have a conversation with your clients but a really obvious way of working out whether your giving licensed advice or not,” she said.

Mr Dunn said using an information process like this provides an opportunity for someone to seek advice if they want it through that initial phase.

“If they've decided to seek advice then that will move into the advice framework,” he said.

“There are naturally limitations in terms of what that unlicensed practitioner can do. You can provide this information to them, they can disseminate that information, and  they can then make that decision that then allows you to undertake that next step,” he explained.

“[However] if they're working through that, and then they're asking you how to fill out that decision box, well, then they're quite clearly gone beyond the scope of what [that fact sheet] is intended to do.”

The next step for unlicensed SMSF professionals, said Ms Bowler would be to provide a letter to the client documenting that it was their decision and includes the values filled out from the fact sheet.

Where a client decides they do want advice on contributions, for example, the first step would be for the adviser to determine whether it will be suitable to just give the client contributions advice.

“You could convert this into an email, or you could have this in front of you and you could fill it out and ask some questions to make sure that they're suitable for you to give them advice and that they're not wanting something broader than just contributions advice and that they don’t want to do something else with that money that would rule them out [of that kind of advice],” she said.

“Once you've done that, then you need to give them an FSG and then you can move into the actual additional information that you need to collect before you give the advice.”

The adviser would then need to put together the SOA, which if its just for contributions advice, which may be able to be done in a shorter form if its just for contributions advice.

Ms Bowler said the SOA needs to include the goals and objectives, recommendations and reasons for the recommendations, any trades off and why the client will be in a better position.