Category: Newspaper/Blog Articles/Hansard

The new ‘ipso facto’ regime and SMSFs

Joseph Cheung (, Lawyer and Daniel Butler (, Director, DBA Lawyers

The new law pertaining to ‘ipso facto’ clauses came into operation on 1 July 2018. This article highlights the relevance of the new law for SMSFs. Note that the law in this area is complex and a detailed and careful analysis is required to properly understand how the new ‘ipso facto’ regime operates.

Background: Purpose of the new law

‘Ipso facto’ is a Latin phrase that means ‘by the fact itself’. An ‘ipso facto’ clause is a provision in a contract that allows one party to terminate or modify the operation of a contract upon the occurrence of some specific event, regardless of otherwise continued performance of the counterparty. For example, in an insolvency context, a clause in a lease that allows one party to terminate the lease if the counterparty enters into external administration is an ‘ipso facto’ clause.

For the counterparty that is affected by an insolvency or formal restructure process, some negative consequences of ‘ipso facto’ clauses include (but are not limited to) the following:

  • the ability to successfully restructure could be reduced; or
  • the market value of a business entering formal administration could be destroyed; or
  • the business could be prevented from being sold as a going concern.

The introduction of the new law relating to ‘ipso facto’ clauses is part of the Federal government’s reform of Australia’s insolvency laws. This new law is aimed at enabling businesses to continue to trade in order to recover from an insolvency event.

Summary of the new law

Broadly, this new law applies to contracts entered into on or after 1 July 2018 and makes certain ‘ipso facto’ clauses that amend or terminate a contract unenforceable if the ‘ipso facto’ clause is triggered merely because:

  • the company is entering into administration (Corporations Act 2001 (Cth) (‘CA’) s 451E) ; or
  • a managing controller has been appointed over all or substantially all of a corporation’s property (CA s 434J); or
  • the company is applying for or undertaking a compromise or arrangement for the purpose of avoiding being wound up in insolvency (CA s 415D).


Generally, where a triggering event under any of the abovementioned three categories occurs, there is a ‘stay on enforcing rights’. Please note that there is further detail in each relevant section of the CA, covering aspects such as the timing of the stay and the Court’s ability to extend the period of the stay. However, a detailed examination of these sections is beyond the scope and purpose of this article.

Note also that there also exists exceptions to a ‘stay on enforcing rights’. We summarise these exceptions into four categories:

1          The right is a right under a contract, agreement or arrangement entered into after a triggering event.

2          The right is contained in a kind of contract, agreement or arrangement that is prescribed by the regulations or a kind declared by the Minister.

3          The right is a right of a kind declared by the Minister.

4          Certain parties (named in the CA) have consented in writing to the enforcement of the right.

Where a party wishes to enforce their rights despite a stay, they can apply for a court order. Broadly, the Court may issue an order if the Court is satisfied that this is appropriate in the interests of justice. (Refer to the CA ss 415E, 434K, 451F for further details about the criteria that the Court considers before making an order).

Despite the operation of a ‘stay on enforcing rights’, the new law does not prohibit the exercise of a right for any other reason. For example, where there is a breach involving non-payment or non-performance by one party, the counterparty party can pursue its legal rights.

Relevance of the new law for SMSFs

While the new law relating to ‘ipso facto’ clauses is not specifically targeted at SMSFs, it is relevant since there are an increasing number of SMSFs, especially SMSFs with corporate trustees, and these SMSFs often enter into various contracts that may contain ‘ipso facto’ clauses. The following are some common scenarios:

1          An SMSF owns business real property and leases it to either an unrelated third-party tenant or a related party tenant. A lease agreement is executed by the SMSF as lessor.

2          An SMSF invests by providing a loan to an unrelated third-party borrower. A loan agreement is executed by the SMSF as the lender.

3          An SMSF enters into a limited recourse borrowing arrangement (‘LRBA’) to purchase real property. The SMSF executes a loan agreement in its capacity as the borrower. The custodian/bare trustee company might also be included as party to the loan agreement.

Naturally, there are many other scenarios where an SMSF may enter into a contract.

In the first scenario, the lease may contain provisions stating that the lease agreement is terminated if the tenant enters into administration or the tenant fails to make a lease payment within a prescribed time period. Similarly, in the second scenario, the loan agreement may contain provisions stating that the loan agreement is terminated if the borrower enters into administration or the borrower fails to make a loan repayment within a prescribed time period. In both the first and second scenarios, the SMSF trustee may seek to rely on these provisions to terminate the agreement with the other party on the occurrence of a triggering event.

In the third scenario, the LRBA documents may contain provisions stating that the loan agreement is terminated if a certain triggering events occur, such as if the SMSF trustee enters into administration or the SMSF trustee fails to make a loan repayment within a prescribed time period. In the third scenario, the third party may try to rely on the provisions against the SMSF trustee upon the occurrence of a triggering event. In all three scenarios, there may be other clauses that deal with the consequence of the termination. It is important for SMSF trustees and advisers to know whether such clauses can be relied upon if a certain triggering event occurs. In certain circumstances, they may also have to decide whether any documents need to be updated in light of the new law relating to ‘ipso facto’ clauses.

The following is a brief checklist of questions for SMSF trustees and advisers to consider when reviewing contracts.

1          Is a certain clause in the contract an ‘ipso facto’ clause? For example, a clause stating that the contract is amended / terminated if the borrower enters into administration is most likely an ‘ipso facto’ clause.

2          If the clause in the contract is an ‘ipso facto’ clause, does an exception apply? Consider whether the right falls within one of the four categories of exceptions. If an exception applies, there is no ‘stay on enforcing rights’, and the relevant party can seek to rely on the ‘ipso facto’ clause to amend / terminate the contract.

3          If an exception applies and there is a ‘stay on enforcing rights’, can another clause be relied upon for the amendment / termination of the contract? For example, if the borrower has entered into administration and has also failed to make a loan repayment on time, the lender (ie, the SMSF trustee) may seek to terminate the loan agreement. A clause that states that the loan is terminated if the borrower enters into administration may be an ‘ipso facto’ clause and the lender may be prohibited from enforcing a right to terminate based on this fact. However, there may be another clause that states that any outstanding moneys can be recovered if a payment is not received on time. Further, the loan agreement may also specify that the full amount of the loan becomes payable if the borrower fails to make a loan repayment within the prescribed time period. This could allow the lender to recover the full loan amount plus interest plus costs, and to effectively bring the loan agreement to an end despite the other ‘ipso facto’ clause. Such a clause could protect the SMSF trustee in its capacity as a lender.

For completeness, please note that a ‘stay on enforcing rights’ relating to an ‘ipso facto’ clause does not by itself invalidate a contract. Furthermore, the law in relation to ‘ipso facto’ clauses may be subject to further change in the future. For example, the exceptions to ‘stay on enforcing rights’ may change, so it is prudent to review the law on a regular basis.


SMSF trustees and advisers should review all contracts entered into on or after 1 July 2018. SMSF trustees should also obtain documentation (such as LRBA documentation) from a quality supplier firm that has reviewed its documentation to ensure that it is up-to-date in light of this new law in relation to ‘ipso facto’ clauses.

The law in relation to ‘ipso facto’ clauses is a new area of law and where in doubt, expert advice should be obtained. Naturally, for advisers, the Australian financial services licence under the CA and tax advice obligations under the Tax Agent Services Act 2009 (Cth) need to be appropriately managed to ensure advice is appropriately and legally provided.

DBA Lawyers offers a range of consulting services in relation to individuals and advisers who have queries about how an ‘ipso facto’ clause affects an SMSF. DBA Lawyers also offers a wide range of document services. DBA Lawyers also confirms that its LRBA documentation has been reviewed to ensure that it is up-to-date in light of the new law relating to ‘ipso facto’ clauses.

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

13 November 2018

Minimising lost opportunity: Payments above Account-Based Pension (‘ABP’) minimum

Joseph Cheung (, Lawyer


Daniel Butler (, Director, DBA Lawyers

Significant time has passed since the introduction of the transfer balance cap (‘TBC’). During this period, many have become aware of the potential trap caused by the TBC for SMSF members who receive payments above the account-based pension (‘ABP’) minimum annual amount, and have responded by implementing various strategies to avoid this trap. This article shows that timely action can minimise any further opportunity cost resulting from the trap.

What opportunity has been lost for those who have already been caught by the trap?

For members who have not implemented a strategy, the capital supporting their ABP(s) is reduced by the amount of the pension payment(s), including the amounts above the relevant ABP minimum(s). However, there is no corresponding debit to the member’s transfer balance account (‘TBA’)!

Where the member had ‘maxed out’ their TBC, they cannot add any further capital to commence a new pension that is in the retirement phase (ie, a pension that will obtain a pension exemption). Therefore, drawing more than the minimum payment will exhaust the capital supporting the ABP(s) significantly faster than would otherwise be the case. Where the member had not ‘maxed out’ their TBC, there will be limited capacity to add further capital to commence a new ABP.


As at 1 July 2017, Ken is 66 years old and has an existing ABP with $1.6 million capital supporting his ABP. He does not have any other pensions. He also has an accumulation superannuation interest of $100,000. On 1 July 2017, his personal TBC is $1.6 million. A credit of $1.6 million applies to Ken’s TBA.

On 1 August 2017, the SMSF trustee makes a payment of $200,000 to Ken. As Ken is 66 years old, the relevant ABP minimum payment for Ken is $80,000 (ie, $1,600,000 (account balance) x 5% (percentage factor)). Accordingly, this payment of $200,000 exceeds the ABP minimum payment for Ken by $120,000.

