⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Here is a little-known strategy where an SMSF can be involved in owning a business or property through an unrelated unit trust or company structure. This is often ideal for an early-stage business expected to grow rapidly over time where income and growth can be captured tax effectively in the SMSF. Most suited to those who do not need access to the capital and profits until retirement or where you want some in the SMSF and some personally but your shared ownership, between your related parties, does not exceed 50%.
When two unrelated SMSFs co-invest in a trading company, the result can be a genuinely tax-efficient, asset-protected business structure — but it comes with a set of compliance obligations that every trustee needs to understand before proceeding. This guide explains how the structure works, the critical questions to ask, and the key risks to manage. In many cases three unrelated parties can make it a lot less risky in terms of potential SIS law breaches.
The critical first question: is the company a “related party”?
This is the most important compliance question in the entire structure, and the answer determines almost everything else.
Under the SIS Act, a “related party” of your SMSF includes the fund’s members, their relatives, their business partners, and companies or trusts they control. Control means holding the ability to determine more than 50% of the voting rights, or being entitled to more than 50% of dividends or capital. I have a complete article on Related Parties here
With a genuine 50/50 split between two unrelated SMSFs, neither fund’s members control the company outright. Neither party can determine outcomes alone. Accordingly, the company is generally not a related party of either SMSF — and this single fact unlocks the structure. So you can see that 3 unrelated entities will roughly even ownership would make this safer as less chance of one exceeding 50%.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
In-house assets — does the 5% rule apply?
SMSF trustees are familiar with the rule that no more than 5% of a fund’s total assets can be “in-house assets” — generally, investments in or loans to related parties. Because the trading company is not a related party (as established above), the shares your SMSF holds do not count as in-house assets based on the ownership relationship alone.
One important note: Regulation 13.22C provides a separate exclusion from the in-house asset definition for investments in certain closely held entities — but that exclusion is only available if the entity does not conduct a business. Since we are dealing with an actively trading company, Reg 13.22C is irrelevant here. The correct answer is that the company is simply not a related party, so the in-house asset classification does not arise in the first place. Here is a great white paper from Leigh Mansell of Heffron’s on In-house Assets
Tax treatment — where the real advantage lives
This structure can be exceptionally tax-efficient, particularly for SMSF members approaching or in retirement phase.
At the company level: A small trading company with turnover below $50 million will typically qualify as a base rate entity and pay company tax at 25%. This tax gives rise to franking credits attached to any dividends paid to shareholders.
At the SMSF level — accumulation phase: Your fund’s effective tax rate on investment income is 15%. When the company pays a franked dividend, the SMSF includes the grossed-up dividend in its assessable income, pays 15% tax, and offsets that liability with the franking credit. Because the company already paid 25% tax, the franking credit typically exceeds the SMSF’s liability — producing a refund.
At the SMSF level — pension phase: If your SMSF is paying pensions and the income qualifies as exempt current pension income, the effective tax rate is 0%. The full franking credit is refunded in cash, making this one of the most tax-efficient investment structures available in Australia.
NALI and arm’s length dealings
Non-arm’s length income (NALI) is taxed in your SMSF at a flat 45%, regardless of whether you are in accumulation or pension phase. Private company dividends are a known NALI risk area, and the ATO scrutinises them carefully.
All dividends must be paid on the same terms to both SMSFs, proportionate to their respective shareholdings, with no preferential treatment flowing to one fund over the other. Arm’s length requirements also apply to any other dealings between your SMSF and the company — including director salaries, lease arrangements, and any services the company provides.
Annual valuation — a compliance obligation you cannot defer
Your SMSF’s financial statements must record all assets at their true market value as at 30 June each year. Shares in a private unlisted trading company must be independently valued by a suitably qualified person using a recognised methodology — typically earnings-based, net tangible assets, or a combination of both. This is not optional; your auditor will require appropriate evidence.
Valuation complexity increases over time, particularly if the company retains significant profits, acquires assets, or if the trading environment changes materially. Factor in the annual cost of a formal valuation — and the management time required to facilitate it — when assessing the overall economics of the structure. My guide to SMSF asset valuations is available here
Before you proceed — a practical checklist
Confirm each of the following before shares are acquired:
Both SMSFs are genuinely unrelated — members are not relatives, business partners, or Part 8 associates of each other in any way
A properly drafted shareholders agreement is executed before shares are acquired
The SMSF investment strategy is updated to specifically contemplate and justify an investment of this type, size, and risk profile
The share acquisition occurs at market value from day one — a below-market acquisition creates permanent NALI taint on all future income from those shares
Dividends will be declared on identical terms for both SMSFs from the outset
An annual independent valuation process is established and budgeted for
The company has a separate ABN, ACN, and bank account entirely independent of any member’s personal finances
Any member who is also a director or employee of the company is remunerated at genuine market rates
Legal advice has been obtained on both the company establishment and the SMSF’s acquisition of shares
Your SMSF auditor has been informed of the investment and understands the basis on which it is not classified as an in-house asset
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
Important information
This article is general information only and does not constitute personal financial, legal, or taxation advice. The rules governing self-managed superannuation funds are complex and fact-specific. Individual circumstances vary significantly, and the application of the rules described in this guide depends on facts that can only be properly assessed by a qualified professional. Before establishing or participating in a structure of this type, seek advice from a licensed SMSF adviser and an experienced tax lawyer. Past tax outcomes are not a guide to future tax treatment.
⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. We often see people, who jumped in to an SMSF before really understanding how it works and it can be a time consuming and an expensive mistake to unwind.
Introduction
An SMSF can be one of the most powerful retirement structures available to Australians — but it is not the right choice for everyone. With over 661,000 SMSFs now operating across Australia and record numbers being established each quarter, I want to make sure that enthusiasm doesn’t outpace understanding.
Before we help anyone establish a fund at Sonas Wealth, we work through a rigorous set of questions together. Some people come in certain an SMSF is what they need. Some leave the conversation feeling the same way. Others discover a better path. Either outcome is a good one — because the goal is never to set up a fund. The goal is to protect and grow your retirement.
This is always the first question. Setting up an SMSF because you’ve heard it’s a good idea, or because a colleague mentioned it over coffee, is not a strategy. I want to understand your short, medium and long-term goals — and whether an SMSF is genuinely the best vehicle to get you there.
Sometimes the answer is clearly yes. Often it opens a broader conversation about alternatives that may serve your true objectives just as well, or better. I’ll never hesitate to point you toward a different path. An SMSF is not the right answer for everyone, and I don’t believe in setting one up just because we can.
2. Is Locking Money Away the Right Move Right Now?
Superannuation is long-term money. For most people, it cannot be accessed until their preservation age — typically 60 — when they meet a condition of release. Before directing more wealth into super, we need to look honestly at your current financial commitments and what flexibility you might need in the next decade.
In many cases, redirecting surplus funds into debt reduction, a personal investment portfolio, or an insurance bond for tax-effective investing can deliver better outcomes while preserving access to capital. Super is a powerful tool — but it needs to be the right tool for the right job at the right time in your life.
💡 Worth Knowing: Carry-Forward Contributions
If your total super balance (TSB) is below $500,000, you may be eligible to use carry-forward concessional contributions — sweeping up unused cap room from the previous five financial years into a single large pre-tax contribution. This can be a powerful complement to an SMSF strategy, particularly when triggered by a significant asset sale or inheritance. Ask your adviser whether this applies to you before deciding how much to contribute and when.
3. Do You Have the Time, Knowledge and Discipline to Run a Fund?
This is the question that surprises people most. Running an SMSF is not passive. It requires you to understand your trustee obligations, review your investment strategy regularly, stay across legislative changes, and commit genuine time to governance — every year, not just at setup.
📖 From the Coaching Files
I’ve had to talk a number of busy executives and business owners out of SMSFs when they couldn’t find a single hour in their week for a meeting — yet expected to manage an $800,000 investment portfolio. I’ve also worked with a couple who considered themselves property experts because they owned four regional Queensland properties, none of which they had ever visited. When we analysed the numbers, the yields were poor, capital growth was flat, and deferred maintenance costs were substantial. Their existing diversified super fund was objectively the safer option until they genuinely developed their property knowledge.
