Self Managed Super Issue 52

QUARTER IV 2025 | ISSUE 052 | THE PREMIER SELF-MANAGED SUPER MAGAZINE

The

DIVISION

296 REBOOT

FEATURE

COMPLIANCE

STRATEGY

COMPLIANCE

Revised Div 296 What has changed

Part A qualifications Key audit element

Property developments Optimum structures

Wholesale investor test Where SMSFs stand

COLUMNS Investing | 20 The private credit opportunities.

Investing | 24

The

DIVISION

296 REBOOT

The modern-day gold rush.

Compliance | 28 Part A audit qualifications and their significance.

Strategy | 32 Intricacies of the death benefit payment process.

Compliance | 36 When the GST becomes relevant.

Strategy | 40 Property development investment structures.

Compliance | 44 Where SMSFs sit regarding the wholesale investor test.

Compliance | 48 Considerations for payday super.

Compliance | 52 In-house asset factors to take into account.

Strategy | 56 The role specialised legal advice can play.

REGULARS THE DIVISION 296 REBOOT Cover story | 12

FEATURE

What’s on | 3 News | 4 News in brief | 5 SMSFA | 6 CPA | 7 IFPA | 8 CAANZ | 9 IPA | 10 Regulation round-up | 11 Super events | 60

ASIC Report 824 | 16 A proper analysis and reflection.

QUARTER IV 2025 1

FROM THE EDITOR DARIN TYSON-CHAN INAUGURAL SMSF ASSOCIATION TRADE MEDIA JOURNALIST OF THE YEAR

Whacking superannuants twice Up until now, the funding of the Compensation Scheme of Last Resort (CSLR) has been seen as a serious issue the financial advice sector has had to deal with. This concern has been going on for a while, but took an even more severe turn when the government confirmed recently the CSLR special levy for 2025/26 would be $47.3 million, with $10.4 million to be paid by the financial advisory industry – and that is before any contingencies are made for the Shield and First Guardian master fund collapses.

However, Assistant Treasurer and Minister for Financial Services Daniel Mulino further inflamed the situation when he suggested at a recent roundtable both industry and retail superannuation funds would also have to cover off some of the levy. This led to very strong pushback from several industry bodies, such as the Association of Superannuation Funds of Australia and the Super Members Council (SMC).

And you guessed it, one of the gripes was if we are going to be hit, then why should SMSFs not face the same predicament. In an Australian Financial Review article, SMC chief executive Misha Schubert was quoted as saying it “defies logic the government would be asking low-income Australians to pick up the tab, while high net wealth SMSF holders don’t have to lift a finger”.

Congratulations minister, I think we can safely say you’ve reignited the superannuation sector war. And Mulino himself has admitted it is something he is going to have to consider.

On the surface, it seems ridiculous for SMSF trustees who had nothing whatsoever to do with collapsed investment schemes to be asked to fund the compensation for unfortunate individuals who lost money as a result of

2 selfmanagedsuper

partaking in those offerings.

While I cover the SMSF sector and thus have an interest in it, I’m going into bat for all superannuants here. Frankly, why should any super fund be dragged into funding the CSLR at all? What’s it got to do with them? Making super funds pay for a portion of the CSLR levy will only penalise members and will introduce an element that erodes their retirement savings, particularly when the majority probably steered clear of these products.

I could understand punitive action taken against certain funds if it was found their trustees had a deep involvement in channelling monies into the collapsed investment schemes, but this is not the case. And we know why this is happening. The government’s gaze just can’t be averted from the $4.3 trillion held in superannuation and the potential problems it could be used to fix.

But this is ridiculous and it basically means superannuants will be hit twice – once via their taxes because the government will have to fund some of the CSLR levy and one more time as an individual fund member. How is that fair?

It’s time for Canberra to step up and wear the big-boy pants here on two fronts. Firstly it has to come to the realisation the CSLR should be government funded and, secondly, it is time for the regulators to exact compensation from those responsible for this situation and they are the product providers.

Until then there can be no prevention and we all know prevention is better than cure, especially this one.

I’d also like to announce this will be the final edition of selfmanagedsuper in this format.

The content we have been bringing you via the magazine will continue, but will now be incorporated within our other publishing activities.

Editor Darin Tyson-Chan darin.tyson-chan@bmarkmedia.com.au Senior journalist Jason Spits Journalist Penny Pryor Sub-editor Taras Misko Head of events and corporate partnerships Cynthia O’Young c.oyoung@bmarkmedia.com.au Publisher Benchmark Media info@bmarkmedia.com.au Design and production AJRM Design Services

WHAT’S ON Accurium Inquiries: 1800 203 123 or email enquiries@accurium.com.au

Kickstart 2026 21 January 2026 Webinar 2.00pm-3.15pm AEDT

SMSF administration in practice 28 January 2026 Webinar 2.00pm-3.15pm AEDT

SMSF transfer balance cap: reporting and 2026 indexation 4 February 2026 Webinar 2.00pm-3.15pm AEDT

Investment rules for SMSFs 4 March 2026 Webinar 2.00pm-3.15pm AEDT

SMSF investment rules in action 11 March 2026 Webinar 2.00pm-3.15pm AEDT

SMSF member death: what to do next

To have an upcoming event featured on the What’s On page, please contact darin.tyson-chan@bmarkmedia.com.au.

Institute of Financial Professionals Australia Inquiries: 1800 203 123 or email info@ifpa.com.au

Super Discussion Group 10 February 2026 Webinar 12.00pm-2.00pm AEDT

NSW 10 February 2026 6.00pm-8.00pm AEDT Karstens Level 1, 111 Harrington Street, Sydney

VIC 12 February 2026 6.00pm-8.00pm AEDT The Veneto Club 119 Bulleen Road, Bulleen

2026 Super quarterly update 5 March 2026 Webinar 12.30pm-1.30pm AEDT

2026 Annual Conference 19-20 March 2026 Crown Melbourne 8 Whiteman Street, Southbank

SMSF Association

SMSF investment rules in action

SMSFA National Conference 2026

Inquiries: events@smsfassociation.com

18-20 February 2026 Adelaide Convention Centre North Terrace, Adelaide

DBA Lawyers

Inquiries: 1300 959 476 or email team@smartersmsf.com

Inquiries: dba@dbanetwork.com.au

State of SMSF 2026

13 February 2026 Webinar 12.00pm-1.30pm AEDT

Changing face of SMSF 4 March 2026 Webinar 12.00pm-1.00pm AEDT

SMSF clinic 3 March 2026 Webinar 1.30pm-2.30pm AEDT

Super in 60 5 March 2026 Webinar 2.00pm-3.00pm AEDT

Institute of Public Accountants Inquiries: 1800 625 625 or email cpd@publicaccountants.org.au

2026 Victoria Conference 12-13 March 2026 RACV Torquay Resort 1 Great Ocean Road, Torquay

SMSF Professionals Day 2026 Inquiries: Cynthia O’Young (02) 8973 3317 or email events@bmarkmedia.com.au

19 May 2026 Sydney Masonic Centre 66 Goulburn Street, Sydney

VIC 21 May 2026 Melbourne Convention and Exhibition Centre 1 Convention Centre Place, South Wharf

QLD

Smarter SMSF

28 January 2026 Webinar 12.00pm-1.00pm AEDT

Inquiries: 1300 433 376 or email events@heffron.com.au

NSW

25 March 2026 Webinar 2.00pm-3.15pm AEDT 11 March 2026 Webinar 2.00pm-3.15pm AEDT

Heffron

25 May 2026 Brisbane Convention and Exhibition Centre Grey Street, South Brisbane

SMSF online updates

13 March 2026 Webinar 12.00pm-1.30pm AEDT

QUARTER IV 2025 3

NEWS

Div 296 implementation must be neutral

By Darin Tyson-Chan

System neutrality is the one element the SMSF Association would like to see with regard to the implementation of the proposed Division 296 tax.

The SMSF Association has called for complete system neutrality with regard to the implementation issues superannuation funds will inevitably face when the Division 296 tax is introduced on 1 July 2026.

SMSF Association chief executive Peter Burgess acknowledged the new measure will mean additional administrative responsibilities for super funds, likely to include adjustments for

items such as assessable contributions and exempt current pension income.

“We do expect there will be a need for [administrative] system changes, particularly for the large funds, but also for self-managed super funds as well. There may be changes made to the SAR (SMSF annual return) with new labels and so forth,” Burgess indicated during a recent webinar hosted by selfmanagedsuper.

“What we’re looking out for very carefully is to make sure we have system neutrality. We understand that the large funds do face some issues when it comes to adjusting cost bases, but we don’t want the large funds getting preferential treatment.

“There has to be system

neutrality and that’s what I’m mostly concerned about at the moment.”

He reiterated Treasurer Jim Chalmers has so far made it clear he is not considering any amendments to the revised policy he announced in October, despite having his attention drawn to some of the difficulties with its implementation.

“The point I was trying to make to the Treasurer is this is the reason that we didn’t go down this track to start with because it’s a complicated process for the large funds in particular,” he said.

“The superannuation system is not designed for a tax like this. Superannuation funds are designed to calculate the taxable income at a fund level

Release authority compliance causing ATO angst

By Darin Tyson-Chan

The ATO has revealed it is still seeing issues regarding compliance with release authorities and confirmed ignoring this part of an SMSF withdrawal procedure can lead to drawdowns being categorised as illegal early access of benefits.

“Release authorities are a big issue for us. Unfortunately, a lot of trustees will get their Div 293 tax assessment or their excess concessional contribution tax assessment [and] they’ll immediately pay it from the SMSF before they have received a release authority from us. This is a breach of the rules and can result in them being subject to administrative

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penalties,” ATO director Kellie Grant told practitioners at The Tax Institute National Superannuation Conference held in Sydney recently.

“That can actually be an issue as well with illegal early release in those sort of situations as well.”

To this end, Grant pointed out advisers should communicate firmly with their clients when they know these circumstances are likely to arise to ensure those trustees comply with ATO release authorities.

“I think the message there would be as soon as you’ve got a client you know is going to have Div 293 tax or excess contributions tax, put them on notice [and tell them] do not release any money from your fund to pay a debt until such

and when you’re asking for the funds to do that down to a member level, it creates a lot of problems.

“Not really for self-managed super funds, but mainly for the large funds that will have to make some reasonable changes to their systems to accommodate this tax.

“In our view there are simpler ways to go about it.”

Peter Burgess

time as the ATO sends you that release authority,” she suggested.

She also took the opportunity to stress another aspect of the release authority to which SMSF trustees need to pay particular attention.

“If we send you a release authority via SuperStream, you need to pay that release authority via SuperStream and notify the commissioner that it has also been paid for via SuperStream,” she indicated.

“That is definitely something that is compulsory right now and most funds are set up with electronic service addresses these days so should be able to meet those standards.”

However, she recognised some release authorities are delivered outside of the SuperStream system.

“Sometimes we do send releases via paper and if that’s the case, you can comply with that release authority by paper,” she said.

NEWS IN BRIEF

Caps to increase in 2026 A senior industry executive has predicted the superannuation contribution thresholds will have the indexation measure applied to them once more on 1 July 2026.

“So the concessional contribution cap is expected to index to $32,500, which means the non-concessional cap will index to $130,000,” BT head of financial literacy and advocacy Bryan Ashenden forecast.

“Those [figures] are based on movement in AWOTE (average weekly ordinary time earnings) and the most recent movements that were published. [These figures] have already put us above the threshold we need to get to for those caps to index.

“Technically we actually have to wait for the figures to be released, they come out in early February, around AWOTE to get the official confirmation because it is based on a particular quarter, but again for them to not index you’d actually have to see wage growth go backwards, which we think is highly unlikely.

“So while we say it’s not guaranteed yet, it is pretty much expected that we will see the indexation of those caps from 1 July 2026.”

Trustee bannings down The number of trustees disqualified by the ATO has fallen in the second half of this year and is also lower than the same period last year, according to new data released by the regulator.

The most recent update to the Disqualified Trustees Register, which came out at the end of November, indicates 128 individuals were

disqualified for the quarter ending 30 September 2025, while a further 73 people were disqualified from 1 October to 5 December based on notices published on the Federal Register of Legislation, for a total of 201 disqualifications.

Of that number, it appears at least 50 people were banned alongside their spouse, with 25 couples appearing in the register based on residential details and banning dates.

The Disqualified Trustees Register indicates that figure is lower than the first half of this year, in which 246 trustees were disqualified, and a further decrease on the second half of 2024 when the tax commissioner disqualified 271 trustees, and a further 285 trustees in the first half of last year.

CSLR threatens adviser numbers The Financial Advice Association Australia (FAAA) has expressed its concerns the special levy for the Compensation Scheme of Last Resort (CSLR) could see more financial planners leave the industry if the current allocation system is continued past the 2026 financial year.

“I’m genuinely concerned that it will accelerate departures in our sector ... when you’re a small business, which most adviser firms are, if you’ve got three or four advisers, for some businesses, this could wipe out their profit. It really is meaningful for us, in a way that for some of the larger sectors with large institutions, it’s a rounding error for them,” FAAA chief executive Sarah Abood told attendees of an endof-year wrap-up webinar for FAAA members.

At a roundtable meeting with industry stakeholders, Minister for Financial Services Daniel Mulino announced the $47.3 million CSLR

special levy for 2025/26 would be spread across all 23 retailfacing subsectors, with the largest allocation of 22 per cent, or $10.4 million, going to the financial advice sector.

For 2025/26, the FAAA has calculated the action would equate to an extra cost of $700 per adviser, bringing their total annual expense for the levy for this year to over $2000 per adviser.

New scam prevention app SMSF practitioners and members have been encouraged to download and use a new ATO app allowing them to lock down their fund in the event of suspicious activity without needing to contact the regulator first.

ATO SMSF director Kellie Grant said the revised app was a key tool that worked in conjunction with alerts issued by the regulator to help protect funds from attempts to defraud money from trustees and members.

“What we find is SMSFs are increasingly, unfortunately, being targeted by fraudsters and scammers due to the large sums of money held in them, so the ATO has implemented additional identity checks and protective alerts to safeguard SMSFs,” Grant explained.

“We conduct additional identity checks when a fund is first established and issue protective alerts when there are changes to the fund’s details or when a new member is added.

“The changes to a fund’s details that activate an alert are change of address, phone number and bank account details as they can be an early warning of identity fraud, which is why we try to confirm any of those changes made are correct as soon as possible.”

QUARTER IV 2025 5

SMSFA

Good advice has never mattered more

PETER BURGESS is chief executive of the SMSF Association.

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If there is one unshakable truth in the SMSF world, it is this: go to a bad adviser and bad advice will follow as surely as night follows day. It is a statement so obvious it risks being ignored, yet its implications for our super sector are profound as the consequences of poor advice grow exponentially. Certainly the need for specialist SMSF advice has never been more evident.

Today, SMSFs are not inherently riskier and most trustees are capable. But their access to specialist advice is being limited by the simple fact there is a dearth of specialist practitioners.

This is what keeps me awake at night: the growing risk Australians will increasingly struggle to access specialist SMSF advice.

It’s not difficult to understand why. To begin with there’s the rising regulatory and financial pressure on advisers, most recently seen in the alarming 2027 initial levy estimate for the Compensation Scheme of Last Resort (CSLR). This figure, a staggering $137.5 million, with $126.9 million, or around 92 pre cent, assigned to the personal financial advice sector, is yet another confirmation of just how disproportionate the burden has become.

Advisers who act professionally and ethically are being asked to shoulder the bulk of the escalating levies arising from failures for which they are not responsible. Worse still the estimate does not even incorporate potential Shield or First Guardian claims, which the scheme itself acknowledges will push the levy higher. And the sector is still waiting to know whether a special levy will be imposed to cover the previous year’s shortfall. The uncertainty is corrosive.

These pressures create an environment where some SMSF specialists are asking themselves whether it is worth continuing in this space.

It’s not just an issue of fewer SMSF trustees getting the specialist advice they need. Many are increasingly tempted to rely on generic online tools and artificial intelligence (AI)-generated content that simply cannot replicate the nuance or professional judgment required for SMSF decision-making. There is a prevailing assumption the system will simply cope; that the void left when experienced SMSF advisers walk away will somehow be filled. But filled by whom? Certainly not the Australian Prudential Regulation Authority-regulated funds with proposed enhanced collective charging models that lack the structures, expertise and authorisations to provide comprehensive financial advice.

It can’t be the conflicted-advice promoters either. Their business models are built around product distribution and their incentives simply don’t align with the independent judgment trustees need. Replacing specialist advice with services shaped by conflicts would only magnify the risks.

The generic automated tools increasingly being positioned as substitutes for professional advice also won’t suffice. AI will not step up; it will simply fill a void, leaving trustees believing they are informed when they are even more exposed.

This is where the intersection with AI becomes particularly concerning. AI is increasingly being marketed as a source of guidance, insight or even quasi-advice.

Used appropriately, it can be a powerful tool that supports advisers and enhances efficiency. But AI is not a replacement for specialist SMSF advice. It can generate information, summaries and even investment narratives.

However, financial advisers are better placed to assess the viability of an SMSF for a particular family’s circumstances, weigh up estate planning implications, model contribution strategy sequencing, make sense of complex related-party arrangements and understand how investment and regulatory risk interacts over a 30-year retirement horizon.

Another reminder specialist human advice is irreplaceable is the fact AI cannot detect the complex interpersonal dynamics that sometimes lead to SMSFs being misused or exposing trustees to financial abuse.

This risk is amplified by another emerging trend where trustees are making long-term decisions based on misunderstandings or incomplete information because they perceive professional advice is either too expensive, too hard to access or too uncertain.

A similar behavioural pattern is now emerging, driven by escalating CSLR levies that are eroding trust in the advice sector and leading some trustees to believe they are better off navigating these decisions on their own.

The answer must be higher standards, not less access.

The SMSF Association has long maintained SMSF advice is a specialist discipline requiring deep technical competence and we continue to support accreditation and ongoing professional development to ensure consumers receive the advice they deserve.

SMSFs represent almost a quarter of Australia’s $4.3 trillion superannuation pool. The decision to establish an SMSF is one of the most significant financial choices individuals can make and it cannot be guided by generic tools or poorly informed advice. The Australian Securities and Investments Commission itself has acknowledged SMSF advice requires specific competencies unique to this field.

The challenge now is ensuring the advisers capable of delivering high-quality, specialist advice remain willing and able to do so. If the CSLR levy continues unchecked, if uncertainty persists and if advisers are continually asked to pay for the failings of others, more will walk away.

The truth remains: a bad adviser equals poor advice.

But unless something changes, many Australians may soon find they have no adviser to go to at all.

CPA

The high-stakes game prior to Division 296

RICHARD WEBB is superannuation lead at CPA Australia.

As we approach the end of 2025, we get closer to another date that is more significant than people realise. As most are already aware, from 1 July 2026 the incoming Better Targeted Superannuation Concessions package, which includes the proposed Division 296 tax, will fundamentally reshape the tax landscape for individuals with large super balances. The commentary around the changes has largely focused on the headline tax rates and new thresholds, but the all-too-familiar issue of asset valuations is likely to reappear as an issue for trustees.

Of course, trustees having déjà vu and who planned accordingly in prior years may be scratching their heads as to why, since the originally proposed measure was modified to only tax realised capital gains, they will need to closely examine their valuation practices yet again.