The result is that the capital supporting the pension is reduced by $200,000, with $1.4 million remaining (ignoring any growth and expenses). However, there is no corresponding debit to Ken’s TBA, which still shows a credit balance of $1.6 million. As Ken’s TBC is ‘maxed out’, he cannot add any capital to start a new pension.

If Ken does nothing and continues to receive pension payments greater than the relevant ABP minimum payment in this financial year (‘FY’) or in future FYs, the capital supporting the pension will be exhausted significantly faster than would otherwise be the case. Ken would not be able to add any capital to start a new pension.

How can members minimise lost opportunity?

DBA Lawyers understands that the following two-step strategy has been contemplated by many advisers in the SMSF industry to address the potential trap:

Step 1: Pay all amounts above the relevant ABP minimum(s) as a lump sum payment from the member’s accumulation interest.

Step 2: Where there is no accumulation superannuation interest or the accumulation superannuation interest is insufficient to pay the amounts in excess of the relevant ABP minimum(s), these excess amounts are to be paid as a partial commutation of the relevant ABP.

For members who already had an ABP on 1 July 2017, the effectiveness of the above strategy is maximised if it were documented on or shortly after 1 July 2017, so that the strategy applies prospectively before the payment of any amount above the relevant ABP minimum. In those circumstances, the members would have avoided the trap. For the avoidance of doubt, the strategy document should have been dated when executed. Note that backdating or falsification of a document is a serious matter that can result in substantial penalties.

As mentioned, some members may not have been aware or taken action. However, if the strategy is properly documented, these members can minimise any future lost opportunity.


This is a continuation of the earlier example. As at 1 July 2018, Ken is 67 years old and has an existing ABP with $1.4 million remaining. He does not have any other pensions. He also has an accumulation superannuation interest of $100,000. On 1 July 2018, Ken’s TBA still shows a credit balance of $1.6 million.

On 1 November 2018, the above two-step strategy is properly documented.

On 1 December 2018, the SMSF trustee makes a payment of $200,000 to Ken. As Ken is 67 years old, the relevant ABP minimum payment for Ken is $70,000 (ie, $1,400,000 (account balance) x 5% (percentage factor)). Accordingly, this payment of $200,000 exceeds the ABP minimum payment for Ken by $130,000.

As the strategy has been documented properly, the $70,000 is a payment from the capital supporting Ken’s pension, the $100,000 is a payment from Ken’s accumulation superannuation interest, and the $30,000 is a payment as a partial commutation of the ABP.

The result is that the capital supporting the pension is reduced by $70,000, with $1,330,000 remaining (ignoring any growth and expenses). Ken’s accumulation superannuation interest is fully exhausted, ie, reduced to nil. There is also a corresponding debit of $30,000 to Ken’s TBA, which now shows a credit balance of $1,570,000 (assuming no other events give rise to a debit/credit). As Ken’s TBC is not $1.6 million, he can add capital of up to $30,000 to start a new pension.

Alternatively, if no strategy had been documented, the result would be that the capital supporting the pension is reduced by $200,000, with $1.2 million remaining (ignoring any growth and expenses). However, there is no corresponding debit to Ken’s TBA, which still shows a credit balance of $1.6 million. As Ken’s TBC is ‘maxed out’, he cannot add any capital to start a new pension.

The above example shows that once the two-step strategy is documented, the capital supporting the pension will be exhausted slower than would otherwise be the case if the member had not put into place such a strategy. Even if a member had been caught in the trap, a result of documenting the strategy is that the lost opportunity resulting from the trap is limited to the period in which there is no strategy in place. Subsequent payments above the relevant ABP minimum(s) made in accordance with the strategy would not be exposed to the trap.

Can the strategy be documented to apply retrospectively?

Unfortunately, for members who have been caught in the trap, it is unlikely that the ATO would accept documentation that applies a strategy retrospectively, ie, after the payment of the amount above the relevant ABP minimum(s) has occurred.

In relation to the partial commutation of pensions, the ATO’s view, as expressed in TR 2013/5, is that the member must consciously exercise their right to exchange something less than their full entitlement to receive future pension payments for an entitlement to be paid a lump sum. Where no documentation exists either before or at the time of payment, it is hard to prove that the member consciously exercised their right. The ATO could decide that there was no partial commutation and that the amount was just paid as a pension payment in excess of the relevant ABP minimum(s). Accordingly, any strategy involving a partial commutation should be documented prior to the time of payment.

Similarly, where the payments are allocated and the strategy documented ‘after the fact’, the ATO might take the view that the payments did not come from an accumulation interest as it could not be proven that this was the parties’ intention at the time of payment, and it was not a valid partial commutation. The ATO could then treat the payment as a pension payment in excess of the relevant ABP minimum(s). A conservative approach is to have relevant documentation completed and signed before the payment of the amounts in excess of the ABP minimum payment.

Based on the above reasoning, members should take timely action to document a strategy so that the strategy can apply prospectively to the payment of any amount above the relevant ABP minimum.


SMSF members who have been caught in the trap caused by the TBC need to take timely action and prospectively record a strategy for payments above ABP minimums.

DBA Lawyers offers documentation to prospectively record the above strategy for any member who wishes to protect the capital supporting their pension(s) from being exhausted beyond the relevant minimum pension amount. For more information, please visit

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

15 October 2018

ALP’s franking credits policy targets shareholders with low taxable incomes

15 October 2018

Jim Bonham

“Having a non-means tested government payment solely on the criteria that you own shares and giving people a refund when you haven’t actually paid income tax for the year that the refund covers, what’s the economic theory behind that?” asked Opposition Leader Bill Shorten recently, and reported by Phillip Coorey in the Australian Financial Review on 12 October 2018.

Mr Shorten is  talking about refundable franking credits, but actually franking credits are means tested (because they’re taxable income and our progressive tax scales are a form of means testing), and you have paid income tax (because franking credits are also pre-paid tax) and, finally, there is an economic theory (to ensure gross dividends are taxed as ordinary income).

Unfortunately, that’s not the way the ALP sees it.

Shadow Treasurer Chris Bowen, said refundable franking credits are “a concession”, “unfair revenue leakage” and “a generous tax loophole” when describing the ALP’s plan to stop the refunding of unused franking credits  (see SuperGuide article  and and the ALP’s policy document, )

Those comments are not right either.  Refundable franking credits are part of an unfortunately convoluted and widely misunderstood process, but their function is straightforward: to ensure that Australian company profits distributed to Australian shareholders are taxed in the hands of the owners (shareholders) rather than the company, in exactly the same way as income from any other source.  The company is only taxed on that part of its profit which is kept in the company for internal use, and not distributed.

In our present system of refundable franking credits therefore, there is no concession, no leakage and no loophole.

In the discussion referenced above, the Shadow Treasurer also said “While those people [with low taxable incomes] will no longer receive a tax refund, they will not be paying additional tax” which is a prime piece of Orwellian double-speak.  It’s not correct, and shareholders on sufficiently low incomes will find that their franking credits are simply confiscated as tax – money they get now will no longer be received and they will have less to live on.

Australians on low incomes will lose franking credits, unless they receive a part or full Age Pension. After strong protests that convinced the ALP that its policy would actually harm those on low incomes, they announced the “Pensioner Guarantee” – an exemption from the policy for Age Pensioners who hold shares directly, and for SMSFs where at least one member received the Age Pension or a government allowance before 28 March 2018 – but that still doesn’t help non-pensioner shareholders with low incomes.

In this article, I dig into this subject in more detail, particularly for those who hold their shares directly in their own names, to show what the ALP proposal really means and how it would operate.

I’ll show that the policy can cause very substantial loss of income for direct shareholders, especially those on low or middle incomes.  Retirees will simply not be able to suck up the sort of losses involved and we can expect some creative asset reduction to get under the Age Pension asset test threshold, or a major restructure of the investment portfolio to avoid franked dividends.

Dividend imputation, and how franking credits work

In the bad old days when dividends paid from company profits (taxable in Australia) were double-taxed, it worked like this:  the company paid tax at the corporate rate (currently 30%) on the relevant profit; the remainder (70% at current rates) was sent as a dividend to the shareholders, who then paid further tax on it as part of their ordinary income.

In 1987, the Hawke-Keating government decided to remove this double taxation of dividends, introducing a dividend imputation system similar to what we have today, except that franking credits were non-refundable.

Although the company still paid tax at the corporate rate (currently 30%), any of that tax which was associated with profits paid out as a dividend was reclassified as a “franking credit” and held by the ATO as a pre-payment of tax on behalf of the taxpayer – very similar to the PAYE system

The franking credit was also treated as part of the shareholder’s taxable income.  In other words, the gross dividend, which is the franking credit plus the dividend, was added to any other taxable income when calculating the shareholder’s income tax.  The franking credits, being pre-paid tax, were then subtracted from the calculated tax owing, so that in the end the gross dividend was taxed just like any other income.

For high-income shareholders, whose tax liability exceeded the value of the franking credits, this system had the effect of transferring the liability for tax on company profits from the company to the shareholder.

However, for low-income shareholders the situation was different.  If there were franking credits left over after paying the tax, the ATO simply kept the excess.  (This outcome is what is meant by “non-refundable”). Taxpayers who would have paid no tax at all if the same amount had been earned from employment, actually paid the corporate tax rate on their dividends.  Their dividend income was “taxed in their own hands”, but not taxed like other income.

