Category: Newspaper/Blog Articles/Hansard

Challenging new estimates on what funds a comfortable retirement

The Australian

14 October 2017

James Gerrard

A new estimate for a comfortable retirement puts the mark at $824,000

How much is enough for a comfortable retirement? The estimates keep climbing higher. The actuarial consultant Accurium Ltd has now lifted its estimate from $702,000 to $824,000, but is this on the mark?

The actuaries argue lower investment returns are here to stay and consequently many SMSF trustees are now further away from achieving their retirement goals than ever before.

So what does a “comfortable” retirement look like?

The Association of Super Funds of Australia says “it enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel”: That’s a pretty thorough definition.

Now, in terms of what it costs to be comfortable, they calculate that if you’re single you’ll need an annual income of $43,695 and for a couple, you’ll need $60,063.

If you have $824,000 at age 65, assuming you can get 7 per cent investment return, that’s enough to get a couple through a comfortable 20-year retirement before depleting super to zero. Coincidentally, the Australian government actuary calculates that the average life expectancy for a 65-year-old is approximately 20 years so that’s all fine if you’re planning to die when the government says you should, but if you plan to bat beyond the averages, you may need to some tricks up your sleeve.

A big ask for anyone

For those who aspire to retire in their fifties, Accurium calculates that you’ll be pushing north of $1.2 million in super to allow this. And if you want it all, that is, to retire in your fifties and live off $100,000 a year, you’ll need to put away $2.6m in super. Putting aside the sheer difficulty of saving $2.6m on most people’s wages, the main problem is that the government will only let you contribute $25,000 a year into super via pre-tax contributions. For a single person to contribute $2.6m using pre-tax contributions, it would take 104 years, which doesn’t leave much time to enjoy retirement.

But coming back to the question posed — or at least prompted by the actuaries — is it possible to have a comfortable retirement with less than $824,000?

Sydney financial planner Peter Lambert thinks so and says there are several things that can help prolong the longevity of our retirement funds.

Centrelink kicks in as your super balance falls. Mr Lambert says “if you own your house and have more than $821,500 in assets, don’t expect anything from the government. However, once you start to dip below this amount in assets, you’re likely to pick up a part Age Pension in addition to the pension concession card, which can cut your expenses by thousands with concessions on medicines, utilities and rates”.

Another factor is the significant difference in outcomes made by small differences in investment returns. On a simplistic level, if one were to invest their whole super in National Australia Bank shares, which pay a grossed-up dividend of 9 per cent, the

$824,000 calculated by Accurium would last 30 years instead of 20. In other words, if you can get a better investment return, you don’t need the $824,000. You could drop your retirement savings goal by $150,000 to $674,000 by making an extra 2 per cent a year from your investments.

The Bureau of Statistics show that 82 per cent of couples over the age of 65 own their house outright. This also gives most retirees flexibility and options to save less for retirement. Effective downsizing can free up hundreds of thousands of dollars. Alternatively, renting a room on Airbnb has become popular for many of my retired clients over recent years and can add hundreds of dollars a week in income. Lastly, some people may opt to take out reverse mortgages or equity-release products to maintain their retirement lifestyle without having to sell their house.

Open doors to income

For those willing to open up their doors to strangers, an extension to the Airbnb strategy means that you can end up making a profit while on holiday. My parents-in-law are spending a month overseas and have rented their house out while away. Even though they are staying in five-star hotels and enjoying the best that Southeast Asia has to offer, they’ve been surprised that the short-term rental income they’re getting on their Sydney home is more than covering their airfares, hotels and spending money. In short, they’re thinking about taking more holidays.

There’s also a growing trend in people working for longer. Workforce participation has doubled over the past 15 years for older Australians, with 12.6 per cent working past the age of 65 and most loving what they do, reducing the amount they will need to accumulate for retirement.

If $2.6m seems like an impossible amount to save, let alone $824,000, by the age of 65, then don’t worry. Although modelling and projections have been conducted to show what lump sum is required to enjoy a comfortable retirement, it’s not the be all and end all.

What the numbers don’t show are the many considerations and options that people have to still enjoy that prized comfortable retirement but with lower amounts of money saved up in super.

James Gerrard is the principal and director of the Sydney financial planning firm

Tax office may soften SMSF rules

The Australian

11 October 2017

James Kirby

More changes are looming in the superannuation sector

Controversial and laborious event-based reporting rules for Australia’s army of DIY super fund operators may be softened by the tax office in coming weeks.


Under current plans the Australian Taxation Office wants all SMSFs (self-managed super funds) to report much more regularly to Canberra.

At present most SMSFs need only deal with the tax office once a year at  “tax time”.

But the ATO ultimately wants funds reporting “event-based” activity on a monthly  basis.

The new reporting rules are set to begin on a quarterly basis under a two-year phase-in, starting on July 1 next year.

The new reporting regime has the potential to affect a lot more fund operators than this year’s changes in pension tax rules.

The majority of funds will not be affected by the tax rule changes around a $1.6 million individual balance cap introduced on July 1. But almost any fund could be caught in a new web of bureaucracy planned by the ATO.

The SMSF Association, which represents professionals in the sector, is lobbying Canberra to make an exemption in reporting requirements for SMSFs with less than $1m in individual assets.

Such an exemption would make a lot of sense in the current framework which already effectively exempts this group from the extra tax potentially loaded on funds that breach the new balance cap.

Jordan George, head of policy at the SMSF Association says: “We are expecting to hear where the ATO has got to on the issue in the next fortnight.”

ATO Assistant Commission Kasey McFarlane recently told an industry conference the idea of the exemption for funds with less than

$1m was currently under consideration.

The “event — based” reporting requirements centre on major movements of money inside SMSFs such as starting a pension or lump sum activities.

SMSF operators will be expected to report key events to the ATO within 10 days of the formalised reporting period. Until July 2020 this will be 10 days after the end of each quarter.

There are fears within the SMSF sector that the application of new reporting rules, coming so quickly off the back of a complex regime change around tax rules, will reduce the attraction of DIY funds, which have been enjoying strong growth in recent years.