But because June 2026 will likely serve as the reset point for calculating realised capital gains under the new rules, trustees cannot afford to treat valuations as a mere compliance tick box.

Although the original implementation date has been delayed by a year, the current policy will see superannuation earnings attributable to balances above $3 million attract an additional tax of 15 per cent, with those above $10 million facing an effective rate of 40 per cent on earnings from July 2026. Importantly, the policy redesign also shifted the model from taxing unrealised gains to taxing realised earnings, which was welcomed by the sector as a common-sense change.

However, this change does not eliminate valuation risk and may in fact increase it. Asset valuations at 30 June 2026 may be used to establish the starting point for future calculations of capital gains relevant to Division 296 and for SMSFs holding property, or other illiquid assets, the critical nature of this date almost certainly ensures heightened ATO scrutiny will be applied to valuations obtained by trustees. Inaccurate or manipulated valuations could trigger compliance issues, audit challenges and even penalties.

It is a requirement that SMSFs report assets at market value in their annual returns. But this time around, fund valuations at 30 June 2026 set the benchmark for calculating realised gains in subsequent years. If your assets are undervalued now, future sales could generate larger taxable gains. Conversely, inflated valuations could reduce future exposure, but invite ATO scrutiny for being inconsistent with market evidence.

Auditors are warning ‘strategic valuations’ represent a compliance risk and it is expected, although the ATO considers its guidance on valuation to be up to the

task, they will need to look more closely at valuations due to the circumstances. Trustees should ensure they place a greater emphasis on independent, defensible valuations, particularly for unlisted assets like property and private companies.

Since listed assets are unlikely to pose problems due to the transparency of market prices, the real complexity lies with unlisted and illiquid assets present in many SMSF portfolios. According to industry data, around 30 per cent of SMSFs hold direct property often funded through limited recourse borrowing arrangements.

These valuations are inherently subjective and costly to obtain. Yet relying on outdated appraisals or automated valuation models will no longer cut it. Updated ATO guidance now requires property valuations to be supported by recent comparable sales and, in many cases, professional reports within three months of year end.

Trustees should be thinking about the following strategic considerations well ahead of 30 June 2026: 1. Is your valuation strategy designed with auditors in mind? Trustees should engage qualified valuers for significant assets well before year end. Document the methodology, any comparable sales and all assumptions. A valuation that stands up to auditor and ATO scrutiny is your best defence against compliance risk, and 2. When did you last review your asset allocation?

Consider whether high-growth or illiquid assets belong in your super under the new regime. For balances above $3 million, the effective tax rate on earnings could reach 30 per cent, representing a brake on the advantage of holding such assets in super.

Trustees should expect the ATO will focus on three key questions: • Are valuations consistent with market evidence and prior reporting?

• Were valuations performed by qualified professionals rather than trustees with vested interests?

• Is there a clear audit trail showing how values were determined?

The shift to taxing realised earnings under Division 296 is a step toward fairness, but it does not eliminate complexity. SMSF trustees and their advisers need to be aware 30 June 2026 is not just another reporting date. Trustees need to ensure valuations are as accurate as possible, obtained as early as possible, are defensible and can be explained to the ATO if necessary.

Remember, if the ATO queries valuations, close enough will not be good enough.

QUARTER IV 2025 7

IFPA

Payday super has landed

NATASHA PANAGIS is head of superannuation and financial services at the Institute of Financial Professionals Australia.

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With the payday super legislation now receiving royal assent and set to commence on 1 July 2026, the focus turns to the practicalities: how the reform will work in the real world and whether the transition timeline is achievable, especially for small business.

Payday super is a positive step toward reducing unpaid superannuation and improving retirement outcomes for Australian workers. Paying the super guarantee (SG) at the same time as salary/wages will narrow the window for non-payment and help employees see their entitlements flow regularly into their accounts. The policy intent is sound and widely supported.

But practitioners know good intent doesn’t necessarily translate into good implementation. The legislation did not consider many practical issues raised by the profession that would have made payday super fair and workable for everyone involved.

We’ve consistently advocated for changes to ensure the framework works in practice. Without these refinements, the regime risks setting small businesses up to fail, not because they are unwilling to do the right thing, but because it demands a major overhaul of the payroll and cash-flow processes they rely on today.

For small employers, payday super will mean changing payroll processes so SG is calculated and paid every pay cycle, dealing with more transactions and tighter reconciliation, leaning on clearing houses and software providers to remit quickly and accurately, and managing cash-flow volatility as wages and superannuation payments move together each payday.

These changes require system upgrades, staff training, redesigned processes and often a reset of longstanding habits.

The Institute of Financial Professionals Australia lobbied for a delayed or staggered start for small business, at the very least for micro-employers who have limited payroll capability and thin administrative margins. That didn’t eventuate. The start date remains a single, economy-wide switchover on 1 July 2026.

However, we also called for practical adjustments, including a pay-date model that treats employers as

compliant once SG is remitted to a fund or clearing house, regulation of clearing houses so delays outside an employer’s control do not trigger penalties and sensible carve-outs for micro-businesses. There carveouts might include letting them continue quarterly contributions, shift to a monthly cycle or receive a longer transition period, such as an extra two years, to move to the payday super model.

These were sensible safeguards against predictable failure points in the system. Without them, more of the operational risk will sit with employers who try to comply, rather than being tightly targeted at the small minority who seek to avoid their SG obligations.

That said, we welcome the ATO’s risk-based compliance approach for the first year of operation through to 30 June 2027. It signals an understanding of the scale of change and a focus on higher-risk employers early on. All the same, we would have preferred transitional relief to run for at least two years, through to 30 June 2028. One year of softer compliance settings helps, but doesn’t fully reflect how long system and behavioural changes can take, particularly in smaller workplaces and across fragmented payroll and super software environments.

For advisers this is also a significant practicemanagement shift involving onboarding clients to new processes, monitoring far more frequent SG events and resolving payroll or clearing-house issues that may be outside a client’s direct control.

Whether or not the legislation was refined, the clock is ticking and our focus now shifts to helping small businesses prepare and understand what’s required. For practitioners that means starting readiness conversations now, mapping payroll and cash-flow impacts early, auditing payroll systems and integrations, pressing software providers to deliver and test changes well before 1 July 2026 and setting up monitoring so more frequent SG events lead to faster error detection and correction. It will be a challenging, tight transition and the profession will be central to making it work. Payday super is a worthy reform, but success depends on closing the practical gaps quickly and supporting small business through the change.

CAANZ

Not as good as it seems

TONY NEGLINE is superannuation and financial services leader at Chartered Accountants Australia and New Zealand.

Superannuation is not as concessionally taxed as many think. It is true this is not a widely held view. Over the years, we have regularly heard from relevant government ministers that superannuation comes with generous tax concessions. Each year Treasury publishes the Tax Expenditure Statement, which says the superannuation tax concessions total a very large number – just over $60 billion for the 2024 financial year.

We could spend some time analysing this number, however, it is worth pointing out just under 50 per cent of the $60 billion involves the tax deductibility of employer superannuation contributions.

This deduction will have increased in 2024/25 and 2025/26 because of wage increases as well as the uptick in the superannuation guarantee (SG) contribution rate in each of those two financial years.

The SG is now 12 per cent or 10.2 per cent after the 15 per cent contributions tax. And then, throughout the accumulation phase, 15 per cent earnings tax is collected. Perhaps the SG rate could be lowered if these taxes were not collected. This would obviously save considerable super fund administration costs, as well as reduce the total dollar value of employer tax deductibility for those contributions.

Nevertheless, at face value, superannuation does appear to be concessionally taxed. For example, earnings are concessionally taxed relative to individual marginal rates. Depending on personal circumstances, this certainly appears to be true for those earning taxable income of more than around $190,000 who face the highest marginal rate of 45 per cent above that threshold.

It is worth pointing out we apply a progressive tax rate to individuals and a flat tax rate or rates to superannuation. Comparing these different methodologies is very complex, especially when individuals may be eligible for a wide range of effective tax concessions, such as the low-income tax offset, family tax benefits and the childcare subsidy.

One methodology is to convert an individual’s actual personal tax payable into an average rate for each dollar of income. What we find is those

earning taxable income of over $60,000 have an average tax rate of less than 15 per cent – the flat superannuation earnings rate.

As we all know, many people will have money held inside the superannuation system for a very long time. Some people might belong to a super fund for over 80 years, that is, from the time they start employment and until they die. And for over half of that time the system severely restricts access to their money.

One of the reasons for the superannuation tax concessions is to compensate individuals for the fact they cannot access their money until retirement (for now let’s ignore the early access rules).

The only logical way of working out the effective superannuation tax rates is to look at the total tax paid over the investment period plus the long-term impact of those taxes.

This assessment is made more complicated during retirement. Superannuation is often seen as very tax favourable for retirees.

However, this is an incomplete picture.

Retirees only need relatively modest savings before Centrelink’s income and assets tests begin to reduce the age pension payable (it can be argued the withdrawal of such benefits is a form of taxation).

The age pension can be completely lost for a retiree couple owning a home who have just under $1.075 million in assets. The organisation SuperEd has estimated this retiree couple would need about $1.155 million in assets to purchase that age pension from an annuity provider, which they are no longer eligible to receive. (It is doubtful a private annuity provider would offer such generous indexation rules that apply to the age pension).

At some point most retirees will need access to aged-care services. Those with a relatively modest level of assets, other than their home, above specific thresholds may be ineligible to receive any government handouts. Again it can be argued the withdrawal of these benefits is a form of taxation.

None of this is to argue the age pension or aged-care tests are unfair or unreasonable.

The point is superannuation tax concessions look very generous. For some this is true. But for most individuals this assessment is superficial and much more analysis needs to be done to work out what the real picture actually is.

QUARTER IV 2025 9

IPA

A lesson in ignoring good tax principles

TONY GRECO is senior tax adviser at the Institute of Public Accountants.

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Even staunch opponents of the proposed changes to the Division 296 tax did not begrudge the government’s attempt to reduce the concessional tax benefits of superannuation for high-balance accounts.

The existence of superannuation balances exceeding $10 million is largely a legacy issue, unlikely to recur under the current regulatory framework. Historically the system permitted the accumulation of disproportionately large balances far beyond the original policy intent of concessional tax treatment within super. Over time this imbalance will naturally resolve as these members exit the superannuation system.

In the meantime, introducing a higher tax rate for balances above $10 million is a pragmatic step toward improving the long-term sustainability of superannuation concessions. Individuals affected by the change can explore alternative investment vehicles, particularly where a condition of release has already been met.

However, when the government designed the Division 296 tax measure, it was clear it would face criticism. An additional tax impost will always have detractors, but when sound tax principles of fairness, simplicity and efficiency are applied, Australians typically accept the outcome and move on.

Unfortunately, the Division 296 policy departed from those principles. What began as a thought bubble was pursued despite overwhelming evidence it was fundamentally flawed. The most egregious elements were the taxation of unrealised gains, the absence of symmetry between gains and losses, and the lack of indexation. Despite repeated warnings and constructive alternatives from the tax profession, there was no meaningful consultation.

Instead, Treasury maintained its approach was the only viable path forward.

Now, inevitably, we have come full circle – back to the negotiation table, attempting to design an alternative mechanism for taxing high-balance accounts. Unrealised gains will finally be excluded from the earnings base as they should have been from the outset.

For SMSFs, the primary group impacted by Division 296, attributing a higher tax on realised gains to members is relatively straightforward.

However, for large Australian Prudential Regulation Authority-regulated funds the logistics are far more complex. Treasury now faces the difficult task of determining how the earnings base will apply, particularly for high-balance defined pension

accounts.

I attended the Senate inquiry examining the legislative amendments to implement the Division 296 tax. In my career as a tax advocate committed to sound policy outcomes, I have rarely been more disappointed. The message from the chair was unambiguous: adhering to good tax principles was never part of the conversation. The prevailing attitude seemed to be that fairness, simplicity and efficiency were expendable when only a small number of people were affected. It was a fait accompli.

We now face a year-long delay to establish the earnings base for applying higher tax rates on superannuation. This lost time represents a wasted opportunity and foregone revenue. It’s time that could have been spent collaborating with the profession to craft a workable, principled solution allowing the government’s stated aim to be achieved without compromising the integrity of the tax system.

The proposed Division 296 measure was first announced in the 2023/24 federal budget, handed down in May 2023, with the release of exposure draft legislation in October 2023. For over two years, the government has refused to budge on the most controversial aspects of the tax – the taxation of unrealised gains and lack of indexation.

In October 2025, after two years of collective stakeholder advocacy, the government finally announced a number of changes to the policy: • the measure has been deferred by one year – it will now commence on 1 July 2026, • the tax will now only be applied to realised gains, • there will be an additional $10 million threshold – earnings on balances above that will be taxed at 40 per cent, and • both the $3 million and $10 million thresholds will be indexed, in $150,000 and $500,000 increments respectively.

Under the proposed methodology, the ATO will notify the superannuation fund an in-scope member exists. The fund will calculate the realised earnings attributable to the member and report them to the ATO. The regulator will then calculate the: • proportions of the total superannuation balance exceeding the $3 million and $10 million thresholds, and • total tax liability for all of the member’s interests.

Revised draft legislation has not been released. Treasury will undertake consultation on implementation.

REGULATION ROUND-UP

NICHOLAS ALI is SMSF technical services director at NEO Super.

ATO SMSF audit guidance on asset ownership The ATO has published auditor guidance in the form of Quick Code 105370 regarding the types of evidence it can use to verify asset ownership and the separation of fund assets from those held by other entities, including personal assets.

In the publication, the ATO stated the way an asset is held and titled is relevant when determining whether an SMSF owns the asset and whether it is being held beneficially by the trustees on behalf of the fund. It goes on to say if auditors form the view an asset is not an SMSF asset, or there is not sufficient appropriate audit evidence to support the ownership of fund assets, they should modify the auditor’s report and can report the issue via an auditor contravention report.

The ATO listed common scenarios that can lead to contraventions, such as when the: • asset is not held ‘as trustee for’ – documents for purchasing property on behalf of the fund, such as a contract of sale for real property, should be executed in the name of the trustees ‘as trustee for’ the fund, • asset is not recorded in all individual trustee names – the ATO does acknowledge there are situations where not all trustee names can be recorded where six individual trustee names are not allowed, o in these situations, other evidentiary requirements can be met, and • trustee scenarios change – especially changing from individuals to corporate trustee.

The ATO did confirm, however, a contravention of Superannuation Industry (Supervision) Regulation 4.09A will not occur just because an SMSF has a special purpose company and the assets are recorded in the name of the company, but not ‘as trustee for’ the fund. In these circumstances the auditor will still need to confirm with the trustees that the company does not act and hold assets in another capacity, for example, as a trading entity or as a trustee for another SMSF.

NALI finalisation The ATO rulings on non-arm’s-length income (NALI) via Law Companion Ruling (LCR) 2021/2 and contributions via Taxation Ruling (TR) 2010/1 clarify how income and expenses are treated for SMSFs when transactions are not conducted at arm’s length.

These rulings aim to provide guidance on compliance and the potential tax implications for trustees and their

funds.

The key implications for SMSF trustees are as follows: • Service provision: Trustees can provide services to their SMSF without incurring NALI if they do not charge a fee, but this is limited to specific circumstances.

• Valuation rigidities: The requirement for a single value point in asset valuation can expose trustees to risks if they cannot justify their valuations adequately.

• Minor errors: The rulings do not allow for leniency regarding minor undercharging or inadvertent errors, which can lead to significant tax consequences.

• Guidance limitations: While the rulings provide some clarity, they still lack detailed examples and practical guidance, particularly for small businesses and common scenarios.

Division 296 tax status The federal government has announced significant updates to the Division 296 tax policy that targets total super balances exceeding $3 million. These changes aim to create a fairer tax system for high net worth individuals.

The new tax structure now incorporates: • No tax on unrealised gains: The revised tax will only apply to realised earnings, meaning members will only pay tax on profits they made.

• Thresholds and rates: The thresholds have also been revised as follows: Balance range

Tax rate

Up to $3 million

15%

$3 million to $10 million

30%

Over $10 million

40%

Further, the $3 million threshold will now be indexed to inflation in increments of $150,000.

A new $10 million threshold will also be introduced, which will be indexed in increments of $500,000.

The new tax system is now due to start on 1 July 2026, with the first tax assessments expected in the 2028 financial year.

Key features of LCR 2021/2 and TR 2010/1 Aspect

LCR 2021/2 (NALI)

Purpose

Clarifies NALI provisions for SMSFs

NALI definition Trustee services Valuation issues Penalties for noncompliance

Income derived from non-arm's-length dealings Services provided by trustees to their own fund may not incur NALI if no fee is charged Requires justification of a single value point for assets Non-compliance can lead to a 45 per cent tax rate on income

TR 2010/1 (Contributions) Addresses contributions and their treatment under NALI Contributions that may be affected by NALI rules Clarifies that certain contributions are not subject to NALI Provides guidance on acceptable valuation methods Similar penalties apply for misclassified contributions QUARTER IV 2025 11

FEATURE

The

DIVISION

296 REBOOT

News of changes to the Division 296 tax has been welcomed, but like its first iteration, questions remain about its operation and, as Jason Spits writes, also its deeper impact on the superannuation system.

12 selfmanagedsuper

FEATURE DIVISION 296 REBOOTED

In February 2026, the proposed Division 296 tax will celebrate its third anniversary of being a key superannuation and tax policy central to the fiscal goals of a government that has been unable to get it through parliament despite strongly prosecuting its case.

It will also create a sense of deja vu in which the superannuation system, including the SMSF sector, will have had to quickly digest Treasury proposals for an additional tax on earnings in super above certain thresholds.

Of course, the key difference is none of it will be new ground, but rather an area that has been fiercely contested, resulting in, depending on who you ask, a massive backdown by the government or a good, albeit very slow, response to problems with the tax first presented in 2023.

While it is too early to dig deep into the revised version of the tax (see: How we got to this point) the shift away from levying the tax on unrealised gains to realised earnings is effectively a reset of the impost.

Welcome news Given its previously oversized impact on SMSFs, is it a win for the sector?

Colonial First State head of technical Craig Day believes it is and notes the shift from taxing unrealised gains to realised earnings or income has been universally welcomed despite the lack of information on how this will be calculated.

“It is a win because taxing paper profits was not a good tax policy and while the initial tax calculations are now gone, because they were so flawed, it was a simple method for working out the tax that required much

less reporting by the super sector,” Day says.

SMSF Association chief executive Peter Burgess was one of those who welcomed the decision to revise the Division 296 tax, noting its particular impact on the SMSF sector.

“This is a win because the severity of the tax has been reduced, especially for SMSFs, of which 17,000, such as small business and primary producers, hold business premises in their funds and faced problems immediately if a member has more than $3 million in super,” Burgess notes.

“We welcomed the change because it was what we were asking for from day one of this tax being announced.”

Soft cap surprise What was not sought was the addition of a second threshold at $10 million where the tax would be ramped up to 25 per cent, and given these caps carry no forced obligation to leave super, Day sees it as an expansion of the revenue-gathering plans inherent in the first version of Division 296.

“You could view it as a soft cap or extra tax take because the new version of the tax aims to recoup revenue just like the original proposal did, but it may work as a soft cap depending on the assets held by a super fund member,” he explains.

