Published: 10 Feb 2023
Self-managed super funds rely on tax advisers for appropriate guidance in a number of areas. Excellent advice can make a huge positive difference to fund members and their retirement. But on the other hand, poor or incomplete advice can be very detrimental to clients.
In the worst situations, advisors not fully understanding the nuances surrounding some areas of tax can lead to giving out incorrect advice, and poor client outcomes.
Conditions of release can be one of those areas. Even though there have been very few changes to the rules in recent years, it's still an area that causes confusion, especially when it comes to definitions.
One of the most common misunderstandings can simply be whether someone has met a condition of release or not. This is not a complex subject but contains some real traps for practitioners. We spoke to an expert on this subject, Julie Steed of Insignia Financial Group, to find out more.
‘Not understanding what constitutes a termination of employment versus a change in an employment relationship, even if it's a really big change, can be a real sticky area for advisors,’ Julie says.
‘If you incorrectly think somebody's terminated their employment when they haven’t, it can lead to the condition of release not being met, and therefore the individual not being entitled to receive payment.’
‘The ATO then considers mischief, whether in accumulation phase by moving to an account based pension and getting tax free investment returns you're not entitled to, or something that constitutes illegal early access.’
Julie is presenting at the upcoming Superannuation Intensive on 31 March. In her session she will review areas surrounding conditions of release that are unclear or contradictory, including retirement definitions and old legacy pensions.
Let’s look at an example. Your client retires. They book their round the world trip, upgrade their golf clubs and put their ergonomic office chair on Facebook marketplace. However if you, as their advisor, have not ensured they have met a condition of release by law, you’re going to have to interrupt their 9 holes, and break the news that they have not, in fact, retired.
Retirement definitions are commonly misunderstood by advisors. A mismatch between what an advisor believes is the definition, and the definition by law, can lead to disaster.
‘I look forward to highlighting retirement definitions around conditions of release. The ability to bring that together for practitioners and alert them to the areas where there may be a mismatch can be really valuable,’ Julie says.
Old legacy pensions can be another sticky point for tax practitioners. There can be different rules surrounding this ‘exotic’ historic pension, with other more modern pensions that advisors may deal with more frequently.
‘People don't understand that just because in a normal accumulation or a normal pension account, you could have a condition of release, for example, a terminal illness – it’s not a legitimate condition of release for a legacy pension. So, understanding that our bread and butter products don't necessarily flow onto legacy pensions, is hugely important for advisors to know,’ Julie says.
Death benefits are another hot topic in superannuation, which Julie is looking forward to delving into with fellow presenter Shirley Schaefer of BDO, at the Superannuation Intensive. Whatever industry or sector of tax you are in, everybody knows somebody who's come across a horror story in relation to a death benefit payment. We spoke to Shirley to find out more.
The death of a member can be a trigger for winding up a fund. Although a common practice, there are countless things that can go wrong and is an area of tax where many mistakes are made. Even though they’ve been out of circulation for a number of years, the ATO has recently reinstated its guidance in relation to winding up SMSFs, something that advisors are seeing more and more especially for older clients.
‘I think many SMSF advisors have got to a point in their career where the first round of people that help set their businesses up, are unfortunately passing away. Knowing exactly what to do when a client dies is very important, there are a lot of specific rules to follow,’ says Shirley.
‘Grieving families don’t necessarily want to think about super, so as an advisor, having a clear process on what to do is incredibly helpful, and makes the process easier for everybody involved. If you are across this, you can do all the preparatory work without them.'
Shirley and her colleagues at BDO created a checklist on what to do when a client died. This meant that regardless of who was doing the work, they were all doing the same thing and each client got the same treatment.
‘It doesn't matter which government is in power. They all seem to want to tinker a little bit with superannuation to leave their mark. The rules are changing on a fairly regular basis. Unless you're doing this stuff, all day, every day, like I am, it is hard to stay on top of,' Shirley says.
‘All of the speakers at this conference are high quality and we've got really good topics. It always scares me a little with the Superannuation Intensive. I like to think I can take away, maybe 2 or 3 points, but I always end up taking away many many more! You don’t know what you don’t know, until you know.'
Keen to hear more about the unclear or seemingly contradictory areas of conditions of release or what to do when your client dies? Catch Julie and Shirley at the Superannuation Intensive this March.
Julie Steed is the Senior Technical Services Manager at Insignia Financial Group, with more than 30 years of experience in the superannuation industry as a technical specialist, consultant and client services manager. Julie is responsible for the provision of superannuation technical information, specialising in small funds.
Julie is passionate about helping people with the technical aspects of super, keeping it simple and in helping practitioners provide quality services to their clients. She is a regular speaker at industry conferences and training events and is a regular contributor to industry publications.
Julie is a Fellow and accredited SMSF Specialist Advisor™ with the SMSF Association, a Senior Fellow of Finsia and a Fellow of ASFA. Julie was awarded the SMSF Association’s 2020 Chair Award for outstanding contribution to the SMSF industry.
Shirley Schaefer is the National Superannuation Head at BDO, an auditor by training and a SMSF expert by choice. Shirley is a regular speaker at superannuation, SMSF and Audit conferences. She provides SMSF competency training for accountants and auditors and is the co-author of the Thomson Reuters SMSF Audit Guide.
She is an Accredited Specialist Adviser, Accredited Specialist Auditor and Fellow of the Self Managed Superannuation Fund Professionals Association of Australia (SMSFA): a Fellow of the Association of Superannuation Funds Australia (ASFA); a Fellow of the Institute of Chartered Accountants in Australia (ICAA), a Registered Company Auditor and a Registered SMSF Auditor.