Liam Shorte

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All posts in category SMSF Management

Ideas on how to run your SMSF properly

Superannuation Splitting to a Spouse already in or entering Transition to Retirement Phase

So I got a question about continuing to Super Split to a spouse who is over 55 and already using a Transition to retirement Pension but not fully retired.

If a client is over 55 with a TRIS/TTRAP Pension and an Accumulation Account as they are still working or not fully retired, can they continue to receive Super Splits from their spouse?

The answer is yes they can receive the splits into their accumulation account as they are between 55 and 64 and not retired which meets the eligibility rules. The ATO guidelines state:

“Which members are eligible to apply?
All your members are eligible, although it’s your decision whether to offer a splitting facility to all members. They can apply to split contributions regardless of their own age, but their spouse, to whom you transfer the contributions, must be either:

less than 55 years old
55 to 64 years old and not retired.”

The super contributions splitting provisions operate independently from the pension payment rules. So as long as each set of provisions are complied with, there shouldn’t be an issue.

The question was then asked “could the spouse then consolidate their TRIS/TTRAP and Accumulation accounts the following year and thereby moving those funds to pension phase and possibly accessing a higher maximum pension including the amount super split from their spouse.”

I again believe yes as otherwise the accounting would have to quarantine Super Split amounts until 65 or retirement and the ATO have again said:

“There are no requirements for funds to specially report to us amounts that have been rolled over or received as a result of a contributions-splitting application”

This clarifies the way to continue implementing two strategies:

When looking to maximise clients TRIS/TTRAP pensions – often to use the 10% to pay off debt
Ensuring a member can do rollbacks, consolidations and recommencements to maximise the amount in pension phase.

Make sure to get individual advice on your personal circumstances and be aware that the Super split amount will count towards the receiving spouse’s concession caps.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Click here to arrange a meeting/call back or contact our Castle Hill or Windsor offices for an appointment to discuss your needs.

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.

How an SMSF purchases investments. 6 Steps to follow?

In a recent blog entry I spoke about what investments a SMSF can invest in and went through some of the options in detail. This article is more on the process of “How you invest through your SMSF”. There are steps to follow in guiding you through the process of investing in any asset within Superannuation. Almost anything you can invest in as an individual, you can also invest in within a SMSF. However, here are six steps in the Investment Process which should be followed when making investments for your SMSF in order to ensure that your SMSF remains compliant with all the Superannuation Rules and Regulations.

Step 1: Read the Deed! Review Investments Allowed by your Trust Deed

Prior to making an investment for your SMSF, you should make sure that the intended investment is permitted. The range of investments that a fund can invest in is quite broad including listed shares, cash and fixed interest securities, managed investments, private unit trusts, direct residential and commercial property and other collectibles. It is important to understand that there are certain regulatory limitations placed on SMSFs; for example, a fund cannot acquire assets from related parties of the fund or invest more than 5% in in-house assets. The fund cannot purchase your assets, such as your holiday home, from you or a related party such as your parents, spouse or children. Other restrictions placed on the fund include the prohibition on lending funds to members or their relatives or to provide the assets of the fund as security for personal borrowing.

Step 2: Review and possibly amend your SMSF Investment Strategy

The regulations require that all SMSFs and superannuation funds in general need to have an investment strategy in place that is reviewed regularly. Generally, this will mean having a clear objective that takes into account the desired target rate of return, risk tolerance of the members and of investments, diversification needs, the liquidity of the funds’ investments, as well as the ability of the fund to meet accounting, tax and audit fees. Most importantly the ability to make payments to members or their beneficiaries should the need arise via pensions, disability or death. Overall, before any investment is made you must ensure that the investment complies with your Fund’s Investment Strategy and if it doesn’t then consider why you really want to engage in that investment and the risks involved. If you still wish to proceed then the trustees need to amend the current strategy to allow the new investments and should minute why the change has been considered and approved.

Step 3: Second Opinion / Lifetime Value of Investment

Check the accounting and tax implications of any investment with your Accountant / SMSF Specialist Advisor™. It is always a good idea to have a second opinion as you may be looking at the investment with a narrow focus and your advisors may be able to identify other factors to be considered which affect the viability of the investment from a pre or post tax viewpoint both at the purchase and sale point of the investment . An example would the current spate of bank hybrid issues which seem attractive at 7.5 – 8% yield, however with franking credits and growth potential you advisor may suggest that you buy the share rather than the hybrid especially while rates are under pressure and looking at going lower which reduces the return on a floating rate hybrid.