“For example, unrestricted, nonpreserved benefits could be moved out because you can get lower tax elsewhere, such as in a family trust, but capital gains tax will arise if those assets are moved.”

Heffron managing director Meg Heffron doesn’t regard the twin thresholds as stealth soft caps and points out there is a lower, more effective cap regime already in place.

“We have had caps in place since 2017 via the transfer balance caps and unlike the old reasonable benefit limit regime, what we don’t have is compulsory cashing,” Heffron says.

“What we will have with the TBC and Division 296 is a cap and a way to claw back tax concessions on superannuation, but the revised tax may encourage some people to exit the super system, but will not force it.”

Burgess notes the addition of the higher threshold represents an even more targeted element of the new impost, but still ties into a long-standing stated aim of the government to generate revenue for budget repair.

“Even at $3 million and $10 million, super funds members are still getting tax benefits, but the government is aiming for additional tax revenue with the new threshold given the amount it will collect, based on the forward estimates, drops from $6 billion to $2 billion, partly because of the delay caused by these changes,” he states.

Policy remains as calculations change Many of these macro-policy outcomes may have been forgotten in the push to have Division 296 based on realised income rather than paper profits, but a significant structural shift will still take place in superannuation once it is introduced.

Heffron suggests any shift in the longterm treatment of large balances should be expected and changes will reflect current aspects of the system.

“Tax policy has to evolve, but it has to be fair to the people in the system. Many people feel better about the revised Continued on next page

“It is a win because taxing paper profits was not a good tax policy and while the initial tax calculations are now gone, because they were so flawed, it was a simple method for working out the tax that required much less reporting by the super sector.”

– Craig Day, Colonial First State

QUARTER IV 2025 13

FEATURE DIVISION 296 REBOOTED

“Tax policy has to evolve, but it has to be fair to the people in the system. Many people feel better about the revised proposal because the issue was with the original design of the tax, rather than paying more tax.”

– Meg Heffron, Heffron Continued from previous page

proposal because the issue was with the original design of the tax, rather than paying more tax,” she claims.

“At the same time, fund members can expect to leave a legacy, but it should not be funded by the taxpayer, so it is reasonable for the government to reduce concessions if you have millions in super.”

Accurium head of SMSF education Mark Ellem points out the mechanics of the revised changes will push the burden of calculating Division 296 tax for each super fund member, regardless of whether they are in an Australian Prudential Regulation Authority (APRA)-regulated fund or SMSF, from the ATO onto fund trustees.

“Previously, the ATO was to calculate the amount of Division 296 earnings and amount attributable to a member, but now the fund will do that work and calculate the taxable amount and report this to the ATO,” he indicates.

“The ATO will then calculate the proportion of the total super balance exceeding each threshold and the total Division 296 tax liability.

“Under the first version, a trustee had to know how the tax worked so they could get to the same figure to verify it. Now the trustee will have to provide that figure and substantiate it to the ATO and fund members.”

This shift would appear to favour SMSFs and their members in comparison to APRAregulated funds as they are able to track the earnings and tax at the member level, but Day expects there may still be issues to be addressed across the board.

“SMSFs can deal with earnings on a

14 selfmanagedsuper

proportional basis, but this may become more complex where the investment strategies of members differ and it would be more complex if a fund or member had multiple investment strategies,” he says.

“Not all large fund members will have difficulty as those using wrap accounts operate like an SMSF and assets and income are linked to individual accounts, but it will be a problem for APRA-regulated funds that uses a master trust structure.

“They use a unit price rather than income per member and that price goes up and down with the market, but there is no dividend per member because they don’t operate systems that exist for this outcome.”

Similar issues arise when dealing with capital gains as the revised version of Division 296 will now need to implement a start date for when those gains will fall under the new tax regime, with Ellem indicating another new process will have to be applied.

“How will they ensure only realised gains attributable to post-30 June 2026 will be included in the calculation of Div 296 superannuation earnings?” he asks.

“The talk is we will likely have something along the lines of the 2017 capital gains tax (CGT) cost base reset mechanism that was part of the introduction of the transfer balance cap regime.

“It will also be interesting to see whether the CGT discount is applied when calculating attributable realised capital gains for Division 296 purposes and how capital losses will be considered, if at all.”

According to Heffron, while working out a workable method to allocate capital gains under the new impost may be harder than calculating earnings, SMSFs once again have an advantage.

“They have rules under which they can realise gains at a specific time so when they sell an asset they can calculate capital gains tax that the fund pays, as well as what should be considered under Division 296,” she says.

Yet this raises an issue that bothered many people under the initial version of the tax and that is how will these calculations be equitable for all members in terms of their operation and cost. The government has committed to this, stating it will allow a ‘fair and reasonable’ approach for APRAregulated funds to calculate realised earnings per member and will consider CGT using accepted taxation principles.

“The calculations will depend on what is legislated and hopefully the government comes up with a method that does not have a huge cost,” Heffron adds.

“Why should thousands of members with lower balances pay for the tax treatment of high-balance members yet at the same time why should an unfair tax be levied against some people because of those balances?”

Given the concern about unrealised gains and the impact of that tax policy, Burgess acknowledges it was not a given SMSFs would be treated more equitably under the revisions proposed for the measure.

“This tax is not our preferred approach to claw back tax concessions on superannuation and the problem is the system is not designed for a tax at the member level, but for tax at the fund level,” he highlights.

“For some APRA-regulated funds these calculations may be impossible and we are concerned about equity and if there will be Continued on next page

FEATURE

“The SMSF sector called for this change because we could provide the data for members. As an industry we will have to pay the price for more complexity and to recognise the better outcome it means taking on the extra work.”

– Mark Ellem, Accurium Continued from previous page

winners and losers from these revisions.

“We want to see the SMSF sector handled fairly and the new version of the tax be workable given it has a wider impact on SMSFs than other parts of the sector.”

Better and simpler?

While the devil will be in the detail, it seems

How we got to this point The release of the revised plans for the Division 296 tax, also known as the Better Targeted Superannuation Concessions, is the latest move in a long-running saga that started on 28 February 2023 when the government announced it would introduce an additional 15 per cent tax on superannuation earnings on balances above $3 million.

This announcement set off a protracted series of discussions and consultations in which a key issue emerged, that is, the tax, which would be levied as a personal tax on super fund members, was to be based on unrealised gains in their funds.

While many people were happy to accept the premise of a lower tax concession for people with high super balances, the singular aspect of taxing unrealised gains created two distinct groups – those supporting the tax as a necessary step to claw back some concessions and reduce the budget deficit and those opposed to it due to the unusual

the government may be stuck between a rock and a hard place by either creating a tax that is unfair and flawed, but generally simple to implement, or one fairer and more aligned with accepted tax principles, but with much more complexity in key areas.

“The SMSF sector called for this change because we could provide the data for members,” Ellem recognises.

“As an industry we will have to pay the

price for more complexity and to recognise the better outcome it means taking on the extra work.”

For now, the clock is still ticking as the government plans to have draft legislation for the Division 296 Version 2.0 introduced into parliament by the start of February 2026.

Given it still needs the revenue, it raises the question whether it will try to jam a square peg in a round hole a second time.

and unprecedented tax position taken by the government.

That position led the government to dig in and refuse to concede any ground, even in the closing days of parliament sitting in late 2024 when it became clear the Division 296 legislation would not proceed through the Senate due to opposition from the coalition and a handful of independents.

It was not further pursued prior to the federal election in May this year, with Treasurer Jim Chalmers repeating the mantra there would be no changes to the tax, and so lapsed when parliament was prorogued for the poll.

Chalmers maintained that line after the government was returned, despite it having sufficient support in the Senate to pass the bill as first presented in early 2023.

However, the super sector saw nothing, apart from rumblings from government backbenchers and retired Labor stalwarts about the need to make changes, raising suspicions things might change given the 1 July 2025 start date came and went with nothing in place.

The situation changed on 13 October when the revised Division 296 measure

appeared without fanfare or detail, but with significant headline changes. These included shifting the calculation of the tax to realised earnings, the introduction of indexation of the $3 million threshold at which the tax applies and a new $10 million threshold, also to be indexed, at which the tax rate would increase from 15 per cent to 25 per cent, and a new proposed start date of 1 July 2026.

Chalmers said at the time: “These are sensible changes which take two years of feedback into account while still maintaining the main objectives of our policy.

“The original model was the best option identified at the time, but we have taken the decision to adjust the model to recognise the views we have heard since then.”

However, none of the mechanics as to how this revised and rebooted tax will operate were presented. Consultations on key aspects, including on how to calculate the tax and attribute it to individual fund members, were to begin immediately with the government keen to release draft legislation before the end of the year and introduce a new bill when parliament resumes in the first week of February 2026.

QUARTER IV 2025 15

FEATURE

ASIC recently released an assessment of SMSF establishment advice. Penny Pryor provides context around the regulator’s findings and the solutions stakeholders suggest to address the issue.

16 selfmanagedsuper

FEATURE ASIC REPORT 824 In early November, the Australian Securities and Investments Commission (ASIC) released its “Report 824 Review of SMSF establishment advice” and an accompanying media release, which said: “Poor financial advice related to the establishment of self-managed super funds could be putting some Australians’ retirement savings at risk.”

The report examined 100 financial advice files relating to the establishment of SMSFs only and did not look at ongoing advice provided.

Although the corporate regulator indicated the selection of SMSFs the report was based on was “risk weighted”, Financial Advice Association Australia (FAAA) chief executive Sarah Abood suggests that point perhaps was not clarified as well as it could have been.

“I think many journalists missed the language in the media release that it was risk weighted. So that short phrase appeared in the media release but it wasn’t explained,” Abood notes.

“We asked ASIC to issue a correction or a clarifying note to journalists and it didn’t. It said they felt the language was sufficiently explanatory when read in conjunction with the report. We disagree. We think it’s clear that it was misinterpreted.”

In the executive summary of the report, ASIC clearly states the review was not designed to be “representative of the financial advice sector” but this statement was not used in the press release nor picked up by the wider media.

It is also only deep in the report itself where the regulator acknowledges the risk indicators it used to select the SMSF sample for the report.

These risk indicators included advice licensees and financial advisers where

a high volume of SMSF establishment advice was being provided by financial advisers. SMSF and member demographics that had lower SMSF starting balances, clients with lower incomes, and less diversified or otherwise higher-risk SMSF assets were also considered risk indicators in the sampling methodology.

First impressions Unsurprisingly, the SMSF advice sector was not pleased by the coverage the report received in a news cycle seemingly exerting increasing pressure to publish first and ask questions later.

“I think we need to keep it in perspective that this was not a random sample; it certainly is not representative of the advice that’s being provided to clients about self-managed super funds.

Clearly they looked at 100 files where, on face value, it looked like a self-managed super fund was not the right option for the client,” SMSF Association chief executive Peter Burgess tells selfmanagedsuper.

The sector body, along with the FAAA, also released statements in the wake of the ASIC report clarifying it was in no way reflective of the entire sector. The SMSF Association reiterated, as it often does, SMSFs are not suitable for everyone and that establishing an SMSF is a significant decision requiring informed and impartial guidance.

“We certainly hope this report doesn’t result in financial advisers or licensees shying away from providing SMSF advice.

Hopefully they’ll see this report as a way of improving their own advice processes,” Burgess says.

Abood suggests that perhaps ASIC missed an opportunity to conduct a broader review of the sector. She

would have liked the regulator to have conducted a wider assessment of what the general state of SMSF advice looked like. It could have covered issues such as whether trustees receiving advice are getting better outcomes than those that are not.

“I think a broad review of the sector would be really interesting and really useful, but unfortunately this wasn’t that,” she indicates.

Strategy Hub co-founder Tracey Besters also expresses concern about coverage of the report and is adamant it is definitely not a reflection of specialist SMSF advice files.

“It’s really not an indication of the wider industry. And, unfortunately, it seems like some in the media have perhaps taken it and run with the ‘SMSF bad, everything else good’ kind of narrative,” Besters says.

She points out the review could be helpful in terms of reminding SMSF practitioners ASIC is monitoring the sector, but that it may not be so helpful for the industry as a whole and consumers participating in the space.

Education is key Besters recognises people sometimes set up an SMSF without truly understanding the nature of their responsibilities as a trustee, even though they are required to sign a trustee declaration that sets out all of their obligations.

“I think there needs to be more education on what the trustee responsibilities are because better education and better knowledge for those who are setting up an SMSF will certainly help the industry as a whole,” she says.

One of the biggest issues many people may not be aware of when they Continued on next page

“I think there needs to be more education on what the trustee responsibilities are because better education and better knowledge for those who are setting up an SMSF will certainly help the industry as a whole.”

– Tracey Besters, Strategy Hub

QUARTER IV 2025 17

FEATURE ASIC REPORT 824 Continued from previous page

move out of an Australian Prudential Regulation Authority (APRA)-regulated fund into an SMSF is the loss of some protections, which is something ASIC highlights.

“Further, the movement of money out of a superannuation fund regulated by the Australian Prudential Regulation Authority and into an SMSF means that fund members lose protections, such as the ability to take a complaint about the fund or its trustees to the Australian Financial Complaints Authority and the benefits of prudential regulation,” ASIC specifies in the executive summary of the report.

Recently, ASIC chair Joe Longo suggested a cooling-off-type period for people wishing to switch from an APRAregulated fund into an SMSF could be helpful.

Sonas Wealth managing director and SMSF specialist adviser Liam Shorte is on the ASIC Financial Advisers Consultative Panel and says he expressed the opinion the notion of introducing a cooling-off period is a great idea.

“We’ve got to put something in place to stop the sudden transfers because usually that means somebody’s pushing something on them,” Shorte explains.

“I think that idea of a cooling-off period gives potential SMSF trustees time to maybe get an independent view or talk to or enlist their accountant because sometimes they just get caught up in the decision of doing something. It sounds like you’re missing out if you don’t jump on it.”

Using his own practice as an example, he reveals only two of every 10 people who come to him interested in starting an SMSF are really suited to the move and it

is his responsibility as an adviser to show them the other options that might be more appropriate.

Time for mandatory education?

Abood is unsure what difference a cooling-off period might have made in recent collapses.

“I think it’s worth exploring, but I’m not convinced that it would have made a difference in situations like the Shield and First Guardian master trust collapses because the evidence seems to suggest people were happy with their decision to roll their benefits over until they found out the products had collapsed. Then, of course, they were extremely unhappy,” she says.

Instead she suggests it might be more useful to offer people information as they roll out of APRA-regulated funds as to the protections they could be losing.

“I think there’s a debate worth having about whether there’s some kind of ASIC-regulated, or APRA-regulated, formal information warning that is given to people who are going through the process to ask them: do you understand your responsibilities as a trustee? Do you understand the protections that you will no longer have access to and so on? So, it has to be one page, really simple, really clear,” she points out.

Shorte recognises some public offer funds already provide information highlighting past performance and the different investment options they offer for members looking to roll out their benefits.

“I honestly would prefer if ASIC at some stage made it compulsory to sit an introductory course as to what is required to be a trustee,” he says.

While nothing like that is currently on the cards, it seems to be something the

industry could get behind, with Abood concurring a mandatory course might be the only way to ensure SMSF trustees get the required education.

“My instinct would be to start a little bit more cautiously and perhaps start with really simple, clear, compulsory information. Then let’s see how that works because mandating education would be an extraordinarily expensive regime,” she notes.

SMSF specialists In terms of educating advisers in the space, the SMSF Association specialist qualification has seen increasing enrolments and completions, indicating practitioner education is improving. The sector body has also made some changes to the assessment this year, moving away from just incorporating multiple-choice questions to including case studies and assignments.

“We’ve seen some really good numbers going through our accreditation programs in recent times. We’ve made some changes to it recently, so we’re now offering cohorts, six cohorts a year that run for three months. We’ve tried to listen to some of the feedback we’ve had over the years about the assessment process and we made changes to that,” Burgess reveals.

Over 210 professionals received the SMSF specialist accreditation in the 2025 financial year, with a record number going through in June alone.

“The report talks a lot about professional judgment and ASIC expects financial advisers to use their professional judgment in determining whether an SMSF is suitable for a client. Now, it’s difficult to exercise a professional Continued on next page

“Many Australians are vulnerable to tactics encouraging them to switch their super into options that are more expensive, risky or not in their best interests. We need a system that universally prevents consumer harm,” – Misha Schubert, Super Members Council

18 selfmanagedsuper

FEATURE

“Our disappointment was that it is potentially a missed opportunity. A full review of the sector would obviously be a larger one and longer running, but I think it would be a very useful thing to do.”

– Sarah Abood, Financial Advice Association Australia Continued from previous page

judgment if you don’t understand the benefits and risks of a self-managed super fund, so that’s why we encourage practitioners to undertake our education program, for example, which is very much focused on ensuring practitioners have the required skills to give competent SMSF advice,” Burgess adds.

Responsibilities of APRA-regulated funds The peak body for profit-to-member superannuation funds, the Super Members Council (SMC), supports Longo’s suggestions for a cooling-off period for situations where members of public offer funds want to switch to an SMSF to give them time to seek a second opinion. It has also put forward a number of other proposals it hopes would prevent harm to consumers in high-risk fund switches.

These include expanding antihawking laws to tackle social media lead generation, click-through ads and online funnels that replicate pressure-sales environments, reintroducing ASIC’s 2010 Investing Between the Flags initiative and having official alerts when consumers are

about to move outside system safeguards prompting them to confirm they clearly understand the risks. It also recommends bringing back a recommended minimum balance for SMSF establishment on the Moneysmart website.

The Investing Between the Flags initiative was a financial guidance brochure that explained how to get personal financial advice and some basic investment concepts such as diversification.

“Many Australians are vulnerable to tactics encouraging them to switch their super into options that are more expensive, risky or not in their best interests. We need a system that universally prevents consumer harm,” SMC chief executive Misha Schubert stresses.

The way forward It is clear switching from an APRAregulated fund over to an SMSF is on the regulator’s radar with ASIC chair Joe Longo noting “bad actors” are using the structure to encourage consumers to conduct a super rollover that may be against their own best interests.

Given the huge losses of the Shield and First Guardian master trust collapses, where people were encouraged to roll their super into SMSFs and then into those products, it is understandable for ASIC to be scrutinising the sector. But the SMSF industry hopes there isn’t an overreach in any policy response.

Besters, for example, cautions against too much regulation.

“If people want to do something, then it’s their money and they can choose to do what they want to do. I don’t think we need to become such a regulated industry where people don’t have a choice as to what they want to invest in and don’t have a choice of what they want to do with their retirement money. I don’t think that’s the way to go. I do think there just needs to be a better understanding of the ramifications if it does go wrong,” she indicates.

Abood reiterates she sees Report 824 as a missed opportunity.

“Our disappointment was that it is potentially a missed opportunity. A full review of the sector would obviously be a larger one and longer running, but I think it would be a very useful thing to do,” she notes.

“We certainly hope this report doesn’t result in financial advisers or licensees shying away from providing SMSF advice. Hopefully they’ll see this report as a way of improving their own advice processes.”

– Peter Burgess, SMSF Association

QUARTER IV 2025 19

INVESTING

The new property potential

SMSF members are realising there is more than one way of investing in property as an asset class. Tom Cranfield recognises the benefits an allocation to private credit can deliver given the current state of the market.

TOM CRANFIELD is risk and execution executive director at Zagga.

