Self-managed super fund (SMSF) trustees have had an eventful year thanks to July's super changes and another rollercoaster ride for financial markets. Here are some lessons from the experience and tips on how to prepare for the year ahead.

Described as the biggest changes to super in nearly a decade, July 2017 saw the implementation of a raft of new rules. These included a pre-tax concessional contribution cap of $25,000 and a transfer balance cap of $1.6 million in retirement phase, among other measures including changes to the pension assets test.

Importantly, those with a pension account balance exceeding $1.6 million by less than $100,000 must have it rolled back into an accumulation account by 31 December, or face the prospect of penalties. Those with a balance exceeding $1.6 million by more than $100,000 were required to do so by 30 June.

From January 2018, the Australian Taxation Office (ATO) will start sending "excess transfer balance" determinations to individuals who have exceeded their transfer balance cap and not rectified the excess. The sooner the member removes the excess, "the less excess transfer balance tax they will pay," the ATO warns.

SMSFs are also urged to take advantage of capital gains tax (CGT) concessions, comprising the CGT relief entitlement, which allows SMSFs to reset an investment cost base to its market value before 1 July 2017. Such relief applies only to investments held in a fund before 1 July that were owned since at least 9 November 2016.

5 key lessons

Liam Shorte, an SMSF specialist adviser and director at Verante Financial Planning, nominates five key lessons from 2017 for SMSF trustees, with the first being not to rely on the Reserve Bank of Australia (RBA) for an interest rate hike.

"Stop hoping for higher interest rates in 2018 and just shop around and take the best longer-term rates available now," Shorte says.

Financial markets currently point to only a 50/50 chance of a rate rise to 1.75 per cent by the end of 2018, with many economists not expecting any change from the RBA until at least 2019.

Morningstar's head of equities research, Peter Warnes, says subdued wages growth and inflation mean "it is unlikely the Reserve Bank of Australia will lift interest rates in the first nine months of 2018 and possibly not at all in 2018".

Shorte's second lesson is that the age of buying stocks and holding them long term is over.
"No stock is buy and hold any longer. Traditional stocks like Telstra (ASX: TLS), retailers, insurance companies, and even banks with the royal commission are seeing a major change to business conditions," he says.

Nevertheless, Morningstar's "Best Stock Ideas" report for December 2017 includes Telstra as well as QBE Insurance (ASX: QBE), with the former's risks seen reflected in its share price and the latter expected to post "consistent earnings growth".

The third lesson from 2017 for SMSFs is knowing your auditor, Shorte says.

"SMSF trustees need to get to know their fund auditors. Make the effort to do so before making any major or non-standard investment," he says.

"With people chasing returns, many are taking risks or jumping into investments that may breach the rules."

This is particularly relevant given this year's rule changes to SMSFs, including the need to comply with arms-length terms concerning limited recourse borrowing arrangements (LRBAs).

The fourth key lesson is not to overlook estate planning.

"Don't ignore your SMSF estate planning. Make sure you understand the benefit of reversionary pensions and don't assume which partner in a couple will die first, as life has a way of throwing curve balls at you," Shorte says.

The recent rule changes have restricted how much of a deceased's super savings can be passed onto the deceased's spouse and children, with SMSFs advised to have up-to-date death benefit or reversionary pension nominations in place.

Shorte's final tip concerns quarterly reporting for SMSFs.

"With the new reporting requirements from 1 July 2018, make sure your accountant is up to the job of quarterly reporting. No more once-a-year meetings after year-end," he says.

Under the new rules, SMSFs are required to report to the ATO events that impact on an individual's transfer balance account, comprising the commencement or cessation of a super income stream, pension commutations, and structured settlement contributions received after 1 July 2017. More relaxed reporting rules apply to funds with member balances below $1 million.

According to the ATO, around 40,000 SMSFs face the risk of being named non-complying for not meeting their lodgment obligations, with such reporting coming under greater scrutiny due to the new super rules.

After an eventful 2017, SMSF trustees will be hoping for less regulatory and market uncertainty in the year ahead. Yet if the past is any guide, "expect the unexpected" is likely the best approach for 2018 and beyond.

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Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does not have an interest in the securities disclosed in this report.

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