Tax & Accounting Blog

From US tax reform to SMSF robo-advisers and retirement income streams

Accounting, Audit & Payroll, Blog, News, Superannuation, Tax, Technology March 5, 2018

US Tax Reform and its implications for Australia

An article in Issue 9 of the 2018 Thomson Reuters Weekly Tax Bulletin, written by Professor Richard Vann, Consultant, Toby Eggleston and Nick Heggart, Directors, Greenwoods & Herbert Smith Freehills, discusses those aspects of the recently enacted major US tax reforms which have most relevance to Australian corporate and international taxation, both from a tax policy perspective and for inbound and outbound investment to and from the US.

The Tax Cuts and Jobs Act was signed into law on 22 December 2017 after a conference agreement was reached between the US Senate and House of Representatives on their differing tax reform bills. As the majority for the Republicans is very narrow in the Senate, the final Act tends to follow the Senate rather than the House version of the bills, the authors say.

Their article discusses the details and some specific implications of the tax reform, with discussion of the broader issues at the end. The tax reform generally commenced on 1 January 2018, meaning little preparation time for most taxpayers. And for those who actually planned for the new law, the US Treasury Secretary has power to make regulations to neuter tax planning.

More flexibility proposed for TRIS: good news, but care still needed

More flexibility is on the cards for transition-to-retirement income streams (TRIS). That is good news, but as always, the devil is in the detail, says Mark Ellem, Executive Director, SMSF Technical Services, SuperConcepts, writing in Issue 9 of the 2018 Thomson Reuters Weekly Tax Bulletin.

On 12 February 2018, Treasury released for consultation a proposed change to ensure that a reversionary TRIS will always be allowed to automatically transfer to eligible dependants upon the death of the original pension recipient. Under current law, a reversionary TRIS can only revert to a reversionary beneficiary where the reversionary beneficiary satisfies a ‘condition of release’ (CoR) with a ‘nil cashing restriction’; being ‘retired’; age 65; terminal medical condition or permanent incapacity.

Consequently, where a reversionary beneficiary did not satisfy a CoR with nil cashing restriction (other than attaining age 65 which is an automatic CoR), the TRIS could not revert. In this scenario, Ellem says where the death benefit was to be paid as a death benefit income stream to a surviving spouse, for example, the TRIS would cease and a new account-based pension would need to be commenced. In addition to the paperwork, calculating member balances and ensuring the pro-rated minimum pension had been paid for the year, this could also result in the mixing of tax components, where the surviving spouse also had an accumulation account within the same fund. The amendments are meant to simplify the whole process.

Importantly, the amendment is proposed to apply from 1 July 2017.

Robo-advice: ATO cautions SMSF trustees and accountants

The ATO has cautioned SMSF trustees and accountants about the use of so-called “robo-advice”. Robo-advice refers to financial advice delivered online via computer, tablet or smartphone. It uses algorithms and technology in place of a human financial adviser. In essence, such advice generates low-cost, simple financial advice. The ATO says the types of advice the robo-adviser can give include: (i) whether or not an individual should start an SMSF; (ii) what investments an SMSF should make.

The ATO warns SMSF trustees that if they use an accountant and they don’t operate under an AFS licence, they are limited in how they may refer the trustee to a robo-adviser. For example, an accountant can provide basic information such as robo-adviser contact details, but they can’t guide the trustee through the process or endorse any advice provided by the robo-adviser.

Accountants who operate without an AFS licence need to be aware of their obligations when referring clients to robo-advisers, the ATO says. Some robo-advice services may suggest that unlicensed accountants who refer clients to a robo-adviser won’t be providing a financial service – however, the ATO warns this may not always be correct.

Read the full articles in Issue 9 of the Weekly Tax Bulletin.