20 selfmanagedsuper

Australia’s SMSF sector has always had a deep affinity with property. According to ATO statistics, this cohort has approximately $139 billion invested in the property market, accounting for 13 per cent of total SMSF assets.

Yet, with property prices at record highs and traditional income assets under pressure, SMSF trustees are increasingly looking beyond direct ownership to access the strength of Australian real estate. For many the answer lies in real estate private credit – a segment once seen as niche, but now emerging as a critical source of income, diversification and stability for SMSF portfolios.

Australian real estate has enjoyed 20 years of sustained growth, with the residential market now surging past $12 trillion in value as reported by property information firm Cotality. The organisation indicated national dwelling prices rose by 2 per cent to 3 per cent in the last quarter alone. While property undoubtedly remains a compelling opportunity, accessing it is becoming increasingly costly.

As a capital-intensive investment, direct property ownership can limit diversification, constrain liquidity, heighten concentration risk and add significant operational and compliance burdens. Yet, fuelled by

significant tailwinds, SMSFs understandably want to be invested in this fast-growing, resilient asset class, which Cotality recognised is now valued at three times the Australian Securities Exchange.

This dynamic has prompted SMSFs to consider if there is another way to gain investment exposure to Australian real estate while mitigating the risks and challenges of direct ownership. In this hunt for riskadjusted returns, real estate private credit has rightly captured attention.

Australia’s private credit market is now valued at $224 billion, growing 9 per cent year on year. Real estate private credit, in particular, has been forecast to nearly double to $90 billion by 2029. At Zagga we believe this trajectory will see private credit on track to account for 30 per cent of the commercial real estate debt market in the coming years, presenting compelling investment opportunities.

Private credit is no longer niche. It’s become a strategic allocation for sophisticated investors and a core part of well-diversified portfolios. Zagga’s growth in Continued on next page

Real estate private credit suits those who know a steady return of 9 per cent today is worth more than a theoretical 14 per cent tomorrow. It offers predictability amidst a world of persistent uncertainty.

Continued from previous page

funds under management (FUM) from SMSF investors highlights this trend. In the 2025 financial year, Zagga saw SMSF allocations grow by almost 25 per cent year on year.

Private credit has become an established asset class in Australia and on track to be larger than our domestic public bond market.

However, the real question is whether this growth can continue, as it has done in other major global markets, with the investment fundamentals to ensure its sustainability.

Is real estate private credit really a $90 billion investment opportunity or merely an overhyped niche investment?

Where momentum meets opportunity As the world grapples with heightened political and economic uncertainty, income generation and portfolio construction have become increasingly complex, even for the most experienced investors.

Private credit has gained recognition as a stabilising force with the ability to deliver consistent income and enhanced portfolio diversification, independent of market noise and without overreliance on public market performance.

As momentum builds, Australia has earned a reputation as the ‘Goldilocks opportunity’, emerging as an investment destination of choice, renowned for its stable regulatory environment, transparent legal system, resilient,

demand-driven economy and sophisticated financial services and pension sector.

Tailwinds in Australia’s property market mean there is further significant growth potential. Today, real estate private credit accounts for less than 20 per cent of Australia’s commercial real estate lending market, compared to more established markets like the United States, where it represents 50 per cent of funding.

As Australia’s real estate private credit market comes of age, global investors and institutional capital is flowing in, with offshore capital now accounting for almost 30 per cent of Zagga’s FUM. Diverse pools of incoming capital from sovereign wealth funds, super funds, family offices and high net worth investors will see private credit continue to be a growing part of the Australian economy.

Property is the linchpin As Australia’s population expands by more than 400,000 people annually, housing construction is failing to keep pace. Figures from the National Housing Finance and Investment Corporation suggest we are facing a chronic nationwide housing shortage of 100,000 dwellings by 2027.

Exacerbating the issue, regulatory and capital constraints have caused traditional lenders, like the big four banks, to pull back from construction projects and property developments. This is especially apparent in the mid-market, where deals often fall outside of the banks’ strict criteria yet are too niche for institutional capital.

For experienced specialist real estate private credit investment managers, this creates opportunity. There has never been a better time to access investment-grade transactions with strong sponsors and counterparties.

The latest research from Alvarez & Marsal highlights this, noting residential development is a standout segment where private credit has become a critical investment channel and concentrated growth opportunity. Today, 26 per cent of residential development finance is funded by private credit. This is forecast to continue as housing demand intensifies and banks remain cautious.

At Zagga we believe mid-market, residential developments along Australia’s eastern seaboard, particularly New South Wales, are the deepest and most liquid part of Australia’s real estate market, seeing the strongest demand and market tailwinds.

In practice, this means loans ranging from $5 million to $100 million and development values of up to $200 million. The type of property can vary immensely, from boutique residential apartments to high-end retirement living and Australia’s most sustainable luxury home. For us, the most important factors are conservative risk management, robust due diligence, quality assets and strong counterparties.

As the dominance and prominence of private credit grows, borrowers are also realising the benefits and fuelling momentum.

The industry is overcoming historic misconceptions that private credit is merely a ‘lender of last resort’, with many borrowers now proactively choosing private credit over traditional sources of funding.

This is due to the bespoke loan terms, specialist capabilities and commerciality specialist investment managers can offer.

Today, more than 50 per cent of Zagga’s loan book is repeat borrowers, with many on their sixth or seventh transaction.

Australia’s housing supply and demand imbalance is the most critical social issue facing our nation in decades. Real estate private credit has an increasingly important role in solving this challenge and is becoming recognised by both borrowers and investors as a credible, specialist funding source that can deliver benefits for all stakeholders.

Making the investment case The demand is clear, but does real estate private credit really play a meaningful role in SMSF portfolios?

Real estate private credit suits those who know a steady return of 9 per cent today is worth more than a theoretical 14 per cent tomorrow. It offers predictability amidst a world of persistent uncertainty.

Continued on next page

QUARTER IV 2025 21

INVESTING

Continued from previous page

With equity markets becoming increasingly volatile, this predictability is a noteworthy benefit. Furthermore, traditional defensive fixed-income assets, like bonds, are becoming correlated with equities, dampening their ability to act as a hedge in portfolios.

In contrast, real estate private credit sits outside of this cycle, independent of public market noise and uncorrelated to market moves. Investors also hold security over physical property assets, receive contractual monthly interest payments and can invest across the capital stack, either directly or through a fund.

The floating-rate nature of private credit means returns move with the prevailing cash rate. This offers a natural hedge against rate changes, unlike traditional fixed-income securities, which can experience mark-tomarket volatility as interest rates shift. While fixed-rate bonds may see capital value erosion when rates rise, private credit maintains its income margin helping smooth returns across cycles and offering a defensive buffer in uncertain markets.

In practice, this means the margin above the Reserve Bank of Australia cash rate remains constant. For example, the Zagga flagship Feeder Fund targets a return of 500 basis points above the cash rate, regardless of the interest rate cycle, and returned 8.61 per cent to investors as at end-October 2025.

For SMSF investors, this stable and predictable income is in demand. Trustees need reliable income streams to meet minimum pension drawdowns, manage sequencing risk and smooth portfolio volatility as they transition into or remain in retirement.

The ability to generate contractual, floatingrate monthly income backed by real property assets is particularly valuable in an environment where share dividends are no longer reliable, yields are compressed on bricks-and-mortar property investments and the hybrid market has completely disappeared.

In a structurally different investment

22 selfmanagedsuper

environment, many SMSF investors are realising the traditional 60/40 portfolio split between shares and bonds is no longer fit for purpose.

There is a shift towards a more modern framework of 25/25/25/25, representing an equal allocation across equities, fixed income, alternatives and private markets.

Incorporating alternative, uncorrelated assets can build more resilient portfolios, without sacrificing returns, income or exposure to proven asset classes, like real estate.

A risk-off approach Like any fast-growing asset class, private credit is now receiving greater regulatory attention and that scrutiny is both expected and healthy.

The Australian Securities and Investments Commission’s recent review highlights a clear need for more consistency across the sector, including disclosure, governance and risk management standards. As an industry, we should welcome this. A stronger, more transparent framework will support investor confidence and ensure growth is underpinned by discipline rather than exuberance.

However, it is equally important to recognise private credit is not a monolith.

Applying a one-size-fits-all lens risks overlooking the diversity of investment managers, asset types and risk profiles across the market. The most experienced managers already operate to a higher benchmark incorporating rigorous due diligence, conservative underwriting, independent oversight and proactive portfolio monitoring.

These are not regulatory obligations, but core to preserving capital and protecting investor outcomes.

For investors, the real differentiator in this environment is manager experience across credit cycles. Every private credit manager will face a default, but a default doesn’t have to mean a loss. The important part is how you respond to secure the best outcome for both investors and the borrower.

A cycle-tested manager understands recovery processes, maintains strong counterparty relationships and can act

For SMSF investors the message is clear: choose managers who are not only delivering returns today, but who have demonstrated ability to navigate uncertainty, operate with transparency and act with integrity when conditions tighten. decisively to protect investor capital. This is where governance and discipline translate directly into returns.

For SMSF investors the message is clear: choose managers who are not only delivering returns today, but who have demonstrated ability to navigate uncertainty, operate with transparency and act with integrity when conditions tighten.

A $90 billion opportunity No longer an alternative, real estate private credit has become an increasingly strategic part of a well-balanced SMSF portfolio. In a world of persistent uncertainty and volatility, it can generate reliable income and provide true diversification.

In Australia, we are yet to realise the full potential of this asset class. With growth set to nearly double in the coming years, backed by significant tailwinds, it is clear real estate private credit is here to stay. For sophisticated investors, this $90 billion opportunity offers attractive risk-adjusted returns and a compelling alternative pathway to property.

For SMSF investors looking to build resilient, income-generating portfolios, real estate private credit is no longer an alternative, it is essential.

INVESTING

The modern-day gold rush

Gold has performed very strongly in recent times. Tim Carleton indicates this trend will continue and how the local market has much to gain from it.

TIM CARLETON is chief investment officer at Auscap Asset Management.

24 selfmanagedsuper

Australian investors, and Australia more broadly, should be a significant beneficiary of the recent modern-day gold rush, with the precious metal set to become the country’s second most valuable export after iron ore, should prices hold.

The move in the gold price has been extraordinary. As at mid-October 2025, it had gained US$1000, 32 per cent, in less than two months, and US$2500, 141 per cent, in the previous two years. Since the end of 2015, gold has gained over 318 per cent to its recent peak of US$4381 and has since fallen back to around US$4000.

The question is whether the gold price can continue rising or whether the laws of demand and supply will ensure a reversal.

Historically, the demand for gold has been primarily for jewellery, representing an estimated 45 per cent of total above-ground stocks in 2024.

Private investment in gold represented 22 per cent of the gold stock and official holdings by central banks were 17 per cent.

Now, demand for gold is being driven by rising central bank demand and private investor Continued on next page

Chart 1: Gold production (tonnes) by country (2024) Gold production (Tonnes) by country (2024) 0

50

100

150

200

250

300

350

400

China Russia Australia Canada United States Ghana Mexico Indonesia Peru

If the current gold price holds, it should result in extraordinary profitability for Australian gold miners, very healthy return on capital metrics and strong cash generation for some years to come.

Uzbekistan

Continued from previous page

Source World Gold Council, Auscap

Chart 2: Major gold booms: 1970 to 2025 Major gold booms: 1970 to 2025 1900

1970-1981

2001-2012

2015-current

1500 1300 1100 900 700 500 300 100 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 102 105 108 111 114 117 120 123 126 129 132 135 138

Gold price (rebased to 100)

1700

Months from prior gold price low

Soucre: Bloomberg, Auscap

buying. Over 60 per cent of demand for gold in the first half of calendar year 2025 was for investment, compared to an average of 42 per cent between 2010 and 2023, while purchases for the use of the precious metal in jewellery and technology have fallen as a percentage of total demand in recent years.

This gold rush is, in other words, being driven by investors. Importantly, there is a strong correlation between the percentage of total gold demand driven by private investment plus central bank demand and the gold price. There are multiple reasons given for central bank and investor demand, including diversifying away from the US dollar, a hedge against inflation, a hedge Continued on next page

QUARTER IV 2025 25

INVESTING

Continued from previous page

against other asset classes and US dollar weakness to name but a few.

At the same time, supply is increasing only modestly. Over the past 10 years, gold mining has only added around 1.8 per cent to the global stock of gold annually. While the move in the gold price will certainly result in a surge in production, even if global production doubles, this would take the annual increase in gold from less than 2 per cent to less than 4 per cent of the global stock.

This has the potential to support the gains in the gold price to date.

Modern-day gold rush good for Australia Australia as a nation is benefitting significantly from the gold rush, with the precious metal a valuable export. The Australian government recently forecast gold export earnings would hit $60 billion in 2025/26, overtaking liquid natural gas as Australia’s second most valuable export.

In 2024, Australia was the third largest gold producer with a 7.8 per cent share of global production, but that share is rising (see Chart 1). We expect domestic production to expand significantly over coming years, with both growth in the current operations of existing Australian gold miners and the development of numerous additional gold mines.

The Minerals Council of Australia has suggested output is anticipated to rise to 369 tonnes in the 2027 financial year, which would be only marginally below China’s output in 2024. This could make Australia the world’s second-largest gold

26 selfmanagedsuper

producer.

This is the third major gold boom since the dismantling of the Bretton Woods system in 1971, when the price of gold was unpegged from the US dollar at a rate of US$35 per ounce. In the 1970s gold gained nineteenfold in 10 years. The next major rally occurred from the early 2000s to a peak in 2011. The gold price went up sevenfold in a 10-year period. These price gains dwarf the fourfold gain in the gold price since 2015, as demonstrated in Chart 2. So it could be there is more in the gold rally to come when compared to other gold rallies.

Australian miners reap cash windfalls The most direct winners from a gold price trading above US$4000 an ounce are gold mining companies, including those listed on the Australian Securities Exchange (ASX). If the current gold price holds, it should result in extraordinary profitability for Australian gold miners, very healthy return on capital metrics and strong cash generation for some years to come.

Moreover, with demand likely to remain strong, a continued rise in the gold price cannot be discounted.

Should the rally continue, Australian miners will be significant beneficiaries.

As the gold price has risen, the value of gold companies listed on the ASX has surged to around $146 billion today from $45 billion at the start of 2024. This is excluding Newcrest Mining, which was previously Australia’s largest listed gold company, but was taken over by Newmont Corporation in late 2023. The market capitalisation of Newmont has jumped to $165 billion from $70 billion

With demand likely to remain strong, a continued rise in the gold price cannot be discounted. Should the rally continue, Australian miners will be significant beneficiaries. over the same time.

There are now nine gold companies listed on the ASX with a market capitalisation of greater than $5 billion, which is up from two at the end of 2023. All of these companies now have a market capitalisation exceeding that of companies such as Penfolds owner Treasury Wines, regional lender Bank of Queensland and global industrial and medical glove manufacturer Ansell. All of this is a function of the strong gains in the gold price.

Auscap owns several ASX-listed gold companies through the Auscap High Conviction Australian Equities Fund and the Auscap Ex-20 Australian Equities Fund that have higher-quality, lower-cost mining operations with strong growth potential and disciplined management teams. The funds’ holdings in gold miners Genesis Minerals and Northern Star Resources were some of the largest contributors to returns in September 2025.

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COMPLIANCE

The real value of Part A qualifications

When an SMSF incurs a Part A qualification from its auditor, it is often seen as an unnecessary inconvenience. Shelley Banton refutes this belief and adcknowleges the value this course of action can provide.

SHELLEY BANTON is director of Super Clarity.

The SMSF industry struggles with Part A qualifications resulting from an audit. While auditors must issue them under their professional obligations, many accountants dislike having to explain them to their SMSF clients and some financial advisers believe it is a criticism of their investment advice.

So what is the real value behind Part A qualifications?

It is a question that warrants a comprehensive response as evaluating each element is essential for understanding the rationale underpinning an SMSF auditor’s decision to issue such a judgment.

What is a Part A qualification?

SMSF auditors perform a dual role when they undertake an audit, providing an opinion on the

28 selfmanagedsuper

financial report of the fund, Part A of the audit report, and an opinion on the SMSF’s compliance with the Superannuation Industry (Supervision) (SIS) Act and SIS Regulations, Part B of the audit report.

Under the auditing standards, SMSF auditors are responsible for obtaining reasonable assurance the financial report, taken as a whole, is free from material misstatement, whether caused by fraud or error.

Where the auditor identifies a material misstatement in the financial statements, they must qualify Part A of the audit report.

Any non-compliance with the SIS Act also requires SMSF auditors to assess the impact on Continued on next page

Continued from previous page

the financial report, which could result in the material misstatement of the financial report and a Part A qualification.

Common examples of Part A qualifications include where the auditor cannot: 1. Obtain sufficient, appropriate audit evidence concerning opening balances; Auditing Standard ASA 510 requires that the auditor’s report be modified.

2. Obtain sufficient appropriate audit evidence to support market value under SIS Regulation 8.02B, resulting in an uncertain market value of fund assets.

3. Confirm non-arm’s-length income (NALI) has been classified correctly, resulting in a material misstatement of the tax expense.

4. Verify whether assets are correctly classified in the financial statements in accordance with the applicable reporting framework, which may prompt the auditor to modify their opinion.

Industry overview The SMSF sector was unconcerned about Part A qualifications until the ATO made them a reporting requirement in the 2019 SMSF annual return (SAR) as a result of the now-defunct three yearly audit cycle.

Before then, discussions centred on compliance contraventions and whether an auditor contravention report (ACR) had to be lodged with the ATO at all.

The ATO adopts a risk-based approach to SMSFs, which means not all breaches need to be reported in the ACR. By way of example, SMSF auditors

must review: 1. SIS Regulation 5.03, which requires superannuation fund trustees to allocate investment returns in a fair and reasonable way to members’ accounts, and 2. SIS Regulation 1.06(9A), requiring pension payments to be made at least annually and to meet a minimum payment amount for purposes of Schedule 7.

Both of these regulations are listed in Part B of the SMSF independent audit report, which auditors sign, stating they have “undertaken a reasonable assurance engagement on fund compliance with these applicable provisions of the SIS Regulations”.

Interestingly, the ATO does not require SMSF auditors to report breaches of these rules, or of selected others, in an ACR. Still, they are required to document the impact of these regulations in their audit workpapers.

Similarly, while the auditing standards require SMSF auditors to qualify Part A of the audit report under their professional obligations, is it really necessary for the ATO to be informed about every Part A qualification in the SAR? As such, accountants are questioning whether a Part A qualification is required as they try to understand the impact on their SMSF clients, who are top of mind before they lodge the annual return.

ATO requirements The ATO has stated reporting Part A qualifications in the SAR assists in risk profiling the SMSF population and will be considered as one of the factors, but not the only factor, when it

While Part A qualifications represent a mixed result for the SMSF industry, their real value lies in safeguarding the retirement benefits of all fund members.

reviews a fund.

As the sector regulator, the ATO also enforces the auditing standards, which require practitioners to test the assertions made in the signed financial reports about the: • existence of assets, entitlements and liabilities, • occurrence of transactions, • completeness of transactions, events and assets being recorded, • ownership, rights and obligations the SMSF has for assets, entitlements and liabilities, • accuracy and valuation of data amounts recorded, and • classification of relevant events to Continued on next page

QUARTER IV 2025 29

COMPLIANCE

Continued from previous page

correct accounts.

