The SMSF Professionals’ Association of Australia (SPAA) has some concerns about the changes in the draft legislation aimed at tightening the rules relating to the acquisition and disposal of listed and unlisted securities by SMSFs and related parties.
The legislation, released by Treasury late last year and expected to take effect on 1 July 2013, is the Government’s response to the Cooper Review finding that the current provisions regulating related party acquisitions are insufficient to mitigate the risk of SMSFs or related parties illegally benefiting from transaction date and asset value manipulation.
SPAA Technical Director Peter Burgess says: “The decision for the legislation to change the requirement from ‘must not intentionally acquire an asset from a related party of the fund’ to ‘must not acquire an asset from a related party’ could have serious consequences for SMSF trustees.
“Removing the word ‘intentionally’ may have important implications for SMSF trustees who may be considered to have breached the related party asset rules even though it was unintentional, especially as new administrative and civil penalties will apply under this legislation.
In SPAA’s view, the definition of a ‘related party’ could easily give rise to situations where the entity concerned is a subsidiary company further down the chain of ownership.
“Given the complexities associated with the definition of a related party, it is important the requirement that the trustees ‘must not intentionally acquire’ is retained in the new rules for SMSF related party acquisitions.
“It would mean inadvertent purchases of assets from related parties would not be penalised, as well as maintain an equitable position with APRA-regulated funds.”
Burgess says SPAA also has an issue with the anticipated change to the regulations that would prohibit off-market transfers of listed securities unless it was solely the result of a change to the trustees of the SMSF.
“From the outset SPAA has argued against the banning of off-market transfers between related parties and SMSFs.
“In our view, there is more cost effective and equitable ways of addressing the issues raised by the Cooper review panel.
“For example, similar to the approach taken for collectables and personal use assets, the legislative controls around off-market transfers could tighten by inserting a new SIS operating standard which would require off-market transfer forms to be submitted to the relevant registry within a prescribed period and audited annually by the fund auditor,” he says.
Regarding unlisted assets, Burgess says the requirement to get a qualified independent valuation is unnecessary in situations where an independent valuation already exists.
“Units held by an SMSF in a widely held unit trust are an example. In the vast majority of cases the investment manager of the widely held unit trust will declare a regular unit price using valuations practices which comply with industry standards.
“Requiring the unit holder to obtain a market value for the units as determined by a qualified independent valuer in this scenario serves little purpose and will only result in unnecessary transaction costs being incurred by the SMSF.
“To overcome these practical issues, in our submission to Treasury we said the explanatory material should be used to outline scenarios where the market value of an asset, which has been independently determined, would suffice as a market value determined by a qualified independent valuer,” he says.