As the rules and regulations governing the operation of SMSFs evolve, it’s important for members and trustees to understand the legislative and regulatory framework they operate within.

The government has long made it clear that superannuation isn’t intended to be an estate planning tool – it was primarily designed to take pressure off the national welfare system and provide benefits to members at retirement or death, not as a tool in the transfer of intergenerational wealth.

Changes to the system should not be unexpected. Given the median age of all an SMSF members is close to 62 years old, certainty in transitioning from one phase of life into another would be welcomed by many.

The proposal by the Federal Government to introduce a new cap which could see earnings on super balances above $3 million taxed at an additional 15 per cent to a total concessional rate of 30 per cent, rather than 15 per cent, has raised the ire of many.

While some argue the intention is to try to start limiting the size of super balances in order to raise tax revenue, this proposal in its current form has a number of fundamental flaws – specifically, the taxation of the movement in the market value (or the unrealised gain) of an asset.

Once that asset is sold, people will still be required to pay capital gains tax on the sale once actually sold, therefore triggering a double taxation arrangement.

Evidently, this shouldn’t be considered fair under the current taxation system and warrants further consultation.

The best strategy for SMSF members is to play by the current rules applicable today. While there is always likely to be draft legislation proposed for future financial years, members need to focus and ensure they are administrating a fund based on the current rules.

With the knowledge changes to superannuation are inevitable, SMSF members should educate themselves and plan accordingly. They should be making the most of current superannuation rules, including those pertaining to contribution caps and indexation of caps, transfer balance and total super balance caps.

The onus of responsibility lies with SMSF members to ensure they are utilising existing rules as much as possible, while being cognisant that these same rules are subject to government tinkering.

This article was published in Financial Times – Spring 2023 issue.