Other significant checks include correctly classifying income, for example, correctly reporting income as ordinary, statutory, exempt current pension income, arm’s-length income or NALI, ensuring the fund has incurred any deductions claimed, any imputation credits, carried-forward losses and other offsets attributable to the fund.

SMSF auditors are also required to ensure contributions are correctly classified for tax purposes and the fund complies with regulatory laws that may otherwise affect its ability to claim concessional tax treatment.

From the 2020 financial year onwards, tax agents have not had to report a Part A qualification of the audit report where it relates to insufficient audit evidence under Auditing Standard ASA 510 on opening balances.

The ATO stated this was not a high-risk issue, but all other Part A qualifications must continue to be reported.

Risk managing SMSFs Part A qualifications can be the difference between alerting trustees to issues within their funds or missing them altogether.

In the McGoldrick and Baumgartner cases, both auditors failed to notify the trustees of issues within their funds and did not communicate with them.

The Baumgartner case, in particular, found the auditor failed to investigate the nature of the fund’s unsecured loans and unit trust investments, and did not inquire into the existence and verification of

30 selfmanagedsuper

the assets. The auditor did not have any documentation on file regarding these investments and failed in their duty to communicate with the trustee.

The plaintiff claimed that the auditor was in breach of their duties in contract and in tort, contravened their obligations as an auditor under the SIS Act, engaged in misleading and deceptive conduct and breached commonwealth and state legislation.

The auditor was found negligent for failing to bring serious misdescriptions, misstatements and other facts and circumstances to the plaintiff’s attention by way of notation or qualification in the audit reports.

The Judge noted that even adopting a narrow form of qualification would have provoked serious concern and alarm to the trustee once communicated.

Expressing a qualified opinion on the fund’s financial report, therefore, would have mitigated and/or negated the loss attributed to the auditor, notwithstanding whether or not the trustee understood the nature of the qualification or acted upon it.

It is also important to note, while qualifying Part A may mitigate litigation risk, each case will be tried on its own merits with all relevant aspects of the audit and fund operations considered by a court.

Effective risk management of SMSFs through Part A qualifications cannot be underestimated, however, as the trustee in the Baumgartner case would have immediately acted on such a modified audit opinion and been able to recover fund monies sooner.

The ongoing commitment by SMSF auditors to rigorous audit procedures and transparent practices remains essential even amid practical obstacles and cost pressures.

The ATO’s position The ATO has previously stated it will not take compliance action against an SMSF solely on the basis of a Part A qualification.

As this statement is no longer available on its website, the problem for accountants is explaining and justifying why a Part A qualification will not trigger an ATO review of the fund, given the lack of guidance.

Since then, ATO SMSF approved auditors director Kellie Grant has confirmed the regulator generally does not select funds for audit solely on the Continued on next page

Continued from previous page

basis of a Part A qualification reported in the SAR. The main factors influencing its selection of SMSF cases for audit are intelligence received, regulatory risks reported in ACRs and income tax risks.

Nevertheless, Part A qualifications contribute to the overall risk profile of a fund and are also investigated when it audits a fund.

The managed investment scheme problem One of the most annoying Part A qualifications for SMSF professionals concerns fund assets held custodially in a managed investment scheme (MIS).

Unfortunately, auditors are unable to independently verify the SMSF holds title to those assets and, in line with Auditing Standard ASA 402, the SMSF auditor must qualify their opinion on the financial report and issue a Part A qualification.

Under the ATO’s financial threshold reporting criteria, the auditor may also have to qualify Part B of the audit report under SIS Regulation 8.02B and report the breach in an ACR. The regulator has stated SMSF auditors may use their professional judgment to determine if an ACR is required where the auditor: 1. Has obtained a Type 2 audit report for the investment.

2. Concludes the risk of a SIS Regulation 8.02B contravention is low but is unable to obtain sufficient appropriate audit evidence.

It is silent on whether the auditor can

apply their professional judgment to modify Part A of the audit report. Still, it notes Auditing Standard ASA 402 is “relevant in determining the audit procedures required for this type of asset”.

The Joint Accounting Bodies (JAB) released some frequently asked questions for auditors in September 2023 concerning SMSFs that outsource the management of their investments to a service organisation.

The guide identified it may be possible for an auditor to obtain sufficient appropriate audit evidence through a combination of: 1. A Type 2 audit report.

2. An annual investor statement (that may or may not be subject to assurance).

3. An external confirmation from the service organisation.

4. Analytical review procedures of the SMSF’s investment activity, for example, a comparison of investment returns with market indices.

5. Reconciling balances and transactions to records held by the SMSF, for example, trade confirmations transactions to bank statements.

The bottom line is that a Type 2 report alone is not enough, and the JAB also noted it is not an exhaustive list as alternative evidence may be available.

The problem for SMSF auditors is while the first three sources of evidence are readily available, the last two are not.

It means the audit becomes increasingly time-consuming and expensive to undertake.

Avoiding a Part A qualification becomes difficult when fixed audit fees

are involved, especially where SMSF trustees are unwilling to incur additional expenses to eliminate it.

As noted earlier, some advisers interpret this as a critique of their investment recommendations, given they initially advised their clients to invest in the MIS. The situation places all SMSF professionals in a challenging position, with auditors having to balance professional standards with practical constraints.

It can strain relationships among auditors, advisers and trustees, underscoring the need for more explicit regulatory guidance and stronger information-sharing protocols across the industry.

Conclusion While Part A qualifications represent a mixed result for the SMSF industry, their real value lies in safeguarding the retirement benefits of all fund members, as seen in the auditor cases, which is critical to maintaining the sector’s integrity.

The ongoing commitment by SMSF auditors to rigorous audit procedures and transparent practices remains essential even amid practical obstacles and cost pressures.

As the regulatory landscape continues to evolve, it is imperative to collaborate and adapt, ensuring SMSFs continue to serve their members’ best interests while maintaining compliance and trust within the industry.

That is the real value behind Part A qualifications.

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STRATEGY

Three valuable legal lessons

A recent series of legal proceedings regarding the allocation of death benefits contains some valuable lessons for SMSFs, writes Michael Hallinan.

The litigation relating to the Boosey Doherty SMSF concerned the validity of a binding death benefit nomination (BDBN). The circumstances involved two visits to the court, years of legal action and contained three valuable lessons discussed below.

MICHAEL HALLINAN is superannuation special counsel at SuperCentral.

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Factual background The Boosey Doherty Superannuation Fund was an SMSF established with two individual trustee members, being Anthony Williams and his wife, Margaret Williams. Margaret died and Paul Williams, the couple’s eldest son, was appointed as the replacement trustee.

He was not a fund member.

Anthony had four children from his marriage to Margaret. After her death, he married Gayle Williams in 2019. There were no children resulting from this union.

Anthony executed a will in 2020 and died in late December 2021. One of his other sons, Mark, was the named as the executor of the estate and also appointed

as the second SMSF trustee in March 2022.

Anthony made two BDBNs, the first dated 1 February 2018 and the second 26 March 2018. The effect of the second nomination was to revoke the first and allocate 50 per cent of his death benefit to Gayle and 50 per cent to his executor.

Peter Williams, the third son, was significantly disabled and not a party to the litigation. However, the actions of Paul were motivated by his view that greater provision should have been made for Peter, given his disability.

The value of the death benefit in December 2021 was around $550,000, before trustee expenses and litigation costs.

Litigation The first round of the litigation was initiated by Gayle Continued on next page

Continued from previous page

when she sought a declaration from the Queensland Supreme Court that the second BDBN was valid and therefore binding on the trustees and an order that the current trustees of the SMSF, Paul and Mark, be removed and other individuals be appointed in their place.

The citation is Williams v Williams [2023] QSC 90.

The court held the second BDBN was invalid and granted the order removing Paul and Mark as trustees’ and appointing as replacement trustees the two individuals Gayle proposed.

The second round of litigation was commenced by Paul and Mark applying to the Queensland Supreme Court for a review of the replacement trustees’ decision as to the allocation of the death benefit. The court dismissed the application on the basis there was no defect in the trustees’ allocation decision and consequently no proper grounds for review. The citation is Williams v James Robba [2025] QSC 203.

First lesson – the invalidity of the second nomination The court held the second nomination was invalid as it did not satisfy the formalities specified by the trust deed for a nomination to be binding.

While not explicitly stated in the court’s reasons, the Boosey Doherty SMSF was not bound by Superannuation Industry (Supervision) (SIS) Regulation 6.17A, on the authority of Hill v Zuda [2022] HC 21, and the trust deed of the fund did not incorporate, whether expressly or by implication, the requirements of the regulation as per Donovan v Donovan [2009] QSC 26.

The SMSF trust deed required a

nomination to be given to the trustees.

The second nomination did not satisfy this requirement as it was not given to the second trustee. As such, a precondition explicitly specified by the trust deed for the second nomination to be binding on the trustees was not satisfied.

To overcome this deficiency, Gayle submitted that, given the trust deed contained the usual interpretative boilerplate provision that “the singular includes the plural and vice versa”, giving the nomination to one trustee was sufficient compliance. The court rejected this argument on the basis that as the trust deed required the trustees to undertake certain actions on the receipt of a nomination, the relevant provision could not be read in the singular form.

The second argument submitted to save the second nomination was based upon paragraph 41 in the reasons of Cantor’s Case [2017] SASCFC 122, which stated the purpose in requiring a nomination to be submitted to the trustees is largely practical so the trustees know which nomination is most recent. This paragraph did not reflect the reason for the nomination being valid in Cantor’s Case. In that situation, the nomination was deemed to be valid, even though it was not provided to each trustee, as the nomination was provided to the agent of the trustees and as such each trustee was deemed to have constructive notice of the nomination.

As the BDBN made by Anthony Williams was held to be invalid, what did this mean for the first nomination? The court did not consider this issue. Possibly the parties to the litigation accepted the original BDBN suffered with the same defect as the second and consequently both nominations stood or fell together.

Courts have both statutory and inherent power to remove a trustee from a trust, including a superannuation fund, if the removal is necessary for the proper administration and execution of it.

Second lesson – closed-minded trustees may be removed Courts have both statutory and inherent power to remove a trustee from a trust, including a superannuation fund, if the removal is necessary for the proper administration and execution of it. This power is not lightly exercised. Mere delay or minor maladministration by the trustee is not sufficient cause. The court is more concerned whether, assuming that the trustee is correctly advised, the trustee would, going forward, intentionally frustrate the proper administration or execution of the trust or simply refuse to correctly administer the trust.

The principles governing the court’s power to remove a trustee are set out in Miller v Cameron (1936) 54 CLR 572, particularly the reasons of Justice Dixon at page 580-581).

This portion of the reasoning is surprisingly short given the momentous nature of the Continued on next page

QUARTER IV 2025 33

The litigation relating to the Boosey Doherty SMSF concerned the validity of a binding death benefit nomination. The circumstances involved two visits to the court, years of legal action and contained three valuable lessons.

STRATEGY

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power. In the Williams case, the power was exercised primarily because the appointment of Mark as the replacement trustee for the deceased member was defective and that Paul had developed a prejudice against Gayle that would cause him to exclude her from any allocation decision.

The trust deed of the SMSF provided that the death of a member terminates their membership of the fund and that a trustee ceased to be a trustee on death. Accordingly, when Anthony died, he ceased to be both a member and a trustee of the SMSF. Post his death the SMSF had one trustee, Paul, and no members and a superannuation interest that was subject to an allocation power conferred on the trustee.

The defective appointment of Mark arose because he was not a legal personal representative as defined in the trust deed.

Here the definition was a “person who has been granted probate of the will or letters of administration of an estate of that member”.

While Mark was named in the will as executor, probate had not at the relevant time been granted.

The end position being Paul was a duly appointed trustee and Mark, though not duly appointed, was a trustee by his conduct – trustee de son tort; neither of whom are members.

Very significantly, Paul had in an affidavit evidence advised that he believed the deceased member had engaged in dishonest conduct in relation to the fund, though not specified, and Gayle had not given any satisfactory explanation as to why

34 selfmanagedsuper

the second BDBN had not been given to him. Consequently, he would exercise the beneficiary disentitlement powers under clause 27.1 of the trust deed.

This disentitlement power could be invoked if the trustee formed the opinion that if a member commits any fraud or is guilty of any dishonesty or defalcation, then the member is disentitled to their benefit. While the power under clause 27.1 may not apply to beneficiaries of a death benefit, it seems Paul would exclude Gayle from any consideration as a beneficiary if she did not provide an adequate explanation as to why his father did not provide the nomination to him.

The court held Paul had developed a closed mind as to Gayle and would not consider her in any death benefit allocation decision. It also held Mark’s appointment as invalid.

Consequently, the power of removal was exercised and both Paul and Mark were removed as SMSF trustees and two independent and qualified trustees proposed

by Gayle were appointed, being James Robba and Morgan Lane.

Third lesson – Kargar v Paul still good law The decision of the replacement trustees was to allocate 50 per cent of the net death benefit to Gayle and Peter, subject to a minor adjustment in his favour. Peter was materially disabled and entirely reliant on the National Disability Insurance Scheme and family support. Paul and Mark commenced proceedings seeking to overturn the allocation decision, arguing Peter should receive at least 95 per cent of the residual

The litigation relating to the Boosey Doherty SMSF concerned the validity of a binding death benefit nomination.

The circumstances involved two visits to the court, years of legal action and contained three valuable lessons. death benefit given his greater needs.

Unlike other jurisdictions, Queensland has a statutory right of review of trustee decisions under section 8(1) of the Trusts Act 1973.

The former trustees applied for review of the trustees’ allocation decision under both section 8(1) and general law principles on the basis the trustees failed to exercise real and genuine consideration in making their allocation determination in that they failed to consider the greater needs of Peter compared to Gayle’s needs.

A review under section 8(1) or under general legal principles is not a merits review, that is, whether the decision of the trustee was the best or fairest decision. Rather, the review is to determine if the allocation decision is legally sound. This is an area of law where there are many descriptions as to what constitutes ‘a legally sound decision’, such as Continued on next page

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a decision which no reasonable trustee could reach, an arbitrary decision, a capricious decision and so on.

In this case, the court held there was no legal error affecting the trustees’ allocation decision.

The decision deemed statutory power of review under section 8(1) of the Trusts Act was not materially different to the Karger v Paul ([1984] VR 161) review test and that the allocation decision could only be reviewed if one or more of the following grounds were established: • the decision was not exercised in good faith, • the decision was not exercised upon real and genuine consideration, • the decision was not exercised for a proper purpose, • if the trustees chose to state the reasons for the decision, then those reasons could be reviewed.

Paul and Mark argued the allocation decision was defective on the basis that the trustees did not give real and genuine consideration to the exercise of the allocation power.

An initial issue was whether the review under section 8(1) was a less demanding review than one under Karger v Paul principles. The court rejected that there was any material difference.

As to whether the trustees failed to give real and genuine consideration, the conclusion was made the court’s function “is limited to reviewing whether the trustee gave real and proper consideration to the exercise

of the discretion based on the information possessed” (paragraph 66).

The reasoning from the second case suggests an allocation decision will be legally sound where the trustees: • identify each potential beneficiary (given the usually small number of potential beneficiaries), • contact each potential beneficiary as to whether they wish to be considered and, if so, to provide relevant information to the trustees. Typically the relevant information is obtained by a questionnaire as to the beneficiaries’ current financial position, future financial needs, financial support previously provided by the deceased member or provided or likely to be provided by the estate of the deceased member, and the nature of their relationship to the deceased and whether they provided support to the deceased and the nature and monetary value of that support, and • a request for each potential beneficiary to provide such further information they think is relevant to the trustees for the purpose of making the allocation decision.

However, while the process is necessary, it is a means to an end and not the end itself.

Additionally, there are practical limitations to the extent and detail of the process: the size and extent of the process is limited by the finite resources of the trustees, that much information may be nothing more than unsupported assertions or unproven allegations, that the death benefit should not be consumed in the costs and expenses of making an allocation decision, that the trustees have no legal power to compel

potential beneficiaries to provide information or to test or to resolve conflicting information/ allegations.

If the trustees have a reasonable process that identifies all potential beneficiaries, and the trustees undertake that process and the allocation decision is based upon the information obtained from the process, the trustees will have to make a sound allocation decision. The decision may not be the best decision, may not be the decision other persons would have made and the trustees may have not resolved conflicts within the information. However, the decision should stand legal challenge on the basis of ‘no real and genuine consideration’.

The court distinguished the Finch v Telstra Case [2010] HCA 36 on the basis the High Court was considering a member’s entitlement to a superannuation benefit where that entitlement depended on the trustee forming an opinion as to a factual matter, such as whether the member, in the opinion of the trustee, was sufficiently disabled so as never being able to engage in permanent employment again. The discretion in the current case was a ‘truly discretionary’ decision.

The court noted the decision in the Owies Case [2022] VSCA 142, a case where the trustee decision as to income distributions from a discretionary trust was to be defective, turned on the absence of any information seeking process by the trustees. The exercise of the trust distributions power was defective as the trustee did not have any relevant information and so the power was not exercised upon any real and genuine consideration.

QUARTER IV 2025 35

COMPLIANCE

When GST matters

SMSFs in the main do not need to worry about the goods and services tax.

Mark Ellem details the situation when it does become relevant for trustees.

MARK ELLEM is head of SMSF education at Accurium.

36 selfmanagedsuper

Goods and services tax (GST) is not the headline issue for most SMSFs. Financial supplies and concessions mean many funds have little direct GST exposure, but where this tax does bite, the compliance complexity can be material. Trustees and advisers need to think beyond whether GST is payable on a single transaction, for example, they must test registration thresholds, understand reduced input tax credits (RITC), appreciate special rules (going concern, margin scheme, GST at settlement) and manage adjustment risks when deregistering.

of the GST Act is that a complying super fund is treated as carrying on an enterprise. That means the GST liabilities of a complying super fund turn on whether it is required to be registered for GST purposes. In effect, the turnover threshold is the test to determine if an SMSF may have GST liabilities.

Practically the routine activity of an SMSF will often be GST neutral. The key exposure points are commercial property (rent and sales), development activity, certain service fees and transactions involving associates or members, for example, in-specie distributions.

The basic legal position • Financial supplies are input taxed: many SMSF activities, such as member interests, contributions, rollovers and most securities trading, are financial supplies. These are input taxed, so the fund does not charge GST and generally cannot claim GST credits embedded in costs that relate to making those supplies.

• A superannuation fund is deemed to carry on an enterprise: The effect of sub-section 9-20(1)(da)

When must an SMSF register for GST? • Turnover test: registration is required if the fund’s current or projected GST turnover reaches $75,000 (GST exclusive). Current turnover is that of the past 12 months; projected turnover is that of the coming 12 months. Trustees should reassess this monthly.

• What counts: taxable supplies count; input-taxed supplies (financial supplies and residential rents) Continued on next page

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generally do not. However, proceeds from sales that look like trading or development proceeds often will be included (see the Collins Retirement Fund case below).

It is worth noting funds holding commercial property, that is, not residential property for GST purposes, are most at risk of exceeding the GST threshold.

Financial acquisitions threshold The financial acquisitions threshold (FAT) is designed to allow entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or GST-free supplies, to claim full input tax credits (ITC) relating to those financial acquisitions.