4. What Do You Have to Roll Over — and Can You Actually Move It?
Not all superannuation balances can be rolled into an SMSF without careful consideration. Before making any decision, we need to confirm:
Access restrictions — Some government, military or defined benefit funds (MSBS, Local Government Super) cannot be accessed before a specific age or in certain circumstances.
Defined benefit value — In some cases, the guaranteed benefit from a defined benefit scheme is simply too valuable to walk away from. The certainty of income in retirement may outweigh the flexibility of an SMSF.
Exit costs and liquidity — High exit fees or illiquid underlying investments can make an immediate rollover costly.
Employer mandated funds — Some enterprise bargaining agreements require contributions to flow to a specific fund, which may limit your ability to redirect future Super Guarantee payments. Also some employers offer 1%+ extra to employees using their default fund…don’t lose out!
We work through exactly what you hold, what’s moveable, and what the true cost of moving is — before any action is taken.
5. Have Your Insurance Needs Been Properly Addressed?
Insurance inside superannuation is one of the most commonly overlooked elements of an SMSF transition. When you leave an APRA-regulated industry or retail fund, you typically lose group insurance cover — often cover that would be difficult or impossible to replace on the open market due to health changes since you first obtained it.
⚠️ Critical: Insurance Lost on Rollover Cannot Always Be Reinstated
Once you roll out of an industry or retail fund, group life, TPD and income protection cover is typically cancelled and cannot be reinstated. If your health has changed since that cover was granted, you may find individual cover is either unavailable or prohibitively expensive. Get a full needs analysis before you move a single dollar. Your SMSF trust deed must also document that insurance needs have been considered — it is a compliance requirement, not optional.
6. Are You Genuinely Clear on Your Trustee Responsibilities?
When you sign the Trustee Declaration, you are making a legal commitment that you understand the obligations of a trustee under superannuation law. Saying you didn’t understand those obligations after a compliance breach is not a defence.
As a trustee you are personally responsible for every compliance decision, every investment decision, all record-keeping obligations, and every reporting requirement the fund faces — even if you outsource administration to a professional. We will make sure you have a solid knowledge base before you commit. Your urgency to establish a fund doesn’t override our duty of care to you.
Fixed costs don’t scale down with a smaller balance. The maths needs to work in your favour before an SMSF makes financial sense compared to the APRA-regulated fund you’re currently in.
Cost Component
Typical Range (2025–26)
Setup costs (establishment + trust deed)
$1,500 – $3,000
Annual running costs
$2,000 – $5,000+ (You can find lower at a trade off)
Annual independent audit
$400 – $800
ATO supervisory levy
$259 per year
ASIC annual review fee – sole purpose trustee co.
$67 (look at paying 10 years upfront)
Fund Balance
Annual Cost ($3,500)
Effective Fee Rate
$150,000
$3,500
2.3% — hard to overcome
$200,000
$3,500
1.75% — borderline
$300,000
$3,500
1.1% — becoming viable
$500,000+
$3,500
0.7% or less — cost effective
You can run your SMSF for lower with some online providers but beware of limitations or deals with related parties where they get a cut of brokerage or mortgage commission or straight our referral fees that you ultimately pay.
$200,000–$250,000 in combined member balances is the minimum we normally use.
8. Do You Understand the Risks — Not Just the Benefits?
SMSFs offer genuine advantages: investment control, tax flexibility, estate planning sophistication, and the ability to hold assets such as direct property and business real property. These are real, and for the right person at the right balance, they are compelling.
✅ Potential Benefits
⚠️ Key Risks to Manage
Engagement: we find people who take an active interest in their super are more likely to contribute more, invest consistently and therefore benefit from compound growth
Not understanding how the SMSF works or losing interest.
Full control over investment decisions
Personal trustee liability for all compliance failures. Could mean you can no longer be a director of your own business!
Access to direct property, unlisted assets and collectibles
Concentration risk — especially in property-heavy funds
Economies of scale investing as a couple or family and one SMSF set of fees rather than paying for multiple accounts.
Disagreements on how fund should be managed like different risk tolerances or something more serious like divorce
Tax planning flexibility (timing of contributions and capital gains). Not having to move accounts when changing from accumulation to pension.
Liquidity problems in retirement if assets are illiquid
Superior estate planning via binding death benefit nominations
ATO audit risk if governance is poor
Business real property can be held and leased to related parties
Poor diversification if trustees lack investment expertise
Tax-free income in pension phase on eligible assets
Fines up to $18,000 per trustee for serious breaches
Agility and Transparency: Members have full transparency over their investments, fees, and tax positions. The fund can also react quickly to market changes or legislative updates.
Indecision – being reluctant or afraid to press “Buy” or more often reluctance to admit a wrong call and “Sell”
We’ll give you a balanced view, not a sales pitch in either direction. No reasonable investment reliably produces excessive returns over the long term — and any adviser suggesting otherwise should be a red flag.
9. Have You Thought Carefully About Your Investment Strategy?
Your investment strategy is not a formality — it is a legally required, living document that must genuinely reflect your objectives, risk tolerance, diversification approach, liquidity needs, and the insurance requirements of all members. The ATO expects it to guide every investment decision and to be reviewed regularly, particularly when member circumstances change.
A strategy that says “we will invest in whatever we feel like” is not compliant. We help you build something grounded in realistic expectations and genuine retirement planning — not just a document to tick a box.
10. If Borrowing Is Part of the Plan, Is It Genuinely Affordable?
Limited Recourse Borrowing Arrangements (LRBAs) can be a legitimate strategy inside an SMSF, particularly for acquiring commercial or business real property. But they add significant complexity, increase risk, and must be structured correctly from day one — a defect in the LRBA structure can invalidate the arrangement and create a compliance breach.
Before proceeding with any gearing strategy, we assess:
Whether borrowing is genuinely appropriate for your circumstances and risk profile
Whether the loan is serviceable from the fund’s income and contributions, without relying on member contributions to cover shortfalls indefinitely
Whether the long-term retirement outcome is improved — not just the short-term tax position
Whether the trust deed and LRBA documentation are correctly structured
We’ll walk you through the rules, the process, and the most common mistakes to avoid before you commit to anything.
In fact we have an Education section just on Property in an SMSF with over 17 articles to guide you on every aspect of the strategy. WE DO NOT SELL PROPERTY BUT WE DO CATER FOR YOUR INVESTMENT PREFERENCES
11. What Happens If Circumstances Change?
Life doesn’t stay still. Divorce, death, disability, loss of income, or a decision to move overseas can all complicate an SMSF significantly — and if you haven’t planned for these contingencies from the beginning, unravelling them can be expensive and stressful.
Death benefit nominations — Binding nominations direct the trustee how to distribute your super on death. Not all trust deeds allow binding nominations; check yours. Non-lapsing nominations provide greater certainty.
Incapacity — If a trustee loses capacity, the fund may be unable to operate without an enduring power of attorney in place. This is a commonly overlooked risk.
Relationship breakdown — Super splitting orders following a divorce can create significant complexity in an SMSF, particularly where illiquid assets are involved.
Moving overseas permanently — If all members relocate offshore, the fund may fail the Australian residency test and lose its concessional tax status. Seek advice well before any long-term departure.
Winding up — Once a fund is wound up, it cannot be reactivated. Ensure you have a clear exit strategy and understand the process before you need it. We have you covered How to Wind Up Your SMSF
My View as The SMSF Coach
I’ve spent my career helping trustees get more from their SMSF — but I’ve also spent a lot of time talking people out of one when the timing, balance, or circumstances weren’t right. Both conversations matter equally.
The SMSF sector is growing rapidly — over 661,000 funds, more than 1.2 million members, and record establishment numbers in recent quarters. Some of that growth reflects genuinely well-considered decisions by people who understand what they’re taking on. Some of it reflects enthusiasm running ahead of understanding.
An SMSF done well can be one of the most effective long-term wealth structures available to an Australian. An SMSF done poorly — or set up for the wrong reasons at the wrong time — can quietly erode the retirement security it was meant to protect. My job is to make sure you know which one you’re looking at before you commit.
If you’ve read this and still think an SMSF might be right for you, let’s have that conversation properly.