In 2000, the Howard-Costello government made unused franking credits refundable to the taxpayer, creating the current system in which gross dividends are always taxed as shareholder’s income, regardless of the shareholder’s tax rate.

Here’s a simple example to show how the three systems treat low and high income taxpayers.  For this example, “low income” means too low to pay tax in our current system and “high income” means over $180,000 so the marginal tax rate is 47% (including the Medicare levy).  It’s also assumed that the gross dividend is not large enough to alter the taxpayer’s marginal tax rate, and today’s tax rates are used.

The table shows how much money, after tax, ends up in the shareholder’s pocket as a result of $100 profit earned by the company and distributed as a dividend. Clearly, low-income recipients of franked dividends will be the hardest hit if the ALP re-introduces non-refundable franking credits.

System After tax income from $100 profit
  Low income High income
Double taxation (prior to 1987) $70 $37
Non-refundable franking credits (Hawke-Keating) $70 $53
Refundable franking credits (Howard-Costello) $100 $53

Dividend imputation with non-refundable franking credits  was a have-your-cake-and-eat-it-too system for the government, where that part of a company’s profits distributed as dividends was taxed at either the corporate or the personal tax rate, whichever gave the higher result.  This is the system the ALP wants us to return to – Age Pensioners (mostly) excepted.

So who is most affected by the proposed policy? What is their income? How much income will they lose?  How effective is the Pensioner Guarantee? Let’s look at these questions in some detail.

Significant loss of income under ALP proposal for direct shareholders

People who hold shares directly, outside of superannuation, may be rich or struggling; they may be retired or in their youth; they may rely on dividends from shares for all of their income, or just a part of it; they may have other taxable income from dividends, rental, employment etc.  They might also receive non-taxable income from a superannuation pension, but that has to be looked at separately and does not affect what happens with their taxable income.

Whatever the circumstance, the introduction of the ALP’s policy will result in either a loss of income or, if the shareholder’s income is high enough, no change.  No one gains except the government.

If a shareholder is going to lose income under the ALP policy, the actual amount depends on total taxable income, the amount of gross dividends as a percentage of the total, and whether the taxpayer is entitled to SAPTO (and if so, whether single or a member of a couple).

Incidentally, wherever I use the phrase “entitled to SAPTO”, it is to be understood that the entitlement only applies if the income is below the appropriate threshold.  Above that, the “entitled to SAPTO” and “not entitled to SAPTO” curves in the graphs to follow are, of course, identical.

Fig 1 presents the loss of income which would result from the ALP proposal for a single senior shareholder entitled to SAPTO, where the gross dividends received constitute 25%, 50%, 75% or 100% of the shareholder’s total taxable income.

For example, if gross dividends represent 100% of a taxpayer’s income, the introduction of the ALP proposal will be most financially devastating for single senior Australians earning about $33,000 a year but will also affect those earning up to about $138,000 a year. If gross dividends represent 75% of a taxpayer’s income, the ALP proposal will most severely hurt single senior Australians earning about $33,000 a year  but will also affect those earning up to about $75,000 a year

In all scenarios, single senior Australians with low to moderate incomes will be most affected by the ALP’s proposal to ban franking credits refunds.

Figure 2 shows the same results, but for a senior taxpayer who is a member of a couple.  Note this graph is just one partner’s share of both the income and the loss.  The shapes of the curves are a bit different from those in Fig 1 because of the complicated structure of our tax scales.

Note: In particular, for a couple, if gross dividends make up 50% or less of total income, the worst loss occurs at an income (each) of about $22,000.

Finally, Fig 3 shows the same results for a younger taxpayer who is not entitled to SAPTO.

In each of these three graphs the curves are skewed towards lower incomes and the greatest amount of income loss occurs at a taxable income of between $22,000 and $33,000 depending on the individual case.  That’s hardly a huge income, yet in the worst case the ALP proposal will reduce this income by up to $10,000 per year, depending on the percentage of franked shares contributing to taxable income.  The proportional loss is savage.

For those who don’t qualify for SAPTO, the maximum loss of income occurs at lower taxable incomes and is not quite as large, but it is still very significant in relation to the level of income

This is just another slap in the face to seniors who, in recent years, have suffered the doubling of the Age Pension asset test taper rate, dramatic upheaval in the structure of superannuation in retirement and now, for share investors, the threat of losing some or all of their franking credits.

Many retirees must question why they put so much effort in their younger years into saving and learning how to invest, only to have their assets and income so badly trashed by continually changing rules.

What about the Age Pension?

When introducing this policy, the ALP claimed that it would mostly affect wealthy retirees.  A strong backlash led to the Pensioner Guarantee (exemption) and the claim that they were thus protecting those less well off.

However, that did nothing for those who fail to qualify for the Age Pension but still don’t have much income.  We need to see where in Figs 1 or 2 the Age Pension might cut out.

To keep things as simple as possible, we’ll just look at the top curves in Figs 1 and 2, which assume that gross dividends make up all the taxable income.  In both cases, the worst loss occurs for a taxable income of about $33,000, and if we assume a gross dividend yield of 6% (approximately the average for fully franked shares in the ASX 200) the value of the shares needed to generate that income is $550,000.

The upper asset test threshold for the Age Pension is different for singles and couples, and for those who own their own homes:

Asset test upper threshold
Homeowner Not homeowner
Single $564,000 $771,000
Couple (each) $424,000 $511,000


None of these figures are very far from $550,000.  What that means is that someone who just fails to qualify for the Age Pension, and so is not excluded from the ALP policy, will probably find themselves facing close to the maximum loss of income.

How will people respond?

With incomes at these levels, nobody’s going to just suck up the sort of losses involved, so expect either (a) some creative asset reduction to get under the Age Pension asset test threshold, or (b) a major restructure of the investment portfolio to avoid franked dividends.

The first alternative, that is, creative asset reduction, is likely to trap the person into permanent dependence on the Age Pension, restricting a person’s ability to improve her financial position in future or to deal with major health or care issues late in life.  The second alternative, restructuring the investment portfolio, could adversely affect the risk of the portfolio producing poor returns, leading to an inadvertent slide onto the Age Pension.

Either way the objective of the ALP proposal is thwarted, which makes it rather pointless to make people jump through these hoops, while putting more people on the Age Pension

SMSFs also hit by ALP proposal

The ALP’s proposal also applies to shares held within a self-managed super fund.

If an SMSF is in accumulation mode, then the tax rate on investment earnings and discounted capital gains is 15%. In such circumstances, if gross dividends make up more than half the total income, some of the franking credits will be lost.  I suspect most people caught in this situation will restructure their investments to bring gross dividends down below 50% of income.  Such a strategy solves the tax problem, but may adversely alter the SMSF’s risk profile.

SMSFs in pension mode are in a much more difficult situation.  They pay zero tax on fund earnings, but under the ALP proposal they would lose all of their franking credits, which could be up to 30% of their current income.  Portfolio restructure is one option to avoid this tax (although it would mean abandoning shares paying franked dividends), as is simply reducing (spending) assets so as to bring their value low enough to qualify for the Age Pension – in both cases with the possible consequences outlined earlier.

Unfortunately, reducing the value of shares held in the SMSF – as a deliberate strategy or simply to supplement income – to the point where a retiree qualifies for a part Age Pension still won’t protect the franking credits. The Pensioner Guarantee does not apply to SMSF members who qualify after 28 March 2018, so retirees in this situation will probably consider closing their SMSF and reinvesting outside super.

SMSFs in pension mode seem to be the main target of the ALP’s proposal, and the Shadow Treasurer’s statement ( ) specifically refers to the fact that some SMSFs get very large refunds of franking credits.  Well yes, some did, but that was largely eliminated by capping superannuation pension accounts at $1.6 million.  Meanwhile, lots of people have relatively small SMSF pension accounts.

If the real problem that the ALP is trying to address is the fact that SMSFs in pension mode pay no tax, then that should be addressed directly with full consideration of context including large funds as well as SMSFs.  It is a fundamental and complex issue and simply changing the way dividends are taxed is not the way to deal with it.

Destructive and unfair tax policy

Halting the refund of excess franking credits is a very destructive policy for those who hold shares directly or in an SMSF, especially in pension phase

Such a proposal puts a severe strain on retirees whose taxable income is fairly low unless they can find a way to restructure their investments or qualify for the Age Pension, but it has little or no effect on wealthier people – unless their investment is through an SMSF in pension mode.

Likely responses to the policy would see some people driven to the Age Pension, at long-term cost to themselves and the government.  Others will close their SMSF purely to get under the umbrella of the Pensioner Guarantee.  Some may decide to remove all Australian shares paying franked dividends from their portfolios – how is this good for themselves or the country?

Income tax is often arbitrary and complex, but the basic principle of dividend imputation with refundable franking credits is simple and sound:  to ensure profits distributed as dividends are taxed as normal income in the hands of shareholders.  Why mess that up?

The ALP policy is the antithesis of a well-designed tax policy, a direct slap in the face to the notion of a progressive tax system, and an extraordinary proposition to have come from the ALP.

Exempting Age Pensioners who hold shares directly from this policy was painted as supporting those on low incomes, but really it was just a way of papering over part of a problem and hoping no-one would notice the rest.

Technical note: All tax calculations in this article use 2018-19 tax rates, and include LITO, LMITO, SAPTO (if relevant) and the Medicare levy.  The Age Pension asset test thresholds are applicable from September 2018. For more information on income tax rates see SuperGuide article For more information on Age Pension assets test, see SuperGuide article .