Two limbs are tested over a 12-month rolling window: • first limb: ITCs attributable to financial acquisitions exceed $150,000, or • second limb: ITCs attributable to financial acquisitions exceed 10 per cent of total ITCs the entity could claim.

If either limb is met, the fund is treated as exceeding the FAT and cannot claim full ITCs for financial acquisitions. In that case, some purchases may attract the 75 per cent RITC where the item qualifies. Generally an SMSF will be caught by the second limb.

Example: An SMSF registered for GST has the following acquisitions: • Financial acquisitions: o brokerage on shares – $660 (GST $60) o investment portfolio management fees – $1320 (GST $120) o fund admin costs – $990 (GST $90) • No input tax credit (ITC) entitlement: o accounting fees for prep annual return – $1650 (GST $150) o audit fees – $770 (GST $70) • ITC entitlement: o repairs to commercial premises – $17,652 (GST $1604) To be able to claim all the GST embedded

in the financial acquisitions, the fund must not exceed either of the two limbs of the FAT. • First limb: ITCs relating to financial acquisitions do not exceed $150,000 (only $270).

• Second limb: ITCs in relation to financial acquisitions do not exceed 10 per cent of total GST input credits that could be claimed: o [$270/($270 + $1604)] × 100% = 270 ÷ 1874 = 14.41% > 10% Because 14.41 per cent is greater than 10 per cent, the FAT is exceeded and full input credits for financial acquisitions are unavailable and only the specified reduced ITCs may be claimed.

GST is often a second order issue for many SMSFs, but when it arises, particularly with commercial property, property development or large service acquisitions, its financial and administrative consequences can be material.

RITCs RITCs give a 75 per cent credit on certain acquisitions used to make financial supplies, as outlined in the table GST Regulation 70.5.02 details. Common RITC categories relevant to SMSFs include: • brokerage and trade execution (item 9 in the regulations): brokerage on share trades is typically eligible for the 75 per cent RITC, • investment portfolio management (item 23): services that actually manage a fund’s investment portfolio (not merely advice) can be RITC eligible, and • certain administrative functions (item 24): record-keeping, contribution processing and compliance with industry regulatory requirements (note: taxation and audit services are excluded).

Reference can also be made to the ATO’s GST Ruling (GSTR) 2004/1 on RITCs. It is important to recognise not all adviser fees are RITC eligible. Pure financial advice where the trustee implements decisions themselves does not amount to ‘management’ and therefore is typically not an RITC acquisition. Furthermore, while item 24 covers administrative functions, including compliance with industry regulatory requirements, it excludes compliance with such requirements that are taxation and auditing services. This would exclude costs incurred for preparation of

tax returns or business activity statements (BAS) for the SMSF. Another misunderstood financial acquisition is actuarial fees. I’ve often seen a 75 per cent RITC claimed in respect of actuarial fees with reference to Example 71 in GSTR 2004/1.

However, this example refers to a super fund that requires an actuarial certification under Superannuation Industry (Supervision) (SIS) rules, for example, a solvency certificate. Most SMSFs obtain an actuarial certificate in respect to claiming exempt current pension income (ECPI). This is due to a requirement under the Income Tax Assessment Act 1997, specifically section 295.390. This is a taxation requirement and therefore not eligible for an RITC. Collins Retirement Fund case The Administrative Appeals Tribunal in Ian Mark Collins ATF Collins Retirement Fund v Commissioner [2022] AATA 628 emphasised the character of a supply is assessed at the time of supply. Where an SMSF undertakes substantive development activity, such as planning, development application (DA) approvals, contractor engagement, subdivision works and active steps to sell, proceeds from the sale of subdivided lots are properly characterised as supplies in the course of an enterprise and are included in projected Continued on next page

QUARTER IV 2025 37

COMPLIANCE

Continued from previous page

GST turnover.

Key takeaways from the Collins case: • GST Act section 188-25 exclusions are narrow: the statutory carve-outs allowing capital realisations to be excluded do not extend to sales that are the ordinary commercial outcome of development activity.

• Practical approach: if development steps have commenced, prudently include projected sale proceeds in the GST turnover test and consider registration in advance so the fund can lawfully claim input credits on development costs.

Reference can also be made to ATO Private Binding Ruling Authorisation Number: 1052048176643, 31 October 2022. It reaches the same practical conclusion as that in the Collins case. That is, on the facts the trustee of the complying superannuation fund was taken to be carrying on an enterprise (paragraph 9 20(1)(da)), the proposed sale of the subdivided lots constituted taxable supplies and the projected sale proceeds meant the fund would be required to register for GST because its turnover would exceed the $75,000 threshold. The ruling emphasises the importance of the factual matrix: a pre-existing DA, a decision to proceed with subdivision after market feedback, engagement of a project manager and real estate agent, and active steps to construct and market the lots.

It also confirms that engaging third parties to perform development and sales functions does not dilute the character of the activity as an enterprise.

Consistent with the AAT’s reasoning in the Collins case and the ATO’s decision impact statement, the private ruling reinforces that the character of the supply is assessed at the time the supply is made (or likely to be made). Where contemporaneous evidence demonstrates substantive development activity, sale proceeds from subdivided vacant land are properly included in projected GST turnover and treated as taxable supplies

38 selfmanagedsuper

rather than mere realisations of a capital asset.

Practitioners should therefore treat ATO private advice of this kind as further confirmation development-led land sales carried out by an SMSF are likely to trigger registration and GST consequences unless the factual circumstances clearly point the other way.

Commercial v residential premises – SIS v GST There can be a misunderstanding of when a property may be business real property (BRP) as per the definition in sub-section 66(5) of the SIS Act and when it is commercial property or, more correctly, not input-taxed residential premises for GST purposes.

From a SIS Act perspective, the business use test is applied and can result in property that may look like a residential premises, satisfying the definition of BRP, for example, a residential property used as a doctor’s surgery or accountant’s office or financial adviser’s office.

From a GST perspective, ‘residential premises’ are input taxed and defined in section 195.1 of the GST Act to be: Land or a building that: 1. is occupied as a residence or for residential accommodation, or 2. is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home.

The concept of residential premises is further explored in GSTR 2012/5, with paragraph 10 stating the following: “The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for

example, where the premises are used as a business office).”

That is, the use of the property does not determine whether the property is residential premises for GST purposes. Where the property is intended and capable of being used for residential purposes, it will be considered residential premises. Further reference can be made to examples 8 and 9 in the ruling in relation to the extent of alternations made to the premises.

While the property may be used entirely for business purposes and satisfy the BRP definition for SIS purposes, the second part of the definition of residential premises also needs to be considered. That is, whether it is intended to be or capable of being occupied as a residence. If so, then it is likely to be treated as residential premises for GST purposes, meaning any sale of the property would be input taxed. Further, it would also mean the rental income received is also input taxed.

Special rules • Going concern: a supply of a going concern can be GST free if specific requirements are met (business carried on up to day of supply, recipient registered or required to be registered, agreement in writing and the supply includes everything necessary for continued operation). In practice for an SMSF this can matter where a fully tenanted commercial property is sold to an entity, other than the tenant, that will continue the leasing enterprise.

• Margin scheme: where eligible, the margin scheme taxes the difference (margin) rather than the full sale price; it is commonly used where the vendor did not claim GST on acquisition of the original property but has claimed GST on development costs.

• GST at settlement (withholding): purchasers of new residential premises or potential residential land generally must withhold the GST component at settlement and remit it to the ATO. This obligation does Continued on next page

It is worth noting funds holding commercial property, that is, not residential property for GST purposes, are most at risk of exceeding the GST threshold.

Continued from previous page

not require the purchaser to be registered for GST. Cancelling GST registration Cancellation of GST registration may trigger an increasing adjustment where the entity holds assets for which it has claimed ITCs. The broad effect of the rule is to reverse, either fully or partly, the ITCs previously claimed.

An adjustment is not required if the adjustment periods for the asset have ended.

The number of adjustment periods depends on the asset cost: Purchase or importation value (Ex GST)

Number of adjustment periods for assets

$1001 to $5000

2

$5001 to $499,999

5

$500,000 or more

10

The first adjustment period is the first June tax period that is at least 12 months after the tax period in which the asset was acquired.

GST adjustment formula: GST adjustment = (applicable value x actual application) ÷ 11 • Applicable value: lesser of market value (including GST) immediately before

cancellation and purchase price (including GST).

• Actual application: proportion of asset used for business (taxable) supplies between acquisition and cancellation.

Example: An SMSF registered for GST purchased a commercial property for $438,900 and claimed GST of $39,900 in August 2020.

As the SMSF’s GST turnover was less than $75,000, it cancelled its GST registration in September 2025 when the property had a market value of $643,500.

There are five adjustment periods with the first ending 30 June 2022 and the fifth on 30 June 2026. As GST registration has been cancelled prior to the expiration of the adjustment periods, there is an increasing adjustment, calculated as follows: ($438,900 × 1.00) ÷ 11 = $39,900 The SMSF would have an increasing adjustment of $39,900 seeing it effectively being obliged to repay the ITCs. Important planning issues arise where trustees register for GST temporarily to secure input credits, for example, when buying commercial premises, but then seek early cancellation.

It should be noted if the initial acquisition was GST free because the transaction was treated as a going concern, there is no ITC to reverse and therefore no adjustment on cancellation.

Other transactional issues • Outgoings and recoveries: recovery of outgoings from tenants is a taxable supply.

Lease documentation should clearly record the parties’ intentions about recovery and how GST on outgoings is calculated.

This avoids disputes and supports GST accounting.

• Limited recourse borrowing arrangements: determine which entity is properly expected to register for GST, the SMSF or the bare trust. Refer to GSTR 2008/3, which notes at paragraph 29: “A bare trust arrangement does not in itself

create the relationship of agency between the trustee and beneficiary. An entity does not, merely by acting in its capacity as bare trustee, contract as agent for the beneficiary of the trust but as principal. Accordingly, transactions involving a bare trust, without more, need to be analysed in a way that does not rely on a finding of agency.”

Consideration should be given to an agency agreement.

• In-specie benefit payments: a transfer of a commercial property to a member may be treated as a taxable supply for consideration equal to market value if the recipient is not registered or does not acquire for a creditable purpose.

• Timing mismatches: GST (on the cash basis) and income tax (often on an incurred basis) can produce timing differences and thus advisers should flag these for trustee cash-flow planning and BAS lodgement.

• CGT date v GST date: Where a sale of an asset is subject to GST, for example, the sale of a developed block of land, consideration needs to be given to the timing of the CGT event (date of contract) versus the timing of the GST supply, date of supply (generally settlement). Where these two events straddle two income years, it could lead to a timing mismatch, particularly when considering the timing of commencement of retirement-phase pensions.

Conclusion GST is often a second order issue for many SMSFs, but when it arises, particularly with commercial property, property development or large service acquisitions, its financial and administrative consequences can be material. The Collins decision reinforces the need to assess the factual character of sales at the time they occur and to document development intentions and activity. Trustees and their advisers should adopt a disciplined, evidence-based approach to turnover testing, RITC claims and registration timing, and seek technical advice for borderline or complex fact patterns.

QUARTER IV 2025 39

STRATEGY

The most complex compliance frontier

Investing in a property development project can be very rewarding for an SMSF. Grant Abbott warns such an investment must be structured properly to avoid unwanted compliance issues.

GRANT ABBOTT is SMSF and family wealth protection strategist at LightYear Legal.

40 selfmanagedsuper

I get a lot of questions around SMSF investment in property development and always focus on the ATO’s own words: “Property development can be a legitimate investment for SMSFs, but it is inherently risky and can lead to significant compliance issues under the superannuation law.”

I have seen some SMSF trustees make multimillions from well-structured property development joint ventures (JV) and others who have been caught up in an audit with little paperwork and a lot of penalties. It is not for the faint-hearted SMSF professional adviser.

The ATO has also recognised situations where additional complexity and risk come into play: “Where arrangements involve other parties, especially related parties, there is a risk the SMSF may be used to channel profits, provide financial assistance or operate a business.”

This is the true battlefield for SMSF professionals. The tax commissioner has identified SMSF property development as a risk zone because of: • increased promoter activity,

• the rising use of family groups across the development chain, • non-arm’s-length income (NALI) risk attached to the proliferation of related-party builders, • misuse of ungeared unit trusts, and • advisers misunderstanding (or ignoring) Superannuation Industry (Supervision) (SIS) Regulation 13.22C. SMSF Regulator’s Bulletin (SMSFRB) 2020/1 states: “We have seen arrangements that appear to shift value into the SMSF inappropriately, or where the SMSF ends up with a benefit not justified on its contributions.”

This article is designed to help you the adviser avoid these traps when structuring, reviewing or unwinding development arrangements for clients.

ATO nightmare scenario Let’s kick off with a case that sits squarely within the ATO’s most serious concerns.

Case study: The Sapphire Ridge Continued on next page

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Development Scheme Your client, Lewis, is a builder. His family trust owns a construction company. His SMSF holds $1.4 million of assets. The background: 1. The SMSF acquired land for $900,000.

2. The family trust via a bucket company paid for all construction totalling $2.4 million.

3. The builder entity charged a ‘mates’ rate’ construction fee.

4. The development deed allocated 75 per cent of profits to the SMSF, despite the fund contributing less than 30 per cent of combined economic input.

5. The family trust argued the SMSF deserved the lion’s share of the profit because it carried the land risk.

The ATO assessment of the case represented a perfect storm, finding the arrangement: • breached section 109 of the SIS Act regarding non-arm’s-length terms, • triggered section 295-550 of the Income Assessment Act (ITAA) because of discounted builder services and an uncommercial profit share, • breached section 62 of the SIS Act, the sole purpose test, as the profit transfer was not for retirement purposes, and • breached section 65 of the SIS Act because financial assistance was provided via value shifting.

SMSFRB 2020/1 states explicitly: “Where non-arm’s-length terms are used to channel value into the SMSF, the income will be treated as non-arm’s-length income and taxed at the highest [marginal tax] rate.”

This is the scenario the ATO is actively hunting for and professionals who help clients walk into this minefield may find themselves subject to promoter penalties.

The compliance framework The ATO identifies five key compliance risks in the bulletin, but I would like to add a sixth.

1. Sole purpose test – SIS Act section 62 On this score the ATO is blunt: “Where an SMSF’s involvement in property development results in members or related parties obtaining current-day benefits, the sole purpose test is contravened.”

Examples of breaches include: • shifting profits to the SMSF, • boosting builder-company revenue through SMSF-subsidised work, and • creating a development structure that benefits the member’s business.

2. In-house assets – SIS Act section 84 The ATO notes: “Many problematic arrangements arise because the SMSF is effectively investing in or lending to a related party, even if unintentionally.”

Triggers include: • a JV that functions like an investment in a related party, • an SMSF holding more than 50 per cent of units in a trust that borrows or runs a business, and • an SMSF funding development indirectly through payments.

3. Related-party acquisitions – SIS Act section 66 No asset can be acquired from a related party unless it is business real property (BRP). Development application approvals, development rights, options and residences never qualify.

The ATO notes: “Contributions or acquisitions involving development rights or licences are unlikely to meet the definition of business real property.”

4. Arm’s-length rule – SIS Act section 10 All dealings must be commercial. The ATO

I have seen some SMSF trustees make multimillions from wellstructured property development joint ventures and others who have been caught up in an audit with little paperwork and a lot of penalties.

repeatedly warns: “Non-arm’s-length terms – particularly concessional pricing – are a key concern.”

5. NALI – ITAA section 295-550 This is the ‘game-over’ provision.

The ATO emphasises: “Non-arm’slength expenditure … may lead to all income from the arrangement being taxed at 45 per cent.”

6. Financial assistance to members – SIS Act section 65 Financial assistance to members is deemed to have occurred when: • SMSF funds assist a related builder to engage in profitable activity, • undervalued construction improves a member’s wealth personally, such as a builder, and • profit shifting improves a member’s financial position.

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STRATEGY

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Here the ATO warns: “Arrangements that involve the SMSF providing a financial advantage to a member or relative will breach section 65.”

Structuring correctly The safest path for SMSF clients wanting to develop property is through a superannuation unrelated investment unit trust. This is a special purpose property development vehicle. But beware, it is not a fixed trust for New South Wales land tax purposes as it is unsuitable for that.

Establishing non-related status conditions is critical. To do so the SMSF and its related group must: • own less than 50 per cent of the units, • have no ability to appoint or remove trustees, • not control distributions, and • not dominate decisions.

If these hold, the trust is not a related trust, meaning the in-house asset rules will not apply.

The ATO has indirectly supported this structure: “Where the SMSF’s involvement is on commercial terms and it does not control the development, the risks are reduced.”

Example: The Urban Stone Trust In this example the: • Smith Family Super Fund owns 45 per cent of units, • Brown Family Trust, a business partner of Smith, owns 55 per cent, • SMSF had an independent corporate trustee with an external director, • trust was not subject to SIS Regulation 13.22C, thus permitting bank borrowing, • builder (related) was paid at market,

42 selfmanagedsuper

• profit split was 45 per cent to the SMSF and 55 per cent to the Brown Family Trust, and • arrangement was fully documented with independent JV modelling.

This is the preferred structure for sophisticated SMSF developers.

Understanding SIS Regulations 13.22C and 13.22D Now we move to the most misunderstood area in SMSF property development.

1. What 13.22C allows A trust is exempt from being an in-house asset only if it: • does not borrow, • does not give a charge over assets, • does not invest in another entity, • does not run a business, • only leases BRP to related parties, and • conducts all transactions at arm’s length.

The ATO states: “Breaches of these conditions will cause the trust to become an in-house asset in full.”

Example A compliant arrangement would see an SMSF invest entirely in a 13.22C unit trust and then have it acquire a warehouse and lease it to the member’s company on a commercial basis with no development to the property, no borrowing and with unsecured loans involved.

2. Application of 13.22D If the trust carries on a business, SIS Regulation 13.22C dies instantly due to regulation 13.22D and the investment becomes 100 per cent an in-house asset.

The ATO’s concern is explicit: “Property development activities may amount to the carrying on of a business, causing the trust to fail the 13.22C conditions.”

Indicators of running a business

The safest path for SMSF clients wanting to develop property is through a superannuation unrelated investment unit trust. This is a special purpose property development vehicle.

include: • the presence of multiple developments, • having a significant borrowing involved, • the employment of contractors, • evidence of systematic activity, • the repetition of activity, and • the commercial scale of operations.

Even a single development can be deemed a business where scale or intent suggests commercial enterprise.

Joint ventures JV arrangements are the most common, and the most dangerous, structure we see in practice, but for related parties are always my favoured approach.

The ATO states: “Some arrangements described as joint ventures are in substance related-party investments.”

1. Non-compliant JV An example of a problematic JV would be one where the client’s SMSF owns Continued on next page

land and a family trust funds the property development. The builder is a related entity offering reduced rates and the profit split heavily favours the SMSF. This arrangement triggers: • the NALI provisions, • a SIS Act section 109 breach, • a SIS Act section 65 financial assistance situation, • a SIS Act section 62 sole purpose breach, and • an in-house asset classification if the JV is actually a partnership or trust.