The key changes under the tax rules were a reduction in the amount that could be contributed on both a pre-tax and after-tax basis to superannuation fund and the imposition of the $1.6m balance cap on super funds which will require tax to be paid on earnings on amounts above this level.

Reversionary transition to retirement income streams

By William Fettes (, Senior Associate, Daniel Butler (, Director, DBA Lawyers

The new rules that govern when a transition to retirement income stream (‘TRIS’) enters retirement phase give rise to a number of complex issues in the context of reversionary nominations and death. This article examines the retirement phase rules and reversionary TRISs in detail, based on the law and the latest ATO view.

Broadly, this complexity arises due to the ATO view that the retirement phase rules for TRISs do not recognise a member’s death as a relevant condition of release that confers retirement phase status on a reversionary death benefit TRIS (ie, a TRIS that has reverted to an eligible dependant of a deceased member such as a surviving spouse). Accordingly, to receive a TRIS as a death benefit income stream, the recipient must satisfy the retirement phase rules in their own right. If the recipient does not satisfy these rules at the time of the TRIS member’s death, the TRIS must be commuted to comply with the payment standards.

The requirement to cease a reversionary TRIS if it is not in the retirement phase for the reversionary recipient can trigger a number of undesirable outcomes, including loss of the 12-month deferral in the timing of the transfer balance account credit and valuable tax concessions. Due to these issues, it is critically important that SMSF trustees and advisers come to grips with the latest ATO view on the succession planning and tax implications of the retirement phase rules, particularly where there are fund members receiving pensions that were commenced as TRISs.

For simplicity, we will assume the superannuation deed and rules that govern the TRIS or pension have appropriate flexibility and do not limit any of the strategies discussed below.


The starting point is that from 1 July 2017 TRISs are expressly excluded from being in the retirement phase under s 307-80(3) of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’). Due to this exclusion, the earnings on assets supporting a TRIS are generally not eligible for the exempt current pension income (‘ECPI’) exemption.

However, TRISs can subsequently enter retirement phase if the person to whom the benefit is payable:

  • attains age 65; or
  • meets the retirement, terminal medical condition or permanent incapacity conditions of release and notifies the fund trustee of that fact.

The critical point to emphasise here is that the above conditions of release are tested in respect of ‘the person to whom the benefit is payable’ (ie, the person from time to time receiving the TRIS).

This effectively means that a TRIS that has entered retirement phase has not done so permanently, and the TRIS retirement phase rules will be applied by the ATO in respect of the recipient from time to time, including any future reversionary recipients. Accordingly, a reverted TRIS can lose its retirement phase status if the recipient of the TRIS (eg, a surviving spouse) has not satisfied a full condition of release and other relevant notification requirements. This is notwithstanding the fact that death itself is a condition of release with a nil cashing restriction.

We now consider the implications of these rules with reference to different scenarios where a TRIS automatically reverts to an eligible dependant based on the latest ATO view.

Deceased’s TRIS was not in retirement phase

If a member with a non-retirement phase TRIS that is automatically reversionary dies, what happens depends on whether the recipient has satisfied a full condition of release and other relevant notification requirements.

Recipient is not in retirement phase

If the recipient of the TRIS has not met the requirements in s 307‑80 of the ITAA 1997:

  • The TRIS technically reverts for tax purposes, but payment of the TRIS as a death benefit pension is inconsistent with reg 6.21 of Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’) which requires death benefit pensions to be superannuation income streams in the retirement phase.
  • To comply with the payment standards in reg 6.21, the recipient will need to, as soon as practicable, commute the TRIS and:
    • start a new account-based pension in place of the TRIS;
    • withdraw the death benefit as a lump sum; or
    • pay the death benefit using a combination of the above two options.
  • The TRIS will cease for super and tax purposes when it is fully commuted and there will be mixing of tax-free and taxable components if the recipient has an accumulation interest.

Recipient is in retirement phase

If the recipient of the TRIS has met the requirements in s 307‑80 of the ITAA 1997:

  • The TRIS reverts to the reversionary beneficiary for tax purposes.
  • Payment of the TRIS as a death benefit pension is consistent with reg 6.21 of the SISR which requires death benefit pensions to be superannuation income streams in the retirement phase.
  • The fund can claim the ECPI exemption in respect of the assets supporting the death benefit TRIS from the date of the deceased’s death.

Deceased’s TRIS was in the retirement phase

We now analyse what happens if a member with a retirement phase TRIS that is automatically reversionary dies.

Recipient is not in retirement phase

If the recipient of the TRIS has not met the requirements in s 307‑80 of the ITAA 1997:

  • The TRIS technically reverts for tax purposes, but payment of the TRIS as a death benefit pension is inconsistent with reg 6.21 of SISR which requires death benefit pensions to be superannuation income streams in the retirement phase.
  • To comply with the payment standards in reg 6.21, the recipient will need to, as soon as practicable, commute the TRIS and:
    • start a new account-based pension in place of the TRIS;
    • withdraw the death benefit as a lump sum; or
    • pay the death benefit using a combination of the above two options.
  • The TRIS will cease for super and tax purposes when it is fully commuted and there will be mixing of tax-free and taxable components if the recipient has an accumulation interest
  • The fund’s ECPI exemption in respect of the assets supporting the TRIS ceases on the death of the deceased.
  • The extension of the pension exemption under regs 995-1.01(3)–(4) of the Income Tax Assessment Regulations 1997 (Cth) (‘ITAR’) is unavailable as it only applies where ‘the superannuation income stream did not automatically revert to another person on the death of the deceased’ (see reg 995 1.01(3)(c)).
  • The 12-month deferral in the timing of the credit to the recipient’s transfer balance account will not apply as the TRIS was commuted.

Recipient is in retirement phase

If the recipient of the TRIS has met the requirements in s 307‑80 of the ITAA 1997:

  • The TRIS reverts to the reversionary beneficiary for tax purposes.
  • Payment of the TRIS as a death benefit pension is consistent with reg 6.21 of the SISR which requires death benefit pensions to be superannuation income streams in the retirement phase.
  • The fund’s ECPI exemption can continue to be claimed in respect of the assets supporting the death benefit TRIS as the pension did not cease (refer to TR 2013/5).