About the author: Jim Bonham

Dr Jim Bonham is a retired scientist and R&D manager, who is deeply concerned about the appalling instability of the regulatory environment around superannuation, retirement funding and investment generally. If the ALP policy is implemented, he will be affected by the loss of franking credits in relation to shares held directly, and within an SMSF. 

Copyright: Jim Bonham owns the copyright to this article. Copyright © Jim Bonham 2018

First published on 15 October 2018 on SuperGuide:

On 16 October 2018 Jim Bonham sent the following email to Bill Shorten and Chris Bowen:

From: Jim Bonham []
Sent: Tuesday, 16 October 2018 9:19 AM‘ <>‘ <>
Subject: Franking credits

Dear Mr Shorten,

I was dismayed to read the following quote, attributed to you, regarding refundable franking credits:

“Having a non-means tested government payment solely on the criteria that you own shares and giving people a refund when you haven’t actually paid income tax for the year that the refund covers, what’s the economic theory behind that?”  ( )

The facts are:

  1. Refunds of franking credits to shareholders with low taxable income are means tested, because franking credits are taxable income and the progressive nature of income tax system effectively applies a means test.
  2. You have paid income tax, because the franking credit is treated by the ATO as a pre-payment of tax.  The refund to those on low taxable incomes occurs because the pre-payment is an over-payment.
  3. There is an economic theory.  The dividend imputation process was designed to ensure that company profits distributed as dividends are taxed in the hands of the shareholder (the company is only taxed on profits retained for internal use).  Refunding franking credits in excess of the shareholder’s tax obligation is essential to ensure that the gross dividend is taxed in the same way as other income.  Failing to refund excess franking credits, as the ALP is proposing, forces those on low taxable incomes to pay a higher rate of tax on gross dividends than they would if the same income were earned in any other way.


Please abandon the policy of making franking credits non-refundable.  It hits those with low taxable incomes the hardest, and makes living in retirement on your own resources far more difficult for self-funded retirees.

Jim Bonham

How did both major parties get super so wrong?

The Australian

1 October 2018

Robert Gottliebsen – Business Columnist

Both the government and the opposition have the same problem — they both have difficulty in devising sensible superannuation and retirement policies.

And this raises the question of why can’t they get it right? Why do they make so many mistakes?

In the Weekend Australian I set out how shadow treasurer Chris Bowen simply got his franking credits policy wrong.

But go back a few years and the then treasurer Scott Morrison and his assistant Kelly O’Dwyer put forward a set of horrendous superannuation policies and even went as far as saying they were not retrospective when of course everyone knew they were.

Those bad policies almost cost the Coalition the election. They were lucky because many of their backbenchers took the trouble to talk to people and understand what was happening and forced through policy adjustments that were at least a substantial improvement on the original ideas.

And in the current ALP fiasco my understanding is that, in a similar way to the Coalition, intelligent backbenchers are talking to the voters and are starting to understand the looming disaster and are desperately looking for a way around the problem without admitting error.

Let me help them. The best way is to abandon the policy altogether, but if you need a compromise then limit the amount of cash franking credits that can be claimed to, say, about $15,000.

The cap being floated in ALP circles is $10,000 but I think that is too low. But whether it be $10,000 or $15,000, the problem is we are introducing legislation that is complex, will raise very little money and makes retirement just that much more complex.

We can fix that over time, and a $15,000 annual cap to cash franking credits will solve most of the problems among the battlers who are struggling to fund their own retirement. The problem both the Coalition and the ALP face in superannuation matters is that, in the first instance, the politicians have very generous super arrangements and don’t do their homework on the rest of the population. Even worse, in the public service the people at the top are mostly on incredibly generous benefits and are members of the so-called “$10 million club” with benefits that are way in excess of what is available to the general public.

While that has been changed for the most recent recruits, the people at the top of the public service are mostly living in a different world to the rest of the country. So when they look at super and retirement matters they simply have no idea what is taking place. My understanding is Chris Bowen, when devising his super franking credit disaster, actually went to the public service to have it evaluated and they came back with the thumbs up, which made him confident that the concept was a legitimate tax arrangement that would take money from the rich.

As we all now know, the policy is a savage blow to ordinary Australians trying to fund retirement, with about 1.4 million people in the ALP’s sights and hardly a rich person among them.

I believe we are looking at a phenomenon that cripples both parties. The first step in solving the problem is that ministers in areas like superannuation need to understand that the public service is of limited value to them.

They have to send their people out into the real world and, as the Coalition found, the best advice came from the backbenchers who usually have the time to be in touch with the electorate.

Ministers and shadow ministers in Canberra (and also in state governments) surround themselves with ministerial staff who second-guess the public service. Too often the ministerial staff are “yes” people with no depth to their knowledge outside of politics.

This situation has caused many talented people to either leave the public service or simply not join it. Once we had a proud public service that was as far as possible independent, but we are now seeing in so many areas public service advice simply doesn’t have the same standards it once did.

Nothing is going to happen in the short term, but down the track ministers are going to have to think about how they restore the quality of public service advice so that they don’t get caught in situations as we have seen in superannuation and retirement from both parties. When Australians reach their 40 and 50s they make long-term plans for their retirement in accordance with rules that exist at the time. When past governments changed rules the old rules were grandfathered so they were not retrospective.

It was the Coalition that decided there should be retrospective legislation. At least Bowen is being honest and is saying he is changing the rules retrospectively, but that doesn’t validate his policy. For what it is worth I admire the shadow treasurer for the fact that he is open about the tax measures he is planning to undertake.

Traditionally opposition treasurers keep their mouths shut and introduce the nasties once they get into office.

For real Scomentum, drain the billabong

The Spectator

26 September 2018

David Flint

Our political class are being seen more and more as arrogant and as out of touch as the French aristocracy were in the lead-up to the revolution.

The people who decide elections— those who are not rusted-on Coalition or Labor voters— see little difference between them. Most have neither the time nor the interest to go into the detail which would demonstrate that, however inadequate government policy is, Labor’s is worse. And the only news most see is on TV bulletins where someone from the gallery typically presents politics through a left-wing prism

Seeing little difference in policy, the undecided see only one thing, disgraceful self -indulgence, the latest being for many the last straw. They will make the government pay, however much Labor is involved.

Before I discuss that, the crucial thing in any poll, at least in Australia, is the ‘two-party preferred vote’ the two-party preferred. Everything else is décor.

The latest, 44/56, demonstrates that Scott Morrison has to show his policies are significantly different and what the people want. He has at least acted to retain the Catholic vote which Simon Birmingham lost, a vote Menzies long ago seduced from Labor by acting on the grossly inequitable treatment of the parochial school system.

Following the constitution, Canberra should otherwise keep its nose out of schools, as should all politicians. Using schoolchildren as political props does not attract votes. In fact, most voters are sickened by this form of child abuse.

To win, Scott Morrison must adopt policies significantly different from Labor’s on energy, the rate of immigration and pouring taxpayers hard-earned money down the drain. He should spend a few hours with Tony Abbott who’ll put him right.

He should also announce a plan to drought-proof the country, with Stage 1 to be completed in five years. This should incorporate the three B’s —the Bradfield, Beale and Bridge Plans. He can borrow this from Alan Jones who’ll be delivering a major address on this next week, see

Morrison should also apologise to the Liberal base who’ve walked out or gone on strike by repealing the dopey superannuation legislation he and Kelly O’Dwyer pushed through. Not only does this offend just about everything the Liberal Party stands for, it has encouraged Labor not only to do worse but to announce it knowing that the Liberals can’t complain — some achievement.

He must also appoint a real and not a jack-in-the-box Minister of Defence, one whom the military would respect. Morale is at an all-time low from the Canberra-assisted campaign against war heroes, the way cultural Marxists are running recruitment and the raids on the defence budget, bigger even than Labor’s, to shore up government seats.

The last straw for many undecided was the award to two politicians of travel so luxurious as to be beyond the wildest dreams of most Australians. This involves a three-month stay in luxury accommodation in New York at a cost of about $100,000 each. Neither the Liberal, Anne Sudmalis, nor Labor’s Jenny Macklin, can make the usual feeble argument that this will enable them to better represent their constituents by improving their understanding of the UN, global government and how and why our sovereignty is being sold out to the rule of international bureaucrats from an organisation dominated by foreign dictatorships.

Almost as soon as they return, both will take their parliamentary superannuation, possibly picking up ‘jobs for the boys’ and well-paid postings in foreign corporations, banks and other places.

While some will recall Ms Macklin’s role as a great distributor of taxpayer-funded largesse, Ms Sudmalis only rose to prominence with her recent unpersuasive complaints about ‘bullying’ within the Liberal Party. Her face, but not her name, was however well-known by being placed strategically behind the PM during Question Time, that fourth-rate version of the real question time at Westminster where the Speaker chooses the questioners. Her involvement in this farce may not have raised her prestige, her job being either to nod approval to whatever ministers read from their prepared answers or to laugh at their attacks on the opposition.

As a result of ‘bullying’ and not because the seat will be among the first to fall in the election, Ms Sudmalis announced she will seek re-election.

Since neither indulgence involves Bronwyn Bishop, the mainstream media has not continued to pursue them. Nevertheless, in workplaces, kitchens, clubs and pubs across the country and in people’s memory, this rort is a subject of outrage where the common lament is that this time the politicians have gone too far.