2. Properly structured JV The essential elements of what would constitute a sound JV are as follows: Elements: • deed drafted commercially by lawyers (not artificial intelligence tools), • capital contributions documented, • commercial profit allocation backed by valuation modelling, • separate bank accounts, • independent trustee (or at least independent director), • market-rate builder contracts, • arm’s-length financing, • not having any guarantees between the SMSF and related entities, and • no control by the SMSF over related entities.

The ATO guidance supports this approach: “Where the SMSF and the other parties are contributing on a true arm’slength basis, the risks of contraventions are reduced.”

Example – The Kent Street Model Consider a JV arrangement with the following characteristics: • an SMSF owning land valued at $1.6 million,

• a family trust providing $2.3 million build funding at the external commercial interest charge of 7.5 per cent based on property within the trust and no charge on the super/trust development project, • a builder that is an independent company employed at the full market price, • based on an independent development feasibility assessment, the profit split is 41 per cent to the SMSF and 59 per cent to the family trust, and • a JV committee has been put in place with an independent chair, a deadlock resolution clause and the SMSF has no control over it.

An ATO review of this structure found there were: • no NALI issues, • no in-house assets present, • no financial assistance that could lead to a compliance breach, and • no issues relating to section 62 of the SIS Act. This is the benchmark for compliant SMSF property JVs. Compliance checklist Provided below is a checklist for property developments involving an SMSF to which practitioners should refer: 1. Structural • confirm whether the trust is related or unrelated, • if using a 13.22C trust, audit every condition, and • avoid related investment concerns at all costs.

2. Documentation • JV deed, • developer deed, • quantity surveyor reports, • valuations,

• funding agreements, and • minutes and trustee resolutions.

3. Tax and super law • apply the ITAA section 295-550 NALI test, • apply the SIS Act section 109 arm’slength test, • apply the SIS Act section 65 financial assistance test, • apply the SIS Act section 62 sole purpose test, and • review goods and services tax and margin scheme impact.

4. Transactional • establish separate bank accounts, • ensure market-rate services, • do not allow related concessional labour and definitely any goods or products from a related builder, • ensure profit splits reflect real economics, and • evidence everything.

Beware sloppy structuring The ATO is not trying to ban SMSFs from developing property. It is trying to ban: • value shifting, • profit washing, • disguised financial assistance, • commercial irrationality, • cheap related-party deals, and • tax planning dressed up as a development.

Advisers who get this right will create extraordinary value for clients. Those who get it wrong will face auditor contraventions, NALI assessments, Part IVA issues and potentially promoter penalties.

In the ATO’s own words: “Trustees should seek professional advice before entering into these arrangements.”

That’s where you come in.

QUARTER IV 2025 43

COMPLIANCE

An interpretative wedge

An AFCA decision handed down in June 2024 with regard to whether an SMSF member is a wholesale investor was at odds with how the rules had traditionally applied. Liz Westover examines the regulatory squeeze in which the sector now finds itself.

LIZ WESTOVER is partner and SMSF leader at Deloitte.

The issue of whether SMSF members are wholesale investors has been a hot topic over the past 12 to 18 months. This conundrum presented itself following the Australian Financial Complaints Authority (AFCA) guidance on the test in the context of SMSFs and a Parliamentary Joint Committee (PJC) report on the operation of the wholesale investor categorisation.

The one clear aspect is the need for SMSF advisers and accountants to re-evaluate how they are assessing clients as to whether they satisfy the definition of being a wholesale investor.

Why does it matter?

The ability to classify a potential investor as a wholesale client, rather than a retail client, has the major advantage of fewer disclosures, rules and costs with respect to providing advice and products to these individuals.

Wholesale investors are considered to be more financially literate than retail clients. That is, they are

44 selfmanagedsuper

taken to have a better understanding of investments and associated risks and returns and subsequently do not need the same level of support and protections that a retail client may need. As such, the law places greater responsibilities and requirements on advisers and product providers when dealing with retail clients, including disclosures, training, conduct and dispute resolution. Moreover, retail clients are afforded better consumer protections, potentially including the ability to make a complaint to AFCA. Wholesale versus retail clients The Corporations Act details the meaning of wholesale and retail clients. Generally, clients will be deemed to be retail unless they satisfy certain criteria, including income and asset tests. Depending on the type of client and the product being offered, the net assets threshold is either Continued on next page

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$2.5 million or $10 million.

While there have been no changes to the Corporations Act with respect to the meaning of retail and wholesale clients, AFCA has more recently provided guidance that is definitive on the test for SMSFs. The regulatory body has stated “under the law, if an adviser provides advice to a trustee in relation to an SMSF, it must be treated as a retail client unless the SMSF has $10 million or more in assets”.

The inference from the issue of this guidance is that the wrong assets test may have been and is possibly still being used by advisers and product providers for some SMSF clients.

The two tests for SMSFs Under the Corporations Act, an investor is a retail client unless they are covered by an exemption. The exemptions can vary, depending on the type of investor and the product or service being provided. Broadly speaking, with respect to SMSFs, the following applies: • if the financial service relates to a superannuation product, an SMSF trustee will be a retail client unless the fund holds net assets of at least $10 million, and • if the financial service does not relate to a superannuation product, an SMSF trustee will be a retail client unless the trustee has a certificate from a qualified accountant confirming the fund holds net assets of at least $2.5 million.

ASIC approach In August 2014, the Australian Securities and Investments Commission (ASIC) issued a statement clarifying how it will apply the wholesale test to SMSFs. Acknowledging the complexity and confusion in the application of the test for SMSFs, the regulator indicated its revised approach would be to not take action against a person who provided advice

to an SMSF client and determined them to be a wholesale client under the general $2.5 million assets test with the requirement to have a certificate from a qualified accountant.

ASIC was clear in its statement, however, that notwithstanding its compliance approach, “this will not affect any private rights of action that may be available to third parties”. In other words, where a client is misclassified as a wholesale client, legal or other action by an investor might still be taken if they suffer a loss.

Following the publication of ASIC’s statement, the $2.5 million test, accompanied by an accountant’s certificate, largely became the accepted practice for advice to SMSF trustees, notwithstanding the risks of legal action for misclassifications.

AFCA’s position In June 2024, AFCA issued a determination regarding the classification of an SMSF investor as a wholesale investor. In this determination, it stated that where advice in relation to a superannuation product is given to a trustee of a super fund, the trustee is a retail client unless the fund holds net assets of at least $10 million. There appeared to be no ambiguity in the minds of the AFCA decision makers on the application of the $10 million test for SMSFs. The determination also highlighted the potential for incorrectly applying exemptions to the retail test in particular circumstances.

This case showed reliance on exemptions with respect to income tests and the value of the investment that can apply in some circumstances do not apply when advising on superannuation products.

AFCA also stated the term ‘relate to’, in the context of whether advice relates to a superannuation product, has a wide meaning.

The AFCA determination resulted in increased discussion and criticism of the complexity of the wholesale investor tests or rather the application of the exemptions to enable an SMSF member to be treated as a wholesale client and not a retail client.

The ability to classify a potential investor as a wholesale client, rather than a retail client, has the major advantage of fewer disclosures, rules and costs with respect to providing advice and products to these individuals.

Subsequently, the authority issued further guidance on when SMSFs can be treated as wholesale clients. It was clear from this material the government body still saw no ambiguity in the application of the test, certainly from its perspective, in relation to complaints made to AFCA as demonstrated when it stated “if an adviser provides advice to a trustee in relation to an SMSF, it must be treated as a retail client unless the SMSF has $10 million or more in assets”.

PJC report In March 2024, the PJC commenced an inquiry into the wholesale investor/client classifications to try and address stakeholder concerns over the operation of the tests. Following receipt of 128 submissions and public hearings, the PJC released a report in February 2025. The report made two recommendations for amendments to the Corporations Act and periodic review of the operation of the wholesale investor and client assessments. Critically, it called for engagement and consultation with the investment industry.

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COMPLIANCE

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Recommendation 1 That the government consider establishing a mechanism for periodic review of the operation of the wholesale investor and client tests, and that any such mechanism include mandatory requirements for engagement and consultation with Australia’s investment industry.

Recommendation 2 That, subject to a period of stakeholder consultation, the government amend the Corporations Act 2001 to remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.

While the implementation of these recommendations is unlikely to be high on the government’s priority list, their adoption would be most welcome. This is assuming they bring a more appropriate criteria and much-needed clarity on how and when to determine if an investor is truly a wholesale investor.

Accountant’s certificates As noted above, one means of confirming certain wholesale investor tests are met is to obtain a certificate from a qualified accountant attesting to income and/or assets of the investor.

Who is a qualified accountant?

Section 88B of the Corporations Act determines a qualified accountant to be a person meeting criteria in a class declaration made by ASIC. A qualified accountant under the ASIC Corporations (Qualified Accountant) Instrument 2016/786 is a member of the following professional bodies with a specific membership classification and only when that person complies with their continuing

46 selfmanagedsuper

professional educational obligations.

Professional body

Membership classification

Chartered Accountants Australia and New Zealand

CA, ACA and FCA

CPA Australia

CPA and FCPA

Institute of Public Accountants

AIPA, MIPA and FIPA

Members of eligible foreign professional bodies may also be able to provide some limited services as a qualified accountant.

In the context of more recent commentary on the wholesale investor test, accountants may need to be more discerning as to when and on what basis they are signing accountant’s certificates for these purposes.

While the risks of relying on the wholesale investor test appear to lie predominantly with financial advisers and product providers, accountants should be cognisant of when and why they are signing certificates for SMSF clients. ASIC provides a template certificate for use that specifically references the Corporations Act sections with respect to retail and wholesale clients. If this template is used, there may be risks if the certificate is used inappropriately, albeit inadvertently. Even in the case where an accountant is simply signing a statement of net assets of an SMSF, there may still be risks for them if they are aware of the purpose for which the certificate is being used.

Caution may be advisable.

Difficult conversations Despite the investor classification of SMSF clients in prior years, financial advisers, product providers and accountants may need to prepare for difficult conversations with their

It is becoming increasingly apparent the current wholesale investor test is entirely inappropriate for assessing the financial literacy assumed by these assessments.

SMSF clients, particularly where clients may no longer be able to access wholesale products they have been able to access in the past. It has become readily apparent reliance on the $2.5 million test for SMSFs will not protect advisers even if ASIC won’t take action where it is used.

These conversations may need to take place even if they are uncomfortable.

Sophisticated investors It’s interesting much of the focus of the wholesale investor tests is on the income and value of the assets held by the investor. While a high income and/or large asset base may be typical attributes of a sophisticated investor, they are not, nor should they be, the defining characteristics of a person who does not need full disclosures or consumer protections prior to making an investment. A better assessment involving an appropriate assessment of an investor’s financial literacy should form part of a test.

It is becoming increasingly apparent the current wholesale investor test is entirely inappropriate for assessing the financial literacy assumed by these assessments. As such, despite the legal definitions and exemptions, a greater level of scrutiny on whether clients truly are wholesale investors, or sophisticated investors, with sufficient financial literacy to understand their financial investments, should be undertaken to not only act in a client’s best interests, but also as a moral imperative.

COMPLIANCE

The biggest change in decades

The introduction of the payday super system marks one of the most significant changes to the Australian retirement savings system. Mary Simmons identifies some issues it will potentially present for the operation of SMSFs.

MARY SIMMONS is head of technical at the SMSF Association.

48 selfmanagedsuper

The passage of the Treasury Laws Amendment (Payday Superannuation) Act 2025 on 6 November 2025 marks one of the most significant milestones in superannuation policy since the super guarantee (SG) was introduced more than three decades ago.

From 1 July 2026, the familiar quarterly SG cycle, a deeply entrenched feature of Australia’s payroll and superannuation landscape, will disappear and be replaced by a payday-linked system, requiring employer contributions to be paid and crucially received within days of each pay event.

This shift is fundamental for several reasons. What has long been a quarterly cash-flow and compliance obligation will now become a high-frequency event, intrinsically tied to payroll processing.

The objective is clear: to close the persistent ‘super gap’ caused by late or unpaid superannuation contributions and to ensure employees receive their entitlements sooner.

The SMSF Association has supported the underlying policy objectives from the outset.

However, the transition from quarterly to event-based SG introduces material compliance and cash-flow

pressures, particularly for small employers and relatedparty entities that interact with SMSFs. Timely superannuation contributions are unquestionably in the interests of employees, however, the scale and speed of this transition requires careful, proportionate and pragmatic implementation. Without it, well-intentioned employers could find themselves unintentionally exposed to the redesigned SG charge (SGC), which is both more punitive and more administratively complex than the current model.

And for SMSFs, particularly those in closely held family groups where contributions originate from related-party employers, the changes introduce a new layer of timing and reconciliation pressures that cannot be understated.

A defining feature here is the introduction of the qualifying earnings day (QE day), which is the moment that SG liability crystallises. From that point onwards, employers have seven business days for contributions to be received by the employee’s nominated fund.

This strict receipt-based test is a major departure Continued on next page

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from current arrangements and compresses contribution timing into an extraordinarily narrow window, especially for small or seasonal businesses that may run payroll on irregular cycles or operate with lean administrative resources.

State-wide public holidays additionally extend the seven-business-day window, but for regional holidays it does not, adding yet another technical nuance to an already complex change.

There are limited extensions available that allow up to 20 business days for contributions to new funds either for new employees or existing employees. Extensions also apply to align certain one-off payments, such as bonuses or commissions, and for exceptional circumstances, such as natural disasters or systemic disruptions. But otherwise the general rule is highly inflexible.

The SGC system itself has been comprehensively redesigned to align with the payday model. Under the new framework, any contribution not received within the allowable period automatically creates an SG shortfall.

The updated SGC charge includes the shortfall amount plus notional earnings, which accrue daily at the general interest charge (GIC) rate. It also includes a new ‘administrative uplift’ of up to 60 per cent of the final SG shortfall plus notional interest (subject to ATO remission), with GIC continuing to accrue on unpaid shortfalls, notional earnings and uplift amounts until the liability is paid in full.

An additional SGC applies where an employer fails to comply with fund choice obligations, with a further layer of costs applying if the SGC is not paid promptly. The new late payment penalty starts at 25 per cent and increases to 50 per cent for repeated noncompliance.

Under the revised framework, employers will be able to claim tax deductions for on-time superannuation contributions, eligible late

contributions and the SGC itself. However, any GIC and late payment penalties will remain non-deductible, reinforcing the punitive nature of non-compliance.

These reforms reflect the government’s clear intention that the SGC is to be a meaningful deterrent, rather than the administrative tool it has often functioned as under the quarterly SG regime. However, it also means a minor payroll error, a delayed payment file or a clearing-house processing lag can easily now create multiple cascading liabilities across an entire workforce. For many small employers this is a significant recalibration of compliance risk.

For example, a small payroll miscalculation on a single QE day can set off a chain reaction.

If an employer underpays super for one employee by a small amount, an SG shortfall for that QE day is created. When the next payroll run occurs, the contribution made for that employee is first applied to clear the earlier shortfall, rather than the current liability. Unless the original error is detected and corrected, each subsequent payment is effectively ‘backfilled’ against the earliest unpaid amount, creating an ongoing series of technical shortfalls across multiple pay events without the employer necessarily realising. In practice, what starts as a minor mistake can quickly escalate into a pattern of reportable non-compliance.

Compounding these shifts is the decision to retire the Small Business Superannuation Clearing House (SBSCH) from 1 July 2026, with new registrations closed since 1 October 2025.

The service has long provided a free, government-operated clearing service that offered many small employers a valuable and often underappreciated safe harbour: the employer’s SG obligation was taken to be satisfied at the time the contribution was made to the SBSCH, even if the funds were not received by the employee’s superannuation fund until a later date.

This administrative safe harbour protected

Timely superannuation contributions are unquestionably in the interests of employees, however, the scale and speed of this transition requires careful, proportionate and pragmatic implementation. employers from delays outside their control and aligned the tax deduction with the year in which the payment was made, reducing year-end uncertainty around deductibility and member contribution reporting.

With the closure of the SBSCH, this protection is removed and small employers will now need to engage commercial clearing solutions, absorb associated fees and manage more complex reconciliation processes to ensure the correct contribution amount reaches the employee’s fund within the strict seven-business-day timeframe.

Although the payday super reforms are directed at employers, they create distinct practical challenges for SMSFs, especially those that receive contributions solely from related-party employers and have legally not been required to adopt SuperStream. As a result, manual processing, outdated electronic service address (ESA) details and legacy bank accounts remain common across the sector.

Under the new regime, these longstanding manual practices materially increase the risk of timing failures. Incorrect ESA information, bank account mismatches and slower internal reconciliation processes are likely to result in delayed receipts, failed payments and data mismatches within the compressed seven-business-day timeframe.

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SMSF trustees should take the next 12 to 18 months to modernise their contribution processing capabilities by updating bank account details, validating ESA arrangements, reviewing end-to-end contribution workflows and, where appropriate, voluntarily consider adopting SuperStream.

These may sound administrative, but under payday super, they become central to compliance. An SMSF that cannot reliably receive, identify and reconcile high-frequency contributions will inadvertently expose relatedparty employers to avoidable penalties and reporting failures. More broadly, persistent breakdowns in contribution processing have the potential to undermine confidence in SMSFs as a credible and sustainable segment of our superannuation system.

The ATO has attempted to ease transitional pressures through the release of draft Practical Compliance Guideline 2025/D5, which sets out a risk-based and education-first compliance approach for the first year of payday super. Employers will be categorised as low, medium or high risk based on their contribution timelines, the presence of outstanding shortfalls and the speed at which issues are rectified.

The ATO has also identified its use of early warning ‘nudge’ messages that alert employers where contributions are appearing late and allows for issues to be corrected before the penalties escalate.

These transitional measures are constructive and reflect the ATO’s ongoing awareness of the reform’s operational complexity. However, what they don’t do is dilute the underlying legislative requirements and employers are urged not to assume reliance on first-year leniency is a safe compliance strategy. Where the ATO becomes aware of a superannuation shortfall, it remains legally obliged to apply the legislation, irrespective of an employer’s risk classification.

Of relevance to the SMSF community is the

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need for clarity surrounding what constitutes fixing late contributions ‘as soon as reasonably practicable’. Many timing issues in SMSFrelated contribution flows arise, not from employer behaviour, but rather from fund-side processes. This includes delays caused by new bank accounts, ESA updates or fund status changes on Superfund Lookup.

In family business environments where the same individuals control the employer and the fund, these practical challenges can create disproportionate compliance outcomes unless the ATO expressly recognises them.

Under the quarterly SG, these issues were manageable within longer contribution windows. However, under payday super even short delays can have material SGC consequences.

This is especially relevant where employees nominate a new SMSF mid-year or where a fund’s compliance status changes. Without clear administrative safeguards, employers may find themselves inadvertently noncompliant despite actions being in good faith.

In addition to trustees, advisers and auditors will increasingly need access to reliable evidence of contribution flows in an event-based system. For SMSFs not currently using SuperStream or adopting it for the first time due to these reforms, establishing consistent, auditable processes will be essential. And ensuring data and payments match, contribution classifications are accurate and receipt dates can be substantiated will become central components of SMSF administration and audit.

Despite the technical and administrative burden, the policy objective of payday super remains widely supported. Ensuring workers receive the super that is owed to them, in line with their wages, is both logical and equitable.