Pre-Decision Checklist
Before committing to establishing an SMSF, work through each of the following with your adviser:
#
Checklist Item
✅
1
Your goals and objectives genuinely align with what an SMSF can deliver
☐
2
Locking money in super is the right move given your current financial position and commitments
☐
3
You have the time, knowledge and discipline to fulfil trustee obligations year-on-year
☐
4
Your current fund balances can be rolled over — access restrictions and exit costs confirmed
☐
5
Your current fund balances can be rolled over — access restrictions and exit costs confirmed
☐
6
A full insurance needs analysis has been completed before any rollover
☐
7
You have read the Trustee Declaration and understand your legal obligations
☐
8
The cost-benefit analysis confirms an SMSF is cost-effective compared to your current fund
☐
9
You understand both the benefits AND the risks, including compliance penalties
☐
10
A compliant, meaningful investment strategy has been drafted and reviewed
☐
11
If borrowing is planned — LRBA affordability, structure and documentation confirmed
☐
12
Death benefit nominations, power of attorney and exit strategy have been considered
☐
13
Corporate trustee vs individual trustee decision made and reasons documented
☐
📌 Key Takeaways
✅ An SMSF can be a powerful retirement structure — but only when established for the right reasons, at the right balance, and by trustees who understand the obligations.
💰 The cost-effectiveness threshold is around $200,000–$250,000 in combined member balances. Below that, fixed running costs represent a significant fee drag on returns. The true cost depends on the mix of investments and services you engage.
⚠️ Insurance cover held inside an industry or retail fund is typically lost on rollover and may not be replaceable. Get a needs analysis before moving any funds.
📋 Signing the Trustee Declaration is a legal commitment. Not understanding your obligations is not a defence if something goes wrong.
🚫 ATO penalties for serious trustee breaches can reach $18,000 per trustee — and non-compliance can result in the fund being taxed at 45%.
🔑 Your investment strategy is a legal document, not a formality. It must genuinely reflect your objectives, diversification approach, liquidity needs and member insurance requirements.
💡 Always obtain personal advice from a licensed SMSF specialist before establishing a fund or making any rollover decision.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account your objectives, financial situation, or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. Every week I speak to people who’ve been approached about setting up a Self-Managed Super Fund (SMSF). Some of those approaches are genuine but many are not.
Too often, what looks like helpful advice is really a cleverly disguised sales pitch — designed to get you to move your super so the promoter can sell you their product, charge high fees, or worse, put your retirement savings at risk. The ATO is watching this space more closely than ever, and the consequences for getting it wrong as a trustee are serious and personal.
This is your no-nonsense guide before you sign anything.
1. How Are You Being Approached? Sales Pitch or Genuine Advice?
Legitimate SMSF advice starts with your situation — not the adviser’s product. A proper adviser asks about your retirement goals, risk tolerance, existing super balance, insurance needs, available time, and whether an SMSF even makes sense for your circumstances. Only then do they make a recommendation.
The product-led approach works the other way around. The SMSF is not the goal — it is the vehicle. Someone wants to sell you a property, a managed fund, an unlisted investment, or a crypto platform. The SMSF is simply how they access your superannuation balance.
Warning Signs in How You Were Approached
Unsolicited contact — cold calls, emails, social media ads, or “free seminars” promising to “unlock the power of your super”.
Pressure to act fast — “limited time offer”, “EOFY special”, or “get your money out before the rules change”.
Promises that sound too good to be true — guaranteed returns, easy access to your super before retirement, or “we’ll handle everything so you don’t have to lift a finger”.
Focus on a single product — a specific property deal, crypto scheme, or investment the promoter (or their related parties) controls.
A referral chain where the adviser, accountant, mortgage broker and property manager all recommend each other — and all earn from the same transaction.
If the conversation quickly moves to rolling your super into a new SMSF so they can “invest it for you” or “help you buy that investment property” — stop. That is usually the gateway to selling their product, not acting in your best interest.
💡 From The SMSF Coach Ask yourself one question before you go any further: is this person excited about my retirement goals, or excited about my super balance?
🚩 Red Flag 1: The Approach Starts With a Product, Not Your Situation You were contacted unsolicited — by phone, email, social media or a seminar. The pitch centres on a specific investment or property rather than a review of your financial situation. You feel pressured, rushed, or told there is a deadline you must meet. The adviser cannot clearly explain what they earn if you proceed — or refuses to tell you.
Quick Licence Check — Do This Before Anything Else
Anyone who recommends you set up an SMSF must hold an Australian Financial Services (AFS) licence, or be an authorised representative of a licensee. This is not optional — it is the law. Check them on:
The ASIC Financial Advisers Register (search at moneysmart.gov.au)
The Tax Practitioners Board register (if they are advising on tax matters)
No licence? Walk away immediately and consider reporting them to ASIC.
2. Do They Provide Genuine Education — or Just Hype?
Real SMSF education explains the responsibilities, not just the glamour. Any adviser worth trusting will make sure you understand what you are signing up for before you commit to anything.
What Proper Education Must Cover
The sole purpose test — your SMSF must exist solely to provide retirement benefits to members. No personal benefit, no holidays, no business bailouts.
Arm’s length rules — every transaction must be done on commercial terms, as if with an unrelated third party.
Your annual audit obligation — an independent approved auditor must review your fund every single year.
Investment strategy requirements — you must have a written, current strategy that actually reflects how your fund is invested.
Record-keeping and valuation duties — all assets must be valued at market value at 30 June each year, with supporting evidence.
Your personal liability as trustee — you are personally responsible for compliance. Administrative penalties cannot be paid from fund assets.
Red flag material is all glossy brochures and “success stories” with no mention of the paperwork, record-keeping, or what happens if you get it wrong. If they say “we’ll do it all for you” and gloss over your ongoing trustee duties, they are not educating you — they are disarming you.
💡 From The SMSF Coach An SMSF puts you in the driver’s seat, but you still have to steer. If the promoter doesn’t equip you to understand the road rules, they’re not coaching — they’re selling.
🚩 Red Flag 2: No Meaningful Education Is Being Provided The conversation focuses on the benefits of an SMSF but skips the responsibilities, compliance obligations and time commitment.You have not been told that as trustee you are personally responsible for every investment decision, every lodgement, and every breach — even accidental ones.There is no discussion of your existing insurance or how it may be affected when you roll your balance into a new fund.There is no Statement of Advice (SOA) documenting why an SMSF is specifically recommended for your situation.
3. The True Costs of Running an SMSF
Here is the reality the glossy flyers rarely show. The cost of running an SMSF is one of the most consistently misrepresented aspects of the whole conversation — and for many people at lower balances, it is the deciding factor.
What You Should Expect to Pay
Setup costs: Expect $1,400–$2,000 for a proper trust deed, corporate trustee structure, ATO registration, and an initial investment strategy. Cheap setups often cut corners on documentation you will regret later.
Ongoing costs: Based on the latest ATO statistical data, median annual operating expenses run to approximately $4,139–$4,628 per year. This includes auditor fees, accounting, administration, and the supervisory levy.
Many people are shocked to learn the real annual cost often lands between $3,500 and $6,000 once everything is factored in — before investment fees, platform costs, or adviser fees.
Cost Item
Typical Range
Notes
Trust deed & company setup
$500 – $1,500
Higher for corporate trustee structure
Accounting & tax return
$1,200 – $3,000+
Increases with complexity
Independent audit
$300 – $900
Mandatory every year
ATO supervisory levy
$259
Netted in annual return
Financial advice fees
$2,000 – $5,000+
If you engage an adviser
ASIC company annual fee
$67 / year
Corporate trustee only
LRBA / bare trust setup
$1,500 – $3,000+
Required if borrowing for property
Actuarial certificate
$300 – $600
If fund has pension-phase members
Investment & platform costs
Varies widely
Brokerage, managed fund fees, platform access
Insurance review
Varies
Critical — existing cover is often lost on rollover
The old ASIC figure of $13,900 per year was significantly overstated, but the ATO’s median numbers are the ones you should use as your benchmark. If your balance is under $500,000–$750,000, those fixed costs can seriously erode your returns when expressed as a percentage of your balance.