Marie-Antoinette, who never even saw the sea, was guillotined for less. In fact, she never said of the starving poor “Let them eat cake”. That was an invention of the fake media of the day. In fact, all of the charges against her were concocted by the Jacobins, as if they were Democrats undermining a Republican judicial nomination in Washington.

Meanwhile, in Australia, the parties and their leaders do not seem to realise how this grotesque indulgence is a slap-in-the-face for the farmers who are persecuted constantly by the politicians and bureaucrats who have stolen their water and turned vast parts of their land into carbon sinks to venerate the fashionable and foreign religion of global warming.

Nor do they see how this excess has so outraged those hard-working taxpayers who are paying not only for the politicians but for the armies of apparatchik-advisors wholly unknown at the time of Menzies and Fraser, the vast numbers of bureaucrats now paid at imagined private sector rates, the brigades of consultants and now, an emerging class of crony capitalists created by substituting political patronage for the essence of the free enterprise system, risk.

Thus an increasingly vast part of the economy, supposedly free enterprise, is simulating that of the banana republic Mr Shorten wishes to force onto a reluctant nation.

This once again presages a descent into, if not the Venezuela, the Argentina of the South Seas. This can only be reversed by fundamental reforms to the governance of this country.

Strategies to reduce your total superannuation balance: Part 3

Joseph Cheung (, Lawyer and William Fettes (, Senior Associate, DBA Lawyers

Due to the importance of total superannuation balance (‘TSB’) testing under the major superannuation reforms, fund members have a strong incentive to carefully monitor their TSB over time and plan accordingly to moderate their TSB to fall within certain key thresholds.

In part 1 of our series, we discussed the various components of a person’s TSB and we examined how making pension payments and/or lump sum payments could reduce a member’s TSB. In part 2 of our series, we examined paying arm’s length expenses to reduce a member’s TSB.

In the part 3 of our series, we examine two other strategies to reduce an individual’s TSB — namely, tax effect accounting and contribution splitting.
(For more detail about the various TSB thresholds, please refer to the following link:

Strategy #3: Apply tax effect accounting
Tax effect accounting (‘TEA’) is a prudent accounting methodology that can be adopted by self managed superannuation funds (‘SMSFs’) to recognise future tax liabilities as part of the SMSF’s financial position. In particular, TEA can be relevant for managing TSB compliance by helping to ensure that an individual’s TSB is correctly reflected having regard to taxation.

The starting point is that member account balances in an SMSF broadly reflect the financial position of the SMSF (ie, the value of the SMSF’s net assets). Naturally, this means that member account balances are based on the market value of the relevant SMSF’s assets (refer to reg 8.02B of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’)).

In practice, many advisers and SMSF trustees treat a member’s account balance as equivalent to the member’s TSB except where the member has multiple superannuation funds. Moreover, the ATO’s default position is to use the member account balance information disclosed in an SMSF’s annual return to calculate an individual’s TSB (assuming the member is not a member of another SMSF and that no structured settlement amounts have been contributed to the SMSF).

However, it should be noted that a member’s TSB is not identical to their account balance. Broadly, a member’s TSB represents the amount of their accumulation phase interests and retirement phase interests that would become payable if the individual voluntarily caused the relevant interests to cease at a particular time. This ‘withdrawal benefit amount’ can broadly be equated to the net realisable value of the relevant interests, and could take into account tax payable and perhaps also future costs associated with realising the assets that support the relevant accumulation and/or retirement interests.

While the Transfer Balance Account Report (’TBAR’) system informs the ATO of an individual’s TSB (refer to question 15 of the TBAR form) and essentially overrides the ATO’s account balance derived TSB value, this requires ongoing intervention and may not be attractive for many advisers.

As an alternative to using TBAR to manually change the ATO’s TSB records periodically, SMSFs have the option to apply TEA so that the SMSF’s financial position, and therefore member account balances, better reflects the elements of the TSB definition. For instance, TEA facilitates the recognition of deferred tax liabilities where there is reasonable certainty that a future tax liability will arise for the SMSF. The tax payable on a ‘deferred notional gain’ in relation to capital gains tax (‘CGT’) relief is one example of a future tax liability that could be reasonably certain. Naturally, this is subject to there being no anticipated (current or carried forward) capital losses which could eliminate the deferred notional gain in the financial year that the asset (ie, the asset that received proportionate CGT relief) is realised.

The application of TEA can potentially reduce the value of an SMSF’s ‘net assets’ if there is a deferred tax liability and the amount of the deferred tax liability is greater than any applicable deferred tax asset (generally, it is rare for an SMSF to have deferred tax assets). Naturally, such a reduction in an SMSF’s net assets will result in a corresponding reduction in member account balances (since the balances are net of tax) which could lead to a more accurate calculation of a member’s TSB. We illustrate this in the following example.

Frank and Jessica are the members of the FJ SMSF. The FJ SMSF does not use TEA and the FJ SMSF’s ‘net assets’ sum to $2,000,000 as at 30 June 2019. Frank and Jessica have equal member account balances of $1,000,000 each which is disclosed in the FJ SMSF’s annual return.

The FJ SMSF trustee used the proportionate CGT relief to reset the cost base of a rental property to its market value as at 30 June 2017 of $1,000,000. The property was acquired ten years ago and had an original cost base of $250,000. Assume 50% of the crystallised notional gain is non-exempt, ie, ECPI equals 50%. The notional gain is broadly the following amount:
$750,000 (the gross gain arising from the election to apply CGT relief) x 2/3 (reflecting the 1/3 CGT discount) x 50% (non-exempt portion) = $250,000.

The FJ SMSF elected to defer the notional gain on 30 June 2017. As at 30 June 2019, FJ SMSF still retains ownership of the property.

If FJ SMSF had applied TEA, the income tax payable in relation to the FJ SMSF’s ‘deferred notional gain’ of $250,000 could be recognised in the FJ SMSF’s financial position. In broad terms this tax is likely to be approximately $37,500 (15% x $250,000). Accordingly, all else being equal, if the FJ SMSF used TEA, the FJ SMSF’s ‘net assets’ would sum to $1,962,500 as at 30 June 2019. This would mean that Frank and Jessica would each have a member account balance of $981,250 instead of $1,000,000.

Without TEA, each member’s account balance would have been overstated by $18,750, which could result in an overstated TSB.

If Frank and Jessica were commencing account-based pensions on 1 July 2019, this approach could mean the difference between the FJ SMSF being required to report annually, rather than within 28 days of the end of each quarter of when a relevant event occurs. The annual or quarterly TBAR timing cycles depend on the TSB of an SMSF’s members when the SMSF trustee has to first report an event under the TBAR regime.

Strategy #4: Spouse contributions-splitting amounts
Contributions splitting is another available strategy to reduce an individual’s TSB. Details on the eligibility criteria and the process can be found in div 6.7 of the SISR.

Generally, the maximum splittable amount, in relation to a financial year (‘FY’), means the lesser of:
• 85% of the concessional contributions (‘CCs’) for that financial year; and
• the CCs cap for that financial year.

We illustrate the effect of contributions splitting in the following example:

Vincent and Natalie are a married couple. They are both members of the same superannuation fund. During FY2018, Vincent’s employer made superannuation guarantee contributions of $10,000 and a further $10,000 CC pursuant to an existing salary sacrifice arrangement. For completeness, assume the salary sacrifice arrangement ends in FY2018 and does not apply for future FYs. The total CCs made in respect of Vincent for FY2018 sum to $20,000. Vincent’s TSB as at 30 June 2018 is $1,605,000.

Assume Vincent and Natalie satisfy all the criteria to pursue contributions splitting. On 10 July 2018, Vincent completes the Superannuation contributions splitting application and lodges it with his superannuation fund. He enters the figure of $16,000 at question 20 of the form labelled ‘taxed splittable contributions’ to split his employer contributions.

Vincent’s superannuation fund accepts his application and determines that it is valid because $16,000 is: (a) less than 85% of the $20,000 contributed by his employer, and (b) less than his CC cap for FY2019 (ie, it is less than $25,000). Accordingly, Vincent’s superannuation fund processes his application and transfers $16,000 to Natalie’s member account balance. This results in Vincent’s TSB being reduced by $16,000 — ie, it is now $1,589,000, which is a more advantageous position under the superannuation rules.

Moreover, if Vincent carefully plans and monitors his TSB for the remainder of FY2019, he could keep his TSB under $1,600,000 as at 30 June 2019.

For completeness, we note that the contributions splitting strategy can be applied by members of large superannuation funds, as well as members of SMSFs provided the trustee and trust deed authorises contributions splitting.

Anti-avoidance provisions
Before implementing any of the strategies listed above, consideration should be given to determine whether the implementation of a certain strategy to a particular set of background facts might trigger the application of the general anti-avoidance provisions. We have not covered any anti-avoidance provisions such as pt IVA of the Income Tax Assessment Act 1936 (Cth) in this article. However, if the ATO considers that a tax benefit arose from a scheme that was tax driven, there is the prospect of the ATO raising pt IVA. Where in doubt, expert advice should be obtained.

Four strategies to more effectively manage an individual’s TSB have been covered as part of our series of articles. These strategies can be used in isolation or in various permutations. Naturally, there may be other strategies that can be used to reduce an individual’s TSB.

The law in relation to TSB is a complex area of law and where in doubt, expert advice should be obtained. Naturally, for advisers, the Australian Financial Services Licence under the Corporations Act 2001 (Cth) and tax advice obligations under the Tax Agent Services Act 2009 (Cth) need to be appropriately managed to ensure advice is legally provided.