ECPI exemption

As noted above, a superannuation income stream (ie, the tax term for a ‘pension’) that is a TRIS must be in retirement phase in respect of the recipient for the ECPI exemption to apply at the fund-level.

Where a deceased TRIS member and a reversionary recipient of that TRIS are both in the retirement phase, ECPI can readily continue if the SMSF and pension documentation provides for an automatically reversionary pension consistent with TR 2013/5.

However, a unique problem arises in the context of reversionary TRISs where the deceased TRIS member was in retirement phase but the reversionary recipient of the TRIS is not.

Under the tax regulations that have been in place since FY2013, a fund paying a pension that ceased on a member’s death due to it not being automatically reversionary would ordinarily receive an extension to the ECPI exemption in respect of assets supporting that pension provided that the deceased member’s benefits are cashed ‘as soon as practicable’. However, this concession requires that ‘the superannuation income stream did not automatically revert to another person on the death of the deceased’. Accordingly, no extension of the pension exemption is available for TRISs that have reverted for tax purposes even where the TRIS is subsequently commuted due to the reversionary beneficiary not satisfying the requirements in s 307-80 of the ITAA 1997.

Accordingly, unless the death benefit TRIS is commuted on the day of the deceased’s death and a new account-based pension is commenced on the same day, there will be a period of time where no exempt income is available in respect of the assets that supported the TRIS.


We are aware of a number of professional bodies making submissions to the ATO and Treasury with a view of obtaining a more satisfactory solution and potentially a legislative fix may be needed. Accordingly, advisers and SMSF trustees should watch this space as developments unfold.

Naturally, some of the issues discussed above would not arise if the TRIS was an account-based pension, however, at this stage Treasury and the ATO appear to be unwilling to acknowledge the possibility of a TRIS ever being able to convert to an account-based pension without the TRIS being commuted and commenced as a new pension, notwithstanding the long-standing industry practice in this area.

Accordingly, at this stage, the only sure-fire way to overcome the above issues is for the retirement phase TRIS member to commute their TRIS during their lifetime so that a new account-based pension can be commenced that can be reverted to any eligible dependant. If, for example, a surviving spouse receives a reversionary account-based pension on the death of a member, there is no need for them to satisfy any condition of release because death by itself is a condition of release with a ‘nil’ cashing restriction. Naturally, this involves some upfront administration and costs that need to be weighed up against likelihood hurdles in the future.

If a retirement phase TRIS member does not commute their TRIS and commence an account-based pension instead, and the intended beneficiary of their death benefits is not likely to be in the retirement phase at the time of the member’s death, the TRIS member should strongly consider making the TRIS non-reversionary so that the extension of the ECPI exemption is available on their death.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

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

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


5 October 2017

We disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice. No unauthorised copying of any material produced by DBA should be made unless you have our prior written consent.


Draft law aims to shut down a gap in the salary sacrifice regime

By Gary Chau (, Lawyer, and Bryce Figot (, Special Counsel, DBA Lawyers


A salary sacrifice arrangement is still worthwhile post-30 June 2017 since some employees find it both administratively easier and tax effective for their employer to contribute more into superannuation in lieu of their future salary and wages.

Unfortunately, some employees will be let down by a gap in the way our salary sacrifice regime operates, which allows employers to meet their mandated superannuation guarantee (‘SG’) obligation and overall contribute less money to an employee’s superannuation fund. However, a draft law aims to close this gap.

What is a salary sacrifice arrangement?

Broadly, a salary sacrifice arrangement is where an employee, with their employer’s consent, foregoes a certain amount of their future salary and wages and the employer is expected to contribute the sacrificed amount to the employee’s superannuation fund.

These contributions are deductible for the employer and are not included in the assessable income of the employee (subject to the possibility of the employee exceeding their concessional contributions cap). Rather, these contributions are included in the assessable income of the superannuation fund and generally taxed concessionally at a rate of 15%.

The SG regime

The SG regime is established under the Superannuation Guarantee (Administration) Act 1992 (Cth) (‘SGAA’). Broadly, the regime requires employers to make superannuation contributions for their employees equal to at least the minimum level of superannuation support set out in the legislation (which is 9.5% for the 2017-18 financial year).

Technically, the SGAA does not place a positive obligation on an employer to pay superannuation contributions on behalf of an employee. However, where an employer fails to pay the minimum level of superannuation contributions on behalf of an employee, which is measured on a quarterly basis (for the quarters ending on 31 March, 30 June, 30 September and 31 December), the employer will be liable to pay the SG charge on their SG shortfall (s 16 of the SGAA).

The gap in the current salary sacrifice regime

To illustrate the gap under the current regime, consider the following scenario:

Tony works for his employer, BAD BOSS PTY LTD, and receives $100,000 in salary and wages. His ordinary time earnings for the purposes of the SGAA is $25,000 per quarter. Tony would have an entitlement to $2,375 in SG contributions per quarter, which is determined by multiplying $25,000 by 9.5% (the current minimum SG contribution rate).

Tony enters into a salary sacrifice arrangement with BAD BOSS PTY LTD where he sacrifices $2,000 for each quarter from his salary and wages and in return, his employer is meant to contribute the $2,000 to his superannuation fund (on top of the employer’s mandated SG obligation). Tony expects his superannuation contributions to rise to $4,375 per quarter.

Unfortunately, under the current SG regime, BAD BOSS PTY LTD could use the sacrificed amount, $2,000, to satisfy part of the BAD BOSS PTY LTD’s mandated SG obligations and only makes a contribution to Tony’s superannuation fund of $2,375 (which comprise mostly of Tony’s $2,000 salary sacrificed amount). In a perverse turn of events, it is also worth noting that BAD BOSS PTY LTD’s mandated SG obligations would also be lower at $2,185 and calculated in respect of $23,000 instead of $25,000 (ie, $25,000 minus salary sacrifice amount) per quarter.

In this scenario, Tony would only be sacrificing $2,000 from his quarterly salary and wages with no additional contributions being made to his fund beyond BAD BOSS PTY LTD’s mandated SG obligation. For Tony to realise the error, he would need to check with his superannuation fund, which, like most people, he checks only once a year around tax time.