🔑 Before You Proceed: Demand Written Fee Disclosure Total fees expressed in dollars AND as a percentage of your fund balanceA side-by-side comparison between the SMSF and your current super fund, after all fees and taxFull disclosure of any referral fees, commissions or benefits the adviser or their network receivesConfirmation that ATO administrative penalties are your personal liability — not payable from fund assets
🚩 Red Flag 3: Costs Have Not Been Fully and Transparently Disclosed You have only been quoted setup costs, not ongoing annual running costs.No comparison has been provided between the SMSF and your current fund as a percentage of your balance.No one has mentioned that ATO administrative penalties are personally payable by trustees — not from the fund.Insurance implications of rolling out of your current fund have not been raised.
4. The Most Common Mistakes — and What the ATO Does About Them
The ATO regulates more than 630,000 SMSFs and its compliance data makes uncomfortable reading: contraventions increased by 10% in the 2024 income year, and by a further 13% in the first half of the following year. Here are the traps that catch trustees out most often.
Mistakes I See Every Year
🚨 Illegal early access — setting up an SMSF specifically to withdraw funds before you meet a condition of release (generally age 60 with retirement, or age 65 regardless). This is the ATO’s single biggest compliance focus.
Lending to yourself or related parties — or using SMSF assets to support a struggling business. The ATO’s estimate of prohibited loans this year is $231.7 million.
In-house asset breaches — investing more than 5% of the fund’s assets in related-party assets or loans.
Poor record-keeping and valuations — no market-value asset valuations at 30 June, missing trustee minutes, or unsigned trustee declarations.
No investment strategy — or a strategy that does not match your actual investments.
Mixing personal and fund money — paying private bills from the SMSF bank account, or depositing SMSF income into a personal account.
Contribution cap breaches and NALI — non-arm’s length transactions that trigger punitive tax at the highest marginal rate.
Ignoring ATO authority notices — including excess contribution determinations and commutation authorities. Not responding does not make them disappear.
Non-lodgement of annual returns — approximately 85,000 SMSFs had not lodged their 2023 return as at early 2025. Non-lodgement removes your complying status from Super Fund Lookup, cutting off employer contributions and rollovers.
🚩 The Cost of Getting It Wrong Administrative penalties can reach 60 penalty units — currently around $18,780 per breach, per trustee. Loss of complying fund status means the fund’s income is taxed at 45% instead of 15%. Trustee disqualification goes on the public record and applies to all future SMSF roles. These penalties are paid personally by trustees — not from the fund.
Real ATO Cases That Should Make You Think Twice
The ATO does not just issue warnings — it acts. The following court and tribunal decisions illustrate what happens when things go wrong.
📋 ATO Case: NSW Promoter — Federal Court PenaltyOne of the most striking enforcement actions involved a NSW promoter who set up (or attempted to set up) 35 SMSFs for 68 individuals. She charged fees to help people who were not eligible to access their super to roll it into a new SMSF and withdraw it immediately — often the same day — for home renovations, stamp duty and personal expenses.The Federal Court imposed a $220,000 penalty and banned her from setting up SMSFs for seven years. The individuals involved were also exposed to back-taxes, penalties and trustee disqualification.
📋 ATO Case: Ryan v Deputy Commissioner of Taxation [2015] FCA 1037The Ryans withdrew nearly $210,000 from their SMSF in 68 transactions over three years, leaving a minimal balance. Withdrawals were treated as loans but were completely undocumented, unsecured, interest-free and had no repayment date.The Federal Court found breaches of the sole purpose test, the prohibition on member loans, and the arm’s length requirement. Each trustee was fined $20,000 ($40,000 combined), disqualified as trustees, and had their remaining benefits rolled into a public fund. They were ordered to pay the ATO’s costs.
📋 ATO Case: Fitzmaurice and Commissioner of Taxation [2019] AATA 2217The Administrative Appeals Tribunal upheld the disqualification of a trustee following cumulative breaches: lending to a member, sole purpose test violation, illegal early release, missing annual returns, investments not at arm’s length, failure to maintain current asset valuations, and record-keeping failures.Critically, the Tribunal held that vague verbal advice from the fund’s accountant was not a valid defence. Primary responsibility for compliance rests with the trustee — not the adviser.
Other Schemes the ATO Has Shut Down
Property “rebate” arrangements where part of the purchase price is secretly returned to the member personally.
Contrived property development joint ventures that use related parties to divert profits into the SMSF at non-commercial rates, triggering non-arm’s length income (NALI) rules.
High-return crypto or offshore investment apps pushed after an SMSF is established, using the fund balance as the entry ticket.
📊 ATO Enforcement in Numbers — 2024-25 Over 660 SMSF trustees disqualified in 2023-24, largely due to illegal early accessMore than $7 million in administrative penalties and $16 million in additional tax raised$481.8 million estimated in illegal early access and prohibited loans in the most recent year10% increase in contraventions in 2024 income year, with a further 13% rise in early 2025Most common contraventions: member loans (19%), in-house assets (16%), asset separation (13%)
5. My Final Coaching Advice
An SMSF is a genuinely powerful tool — I’ve helped hundreds of families use them successfully for direct property, shares, and real retirement control. But only when it is the right fit and set up properly. The key question is always: who is this arrangement actually serving?
✅ Before You Say Yes: Your Pre-Commitment Checklist Ask yourself honestly: is this person acting in my best interest, or theirs?Demand clear, written disclosure of all fees and ongoing costs — in dollars, not just percentages.Insist on a Statement of Advice (SOA) that documents why an SMSF is recommended for your specific situation.Insist on proper education about your trustee responsibilities before you sign anything.Check every licence on the ASIC Financial Advisers Register and the Tax Practitioners Board.Get a second opinion from an independent SMSF Specialist Adviser who has no connection to the product being recommended.Confirm your existing insurance coverage position before rolling out of your current fund.If anyone promises access to your super now for a non-retirement purpose — stop. That is illegal, and the ATO will find you.
💡 From The SMSF Coach An SMSF done right is one of the best structures available for building retirement wealth. An SMSF done wrong — for the wrong reasons, promoted by the wrong people — can cost you your retirement savings, your trustee status, and years of financial recovery.
📌 Key Takeaways ✅ An SMSF is right for the right person — but the approach, the advice, and the cost disclosure must all check out first.🚨 If someone approached you unsolicited and led with a product, the starting position is one of conflict of interest.💰 Understand the full annual cost (typically $3,500–$6,000+) and compare it to your current fund before deciding.⚠️ The most common contraventions are member loans, in-house asset breaches and non-lodgement — all carry personal penalties.🔑 Always verify licences, demand a written SOA, and get an independent second opinion.📋 The ATO will find non-compliance. Trustees cannot hide behind their accountant or adviser.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account your objectives, financial situation, or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Throughout the last year as I have gone through the 30 June 2018 SMSF financials with clients and pointed out to them the amount of franking credits they had earned in their fund and the value of them to their retirement income, many have been alarmed to hear of Labor’s proposal to deny them the refund of any excess franking credits.
There has been a lot written in the press about this matter and much of it amounts to bashing self-funded retirees for carefully using the system to develop portfolios that would deliver the best return for their capital in a way that suited their risk tolerance and bias towards Australian assets.
Well the Labor proposal now puts much of that hard work at risk and while we do not really know if their will be consequences for the economy of companies in which we invest, what we do know is that it will affect SMSFs that do not have at least one member who is currently receiving an age pension. This is very inequitable that one sector of society should be targeted by these measures
Time to Step Up and have your Say
The House of Representatives Standing Committee on Economics will hold public hearings in numerous locations in New South Wales and Queensland for its inquiry into the implications of removing refundable franking credits. I strongly urge you to consider going along to one of the hearings and voicing your opinion or support others who are going to speak but need some back-up.
From the Media Release:
The Chair of the committee, Mr Tim Wilson MP, said ‘the committee is examining how the removal of refundable franking credits would affect investors, in particular older Australians who have planned for their retirement under the existing rules and whose financial security could be compromised.’
Mr Wilson said ‘the committee has received well over 1000 submissions, including many from retires who are concerned they will be forced on to the aged pension if the ability to claim a refund on their franking credits is removed.’ ‘These hearings will provide an opportunity for Australians impacted by a change to refundable franking credits to address the committee directly with a three-minute statement, and we welcome their contributions and participation’. Mr Wilson said.