DBA Lawyers offers a range of consulting services in relation to SMSF and TSB matters. DBA Lawyers also offers a wide range of document services.

Related articles
This article is part of a three-part series and the prior two parts can be accessed here:
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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

14 August 2018

Stocktake on recent superannuation changes – when will the Government give us a long-term vision?

17 July 2018

Daniel Butler, Director (

We have recently experienced substantial superannuation changes during the period of 1 July 2017 to 30 June 2018. I therefore provide a brief ‘stocktake’ of the changes introduced by the current Coalition Government. A number of these policies were adverse to many members.

Prime Minister Malcolm Turnbull has said that the next Federal election is to be held in 2019. As Labor may be elected, I have also provided a brief ‘stocktake’ of the key Labor Government proposals that will impact superannuation.

Despite the superannuation system being a long-term savings system, the Coalition Government has introduced ongoing unpredictability and costly changes.

Indeed, many members’ super savings are stuck in the system (‘preserved’) for the long-term; typically until a member attains 60 years and retires. Members make their contributions and retain their investments in the super system on the basis that the rules which applied when they put their money in will be the rules which apply when the time comes to take their money out. Any proposed adverse changes should therefore be accompanied by appropriate ‘grandfathering’ provisions.

Members are at the mercy of government policy. Proposals that may not have even been notified to the electorate, such as the numerous adverse measures introduced by the Coalition Government’s surprise announcement in the May 2016 Federal Budget, followed repeated promises by the current Coalition Government that there would be no adverse change without prior consultation.

Not surprisingly, many members have lost confidence in the super system due to the growing uncertainty and significantly reduced tax concessions that previously applied. Superannuation requires certainty and rules which remain stable. The rules should encourage long-term savings rather than being a mechanism for governments to treat as a means to extract further tax revenue to balance their annual expenditure needs.


Before I discuss the current government’s adverse changes, I would like to highlight one of the biggest mistakes relating to a proposed change that I have ever witnessed in my lifetime.

In its 3 May 2016 Federal Budget, the Coalition Government introduced, by press release, a lifetime non-concessional contributions (‘NCC’) cap of $500,000. That lifetime cap was designed to take into account all NCCs made on or after 1 July 2007. However, contributions made before the Budget announcement were ‘grandfathered’ and would not have resulted in any excess NCCs.

That announcement was to have retrospective application for a period of almost 9 years (ie, 1 July 2007 to 3 May 2016 is around 3,230 days or just over 8.8 years). Thus, many people who had previously relied on the law during that period to make super contributions were not to be permitted to make any further NCCs, since they would have exceeded their $500,000 lifetime cap. Despite that practical retrospective impact, the Coalition Government insisted that the proposed change was not retrospective. The Coalition Government took the view that the $500,000 lifetime cap was prospective only; as it only affected NCCs made after the 3 May 2016 Budget announcement. Whilst the Government argued that position, many disagreed. It followed repeated promises by the Coalition Government that the superannuation rules would not be changed adversely without prior consultation.

The controversial lifetime cap demonstrated how not to introduce superannuation reform. Indeed, this change attracted adverse feedback from many sectors of the superannuation industry including the Coalition Government’s own backbenchers. The Coalition Government eventually realised that the proposed $500,000 lifetime NCC limit was too contentious. On 15 September 2016 the Coalition Government dumped this change and replaced it by a $1.6 million total superannuation balance limit that precluded further NCCs from 1 July 2017 where a member exceeded a $1.6 million superannuation balance. Clearly, the $500,000 lifetime NCC limit policy process was flawed for, among other things:

  • It was effectively retrospective for almost 9 years for many people who had relied on the law in making contributions during that period.
  • It was contrary to prior promises by the Coalition Government that there would be no adverse change without prior consultation.
  • It was not sound policy given that it had to be dumped after a four month period after adverse feedback.

The Coalition Government’s reputation suffered considerably from this poor policy decision which was poorly implemented and which engendered significant distrust and uncertainty.


The following is a brief ‘stocktake’ of the main changes introduced by the Coalition Government from 1 July 2017.

$1.6m total superannuation balance

As discussed above, once a member’s total superannuation balance hits $1.6 million, there is no further opportunity to make any further NCCs. However, subject to certain regulations, if the member’s balance subsequently falls below $1.6 million, the member may again be permitted to contribute more NCCs.

$1.6m transfer balance cap

The $1.6 million transfer balance cap (‘TBC’) was introduced to limit the total amount that a member can transfer into the tax-free pension phase; now referred to as the retirement phase.

Previously, the earnings on assets supporting pensions, including transition to retirement income streams (‘TRIS’), were tax free without any maximum limit. The TBC measure caps the exempt current pension income (‘ECPI’) exemption of each member to $1.6 million of capital that can be used to commence a pension.

Consequently, many members with pension balances above $1.6 million prior to 1 July 2017, reduced their pension account to $1.6 million by 30 June 2017.

Division 293 threshold

From 1 July 2017, the threshold at which high income earners pay an extra 15% additional contributions tax was reduced from $300,000 to $250,000.

Annual concessional contributions cap reduced to $25,000

From 1 July 2017, the annual concessional contributions (‘CC’) cap was reduced to $25,000 each financial year (indexed in line with AWOTE). Previously, the general limit for the prior financial year was $30,000 (or $35,000 for those aged 49 or above on 1 July 2016).

Tax deduction for personal superannuation contributions

From 1 July 2017, members have been eligible to claim an income tax deduction for personal superannuation contributions up to their CC cap without, broadly, having to satisfy the test that no more than 10% of earnings is from employee-like activities.

Transition to retirement income streams (‘TRIS’)

As noted above, from 1 July 2017, the tax exemption on earnings derived from assets supporting a TRIS was removed. Therefore, a member with a TRIS who had reached preservation age, but had not yet retired or attained 65, fund earnings on TRIS assets are taxed at 15% (ie, the same rates as if these assets remained in the accumulation phase).

However, on 22 June 2017 the Coalition Government introduced a new form of TRIS that can be in retirement phase and obtain a pension exemption. This is where the member has attained preservation age and retired (and notified the trustee) or attained 65. This is referred to as a “TRIS in retirement phase”.

Broadly, a TRIS in retirement phase is treated in the same manner as an account-based pension that is subject to the ECPI exemption. Such a TRIS is also subject to the $1.6 million TBC limit.


The following are some interesting extracts from the Labor Government’s ‘Making Superannuation Fairer’ fact sheet (undated) to provide a background to Labor’s superannuation policies:

Bill Shorten and Labor have led the policy debate on keeping our superannuation settings fit for purpose as our community ages and Australia’s Budget faces new challenges.

 The contrast with the Turnbull Government’s chaotic approach to superannuation couldn’t be clearer.

 After relentlessly attacking Labor’s proposed superannuation reforms, the Turnbull Government did an untidy about-face with a rushed and flawed package of super changes in the 2016 Budget.

 Malcolm Turnbull’s retrospective changes were widely criticised for undermining confidence in the superannuation system, and were torn to shreds by his own backbench.

 Following months of wrangling and in-fighting, the Government then proposed a revised package that saw them dump and delay measures they had been defending as essential only weeks before. Australians looked on in amazement as Malcolm Turnbull and Scott Morrison proudly announced they had finally secured agreement for a revised plan – from George Christensen and their own backbench MPs.

Labor’s changes are responsible and fair. They are consistent with the superannuation reform principles we have been pursuing for more than a year: targeting concessions to where they are needed most while improving the Budget bottom line.

 Labor has consistently argued for reforms to tighten up superannuation tax breaks going to the top end. We have also made clear that our priority is helping low and middle income earners – particularly women – save enough for a comfortable retirement. The money that Government spends on superannuation tax concessions is money that cannot be spent elsewhere in our community, so this needs to be well targeted. We should be careful that at the same time as closing down one set of loopholes, we do not open up others.  

If elected as a result of the 2019 Federal election, at this stage the Labor Party proposes to introduce the following changes that are largely expected to commence from 1 July 2019.

Franking credit refunds

From 1 July 2019, franking credit refunds to stop for SMSFs. That is subject to the Labor Government’s pensioner guarantee commitment, where pensioners in receipt of Centrelink benefits prior to 28 March 2018, will have their franking credits grandfathered and will be eligible to receive such refunds in their SMSFs as well as personally.

Lowering the NCC cap to $75,000 per financial year

The current $100,000 per financial year NCC cap subject to the $1.6 million total superannuation balance is to be reduced to $75,000.

Division 293 threshold

From 1 July 2019, the Labor Party proposes to reduce the Division 293 threshold from $250,000 to $200,000.

Other Labor proposals

Labor opposes the introduction of:

  • Catch-up concessional contributions over a five year period that commenced on 1 July 2018 as introduced by the Coalition Government.
  • Changes to tax deductibility for personal superannuation contributions as discussed above.

From 1 July 2019, it would also appear that a Labor Government will, if elected:

  • increase the minimum superannuation guarantee contribution rate from its current 9.5% to 12% sooner than current legislative timetable where the 12% rate does not currently commence until 1 July 2025;
  • further limit or stop limited recourse borrowing arrangements in SMSFs;
  • limit negative gearing for residential rental properties; and
  • tax non‐fixed trust distributions at a minimum of 30% unless the distribution is from a fixed trust. It should be noted that many superannuation funds invest in unit trusts that do not qualify as fixed trusts. While the ATO currently has a more flexible approach in relation to superannuation funds that invest in unit trusts that are not fixed trusts, this administrative practice could be readily changed or be withdrawn by the ATO.