While the above example may seem ludicrous and unconscionable (on the part of the employer), unfortunately it seems that this gap is utilised by some employers. In the Industry Super Australia and CBUS’s report, Overdue: Time for Action on Unpaid Super, released in December 2016, it estimates that up to $1 billion in superannuation guarantee in the 2013-14 financial year was met by employers using employee salary sacrifice contributions. In a contrary view, the Superannuation Guarantee Cross-Agency Working Group’s interim report released in January 2017, which is a report to the government, says that based on the available ATO evidence, this practice is not widespread and the stated $1 billion is likely to be a very large overestimate. Nevertheless, both the industry bodies and working group have recommended that the government close this gap.

A draft law to close the gap

Based on the recommendations from the Superannuation Guarantee Cross-Agency Working Group to the government, on 14 September 2017, the Minister for Revenue and Financial Services, Kelly O’Dwyer, introduced to Parliament the Treasury Law Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2007 (Cth) (‘Bill’) to ‘improve the integrity of the superannuation system by ensuring that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contribution’.

This Bill proposes to implement the Superannuation Guarantee Cross-Agency Working Group’s recommendations that the Superannuation Guarantee (Administration) Act 1992 (Cth) be amended to:

  1. prevent contributions made as part of a salary sacrifice arrangement from satisfying an employer’s SG obligations; and
  2. specifically include salary or wages sacrificed to superannuation in the base for calculating an employer’s SG obligations.

The Bill proposes to introduce a number of new provisions to close the gap. In particular, the Bill proposes to add a new interpretation provision, s 15A, titled ‘Interpretation: salary sacrifice arrangements’, which will contain the following:

15A   Interpretation: salary sacrifice arrangements

Salary sacrifice arrangement

(1)      An arrangement under which a contribution is, or is to be, made to a complying superannuation fund or an RSA by an employer for the benefit of an employee is a salary sacrifice arrangement if the employee agreed:

(a)   for the contribution to be made; and

(b)   in return, for either or both of the following amounts to be reduced (including to nil):

(i)  the ordinary time earnings of the employee;

(ii) the salary or wages of the employee.

(2)      If an amount mentioned in subparagraph (1)(b)(i) or (ii) is reduced under a salary sacrifice arrangement, the amount of that reduction is:

(a)   if ordinary time earnings for a quarter are reduced — a sacrificed ordinary time earnings amount of the employee for the quarter in respect of the employer; and

(b)   if salary or wages for a quarter are reduced — a sacrificed salary or wages amount of the employee for the quarter in respect of the employer.

Excluded salary or wages

(3)      In working out the amount of a reduction for the purposes of subsection (2), disregard any amounts that, had they been paid to the employee (instead of being reduced), would have been excluded salary or wages.

(4)      For the purposes of this section, excluded salary or wages are salary or wages that, under section 27 or 28, are not to be taken into account for the purpose of making a calculation under section 19.

In determining an employer’s SG shortfall for an employee for a quarter, a new formula under s 19(1) would be introduced as follows:

In calculating ‘quarterly salary and wages base’ in the above formula, the Bill adds the following definition to s 19(1):

quarterly salary or wages base, for an employer in respect of an employee, for a quarter means the sum of:

(a)   the total salary or wages paid by the employer to the employee for the quarter; and

(b)   any sacrificed salary or wages amounts of the employee for the quarter in respect of the employer.

In calculating an employer’s SG shortfall, an employer must also include any amount salary sacrificed to work out their SG obligation to an employee. This ensures that an employee’s SG obligations are calculated on the employee’s pre-salary sacrifice base and not on the employee’s reduced salary and wages (ie, post-salary sacrifice).

Further, under the proposed changes to s 23(2), an employer’s SG charge, which arises if they have not met their mandated SG obligations (and thus have an SG shortfall), will only be reduced if the employer makes a contribution (other than a sacrificed contribution). A sacrificed contribution means ‘a contribution to a complying superannuation fund or an RSA made under a salary sacrifice arrangement’.

The scenario under the proposed Bill

Revisiting the scenario above with Tony, the following would occur under the proposed Bill:

Tony’s quarterly salary or wages is $25,000. Tony enters the salary sacrifices arrangement with BAD BOSS PTY LTD and sacrifices $2,000.

For Tony’s employer, BAD BOSS PTY LTD, the proposed s 19(1) formula provides that in working out BAD BOSS PTY LTD’s SG shortfall it is now calculated in respect of Tony’s quarterly salary or wages base. Tony’s quarterly salary or wages base is worked out by totalling Tony’s total salary or wages for the quarter, $23,000, and any sacrificed salary or wages amounts of the employee for the quarter, $2,000, which adds up to $25,000. Tony would have an entitlement to $2,375 in SG contributions per quarter. Hence, if BAD BOSS PTY LTD makes less than $2,375 in contributions to Tony’s superannuation fund, it would have a SG shortfall.

Thus, if BAD BOSS PTY LTD only contributed $2,375 for a quarter, which comprises mostly of the $2,000 that was salary sacrificed, it would have a SG shortfall for that quarter.

The new provisions make clear that salary sacrifice amounts cannot be used to reduce an employer’s mandated SG obligations.

Moving forward

The Bill notes that the proposed changes will apply on or after 1 July 2018.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

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


5 October 2017

We disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice. No unauthorised copying of any material produced by DBA should be made unless you have our prior written consent.


ALP-Liberal battle lines drawn in superannuation showdown

The Australian

20 September 2017

Paul Kelly

The Turnbull government has launched the next phase in its campaign to impose a superior model for superannuation governance as it seeks a fusion between better policy and confronting the financial links between industry funds and trade unions.

This will become an epic battle. It is about financial power, superannuation accountability, consumer choice and fixing the defects and inequality in the system yet retaining its remarkable utility. Below the radar, however, it penetrates to the crisis of institutional power plaguing the Liberal Party.

When those 1980s architects Paul Keating, Bill Kelty and Charlie Fitzgibbon spearheaded the design, they created something unique: mandatory contributions to private super funds. It is an Australian invention.