Public hearing details:
NSW
Merimbula, 9.00am to 10.30am, Monday, 4 February 2019, Merimbula RSL, 52-54 Main St, Merimbula, NSW
Chatswood, 9.00am to 10.30am, Friday, 8 February 2019, The Chatswood Club, Level One, G11 Help Street, Chatswood, NSW
Bondi Junction, 2.00pm to 3.30pm, Friday, 8 February 2019, Bondi Junction RSL, 1/9 Gray St, Bondi Junction, NSW
Queensland
Townsville, 2.00pm to 3.30pm, Tuesday, 29 January 2019, Pandora Room, Hotel Grand Chancellor, 334 Flinders St, Townsville City, Queensland
Alexandra Headland, 9.00am to 10.30am, Wednesday, 30 January 2019, The Bluff Function Room, Alexandra Headland Surf Life Saving Club, 167 Alexandra Parade, Alexandra Headland, Queensland
Paddington, 2.30pm to 4.00pm, Wednesday, 30 January 2019, Presentation Room, The Lavalla Centre, 58 Fernberg Rd, Paddington, Queensland
Eight Mile Plains, 9.00am to 10.30am, Thursday, 31 January 2019, Central Auditorium, Brisbane Technology Park Conference Centre, 1 Clunies Ross Ct, Eight
Mile Plains, Queensland
Upper Coomera, 2.00pm to 3.30pm, Thursday, 31 January 2019, Upper Coomera Centre, 90 Reserve Rd, Upper Coomera, Queensland
Further public hearings will be announced as the inquiry progresses. The hearings will be webcast live (audio only). A number of submissions have been received and are available on the committee’s webpage at: http://www.aph.gov.au/economics.
A number of submissions are currently being processed and will be published over the coming months. Submissions can be made online or by emailing economics.reps@aph.gov.au.
Media enquiries: Mr Tim Wilson MP—Electorate: 03 9557 4644; Parliament: 02 6277 2392
For background information:
House of Representatives Standing Committee on Economics Phone: 02 6277 4587;
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of kittijaroon at FreeDigitalPhotos.net
It contains a huge library of articles, life events, videos, quiz’s and calculators, so that you can learn about managing money while having a bit of fun at the same time.
The best part of all is that you work at your own pace and we offer a free trial to one and all but it will always be free to our clients as part of our advice service.
Watch this short video which explains what is available in this vast knowledge base.
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
For many people setting up an SMSF, insurance is an afterthought but the law says that SMSF trustees must formulate, review regularly and give effect to an investment strategy that includes consideration of whether to hold insurance cover for one or more members of the fund. So that is why we usually have to do a needs analysis and work out where to place cover if required.
After we have assessed a new member’s insurance needs we look at what you have in place already and replacement options. But often we need to work with what you have due to changes in health or disparity in premiums when comparing group and individual rates. The basic facts on health are that most of us have some sort of issue by age 45 that triggers further investigation and loadings or exclusions by insurers before they offer cover. The latter issue of premiums is rapidly changing as retail and industry super funds hike insurance premiums and move more towards individual underwriting.
Our preference is to tidy up people’s affairs rather than complicate them and we do prefer to replace insurances where possible and use a combination of policies held inside and outside of your SMSF to maximise the breath and quality of cover while managing the premiums tax effectively. However where new cover cannot be obtained without loadings or exclusions we look at strategies for keeping existing cover in place. THIS IS WHY YOU NEVER ROLLOVER EXISTING POLICIES WITHOUT REVIEWING INSURANCES FIRST.
One of the strategies we use is that when you start your SMSF we leave a portion of your superannuation balance in the large fund to retain the current covers. This is often because it can be cost effective retain life, total and permanent disability (“TPD”) and income protection insurance cover in a large fund.
One of the advantages in keeping a balance within an existing retail/employer or industry superannuation fund is access to sometimes lower cost group insurance that has been arranged on a Group Insurance basis by the superannuation fund. Often, no medical examinations are necessary to have access to reasonably high levels of cover.
Despite any advantages, there can be terms in these insurance arrangements that cause cover to cease. This could be unexpected and usually as a result of clauses found in a 40-50 page product disclosure document that you may never have read. Some of the common cancellation triggers we have found are are outlined below.
No employer contributions
Under Protecting Your Super legislation your account will be considered inactive and transferred to the Australian Taxation Office (ATO) if your account balance is below $6,000 and within the last 16 months:
we haven’t received a contribution to your account; and
you haven’t changed your insurance cover, switched your investments, made or amended a binding beneficiary nomination on your account or told us in writing that you don’t want to be transferred.
A number of large super funds also have a clause that states, if employer contributions cease for six/12/13 months, a member automatically loses income protection cover. We understand that this is a policy for certain large funds that offer members automatic income protection insurance. Usually one month before the cover expires the fund notifies the member that cover is about to cease.
Leaving an employer in an employer sponsored plan
When it comes to employer sponsored funds we are aware of funds that require that a particular employer makes contributions to the member account or the insurance stops. TPD and income protection cover cease without notice if the member is no longer working for that employer after 60/71/90 days and their account balance is less than typically $3,000 or $6,000 under the Protecting Your Super legislation. Another fund cancels the Income Protection cover immediately on leaving the employer and no continuation option is offered whereas they do offer to continue the Life and TPD automatically when the member rolls over to a personal plan.
Minimum balance requirements
To retain cover at many industry and retail funds, the funds usually require that the member maintains a minimum balance in your account $6,000 under the Protecting Your Super legislation and have a contribution in the last 16 months. The cut off point or trigger can be as low as $1,000 or as high as $10,000. While most large funds let members retain cover as long as premiums can be automatically deducted from their account, we are aware of a fund that will cease insurance cover for all insurances when the account balance falls below $3,000 and no employer contributions are made after 13 months.
No longer working in the public sector
Some large government funds cease insurance cover if the member no longer works within the public sector. We are aware of some public sector funds where income protection cover ceases on the day the member officially ceases employment with the relevant public sector and no continuation option is provided. There is also another public sector fund that will cease all cover after 60 days from the last employer contribution or when the member stops working in the relevant public sector. Often these public sector funds do not accept further contributions from third party employers or rollovers from other funds.
Terminal illness payouts based on TPD not Life sums insured
We are also aware of a funds whereby on terminal illness, the insurance can pay out at the TPD level, which is often lower than the amount of life cover especially for higher risk occupations. The payment reduces any remaining life cover paid on death. This can mean less funds are available to cover medical or palliative care costs while the insured is alive. Thankfully the standard method of terminal illness cover is to pay out 100% of life cover upon confirmation of a terminal illness with less than 12 months life expectancy.
The kick in the teeth with this restricted payout is that it can also give rise to more tax because the non-dependent beneficiaries will receive the death benefits, as opposed to the member receiving benefits tax free before they die.
Read the Policy and Product disclosure Statement and review it annually
Before relying on existing cover to continue ensure you read the product disclosure statement and policy document particular to your type of policy. do not rely on the latest PDS on the website as this may be for a newer plan and yours maybe an older plan closed to new members so the PDS may not be on the website. email for the exact the PDS you need to rely on so you have a record of the request. Likewise any questions should be directed to the super fund via email for clarification on exactly how insurance cover applies as we know you can get many different answers to the same question over the phone!
Many funds see the employer as their client and may not give adequate warning when insurance cover is about to cease. Therefore it is important to monitor accounts and your contact details periodically especially where you may have elected for email correspondence. Many a cancellation warning has been sent to old email or previous home addresses.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
There are many reasons to get a superannuation review especially if you are within 15 years of using your super funds more tax effectively (hint over age 45). A lot can be done to dramatically improve your retirement prospects given time. However if you leave it too late, the chances of making significant improvements are limited. Getting good financial advice can make all the difference to the quality of your retirement. You may not want a full advice service but you can just have a Superannuation and Insurance review. So here are a few reasons why a review could be one of the best decisions you make.
You’ve being putting money in to Super for over 20 years and not sure what it’s doing for you. You have more than one superannuation account and cannot keep a track of how them or how they are performing. Consolidating your accounts together could make keeping track of your savings much easier and moving house less of a hassle!
You may be considering adding funds or your tax agent may have recommended some salary sacrifice and you are suddenly more interested in getting value for money.
