A number of unexpected regulatory announcements were made during the year.
The loop hole that allowed some families to ‘stuff their trusts’ was removed following the Federal Budget. The loop hole was allowing people to transfer additional and personally owned assets into a testamentary trust and benefit from the lower marginal tax rates this provides to minors.
Testamentary trusts, as the name suggests, are created out of the will of a deceased estate, and are able to hold the assets of the will on behalf of the beneficiaries. They provide substantial benefits in that minor children who are beneficiaries are assessed under adult marginal tax rates, rather than punitive child rates. The change in legislation removes the ability for families to transfer their own assets into the trust and benefit from these lower tax rates. Whilst it was available, the strategy was barely used in our experience.
ASIC & SMSFs
The Australian Securities and Investment Commission released a White Paper suggesting investors think twice about starting an SMSF and suggesting a minimum balance of at least $500,000 was required. This was met by substantial blowback from accounting and advice experts alike, with the SMSF Association in particular questioning their calculations. In our experience, the cost of maintaining SMSF’s are only falling with tax return and audit available for as little as $1,500 per year. Thus far the union fund sector remains immune from the impost of higher regulation, at a time when their power and potential conflicts only continue to grow.