However, the operational reality of achieving this objective must not be underestimated. The transition period between now and 1 July 2026 is the sector’s opportunity to adapt payroll and cash-flow processes, update SMSF systems, review

An SMSF that cannot reliably receive, identify and reconcile highfrequency contributions will inadvertently expose related-party employers to avoidable penalties and reporting failures. personal details and implement workflows designed for higher-frequency contribution cycles.

If employers, advisers and trustees do not use this period proactively, they will face significantly greater risk once the new system takes effect.

There is no indication at this time of any deferral or transitional carve-out beyond the ATO’s risk-based first-year approach. The legislation is in place, the timing is confirmed and the compliance expectations are clear.

For SMSFs and related-party employers, payday super marks a shift not just in timing, but in mindset. The comfortable, familiar and predictable quarterly SG era is ending.

In its place comes an event-based system that demands vigilance, updated systems, accurate data and highly coordinated employer-fund communication.

Payday super is reform with real-world consequences. Its success will depend on ensuring the burdens it creates are managed fairly, proportionately and with an appreciation of the unique operating environment of SMSFs. The next 18 months will determine whether the transition supports the integrity of the system or inadvertently creates new risks and inequities for employers and funds alike. The challenge now is to prepare both thoroughly and early.

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COMPLIANCE

In-house asset intricacy

Trustees are restricted by certain rules when making the decision to invest in a particular item. Tim Miller details the considerations needed before an investment is made and the particular prohibitions relating to in-house assets.

An SMSF may invest in a wide range of investments. The manner in which it does so is determined by the fund’s investment strategy and trust deed.

TIM MILLER is SMSF education and technical manager at Smarter SMSF.

Investment restrictions The Superannuation Industry (Supervision) (SIS) Act imposes on the SMSF trustee a number of duties and restrictions affecting the fund’s investment activities. A fund that fails to comply with these investment rules may lose its complying fund status and not be entitled to tax concessions. Penalties may be imposed on anyone involved in breaches of the investment rules.

It is the purpose of a fund’s investments and not necessarily the nature of the asset that will determine whether a fund can maintain or hold a certain investment.

Certain portfolio allocations are often questioned due to their nature, but if they fit within the investment strategy of the fund and the investment strategy satisfies the legislative requirements, there should be no compliance issues.

The sole purpose test An SMSF trustee must comply with the sole purpose

52 selfmanagedsuper

test requiring the fund to be maintained solely for one or more of the ‘core purposes’, or for one or more of the core purposes, and for one or more of the ‘ancillary purposes’. A fund that is not maintained exclusively for at least one of the core purposes fails the test.

Primarily the test requires a fund to be maintained for the provision of benefits for the members when they retire or turn 65, or alternatively their beneficiaries if the member dies before retiring or turning 65.

The ancillary purposes provide for benefits to be paid on the satisfaction of conditions of release other than retirement attainment at age 65 or death pre-those conditions.

Consistent with the payment of benefit rules in the SIS Regulations, the provision of benefits approved as additional ancillary purposes include but are not limited to payments: • in the event of a member’s hardship, • on compassionate grounds, and • on the member’s temporary or permanent incapacity.

Essentially, the sole purpose of the fund is to pay Continued on next page

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retirement or death benefits to its members or member beneficiaries.

Sole purpose test factors and relatedparty investments Of significance when measuring benefits received via fund transactions is who is receiving them. Clearly benefits provided to members and related parties are more likely to raise issues as a potential current-day benefit rather than satisfy the retirement objectives of the fund.

Therefore, the question having to be asked when considering an investment linked to related parties is whether it is for the benefit of the fund or that of the related party.

This requires having knowledge of all the investment prohibitions and exceptions, but also understanding the trustees’ purpose in making an investment as this will assist in the decision as to whether the trustees should go ahead with the action. The most complex of the investment restrictions are the rules related to in-house assets and the link hey have with other regulatory provisions.

Understanding related parties For an SMSF, the term related party is relevant for the purposes of defining whether an investment constitutes one in an in-house asset, as well as being relevant for the prohibition on the acquisition of certain assets by the fund.

A related party of a superannuation fund is defined as any of the following: • a member of the fund or a Part 8 associate of a member, and • a standard employer-sponsor of the fund or a Part 8 associate of a standard employersponsor of the fund.

Sections 70B to 70E of the SIS Act define a Part 8 associate in terms of an individual, partnership or company as the primary entity.

Broadly, Part 8 associates of an SMSF are those entities that are relatives of the individual members, partners in partnership with those members, and companies and trusts controlled

or majority-owned by the SMSF members and their extended Part 8 associates. Having a mud map of everyone linked to a fund member is a good place to start.

In-house asset rules For all investments made in an SMSF after 11 August 1999, an in-house asset is defined in section 71 of the SIS Act as: • a loan to, or an investment in, a related party of the fund, • an investment in a related trust, or • an asset of the fund that is subject to a lease or lease arrangement between the trustee of the fund and a related party of the fund.

There are a number of terms within that meaning the ATO has expanded on for the industry via Self Managed Superannuation Funds Ruling (SMSFR) 2009/4.

SMSFR 2009/4 SMSFR 2009/4 is useful as its primary purpose is to provide more information about the key words contained in the definition of an inhouse asset.

The key words with regard to a related party are what constitutes an ‘asset’, what is considered a ‘loan’, what will be deemed an ‘investment in’ and the difference between a ‘lease’ and ‘lease arrangement’.

Asset An asset is defined in subsection 10(1) of the SIS Act as “any form of property”, including currency. The tax commissioner’s widened meaning of asset within the ruling is “every type of right, interest or thing of value that is legally capable of ownership and encompasses both real property and personal property”.

Personal property includes all forms of property other than real property (land and interest in land) and can be tangible and intangible.

Loan Loan is also defined in subsection 10(1) of the SIS Act as “the provision of credit or any other form of financial accommodation,

Certain portfolio allocations are often questioned due to their nature, but if they fit within the investment strategy of the fund and the investment strategy satisfies the legislative requirements, there should be no compliance issues.

whether or not enforceable, or intended to be enforceable, by legal proceedings”.

This extends the standard definition of loan, which we understand as a payment and repayment arrangement.

This extension includes financing arrangements. So beyond the lending of money it can also include such things as instalment arrangements and payment deferrals.

It is important to note while the definition of an in-house asset includes a loan to a related party, this does not extend to members or members’ relatives. Loans to members or their relatives are strictly prohibited under section 65 of the SIS Act. Investment in The definition of ‘investment in’ first requires the term investment to be defined. By extending the definition of ‘invest’ as provided in subsection 10(1) of the SIS Act, we can then Continued on next page

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determine what is meant by ‘investing in’.

Subsection 10(1) of the SIS Act defines ‘invest’ to mean “apply assets in any way; or make a contract; for the purpose of gaining interest, income, profit or gain”.

Therefore, the first step is to determine whether the trustees of a fund have made an investment by using the assets of the fund, in most instances money, to gain interest, income profit or gain. Once satisfied this has occurred, the next issue is whether that investment is ‘in’ a related party or related trust.

An ‘investment in’ a related party or trust is an investment in that entity for income, profit or gain, not a direct investment in the assets held by that entity.

Lease A lease is an instrument/agreement granting the use of property to another party in return for compensation. The main distinguishing factor of a lease is it grants exclusive possession to the lessee (tenant), meaning the tenant has the right to occupy the premises for the term of the lease, but also the right to exclude access to the premises to any other party including the owner. That is applicable for land.

For personal property (non-real property), such as equipment, a lease will grant possession of it to the lessee through a legally enforceable hiring agreement.

Lease arrangement A lease arrangement means any agreement, arrangement or understanding in the nature of a lease between the trustee of a superannuation fund and another person under which the other person uses or controls the use of property owned by the fund, whether or not the agreement, arrangement or understanding is enforceable or intended to be enforceable by legal proceedings.

Therefore, a lease agreement is like a lease,

54 selfmanagedsuper

but may not have all the characteristics of one and is in effect a more informal arrangement than a lease.

Where an asset is leased or subject to a lease arrangement for part of a year, the full value of the asset is an in-house asset for the period of the lease or the lease arrangement.

In-house assets will

In-house asset rules An SMSF is subject to restrictions on its investments in in-house assets.

The in-house asset rules: • impose a maximum limit of investments in inhouse assets of 5 per cent of total fund assets based on market value, • require a fund with in-house assets in excess of the 5 per cent limit as at the end of the financial year to dispose of the excess in accordance with a written plan, • prohibit the acquisition of new in-house assets if the market value ratio of the fund’s in-house assets exceeds 5 per cent, and • prohibit a fund from entering into any scheme that would avoid the application of the in-house asset rules.

For the purposes of determining the market value ratio of an SMSF’s in-house assets, the trustees must value all of the fund’s assets.

are and how they work

Exceptions to the rules As with all investment restrictions, bar lending to members, there are exceptions to the in-house asset rules allowing trustees to invest in certain vehicles over and above the 5 per cent limit subject to meeting and maintaining certain conditions. Ungeared unit trusts and companies that invest in property are among these exclusions.

To invest in in-house assets Loaded with all this information we turn our attention to maintaining the validity of an inhouse asset investment.

Firstly, we have to identify whether the investment satisfies the sole purpose test, that

always be in the sights of the regulator so understanding what they is critical for trustee peace of mind.

is, we are comfortable it provides a genuine retirement benefit; then the fact it is related is largely irrelevant. What becomes relevant is the value of that investment and its nature.

It is therefore important when considering an investment to ask the following questions.

Firstly, who are the parties to the transaction?

If the parties are not related then there is no inhouse asset issue and the questions stop there.

Next, if they are related, we need to ask whether the investment meets one of the inhouse asset exceptions. If it does, then the size of the investment is not important, until things go wrong. If the investment is not an exception, you will need to determine the value against the other assets of the fund. The 5 per cent limit is important to maintain if you want to avoid further compliance work and potentially having to sell the asset.

In-house assets will always be in the sights of the regulator so understanding what they are and how they work is critical for trustee peace of mind.

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STRATEGY

Legal service dimensions

Legal practitioners are not bound by certain obligations contained in the Tax Agent Services Act that apply to tax agents and some advisers and accountants. Daniel Butler and Fraser Stead note this makes their services of immense value when client confidentiality is sought.

DANIEL BUTLER (pictured) is director and FRASER STEAD is a lawyer at DBA Lawyers.

In light of recent changes to the professional and ethical obligations on tax practitioners, it is important for clients and advisers to consider who to seek guidance from. This article discusses certain advantages of engaging a lawyer for advice or assistance.

Background The Tax Agent Services (TAS) Act 2009 includes reporting provisions that require tax agents, such as business activity statement agents, to track and report professional code breaches by themselves or their peers to the Tax Practitioners Board (TPB).

Tax agents are also required to report clients who have made false or misleading statements to

the ATO. Thus, the choice of adviser is critical for clients to determine whether that person might be under an obligation to report them due to express legislative obligations and whether communications between themselves and the adviser will remain confidential.

Only legal advice from a lawyer is subject to the protection of confidentiality and legal professional privilege (LPP). Most importantly, outside of extremely limited circumstances, lawyers are not required to report on their clients. Therefore, unlike an accountant, tax agent, financial planner or similar adviser, a lawyer is not covered by the TAS Act and Continued on next page

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Unlike an accountant, tax agent, financial planner or similar adviser, a lawyer is not covered by the TAS Act and provides an attractive option for obtaining privileged advice.

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provides an attractive option for obtaining privileged advice.

Legal professional privilege LPP protects the confidentiality of communications between a lawyer and client where the dominant purpose of the communication is giving or obtaining legal advice or in relation to pending/ contemplated litigation. Therefore, confidential information disclosed between a lawyer and a client will be subject to LPP provided it satisfies the dominant purpose test.

This unique client-lawyer relationship encourages candidness and full and frank discussions between the client and lawyer with the assurance communications and any advice given will be treated in the strictest confidence and covered by LPP. Legal advice can be contrasted to other advice as follows: • tax agents are required under the TAS Act to notify the TPB if they have reasonable grounds to believe a

significant breach of the Code of Professional Conduct has occurred by a fellow tax agent, • tax agents are also required to report clients who have made false or misleading statements to the ATO. For example, if a client backdates a document, such as a trustee distribution resolution, after 30 June and asks the tax agent to complete the tax returns on this basis, and • SMSF auditors are required to report a trustee to the ATO where they form the opinion it is likely a contravention of the Superannuation Industry (Supervision) (SIS) Act 1993 or the SIS Regulations 1994 “may have occurred, may be occurring, or may occur” under section 129 of the SIS Act. ATO records confirm contraventions generally occur in multiplies rather than as one-off events. For example, in the 2022 financial year, there were about 40,000 auditor contravention reports across 13,558 SMSFs, that is, around 2.95 per fund.

Accountants are also generally tax agents and therefore are likely to be covered by the TAS Act reporting obligations. Financial advisers may also be covered if they are a registered tax agent or have the authority to provide tax-related financial advice.

What advice is a lawyer authorised to provide?

A client may seek advice that requires the expertise of a range of professionals, including tax agents, accountants, financial advisers or lawyers. However, a person can only undertake legal work for reward if they are an Australian

legal practitioner and the penalties for engaging in legal practice where an entity is unqualified are substantial.

The TAS Act gives authority to a tax agent to provide advice on commonwealth taxation law, but importantly does not cover state or territory taxation laws, such as stamp duty, land tax and payroll tax. Subject to the relevant state or territory legislation, tax agents may be permitted to provide lodgement and advisory services, however, state or territory tax advice may constitute legal advice, which should be provided by a lawyer in the relevant jurisdiction.

Importantly, lawyers have their own set of obligations and expertise separate to accountants, tax agents and other advisers, which may prove valuable to many individuals seeking advice. This broadly includes a lawyer’s expertise in representing clients in tax disputes and contested matters, preparing and reviewing documents, as well as providing written advice that forms a reasonably arguable position (RAP).

Preparing a RAP Preparation of a RAP can be essential for a client to minimise the risk of tax penalties in circumstances where something has gone wrong, for example, an omission of income or the lodgement of an incorrect claim. The ATO will take this into consideration when making a determination on the basis of whether the taxpayer took reasonable care or was reckless as to their conduct.

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STRATEGY

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As per schedule 1 section 284-15 of the Tax Administration Act, a matter will be “reasonably arguable” if “it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect”. The ATO will only be satisfied this threshold has been met if the taxpayer’s position was at least reasonably arguable, persuasive and well supported by authorities.

The importance of seeking legal advice is demonstrated in Re Sinclair and Federal Commissioner of Taxation [2012] AATA 634, which concerned a taxpayer who claimed incorrect deductions. The tribunal found the taxpayer did not act with reasonable care by reason that he did not seek legal advice from a tax lawyer before claiming the deduction.

As such, a significant penalty was imposed upon the taxpayer.

Given the considerable training, a lawyer has the knowledge and expertise to prepare a strong argument using legislation, case law, public rulings and more to place their client in the best possible position. Accordingly, lawyers with specialist tax knowledge should be engaged to provide advice for tax matters.

Working collaboratively One thing that is sometimes overlooked or indeed might be considered too late (or deep) in the assignment, is the

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opportunity for the client or their adviser to involve a lawyer so they can work collaboratively together and for the information to attract LPP. If managed properly, with the lawyer instructing a third party such as an accountant, tax agent or valuer, the communications can be covered by LPP if they are for the dominant purpose of the lawyer having the necessary instructions to advise the client as shown in Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 122.

The TPB provides an example scenario and the consequences flowing from a breach of obligations for both the client and tax practitioner.

Tax agents should be aware of the TAS Act reporting requirements and how they impact their relationship with their clients and peers.

Importantly, clients need to be aware their adviser, if they are a tax agent, is required to report them to the AT O.

Consequences for the client: The ATO fined the client for making false statements in their tax return.

Consequences for the tax practitioner: The TPB found the tax agent failed to: • take adequate steps to ensure the income tax return was accurate, and • take reasonable care to check the client’s circumstances and apply tax laws correctly, and • sight the necessary evidence.

This highlights the importance of early collaboration between tax agents and lawyers when dealing with SMSF and tax matters. Aside from the obvious breach of obligations by the tax agent, seeking advice from a lawyer regarding the application of tax law would have not only provided protective LPP over

communications and investigations, but also provided a safeguard of the client’s interests during the ATO review.

Conclusion Tax agents should be aware of the TAS Act reporting requirements and how they impact their relationship with their clients and peers. Importantly, clients need to be aware their adviser, if they are a tax agent, is required to report them to the ATO. Instead, both advisers and clients should seek out qualified legal advice that is protected by LPP from lawyers who can advise on a range of tax and legal matters and are well suited to preparing a RAP in writing, supported by relevant authorities and evidence.

A discussion of the biggest SMSF issues LISTEN NOW ACCESS VIA YOUR FAVOURITE PLATFORM

SUPER EVENTS

SMSF TRUSTEE EMPOWERMENT DAY 2025

The SMSF Trustee Empowerment Day 2025 enhanced the investing, strategic and compliance knowledge of around 160 delegates at the Sydney Masonic Centre.

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1: Helen Molloy (OKX Australia). 2: Billy Leung (Global X Australia). 3: Geoff McClelland and Rachel Waterhouse (both Australian Shareholders’ Association).

4: Jon Sheridan (FIIG Securities). 5: Olivia Long (SMSFAI) and Kate Cooper (OKX Australia). 6: Dan Holden and Gary Connolly (both Holden Capital Partners).

7: Tracey Besters (Strategy Hub). 8: Fabian Bussoletti (SMSF Association) 9: Paul Delahunty (ATO). 10: Andrew Thomson (CFMG Capital).

11: Marnie Page (SMSF Association). 12: Jordan Eliseo (ABC Bullion Australia). 13: Tom Hogan (Global X Australia).

14: Tracey Besters (Strategy Hub) and Fabian Bussoletti (SMSF Association). 15: Gary Connolly (Holden Capital Partners).

16: Olivia Long (SMSFAI), Kate Cooper (OKX Australia) and Darin Tyson-Chan (smstrusteenews).

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SUPER EVENTS

AUSTRALIAN FINANCIAL INDUSTRY AWARDS 2025

The Institute of Financial Professionals Australia hosted the Australian Financial Industry Awards for the second time in 2025 at the Fullerton Hotel in Sydney, recognising excellence among service providers in the sector.

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1: Ben Lacey (Aquila Super). 2: The Entry Counts team. 3: Michael Driessen (GDA Financial Services). 4: Sam El Shammaa (Finchley and Kent).

5: Daniel Simmons (MJC Partners). 6: Brenda Hutchinson and Leigh Jobling (TAG Financial Services). 7: MC Vince Sorrenti.

8: Jason Spits, Darin Tyson-Chan and Taras Misko (all selfmanagedsuper).

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“ I NEVER THOUGHT I’D BE HOMELESS.” Like many of us, Megan* never thought it would happen to her – she never imagined she would need to escape a violent relationship; she never imagined her own family would turn their backs on her; she never imagined she and her daughter would become homeless and have to live out of their car.

Right now, there are thousands of Australians like Megan* experiencing homelessness but going unnoticed. Couch surfing, living out of cars, staying in refuges or transitional housing and sleeping rough – they are often not represented in official statistics. In fact, for every person experiencing homelessness you can see, there are 13 more that you can’t see.

Together we can help stop the rise in homelessness.

Visit salvationarmy.org.au or scan the QR code *Name changed for privacy