You may be interested and want to explore the use of a Self Managed Superannuation Fund known as a SMSF (it’s only one of the options available but we can help you assess if it is right for you).
You may not be satisfied with the level of service and advice you are receiving from your superannuation company and/or your adviser if you are getting any at all. Many people receive no service at all but continue paying fees year after year. Is it time for you to step-up and demand advice, we invite clients for a review at least twice per year.
You are concerned that your super or multiple accounts may not be performing very well. Sadly, most people in superannuation schemes have little or no idea how their funds are invested or performing from one year to the next. Reports get thrown in a drawer because the jargon is mind bending!
You may be unsure how much risk you are taking with your superannuation investments. It is undeniable that in order to increase your nest egg value, some risk will need to be taken. However the risk you are taking may not be suitable for you and categories like “Balanced or Core” don’t actually mean what they suggest!.
And how about just getting general health check on your super and how it is performing.
Like many people you have accumulated lots of accounts over the years from various jobs ( I recently consolidated 12 accounts for a couple). It may be beneficial to consolidate them all together in one account (wait don’t rush in, review insurance and fees first).
Identify poor performing superannuation funds and move them to investments that have greater potential for growth or a more consistent return.
You may have an SMSF or Superannuation account sitting in cash and just don’t know what to do as you have lost confidence.
You may have multiple/duplicate insurance arrangements across many funds and be paying premiums for cover that may never pay out.
How a superannuation review works
You are likely to have one or more personal accounts and they could be an industry fund, an employer group plan, a personal retail account, or even a transition to retirement pension .
A relationship with your advisor should last for many years. At Verante and the SMSF Coach, we take the time in our first meeting to understand you, explain how we operate, and what you should expect.
You decide whether you feel comfortable with us.
We determine how we can add value to your set of circumstances.
Together we discover what challenges and opportunities lay ahead.
The second step is our Discovery meeting as we spend a great deal of time gathering the necessary information to build a clearer picture of you. We discover you and your current circumstances – such as family, financials and aspirations. We also help you complete a Risk Profiling Questionnaire; this is designed to help identify what your attitude to risk is and your comfort with different classes of investment.
The third step is to obtain full details of all of your current superannuation, investment, debt and insurance arrangements. We ask superannuation companies more than 20 questions, so that we get a full and complete picture of your current situation.
The fourth step is where we complete a full and comprehensive analysis of your current arrangements, to identify if your super accounts are delivering on expectations, that insurance cover is valid and will protect you and your family and fees are under control.
Step five is to recommend a suitable strategies to move your Superannuation balance forward, should the review reveal that your existing accounts are not working as well as they should be.
Step six is to implement the recommendations, which may mean re-organising and consolidating your accounts into one super or even a pension fund.
And finally step seven is to keep your arrangements under regular review to ensure that it continues to perform and meet your objectives.
Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make this the year to get organised or it will be 2028 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Also delighted to be named in the 50 most influential investors and win the top awards in the 2017 and 2018 SMSF and Accounting Awards.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Like every strategy we discuss with clients we stress that have to look at the exit strategies up front rather than scramble to react if something happens that changes the financial position of the members or of the fund.
While a self managed superannuation fund can increase its assets and leverage the potential growth by borrowing to purchase a property, that borrowing can also cause financial distress if a fund member dies or becomes disabled. The lack of liquidity and cash flow could force the trustee to:
Sell the property in a difficult or dropping market
Realise capital gains or losses before expected i.e. before the members are in pension phase
Have to deal with increased transaction costs.
Since August 2012 Trustees of an SMSF have been required to consider insurance for members and we would say that is very sensible when debt is involved.
SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 4.09 (2)(e)
The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund
In the past strategies like Cross insurance on each member of superannuation fund was often used to reduce the impact that the sudden death or disability of a member may have on a fund however the ATO have ruled out many of these strategies including using the SMSF to fund Buy-Sell Agreements between business partners.
SMSF mortgage repayment solutions on death
If there is life insurance on the member that dies then any proceeds are added to their account balance and can be paid as a lump sum out of the fund to beneficiaries but that may leave a fund a debt still to be paid off and with less contributions going in as one member is deceased and the fund may not have the free cash-flow to fund the full balance pay out without selling the property.
The strategies outlined below are those now available as to manage the cash-flow liquidity issues and death benefit payment requirements that have arisen when a fund member dies suddenly, whilst the fund still has a Limited Recourse Loan Arrangement in place.
Payment of insurance benefits as an income stream to spouse
If it is 2 spouses or defacto’s that have set up an SMSF and borrowed to purchase an investment property, life insurance is often used to extinguish the debt. The reason for this is that generally the disability or death will eliminate or reduce the level of contributions that are made for the member, from which the loan repayments have been sourced.
Where the members of a fund are spouses then death benefits can be paid as an income stream. This means that even if a fund has borrowed to purchase a property, the property does not need to be disposed of to pay out the death benefit. This is even more important if your business is run out of the property.
In this case the life/TPD cover can be held by the member covered by the insurance and the premium can be paid from that members account. These arrangements comply with the SIS Regs, and the policy can be held through the self managed fund.
If the member dies or becomes disabled, the proceeds will be credited to the affected member’s account and loan will be repaid. Following the repayment of the loan a pension will commence to be paid to the member in the event of TPD or to the spouse in the event of death. If under 65 they can take as little as 4% per annum to keep as much in the fund as possible.
Example: Tax Dependants like spouses
Jack and Diane are married and members of Mellencamp Family Super Fund (“SMSF”)
Account Balances:
Jack – $100,000
Diane – $100,000
SMSF took out a loan of $300,000 to acquire property valued at $500,000
Jack dies after getting a bad knock playing football ( for the younger readers get the full story here
anyway thank you for indulging me and now back to the example:
SMSF Cash flow after Jack’s death
The loan is paid out.
Diane starts a minimum 4% annual death benefit pension. Only one member left contributing now but no interest to pay.
Rent
$17,500
Concessional contributions
$5,000
Total inflows
$22,500
Interest
$0
Operating costs
($2,000)
Life premiums
$0
Pension
($16,000)
Total outflows
($18,000)
Tax
($675)
Net cash flow (surplus)
$3,825
what are the tax implications of the pension
Age at Death
Type of Super Death Benefit
Age of Recipient- DEPENDANT
Taxation Treatment of Taxed Element
Any age
Lump Sum
Any age
Tax free
60 & above
Income stream
Any age
Tax free
Below 60
Income stream
60 & above
Tax free
Below 60
Income stream
Below 60
Marginal rate of tax less 15% tax offset
To implement the strategy, the following factors, need to be considered:
The funds trust deed must permit the fund to hold the insurance and to pay the TPD or death benefits as an income stream
The fund’s investment strategy should state that the trustees have considered the needs of the individual members and determined to take out life insurance for the fund members in order to repay any outstanding mortgage under an LRBA
Whether the fund’s cash flow allows for the taking out of the insurance policies. The premiums will normally be deductible in this circumstance as the benefits can be paid as a pension. For younger trustees you should consider Level Premiums and reviewing the cover as the loan is paid down.
Funding benefits from a reserve
If a fund is not able to pay a death or disability benefit in the form of a pension because they don’t have a spouse or the fund trust deed does not permit the payment of a benefit as a pension, then it may need to consider the use of a reserve strategy.
This strategy involves the fund trustee taking sufficient TPD and death cover over the lives of the fund members to enable the repayment of a loan and the payment of benefits as a lump sum.
The fact that the insurance policies are paid from the fund’s reserve and the insurance proceeds in the event of an insured event are credited to the reserve, means that the insurance benefit can remain in the fund. The fact that the insurance proceeds can remain in the fund means that insurance liabilities can be met and the loan repaid without the asset purchased under the borrowing arrangement needing to be sold.
In order to implement the strategy effectively, insurance policies premiums for each of the fund members will need to be paid from the reserve. The fact that the premium is paid from the reserve will then require any insurance proceeds after an insured event to be credited to the reserve.
Example 2 – Non- Tax Dependants – 2 brothers in a business
So sadly Brad dies …big ahhhh!
SMSF Cash flow after Brad’s death
Death benefits are held in a Reserve.