Australia today has a $2.3 trillion super system, a massive financial edifice, essentially divided three ways: self-management, retail and industry funds. The edifice was built on a Labor-union consensus later embraced by the Coalition. There is no other way a law could exist in an era of stagnant wages that compels workers to defer a portion of their wages — now running at 9.5 per cent — for their future retirement income. In retrospect, it seems astonishing.

Revenue and Financial Services Minister Kelly O’Dwyer, responsible for reform bills in recent days, underlines the government’s starting position: “This money is the property of each and every hardworking Australian superannuation fund member, not the government, not the industry, not the bank executives, not the shareholders, not the employers and not the trade unions.”

Yet Labor and the unions, to this day, retain their sense of political ownership of the system they created. Deep in Labor culture is the belief the Liberals distrust the model, a sentiment the ACTU cultivates relentlessly.

Nothing excites Keating’s anger more than the Howard government’s repudiation of Keating’s 1996 election pledge to lift super to 15 per cent. Consider this ambition — the funds would be immensely more powerful today and the hit on wages far greater.

Kelty was philosophical. “You see, our ideas survived Howard,” he told me in April 2008. Keating’s vision was to tie sharemarket power to retirement incomes, locating super at the heart of globalised capital markets. It was a variation of his enduring strategy now lost to Labor — harness the gains of capitalism for social democratic ends.

The first of the new bills is a re-run of one that failed in the previous parliament — based on searching inquiries by Jeremy Cooper (for the former Labor government) and David Murray (for the Coalition) it proposes super boards have one-third plus the chair as independent directors.

Sounds a no-brainer, you might think. But it clashes with the 50-50 employer-union model for industry fund directors. The unions will tenaciously resist this loss of power. The attitude of Nick Xenophon, who was unpersuaded last time, will be crucial. The argument for reform is strong. The unions have Xenophon in their sights for his support of the Australian Building and Construction Commission law, so the Xenophon-union tensions will play decisively.

But the bigger bill empowers the Australian Prudential Regulation Authority to ensure trustees act in the interests of members, to require greater transparency, to intervene and take protective action — in short, to ensure the law is driven by members, not industry interests. These powers will apply across the board to retail, industry and corporate funds.

At present APRA lacks the power to follow the money trail — it does not know exactly what is happening to members’ funds. The government has dark fears on this front given analysis by former Liberal Party acting director Andrew Bragg that over the past decade as much as $50 million has been paid from industry funds to trade unions. The unions reject this figure.

But if O’Dwyer wants to persuade the Senate independents to back this bill, her pitch is obvious — “empower the regulator to follow the money trail”.

In short, let full transparency apply. If there is nothing to hide, there is nothing to fear.

The third bill is about members’ rights — it allows more than one million workers to choose their super fund and not be bound by the industrial system and an enterprise bargain. Will Labor support individual choice?

The unions will see a pattern here — an attempt to liberate the super model from its industrial origins. Their resistance will be immense. But its zenith will come next year when the Productivity Commission produces its final report on the ultimate fusion between super and industrial relations — the so-called “default” arrangement under which awards and agreements specify a default fund for a member’s super if that person does not nominate a fund.

Incredibly, about two-thirds of fund members fall into this category, but they constitute only about a quarter of the financial assets. That means these people are mainly younger and low paid. Many are locked into poorly performing, smaller industry funds.

If you want an example of roaring inequality here it is – in the super system. There are many low-paid workers (some who can’t afford it) compulsorily losing part of their income to super funds that are underperforming with their assets. Who cares about them?

The Productivity Commission report will explore alternatives to the default model. Its days deserve to be numbered. This will be a defining issue for Labor and the unions. Will the government have the courage to fight this issue in the name of true equality?

The larger picture should be put up in lights. It is about the superiority of Labor at devising long-run institutional arrangements that serve its interests in policy and political terms. In some ways superannuation is the ultimate example. Labor today enjoys support from a coalition of forces — unions, non-governmental organisations, sectoral interest groups and a range of cultural players. The Liberals, by contrast, are weak on two critical fronts: cultural and financial power. This means they stare down the gun barrel of an institutional crisis, a plight concealed by John Howard’s long success as PM.

The irony is exquisite: the party of capital is starved of private capital for its political needs. Remember Malcolm Turnbull had to throw his own money into last year’s campaign. What a humiliation! The Liberal Party’s alleged friends — big banks, big business

— are either no longer its friends or have opted for neutrality.

The message for the Liberals from Bragg is frightening. He judges the anti-Liberal forces — think tanks, unions, super funds, Get Up! and anti-business NGOs — spent about $300m last year on a range of campaigns against the Liberal/business cause, as opposed to $120m spent by groups backing it. You can dispute the numbers; the thesis is correct. The Liberals are being outmuscled and outspent. Labor is the party of institutional power (not always an asset) and the Liberals are weak in networks of support to sustain them.

Bragg attacked the super funds as “cashed-up activists”. In his speech to the Liberal Party federal council, he said: “They fight like mad against independent directors and even harder against the suggestion consumers might be able to pick their own super fund. Why? With $53m paid from super funds to trade unions in the past decade, it’s any wonder.”

Government sources say payments from industry funds to trade unions are about $8m annually and that much of this analysis comes from Australian Electoral Commission data. But what is the true figure and how much is legitimate? We don’t know.

Independent industry figures vigorously discount the quantum. The policy and political stakes in superannuation are intensifying. The showdown will be driven by policy reform and Liberal alarm at the weight of institutional force against it.

SMSFs: Self-interest the key in assault on DIY super funds

The Australian

16 September 2017

James Kirby

Fresh efforts to undermine and stop the spread of DIY superannuation funds are reaching a crescendo: emboldened by the tax crackdown on the system this year, industry lobbyists are now openly attacking the sector with a venom they might have concealed under more supportive governments.

And the alarming part of it all is that while the enemies of SMSFs are substantially crossing all party lines, the supporters of the SMSF brigade are few and far between.