In contrast to the Coalition Government’s surprise changes announced in May 2016, the Labor Government has provided prior notice in relation to its proposed changes outlined above. Naturally, if Labor is elected, advisers and members need to be aware the next wave of super adverse changes may not be that far away.


Australian politicians should not use super as a short-term play. They must respect the long-term integrity of our financial system that plays a vital role in Australia’s financial success and stability. Ongoing and unpredictable changes to the super rules have a long-term adverse impact and many will adjust their retirement income plans accordingly. Greater stability and certainty is required to ensure that trust in the system can be restored and politicians should make long-term commitments to ensure Australia continues to benefit from a viable long-term and successful superannuation system.

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

Proposed SG amnesty raises opportunities and risks

By Christian Pakpahan, Lawyer and Daniel Butler, Director, DBA Lawyers

On 24 May 2018, the government announced a 12 month superannuation guarantee (‘SG’) amnesty (‘Amnesty’) that proposes to give employers an opportunity to rectify past SG non-compliance without penalty. If the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 (‘SG Bill’) is ever made law, the Amnesty period will apply from 24 May 2018 and run for a 12 month period to 23 May 2019.

We therefore recommend that Treasury and the Australian Taxation Office (‘ATO’) consider introducing the Amnesty when the law is actually passed rather than relying on legislation which still has to be passed by Parliament which will then have retroactive application to 24 May 2018. The Amnesty is already being actively promoted when no law exists and employers are already coming forward without reading the finer detail that the Amnesty is subject to the passing of the SG Bill into law. Further, the 12 month period already commenced to tick away on 24 May 2018 when the SG Bill was tabled in Parliament and no one knows when, if ever, the SG Bill will become law. In particular, it is understood that the Labor Government may not support the Amnesty. The many employers that have already made disclosures to the ATO on the basis of the proposed Amnesty may have therefore been misled. However, the ATO will broadly treat these as voluntary disclosures if the SG Bill fails to become law.

What is the SG Amnesty?

Current legislation

Under current law, failure to contribute the minimum 9.5% of an employee’s ordinary time’s earnings to the employee’s superannuation fund by the required time can result in a liability to pay the following:

1          SG charge (a sum of the total of each relevant employee’s SG shortfalls, nominal interest component, and a $20 per employee per quarter administration component);

2          penalties (known as ‘Part 7 penalties’) for failing to provide information or a statement as required under the law, which can be up to 200% of the amount of the SG charge; and

3          general interest charge imposed where the SG charge or Part 7 penalties are not paid by the due date.

Accordingly, an employer that fails to pay the required SG amount by the required time faces the SG charge, penalties and, where applicable, the general interest charge. The following example illustrates the substantial impact on an employer’s cash flow from this current SG system:

Calculation of SG penalties based on the following assumptions:
Facts Employee A Employee B
Employee’s ordinary time earnings (‘OTE’) for the FY (SG usually applies to OTE if paid on time) 50000 100000
Employee’s salary and wages earnings for the FY (including AH work) 60000 120000
Minimum SG support 9.5% – shortfall is based on salary and wages 5700 11400
SG is based on a quarterly cycle, however, we will assume an annual period
Assume the employer provides the contribution one day late, on 29th day after the quarter
Example calculation (but simplified with several assumptions)
The following is payable
– The SG shortfall amount 5700 11400
– 10% pa payable from the beginning of each quarter (assume simple 10% without compounding for 12 months) 570 1140
– $20 per employee admin fee 20 20
– Part 7 penalty –  in general a minimum penalty of 50% will apply to employers who could have come forward during the amnesty but did not 2850 5700
– General interest charge at the usual rate – we have not inserted an amount as that depends on the time period    
Total amount 9140 18260
– Non-deductible – so gross the amount up by the company tax rate of 27.5% as a proxy for the equivalent pre-tax dollars required to discharge the amount 12607 25186


SG charge

Employers are broadly liable to pay the ATO an amount of SG charge equal to their SG shortfall for a quarter, which is the sum of the following for the quarter:


1          SG shortfall component, which is the total amount by which an employer has fallen short of contributing the minimum percentage for each respective employee;

2          nominal interest component, which is the amount of interest on the total of the employer’s SG shortfalls for each respective employee for the quarter calculated from the beginning of the relevant quarter until the date SG charge is payable; and

3          administration component, which is $20 per employee to which the SG shortfall applies for the quarter.

Broadly, SG charges are not tax deductible. This means that if you are late in paying the required SG to your employees, you will not be able to deduct that SG shortfall. You are also unable to deduct the nominal interest and administration components from the relevant SG charge.

Proposed Amnesty

The proposed Amnesty provides employers with an opportunity to rectify past SG non-compliance without penalty for a 12 month period. Under the proposal, an employer that has an SG shortfall amount that qualifies for the Amnesty is within any period from 1 July 1992 up to 31 March 2018 is provided with the following:

1          the ability to claim tax deductions in respect of SG charge payments made and contributions that offset the SG charge to the extent that the charge relates to the SG shortfall;

2          administrative component to the SG charge will not apply (ie, $20 per employee to which the SG shortfall applies per impacted quarter); and

3          Part 7 penalties will not apply.

That being said, employers will still be required to pay all employee entitlements, which include the unpaid SG amounts and the nominal interest (calculated at 10% per annum) owed to employees as well as any associated general interest charge.

What is required to qualify for the SG Amnesty?


Broadly, the SG Bill states that an employer qualifies for the Amnesty for the employer’s SG shortfall for a quarter if they satisfy all of the following:

1          during the Amnesty period the employer discloses to the ATO, using the approved form, information that:

(a)       relates to the amount of the employer’s SG shortfall for the relevant quarter; and

(b)       was not disclosed to the ATO before the Amnesty period.

2          The relevant quarter where SG shortfall is disclosed is 28 days before the Amnesty period (ie, the last eligible quarter would be the quarter ending 31 March 2018).

3          the ATO has not previously advised the employer that the ATO is examining, or intends to examine, the employer’s compliance with respect to SG charge payments for that quarter.

That being said, an employer may still qualify for the Amnesty if the employer has, prior to the Amnesty period, made disclosures about their SG shortfall for a quarter but comes forward with information about additional amounts of SG shortfall for the quarter.

This could occur where an employer has previously lodged an SG statement for the quarter which understated the amount of SG shortfall. If the employer otherwise met the qualifying criteria of the Amnesty, the employer can access the Amnesty to the extent of the additional SG shortfall amounts.

Ceasing to qualify for the Amnesty

An employer may cease to qualify for Amnesty (or be taken to have never qualified for Amnesty) where the ATO gives notice to the employer that it has ceased to qualify for the Amnesty due to one of the following reasons:

1          the employer has not, on or before the day on which SG charge on the employer’s SG shortfall for the quarter became payable, paid that SG charge and has not entered into an arrangement with the ATO that includes the payment of that SG charge; or

2          the employer has failed to comply with such an arrangement with the ATO.

Accordingly, once the Amnesty is accessed and disclosure has been made, the employer must follow through on payment of the relevant SG charges imposed due to SG shortfalls.

What is tax deductible from the SG Amnesty?


Payments that are made within the Amnesty period in relation to SG charge imposed due to SG shortfalls disclosed under the Amnesty can be deducted against an employer’s assessable income in accordance with the deductibility rules in the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’).

These payments can be deducted regardless of whether or not the ATO applies the payment to satisfy an employer’s liability to pay the SG charge imposed on the SG shortfall that qualifies for the Amnesty.

This ensures that employers that already had an outstanding SG charge debt prior to accessing the Amnesty are able to claim deductions for payments they make despite the ATO first applying their payments to clear their existing debt.

Payments made in relation to eligible SG charges imposed due to SG shortfalls can be deducted up to the amount of the SG charge. Therefore, an employer that has negotiated a payment arrangement with the ATO can claim deductions for part payments up to the value of the total SG charge eligible for the Amnesty.

How do we access the Amnesty?

If the SG Bill is finalised as law, employers will first need to calculate the relevant amounts of SG charge payable. Afterwards, employers can apply to access the Amnesty in one of two ways.

Full payment to relevant employee’s super fund

If an employer can make full payment of the SG shortfall and nominal interest amount for each relevant period and those periods qualify for Amnesty, the employer should:

(a)       pay the relevant amounts directly to the relevant employee’s super fund (or funds); and

(b)       complete and lodge the SG Amnesty Fund payment form (NAT 9599) with the ATO.

The form should be lodged on the same day the relevant SG amount is paid. This option is the simplest way to pay outstanding SG shortfall amounts, with general interest charge typically not charged.

Enter into a payment plan with the ATO

Alternatively, where the employer would like to access the Amnesty but is unable to pay the SG charge amount owing in full, the employer should:

(a)       complete and lodge the approved form, SG Amnesty ATO payment form (NAT 9599), with the ATO; and

(b)       pay the amount owing to the ATO pursuant to a payment plan.

If there will be difficulties in paying the full amount, a payment plan can be set up with the ATO to pay the amount owing over an agreed period. After the form is submitted, the ATO will contact the employer to set up a payment plan.

Are employers still required to pay all employee entitlements, this includes the unpaid SG amounts owed to employees and the nominal interest

If the Amnesty announcement does not get finalised as law, the “employers are still required to pay all employee entitlements. This includes the unpaid SG amounts owed to employees and the nominal interest”.