The loan is paid out but the value is held in the reserve account
Results in large reserve ($400,000)
allocate back to Brian < 5% of his balance p.a. or
allocate up to $25,000 p.a. this year and $25,000pa going forward to Brian’s account depending on other concessional contributions in year
Rent
$17,500
Concessional contributions
$10,000
Total inflows
$27,500
Interest
($18,000)
Operating costs
($2,000)
Life premiums
($1,500)*
Pension
$0
Total outflows
($21,500)
Tax
($900)
Net cash flow (surplus)
$5,100
* Deducted from general fund expenses
Other Issues to consider
There are a number of other issues that fund trustees will need to consider when implementing this strategy:
If the members of the fund are business partners rather than spouses, the spouse of the deceased member may feel that the business partners are benefiting from the death of their spouse. It is really important to discuss these strategies upfront with family so they know they are provided for but that the business needs stability too.
When the insurance proceeds are credited to a reserve, it may be difficult to transfer that reserve back to fund members without exceeding the excessive concessional contributions cap.
The insurance premiums are not tax-deductible under Section 295-465 of the ITAA 97 because the policy is not held for the purpose of providing a fund member with a death or disability benefit.
The cost of the insurance premiums could be very high so seek advice on all possible solutions.
The cost of the insurance premiums may limit the trustee’s capacity to take out other insurance cover for members
By the Way – one other reason to cover your exit strategies
What happens if a trustee fails to address insurance in their SMSF?
The trustees could be fined 100 penalty units ($21,000) for each trustee – Section 34 SIS Act; Section 4AA Crimes Act 1911
and if someone else has been affected by the loss as a result:
A person who suffers loss or damage …may recover … against that other person or against any person involved in the contravention. – Section 55(3) SIS Act
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net
Ok so as SMSF trustees you are obliged to consider insurance for members but you might think you don’t need it or that you can manage risks. Here is a light-hearted look at some reasons why you might need to reconsider that decision.
Cats have 9 lives. You don’t. Enough said.
Cats get a free ride. You pay the rent/mortgage. Living in an lane way or the bush might work for a feral feline, but for your family, not so much. Your rent or mortgage still needs to be paid regardless of illness, injury or death.
Cats can hunt. You can barely handle the line at the Woolies.
Stalking prey for dinner is not an option. Your family needs cash to put food on the table.
Kittens move out at 8 weeks. Your kids may still be at home when they’re 25..30..and back again at 45 with a few kids in tow!
Your kids may leave for uni at 18, but they could be freeloading off your parental generosity well past their studying years…focusing on becoming an “entrepreneur”, an “artist” or just “finding themselves”.
Cats always land on their feet. You need a safety net. Life on the edge might be thrilling for you, but a nightmare for your family.
Cover your life and your income. Protect your family’s most important asset—you and your earning capacity (unless, of course, you’re a cat).
Contact us to figure out the life and income protection insurance you need.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
There are many reasons to get a superannuation review especially if you are within 15 years of using your super funds more tax effectively (hint over age 45). A lot can be done to dramatically improve your retirement prospects given time. However if you leave it too late, the chances of making significant improvements are limited. Getting good financial advice can make all the difference to the quality of your retirement. You may not want a full advice service but you can just have a Superannuation and Insurance review. So here are a few reasons why a review could be one of the best decisions you make.
You’ve being putting money in to Super for over 20 years and not sure what it’s doing for you. You have more than one superannuation account and cannot keep a track of how them or how they are performing. Consolidating your accounts together could make keeping track of your savings much easier and moving house less of a hassle!
You may be considering adding funds or your tax agent may have recommended some salary sacrifice and you are suddenly more interested in getting value for money.
You may be interested and want to explore the use of a Self Managed Superannuation Fund known as a SMSF (its only one option but we can help you assess if it is right for you).
You may not be satisfied with the level of service and advice you are receiving from your superannuation company and/or your adviser if you are getting any at all. Many people receive no service at all but continue paying fees year after year. Is it time for you to step-up and demand advice, we invite clients for a review at least twice per year.
You are concerned that your super or multiple accounts may not be performing very well. Sadly, most people in superannuation schemes have little or no idea how their funds are invested or performing from one year to the next. Reports get thrown in a drawer because the jargon is mind bending!
You may be unsure how much risk you are taking with your superannuation investments. It is undeniable that in order to increase your nest egg value, some risk will need to be taken. However the risk you are taking may not be suitable for you and categories like “Balanced or Core” don’t actually mean what they suggest!.
And how about just getting general health check on your super and how it is performing.
Like many people you have accumulated lots of accounts over the years from various jobs ( I recently consolidated 12 accounts for a couple). It may be beneficial to consolidate them all together in one account (wait don’t rush in, review insurance and fees first).
Identify poor performing superannuation funds and move them to investments that have greater potential for growth or a more consistent return.
You may have an SMSF or Superannuation account sitting in cash and just don’t know what to do as you have lost confidence.
You may have multiple/duplicate insurance arrangements across many funds and be paying premiums for cover that may never pay out.
How a superannuation review works
You are likely to have one or more personal accounts and they could be an industry fund, an employer group plan, a personal retail account, or even a transition to retirement pension .
The first step is to complete a Risk Profiling Questionnaire; this is designed to help identify what your attitude to risk is and your comfort with different classes of investment.
The second step it to complete a Fact Find about your personal circumstances so that we have a full understanding of you current situation, your future goals and objectives.
The third step is to obtain full details of all of your current superannuation and insurance arrangements. We ask superannuation companies more than 15 questions, so that we get a full and complete picture of your current situation.
The fourth step is to complete a full and comprehensive analysis of your current arrangements, to identify if your super accounts are working as they should be, that insurance cover is valid and will protect you and your family and fees are under control.
Step five is to recommend a suitable investment strategy to move your Superannuation balance forward, should the review reveal that your existing accounts are not working as well as they should be.
Step six is to implement the recommendations, which may mean re-organising and consolidating your accounts into one super or even a pension fund.
And finally step seven is to keep your arrangements under regular review to ensure that it continues to perform and meet your objectives.
Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make this the year to get organised or it will be 2028 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
In another harsh interpretation by the ATO, they has recently released an interpretative decision which says that insurance held in a self managed superannuation fund (SMSF) to fund a buy-sell agreement may breach the sole purpose test and the prohibition on giving financial assistance.
In this interpretative decision the ATO explored a situation where a member of an SMSF and his brother run a business through a company in which they were the only two shareholders.
The SMSF member and his brother entered into a buy-sell agreement. The terms of the agreement required:
the SMSF to purchase a life insurance policy over the life of the member with the insured amount based on an agreed market value of the member’s shares in the company;
the company to make contributions to the SMSF which the SMSF trustee would then use to pay the premiums on the insurance policy. These contributions were in addition to superannuation guarantee contributions and salary sacrificed contribution; and
on the death of the member:
the insurance proceeds were to be paid to the SMSF trustee who would then add the proceeds to the member’s benefits;
the SMSF trustee would then pay the deceased member’s death benefit (including the policy proceeds) to their spouse; and
the deceased member’s shareholding in the company would be transferred to the member’s brother for nil consideration and the deceased member’s spouse will relinquish all claims to that shareholding in the company.
The ATO ruled that the SMSF trustee’s purchase of the life policy contravened both the sole purpose test under section 62 and section 65(1(b) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) which covers the giving of financial assistance by an SMSF to a member or their relative. Breaching the sole purpose test and/or the financial assistance provisions can lead to the SMSF being non-complying and significant monetary penalties being imposed on the SMSF trustees.
Sole purpose test
Broadly the sole purpose test requires an SMSF to be created for the core purposes of providing retirement benefits and death benefits.
Whilst historically the ATO has provided guidance that superannuation funds involved in buy-sell arrangements would not contravene the sole purpose test, the ATO’s decision in ATO ID 2015/10 represents a new position taken by the ATO. Under this new position the ATO indicates that in assessing whether the sole purpose test is met, it will look at all the wider circumstances surrounding a trustee’s decision to make an investment or carry out a particular activity. In the context of buy-sell arrangements this involves the manner and circumstances in which the SMSF are to hold the insurance policy.
Subsection 62(1) of the SISA expressly allows an SMSF to be maintained for the provision of death benefits.