If you want to see the enemies of DIY super in action the Australian Institute of Superannuation Trustees has delivered a manifesto on the issue in the shape of a submission to the Productivity Commission’s superannuation review. It succinctly captures every prejudiced line you will hear super funds at the big end of town (and this includes union-backed industry super funds) take against SMSFs.

You may have thought something called the AIST would be out there earnestly advocating for all trustees of super funds. But it turns out this organisation thinks even now — after a torrent of new legalisation — that SMSFs are incompetent managers of their own money, a baleful influence on the housing market and to top it off they are trying to minimise tax (a grievous sin, apparently.)

The government has got to stamp it all out, says the AIST: “Government policies which facilitate the offer of an unrestricted number of investment options, and which place minimal barriers for the creation of SMSFs, generate material inefficiencies within the superannuation system.”

What a load of twaddle.

There is no need to pick apart this argument because it is such obvious nonsense — the majority of SMSFs have done perfectly well over a long period of time with a relatively narrow asset allocation.

SMSFs are well able to respond to market changes — recent work from Credit Suisse has noted their shift into the market in search of dividend yields as cash rates have dwindled (see graph).

They do not create “inefficiencies in the system” unless the AIST means lost opportunity for big fund trustees to collect more business, and as for “minimal barriers” to the creation of SMSFs, this organisation must have missed the new regulations coming down the line from the ATO in relation to super funds.

Perhaps the most virulent lobbying against SMSFs comes on the property front. Arguments against SMSFs being allowed to borrow for property have been well canvassed — most powerfully by David Murray’s Financial Services Inquiry.

Yet the government reviewed this issue and left it alone. Beyond that it goes without saying that if SMSFs can buy geared share funds, long-short funds and all manner of hedge funds, then why on earth can they not borrow to buy the house around the corner? This is a transaction they will understand a lot easier than the mechanics of  a hedge fund.

What is most fascinating about the AIST submission is the absence of even a pretension of fair treatment — there is so little attempt to look at the bigger picture it is alarming.

We know big funds act against SMSFs at every turn. I came across this first-hand over a decade serving on the advisory board of a medium-sized super fund when the boardroom conversation regularly turned to the need to stop members leaving to start up their own DIY funds.

But now we have an SMSF sector which is amassing real power — John Maloney, the chief executive of the SMSF Association (which represents professionals serving DIY members as opposed to the members themselves), recently told a tax conference the population of DIY fund members will move towards two million in the decade ahead. But you have to wonder if this healthy flourishing of a self-reliant super fund sector will actually now come to pass — the introduction of this year’s substantial clampdown to DIY super rules may just be the thin end of the wedge.

Over the first few months of the new super tax regime we are simply digesting the changes but among professionals a realisation is dawning that the administration of these changes is going to seriously change the nature of every SMSF. Specifically the gradual introduction of new “SMSF event-based reporting” around the policing of new $1.6 million balance caps may be a sign of things to come.

No doubt as the years go by the ATO will continue to get more and more new ideas about the requirements from SMSFs and they will have organisations such as the AIST to back them up every step of the way.

New SMSF reporting rules a real headache for older operators

The Australian

16 September 2017

James Gerrard

Following the recent introduction of the $1.6 million cap on tax-free super account balances in retirement, the Australian Taxation Office has suggested a new “event-based” reporting regime will be necessary to keep self-managed super fund trustees accountable as of July 1, 2018.

The new reporting framework will provide the ATO with information that it needs to enforce its new transfer balance cap — that is, the maximum amount of money you can move into a tax-free superannuation pension account. The changes will require an increased level of vigilance for many trustees: most trustees now need only pay attention to SMSF reporting once a year when they do their tax returns; unfortunately, this is going to change.

Under the new system, the way pension accounts are managed could potentially change. Trustees will be obliged to report a range of retirement phase income stream events to the ATO including:

  • When any member of the fund starts drawing down an income from the fund;
  • When any member of the fund makes a lump sum withdrawal;
  • Any time a member moves their super between pension and accumulation mode.

Time frames to meet the reporting requirement could be tight. Although the ATO is yet to finalise the rules, it has already indicated that trustees could have as few as 10 days after the end of the month in which the reportable event occurred to report to the ATO.

Ricardo Accounting SMSF specialist Timothy Ricardo believes the changes will raise compliance costs for SMSFs. “The new event- based reporting framework will add another layer of expenses to the continuing costs already associated with running an SMSF,” he said.

Ricardo also expressed concern that the changes could push SMSFs out of reach of many everyday investors.

“SMSFs are a fantastic investment vehicle but these changes are likely to drive up operating costs, making the goal to set up an SMSF unattainable for some. The main beneficiary of the changes will be SMSF software providers because trustees will become more reliant on them moving forward to automate the process of reporting events.”

The requirement to report the movement of money from pension to accumulation mode could also be a nightmare for older trustees. Some super fund members move their super balance between pension and accumulation phase for strategic reasons and will now need to report each time they do this.

In particular, retirees who undertake a popular Centrelink-related strategy to take one-off lump-sum payments to reduce assessable income under the income test may find the new reporting obligations a nuisance.

Under the proposals from July 1, 2018, taking lump sums out of a super pension will be a reportable event and will require the trustee to notify the ATO.

Star Associates certified practising accountant Luke Star says: “Although the benefits of regular reporting are clear on paper, it is uncertain at this stage whether all this anticipated information being reported to the ATO will be able to be executed in a streamlined manner. There will be a lot of information to analyse and process.

“Depending on the final reporting requirements, up to 600,000 SMSFs in Australia will be sending event-based information to the Australian Taxation Office.”

Although the ATO has indicated that trustees will not have to report every pension payment or every investment gain or loss on an events basis, the pressure will be on trustees to ensure the compliance of their super fund.

Moreover, the introduction of event-based reporting may see a shift of people out of self-managed super funds into retail and industry funds to sidestep the extra reporting headaches, particularly in retirement.

James Gerrard is the principal and director of financial planning firm

Spell out who gets your super

Australian Financial Review

16 September 2017

Debra Cleveland

If you’ve set up a binding death benefit nomination in your super fund, you’re probably feeling smug, organised and that you’ll never have to think about it again.

Big mistake, say experts. You can’t “set and forget” as your circumstances may change and in most cases the binding nomination will lapse after three years.