Thus, as noted in the example, an employer would generally need to calculate any SG shortfall based on salary and wages (rather than ordinary times earnings).

Further, the Amnesty does not extend to other employee/wage related events such as payroll or work cover.

Potential risks

Whether certain quarters do not qualify for Amnesty due to ATO examination

The explanatory memorandum of the SG Bill refers to the ATO’s views on the meaning of ‘examination’ explained in the ATO’s ruling in MT 2012/3. The ruling states that the term ‘examination’ is very broad and covers not only traditional audits which the ATO undertakes to ascertain an entity’s tax-related liability but any examination of an entity’s affairs.

A range of compliance activities undertaken by the ATO may involve an examination of an entity’s affairs, including reviews, audits, verification checks, record keeping reviews/audits and other similar activities. This means that any of those compliance activities may disqualify an employer from being eligible to access the Amnesty for that relevant quarter.

Accordingly, expert advice should be obtained before attempting to access the Amnesty.

Excess concessional contribution and smoothening of carry forward rules for employees

Contributions made under the Amnesty would broadly be considered concessional contributions and may cause employees to exceed their $25,000 annual concessional contributions cap.

Generally, employees are not subject to tax on their concessional contributions. However, concessional contributions in excess of the concessional contributions cap are included in the employee’s assessable income. The employee could also be liable to pay excess concessional contributions charge.

The Amnesty partly circumvents this where contributions are made by the ATO on behalf of the employer by streamlining the exercise of the ATO’s discretion to disregard contributions in relation to a financial year where contributions are made by the ATO on behalf of the employer due to the Amnesty.

However, the exception does not apply where the employer has made the contributions directly to an employee’s fund under the Amnesty and has used those contributions to offset their SG charge liability.

Accordingly, where employers make direct contributions to employee funds under the Amnesty, the employee may be subject to:

1          those concessional contributions being included as assessable income;

2          excess concessional contributions charge; and

3          an adjusted carry forward concessional contributions amount.


The proposed Amnesty still has to be passed as law before it will have actual effect. Further, there are still a number of serious modifications required to be made in order to make the Amnesty an appropriate basis for employers to come forward with legal certainty. Indeed, it would be preferable for the law to be introduced and passed before an amnesty of this nature is announced. We also recommend that the Government make the SG regime and penalty system more aligned to modern business practices rather than applying the current inflexible and substantial penalties even where an employer is only one day late.

*        *        *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

Note: DBA Lawyers hold SMSF CPD training at venues all around Australia and online. For more details or to register, visit or call Marie on 03 9092 9400.

18 July 2018

Why self-managed super funds must be encouraged, not curbed

The Australian

25 July 2018

Glenda Korporaal – Associate Editor (Business)

For Melbourne retirees Alistair and Merrill Lee-Archer, having a self-managed super fund is all part of managing their retirement savings and being independent.

Alistair, who worked as a human resources manager, and Merrill, a vice-principle in the Victorian education system, were both 55 when they retired.

They opted to set up their fund 15 years ago, a few months after Merrill retired, after doing some homework about what was involved in SMSFs. They still live in the modest house in Mooroolbark, in east Melbourne, which they bought in the early years of their marriage 50 years ago and paid off before they retired, opting not to move to a more expensive suburb closer into town.

Since then they have worked together on their investments through their SMSF in between spending time with their three children, eight grandchildren, golfing and a few overseas trips.

When they rolled their superannuation into their SMSF, its combined balance was well below the $1 million which the Productivity Commission says is the minimum cost-effective balance for an SMSF.

They disagree with this argument. And as they point out, when people set up their SMSFs funds they may have relatively low balances, but the goal is to manage their fund well and grow the balance.

They believe their SMSF is as cost-efficient as any other super fund. They also believe they have managed it with better returns than other super funds. But its big attraction is the independence and control it gives them to manage their own financial affairs in retirement free of outside interference.

More than a million Australians already have self-managed super funds with a total of more than $700 billion in funds.

Self-managed funds are not for everyone. In fact they are not for many people, particularly those not financially literate or prepared to put in the work to manage the fund and meet the necessary compliance requirements.

But their popularity among a certain sector of the population — financially literate professionals and retired professionals like the Lee-Archers — are a serious competitive threat to the established sector — both industry super funds and retail funds.

Moves to further restrain the growth of the industry with talk of government mandated minimum balances for people to set up SMSFs will only further play into the hands of their competitors in the APRA regulated sector.

The super industry is a competitive one. Costs are coming down. There is a lot of money at stake. Many people who have self- managed super funds believe they are at least as competitive as APRA-regulated funds on a cost basis, if not cheaper.

But costs are only part of the issue for retirees and people saving for their retirement. Retirees like the Lee-Archers see managing their super fund as like managing their own business and being in control of their lives, independent of government.

The issue of whether there should be minimum balances for SMSFs has been raised following the recent draft report from the Productivity Commission, which has been looking into the efficiency of the super system. It compared figures from the ATO about SMSFs and figures from APRA about other super funds and argues that SMSFs are not cost-effective when it comes to balances of less than $1m.

There is a valid argument that people with very low balances would be better off with conventional super funds. SMSFs do involve start up costs, payments to advisers such as accountants and possibly financial planners and other professionals, as well as a commitment of time and effort by the trustees.

But critics put the minimum cost-efficient level too high. The SMSF Association argues that balances of $200,000 would still make self-managed funds appropriate for people, particularly those with some way to go towards retirement.

The SMSF Association will today release a detailed paper which challenges the Productivity Commission’s calculations in making the comparisons. It argues that the approach used by the commission results in an effective bias towards the performance of the APRA regulated funds.

There is the issue of unscrupulous planners talking people into setting up SMSFs who really shouldn’t have one.

But the issue there should be on the regulation of the planners who are now legally supposed to be acting in the best interests of their clients — not to restrict the options of people saving for their retirement.

There has also been a real issue of property spruikers driving people to start self-managed funds and then use them to gear up to buy property. But again that should be addressed by controls on SMSFs borrowing to buy property, which is something many have recommended, including the last inquiry into the financial system headed by David Murray.

And of course people managing their own super may do it badly and lose money.

But we live in an economy where people should be encouraged to be independent of the government in retirement and that includes managing their own money.

SMSF members are highly engaged in their fund and their overall financial planning.

SMSFs only suit a specific sector of the market but they play an important competitive role in the sector, particularly for those who don’t want to bank on the government for their retirement.

Chairs silent on super gouging by big four and AMP

The Australian

21 July 2018

Anthony Klan

The chairmen of each of the big four banks and AMP, which manage more than $240 billion of the public’s superannuation savings across six main super funds, have all refused to say whether they ­believe the executives of those ­financial giants have broken the law by engaging in wide-scale gouging of millions of their super members.

The revelations come as The Weekend Australian can reveal the federal government’s long-delayed proposed changes to superannuation law — nominally aimed at closing a decades-old legal loophole that prevents super trustees from facing any penalties should they break the law — also contain a potential loophole.

The Weekend Australian has revealed widespread gouging by the big four banks, such as paying super members returns on simple “cash” investments as low as one-quarter of actual market rates — in some cases even negative ­returns — has had a devastating effect on long-term returns.

Audited performance data provided to the Australian Prudential Regulation Authority by Westpac, NAB, CBA, ANZ, AMP and IOOF shows the biggest super funds operated by each of those institutions — comprising five million member accounts — delivered average annual returns to members of between 2.1 per cent and 3.1 per cent over the ­decade to June 30 last year.

Those returns were roughly half the market rate for the types of investments those funds had actually made, roughly half the returns achieved by the major so-called “industry” funds such as AustralianSuper, and roughly half the returns of the super funds ANZ, CBA and NAB run for their own staff members.

Under the Superannuation Industry (Supervision) Act 1993, trustees must abide by strict rules, such as always acting in the best interests of members, and placing the interests of members ahead of the interests of the bank or company they work for, should any conflict arise.

The act stipulates penalties of up to five years’ jail and “punitive” damages, but as previously revealed, there was a carve-out in the law that meant the penalties did not apply to trustees of big super funds, and no federal government since 1993 has closed that loophole.

CBA chairman Catherine Livingstone, Westpac chairman Lindsay Maxstead, ANZ chairman David Gonski, NAB chairman Ken Henry — a former federal Treasury secretary — and AMP’s interim executive chairman Mike Wilkins, installed when the group’s chairman and chief executive stood down following recent revelations of fee-gouging by the group, all declined to respond to written questions.

Media representatives of each of those major banks and AMP would not confirm they had passed on The Weekend Aus­tralian’s questions to their chairmen, or say whether the chairmen had been made aware of the ­questions.

The issue is particularly serious given that the key responsi­bility of a chairman under corporations law is to ensure a company’s management acts honestly and legally.

The federal government has said its proposed changes to the SIS Act would reverse the 1993 carve-out of penalties for trustees of major funds, but the wording of the proposed changes suggests that even if the amendments are passed — they have been several years in gestation and the ALP is refusing to back them on the ground they are “limited and incomplete” — they may not apply to many trustees.

Rather than simply ensuring the penalties clearly stipulated in the SIS Act 1993 apply to all trustees, the changes state that trustees can face punishment only if they break the laws, and if those same laws are “contained or taken to be contained” in the governing rules of the super fund.

A spokesman for Financial Services Minister Kelly O’Dwyer said the proposed amendments did not create a new loophole.

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