However, the manner and circumstances in which the SMSF came to hold the policy in question caused the ATO to conclude that the benefits sought by the parties of the agreement cannot be regarded as being merely incidental to the core purpose of providing death benefits. The buy-sell agreement is a major component of the member’s and his brother’s company succession plan.
The SMSF is required to use contributions made to it in a manner that may not accord with its investment strategy. The SMSF is essentially directed to invest contributions made to it in an asset it may not otherwise choose to hold.
Having the policy held in the SMSF enables the member’s brother to gain total ownership of the company after the member’s death without personally incurring any expenditure. This immediate benefit to a related party (who is not a member) of the SMSF cannot be described as something that is incidental, remote or insignificant provided to the members of the fund.
Financial assistance provided to a relative of a member
In addition to the sole purpose test concerns discussed above, as the terms of the agreement allow the member’s brother to obtain total ownership of the company upon the member’s death without the need to pay any consideration, the SMSF was also seen to be providing financial assistance to a relative of the member (eg the brother). S.65 of SISA prohibits a SMSF trustee from assisting a member or relative of a member using the fund’s resources. The ATO concluded that the arrangement constituted the provision of financial assistance to the member’s brother which is in breach of section 65(1)(b) of the Act.
What should SMSF’s involved in new buy-sell agreements do?
Although ATO ID 2015/10 is not a binding public ruling, it outlines the ATO’s current position on superannuation and buy-sell arrangements. SMSF trustees and their advisers considering new buy-sell arrangements with the ownership of the policy held in superannuation (SMSF or retail) should consider alternative ownership structures instead.
Existing SMSF arrangements
Unfortunately despite ATO ID 2015/10 representing a change of position by the ATO on buy-sell arrangements, the ATO has not outlined any grandfathering provisions in relation to existing buy-sell arrangements where SMSFs have been involved on the basis of the ATO’s previous view that the sole purpose test was not breached.
As a regular review of the SMSF’s investment strategy is required, which also involves a review of the fund’s insurance arrangements, this review should prompt a discussion by the Trustee(s) around whether existing insurance cover is still required and whether it is still appropriate to hold the cover inside or outside of superannuation.
When conducting such investment strategy reviews, Trustee(s) who have existing buy-sell insurance arrangements funded through their SMSF are encouraged to:
• discuss their options with the fund’s auditor, and/or
• seek SMSF Specific Advice, relevant to their arrangement, from the ATO.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Sometimes it pays to think outside the square when wondering how you can help your adult children and at the same time protect your own enjoyment of your retirement. I’ll use a case study to explain this further.
Case Study
Sam & Penny are 63 year-old retirees with two adult children. Both children have their own families and one also owns his own business. Sam & Penny wanted to give their children’s finances a boost now while they had young children and needed help rather than on their death.
Challenge
Although Sam & Penny were keen to help out their children, they also wanted to keep the money in the immediate family (protected from in-laws and creditors).
In addition, they wanted to make sure their grandchildren were protected financially in case something happened to their parents.
They had seen friends having to take over raising grandchildren after a death of a child and saw the health, social and financial effects that had on their retirement so they wanted to put some protection in place.
Solution
We facilitated private loan agreements giving each of their children $100,000 to use towards reducing their mortgage debt. The loan required a minimal amount of interest to be paid yearly and no principal but it was enough to confirm a valid contract was in place. It cost $100 for each completely valid loan agreement
Importantly, if one of their children splits up from their spouse or their son’s business goes under, Sam & Penny can call in that loan, protecting their money from any family settlement and/or creditors. They can then later re-gift the children back the money when appropriate. I know this sounds harsh but they worked hard for their money and want to see it benefit their own children.
Sam & Penny also set up an annual $1,000 super contribution (Non-concessional) for each of their children, and their spouses, on the condition that it’s used to fund life, disability or income protection insurance. The added benefit is that they families also got some additional funds from the Government Co-Contribution which enabled better cover to be purchased on level premiums.
These contributions ensure that Sam & Penny’s grandchildren are financially set up if something happens to their parents. This strategy also protects Sam & Penny’s nest egg, because their grandchildren won’t need their financial support if the worst happens.
They are perfectly happy to step in if needed to care for their grandchildren but they have seen what the added financial worries did to their friend’s health and want to ensure they don’t suffer likewise.
Benefits
Help their children get ahead
Protect the family’s money from ex-spouses, de-facto partners and creditors
Protect their grandchildren’s education and lifestyle
By locking in level premiums at a young age their children will benefit from lower premiums for life.
Keep their own nest egg intact for their retirement and provide a safety net.
Summary
There are ways to pass money to your adult children while protecting it from loss in the event of relationship breakdown.
Sometimes offering funds to insure your children is a far more cost effective way of coping with tragedies protecting everyone’s financial future.
Verante Financial Planning provides comprehensive financial planning services, covering both wealth creation and wealth protection. We help our clients grow their wealth and protect their families and businesses.
Why not click here to Schedule a Meeting by phone, face to face or via Skype if you want to look at your own insurance and family protection options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Just because you are unhappy with your superannuation investment results is no reason to put you or your family’s future at risk by losing your insurance cover in the process of changing.
A good professional like an SMSF Specialist Advisor™ will always ensure you assess your insurance needs before withdrawing.
This issue is becoming even more relevant now that the new SMSF rules require Trustees to consider the member’s insurance needs regularly. See here for more detail.
Ok, so you have decided to start your own Self Managed Super Fund or move to one that you feel better meets your needs. That is fine, but one of the things you should look at doing is protecting any cover you have in your current fund by either keeping some money in your current fund to pay for ongoing insurance premiums or taking out replacement insurance cover in the name of your new SMSF. (more…)
Here is one solution to a big problem that may become more common with blended families and increased divorce as well as de facto arrangements.
Our client , lets call him , Scott (age 78) is a widower in the Hills district and he has a $652,000 account based pension (containing a 100% taxable component to keep it simple). His two adult daughters who are financially independent are noted as 50/50 beneficiaries on his non-lapsing binding death benefit nomination (see here for more details). Any lump sum death benefit they receive will be subject to 17 per cent tax. In dollar terms, this is $110,500 (calculation: $652,000 x 17%) and he wasn’t too happy about this.
Scott was advised by his specialist he has 2-3 years maximum to live due to an aggressive cancer. He threw this curly one at me to come up with a strategy as he wants to maximise his estate for his kids but also retain access to the funds while alive to fund medical and living expenses. Our strategy involves Scott taking a tax-free withdrawal from his account based pension. He then let me know about some skeletons he had in his cupboard!
Scott could retain these funds within a bank account, however the account will form part of his estate upon his death. Even though his estate will be paid predominately to his adult daughters, he is concerned about his estranged son from an affair he had in his late 50’s who might challenge the Will.
We advised that a valid alternative available to Scott is to invest into an investment bond with himself as the owner and the life insured. Since an investment bond is a non-estate asset, upon his death the funds will be paid tax-free to his adult daughters.
Both strategies will avoid the $110,500 of death benefits tax on funds paid to his daughters, however only the investment bond will ensure the funds do not become part of his estate. Scott’s two daughters need only produce a copy of his death certificate to gain access to the funds within the bond. This could also avoid lengthy delays with the administration of the estate and overcome possible estate challenges from his estranged son.
In terms of costs we were looking at foregoing the tax-free status in pension phase for the 2 years but that was far outweighed by the savings in the death benefits tax and we are actually able to wind up the SMSF to save his children the hassle of dealing with that later.
For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office or choose an appointment option here
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Do you know that the average person cancels their personal insurance about 1-2 years before an claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)
As mentioned in a previous blog the SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . The following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.
I see many clients in our Castle Hill and Windsor offices in their late 50’s who have cancelled their life and income protection insurances before they have come to see me. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.
Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.
While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.
With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.
You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.
To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?
Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
What if you were actually permanently disabled and they had all the costs of rearranging the home, medical care and transport options for you.
In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.
So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.
If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:
Financial Planning,
Tax Planning,
Debt Consolidation,
Investment Portfolios,
Estate Planning,
SMSF Trustee queries.
Have you found this blog helpful? Pass it on. Social media buttons beneath the article.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
The SMSF Coach 