Why is it important? Because it’s a written directive to the trustee of your fund setting out the dependents and/or legal personal representative you want to receive your super in the event of your death.

If you don’t have one, who gets your super will generally be at the trustee’s discretion. This is not so much of a problem if you’re married (and want your husband or wife to inherit) as in most cases your spouse will be the beneficiary, says Colin Lewis, senior manager strategic advice at Perpetual Private.

But it can be a problem if yours is a blended family or you don’t have a spouse or children. Without a valid binding nomination, how can the trustee really know where you wanted your super to go?

To ensure yours is still in working order, here are some areas to watch:

  • Time lapse: death benefit nominations need to be renewed every three years in APRA (retail, corporate and industry) funds or SMSFs which contain rules that require the three-year renewal, says Peter Townsend, principal of Townsends Business & Corporate “A number of court cases have resulted from lapsed death benefit nominations where the member didn’t realise their nomination had lapsed,” he adds.
  • Check beneficiaries: Lewis says you must nominate a “dependant” under super law – a spouse, child of any age, someone financially dependent on you or in an interdependent relationship – and/or your legal personal representative (LPR), often the executor of your Update your nomination as your family circumstances change. And make sure whoever you nominate falls within the rules. Lewis cites the case of someone single in their 20s who may want to nominate their parents. They are not, however, dependants under super rules.
  • Redirect: those who don’t have super dependants or wish to nominate someone else are best off advising the trustee to pay their super to their LPR, says Lewis, and making the necessary

arrangements via their will. This is what the person in the previous paragraph should do. This would be especially important if they’d just moved in with a partner. “While they may not have much in super, their life insurance could be substantial,” he says. “On death, mum and dad may think they’ll receive the super but if the new partner can prove they’re a spouse, they may end up with the death benefit.This may be overcome with a binding nomination to their LPR.”  This plan of action would also work if you’ve changed your family arrangements and want your super to go to a number of people.

  • Be consistent: it’s best to use the same author for both your benefit nomination and your will so the message is the same, says He cites Ioppolo’s case [Ioppolo v Conti [2013] WASC 389] in WA where the member got her will prepared by a solicitor and her death benefit nomination by her financial planner. In the will she gave everything to her husband and in the [death nomination] she gave her super to her kids. She and her solicitor didn’t know that the deed of her SMSF required the the nomination to be renewed every three years. “She died just after the renewal date and her husband (not the father of her kids) became the trustee of the fund and gave himself the lot,” says Townsend.
  • Income stream: if you’re receiving a super pension, consider seeking advice as to whether a reversionary pension (where your income stream automatically continues being paid to your beneficiary) is appropriate, rather than a binding death nomination as there can be issues around the transfer balance cap under the new super If you have both accumulation and pension interests in superannuation, Lewis says you’ll now need death benefit nominations that deal with both interests.

ATO lays down law on super balance caps

The Australian

12 September 2017

James Gerrard

The new $1.6 million limit on tax-free superannuation retirement accounts may tempt some self-managed super fund trustees to apply creative valuation methods to maximise their interests. However, the Australian Taxation Office has warned trustees that manipulating valuations will not be tolerated under the new regime.

There are two instances where valuations are important in the context of the super rules that commenced on 1 July. The first is where an SMSF member has moved excess assets from the retirement phase to the accumulation phase due to the $1.6m transfer balance  cap.

If, for example, an SMSF member had $2m in a tax-free super pension account before 30 June 2017, $400,000 was required to be removed before 1 July 2017 in order to keep the pension account under the $1.6m cap. The government provided capital gains tax relief such that assets moved in order to satisfy the $1.6m transfer balance cap had their cost basereset to the marketvalue as at 1 July 2017.

In other words, the $400,000 moved from the pension account to the accumulation account, although it may have accumulated significant capital gains over the years in a pension account, would be deemed to be sold and repurchased with a 1 July 2017 cost base with no immediate tax implications.

In the future however, the capital gains tax rate on the $400,000 in the accumulation account would be taxed at 15 per cent for assets held less than 12 months, and 10 per cent for assets held for more  than 12 months.

Needless to say valuations can affect outcomes. Imagine if the $400,000 transferred from pension to super had its value inflated to

$800,000. Rather than a $400,000 cost base for a $400,000 asset, the cost base is $800,000 for a $400,000 asset. The result — the

$400,000 could increase by 100 per cent in value before any capital gains tax would be payable.

But be warned, the ATO is one step ahead and has warned of those considering manipulating asset values higher to avoid future capital gains tax. SMSF segment assistant commissioner Kasey Macfarlane says: “If we saw an SMSF picking a value at the upper end of the range for the transitional CGT relief, but then picking a value at the lower end of the range for the transfer balance cap, you can be sure that you’ll be hearing from us.”

The second instance where valuations are important is where assets are undervalued to sneak more under the $1.6m tax-free pension cap. Luke Star, Certified Practising Accountant from Star and Associates says: “Some may be tempted to water down SMSF asset valuations to get more inside the $1.6m tax-free pension cap, particularly if their super balance just exceeds the cap and they hold assets that are not priced on a daily basis, such as collectibles.”

But again, the ATO has this covered. Macfarlane says: “The ATO will be monitoring changes in behaviour in relation to SMSF asset valuations as a result of the changes where we see significant reductions in asset valuations in SMSFs, particularly, coincidentally if   it puts somebody just below a particular cap or limit, then that will attract our close scrutiny.”

The ATO talks tough

Some in the industry believe SMSF trustees have been given a raw deal with the recent super changes and the strong-handed compliance approach from the ATO. Tim Ricardo, SMSF specialist from Ricardo Accounting suggests: “It comes as no surprise that taxpayers and pensioners are confused during this disaster of a super policy brought in by a government that was once innovative   and encouraging toward self-funded retirees.”

No wonder some are angered. The new changes come at a time when the accounting industry has been turned on its head after losing the ability to advise its clients about super without more red tape licensing and cost. Any of the remaining accountants that can   advise on super have been dumped with deciphering a quagmire of Law Companion Guidelines, many of which stretch to more than 100 pages each.

The ATO’s response to trustees has been threats of severe penalties and it has backed this up by increasing administrative penalties after 1 July 2017. Current penalties range from $1050 up to $12,600 for certain breaches of the SIS Act.

With the ATO shining a light on valuations given the potential taxation benefits achieved by sliding values either higher or lower depending on the situation, a good way forward for SMSF trustees is to continue with their current valuation methods. The ATO is more likely to step in if different valuation methods are used for different tax purposes to benefit the taxpayer rather than the ATO, or when trustees have not been consistent with their valuation methods. As a broad approach to valuation, Ricardo says: “General valuation principles require demonstration of a fair and reasonable process in obtaining the valuation.”

One last thing, the ATO has valuation guidelines for SMSF’s on its website and all trustees should make it a point to review their SMSF valuation methodology.

James Gerrard is the principal and director of privately owned Sydney financial planning firm

Limited recourse borrowing arrangements can use one bare trustee for multiple bare trusts

By Gary Chau (, Lawyer, and David Oon (, Senior Associate, DBA Lawyers


A common question we get asked when a client’s self managed superannuation fund (‘SMSF’) is undertaking a limited recourse borrowing arrangements (‘LRBA’) is whether there needs to be a separate bare trustee (usually a company) for each bare trust. The short answer is no. However, it is helpful to also go through the other aspects of LRBAs to give more detailed guidance.

Broadly, SMSF trustees are prohibited from borrowing or maintaining an existing borrowing, unless the borrowing complies with the exception under s 67A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’). As a simplification, the key features for LRBAs are as follows:

  • The SMSF trustee borrows to acquire a single acquirable asset.
  • The asset must be held on trust, with the SMSF trustee having a beneficial interest in that asset. This other party is often referred to as either a bare trustee, a holding trustee or a custodian. In this article, this other party will be referred to as the bare trustee. However, technically this is a presumptive name since not all of the trusts for LRBAs are actually bare trusts for tax purposes.
  • The bare trustee is the legal owner of the asset purchased.
  • The SMSF trustee has the right to obtain legal ownership of the asset by making one or more payments after acquiring the beneficial interest.
  • If the SMSF trustee were to default on the loan, the lender’s rights would be limited to the rights relating to the asset.

A crucial feature for an LRBA to comply with the SISA requirements is that the asset must be a ‘single acquirable asset’. Section 67A of the SISA provides that the borrowed money must be used ‘for the acquisition of a single acquirable asset’ and, as noted above, it also provides that ‘the acquirable asset is [to be] held on trust so that the [SMSF’s] trustee acquires a beneficial interest in the acquirable asset’.

This means that when the asset is initially purchased, legal title to that asset must be registered in the name of another entity (ie, the bare trustee).

Since a bare trust must be in respect of a single acquirable asset, let’s now examine what the word single acquirable asset means.

Single acquirable asset

The starting point to this definition is: what is an asset? Asset is defined in s 10 of the SISA to be ‘any form of property and, to avoid doubt, includes money (whether Australian currency or currency of another country)’. ‘Acquirable asset’ is defined in s 67A(2) of the SISA, which provides that the acquirable asset must not be money (whether Australian currency or currency of another country) or an asset that an SMSF trustee is prohibited from acquiring. Accordingly, an SMSF cannot borrow to acquire money, or simply ‘borrow money’ without acquiring a single acquirable asset.

On whether an asset is a ‘single acquirable asset’, the ATO state that it ‘is necessary to consider both the legal form and substance of the asset acquired’. Thus, in the typical case, where an SMSF trustee is acquiring real estate and there is only a single title, this property would be a single acquirable asset for the purposes of s 67A of the SISA.

Where there are multiple real estate titles, the ATO in SMSFR 2012/1 adopt the view that multiple real estate titles can be treated as a single acquirable asset only if there is a physical or legal impediment requiring them to be dealt with together. However, this is to be decided having regard to the circumstances of each case. In determining whether multiple real estate titles can be treated as one single acquirable asset, the ATO say the following in SMSFR 2012/1:

  1. Factors relevant in determining if it is reasonable to conclude that what is being acquired is a single object of property include:
  • the existence of a unifying physical object, such as a fixture attached to the land which is permanent in nature and not easily removed and that is significant in value relative to the value of the asset; or
  • whether under a law of a State or Territory the two assets must be dealt with together.

Unless the above factors in SMSFR 2012/1 conclude that what is being acquired is a single acquirable asset, the general rule is that if an SMSF trustee wants to acquire two assets (ie, they are identified in two titles), then two bare trust arrangements and two loans will generally be needed: one for each asset. Ideally, two separate contracts will also exist: one for each asset.

Why does a bare trust have to only contain one asset?

The bare trust should only contain one asset, namely, the single acquirable asset, to ensure that the bare trust itself does not become an in-house asset for the SMSF. If the bare trust contains any other assets — even a bank account — this may give rise to negative in-house asset rule implications (s 71(8)(c) of the SISA).

One bare trustee for multiple bare trusts

Where an SMSF trustee wishes to borrow to purchase multiple assets, a separate bare trust will be required for the acquisition of each single acquirable asset. However, there is no requirement in the SISA or Superannuation Industry (Supervision) Regulations 1994 (Cth) that different bare trustees (usually companies) need to be used for each LRBA.

Thus, one company could be the bare trustee of multiple bare trusts in respect of the same SMSF.

Further, while there is no requirement that the bare trustee has to be a company (ie, you can in theory have individual trustees act as bare trustee), banks will almost inevitably require that the bare trustee is a company before they agree to lend to an SMSF.

Bare trust should play a minimal role

Ideally, the bare trustee should play as minimal a role in the LRBA as possible. For example, any income derived from the asset (such as rent or dividends) should be received by the SMSF trustee directly. The SMSF trustee should also make the loan repayments to the lender.


To maximise administrative efficiencies, the bare trustee should typically not register for a TFN or an ABN. Further, when establishing a new corporate bare trustee, there should be no public officer appointed or bank account opened.

The bare trustee should ideally do nothing more than hold the legal title to the asset.

*        *        *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

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


28 August 2017

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