Step 4: Use your SMSF Bank Account for all investment transactions

Your personal funds must be kept separate from the assets of the SMSF. The ATO used to have a booklet called ”It’s your money…but not yet!” All investment holdings, money and title deeds should be clearly recorded as an asset of the SMSF or in the name of the SMSF Trustee (with exception for assets under a Limited Recourse Borrowing Arrangement). This means SMSF assets need to be registered in the name of the SMSF Trustee(s).

Cash should be kept in a separate bank account and we recommend a different bank to your day to day personal banking to avoid mistakes especially in online banking or use of cheque books.
Any income including, interest, dividends, distributions and contributions should be paid directly to the SMSF bank account.
Assets should be purchased with SMSF money. Trustees often pay deposits personally and if they do so should seek reimbursement immediately from the fund or document the funds as contributions on behalf of a member. Simpler to just keep everything separate.
Costs should be paid directly out of the SMSF account. Again in reality people often use personal funds to meet expenses like Accounting Fees or repair bills. Do yourself a favour and lose the bad habit! Use a decent Cash Management Account and you can do Bpay, Pay Anyone or use cheques to meet costs quickly and record them efficiently.

Step 5: Minute your Investment Decisions

Under superannuation laws, all trustees must draft and implement an investment strategy. An investment strategy must also comply with the fund’s trust deed and all other investment restrictions and obligations contained in the superannuation rules and regulations. Documenting investments can be based on investment sector allocations within your SMSF Investment Strategy. This means you don’t have to minute every investment as long as it fits within the strategy. E.G. , you don’t need to prepare a separate minute for each term deposit renewal during a year if it is within your chosen limit in the investment strategy..

Step 6: Review you portfolio and investment strategy regularly

Trustees are required to review the fund’s investment strategy regularly and we recommend that this be at least annually. We normally get the Trustees to sign off an updated copy of the investment strategy annually or whenever a major new investment is made for the fund or a change in circumstances like pension drawdown occurs. On moving to pension phase the Trustees may find that the asset allocation needs to change to ensure the fund can meet its ongoing pension payments and this should be noted in a revised strategy.

I hope these tips have been helpful and please take the time to comment if you know of other steps to consider as I know this is not an exhaustive list. Feedback always appreciated. Why not contact our Castle Hill or Windsor offices for an appointment.

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

What can my SMSF invest in?

Control over investment decisions lies with the Trustees of the Fund.

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We find this is the main reason so many Australians are establishing their own Self-Managed Superannuation Fund or SMSF for short. The range of investments you can consider for your portfolio include almost anything you yourself could invest in as an individual including:

Direct investments (such as shares, ETFs, cash, term deposits, hybrids, income securities, gold/silver bullion and bonds)
Cryptocurrencies, Bitcoin, Ethereum, initial Coin Offerrings (Just because you can doesn’t mean you should)
Direct property (Residential houses, villas, units, as well as Commercial property such as offices, warehouses, factory units, shops and land.)
Managed funds (retail or wholesale, domestic and/or international)
Private Unit Trusts
A business (non-related party to avoid hassle) and business property
Non-traditional assets such as coins, antiques, art , taxi plate licences, ATMs (some of these have been subject to major losses)

The first step is to ensure your Trust Deed allows you to invest in the items you are considering. I know it is a long boring document but you need to know its contents so go through it regularly to get a handle on it. If it does not specifically mention cryptocurrencies then you should have the trust deed updated to allow them as they may not fall under any other category.

Once satisfied the Trust deed does not exclude an investment, the types of investments the SMSF actually holds are determined by the fund’s investment strategy, which is formulated by you, along with the other members in the fund, and often advised by an SMSF Specialist Advisor™. The fund’s strategy should reflect your objectives, risk profile/tolerance, liquidity needs and the investments you intend to utilise. This is not set and forget or forged in stone. The investment strategy can be changed as often as you wish, to suit your changing circumstances and to take advantage of new investment opportunities. The fund can also incorporate different strategies to suit each of its members.

An important benefit of this having this ultimate control is that, during retirement phase, you can continue to invest in growth assets. This contrasts the approach of many retail providers, who lock ‘pension phase’ investors into income-producing assets such as cash and fixed interest, increasing the risk that the investor may outlive their retirement savings. This is coming back on the agenda now as many funds move to ”Lifecycle strategies” which I believe are dangerous in assuming that fixed interest is low risk when inflation is a real risk and bubbles can effect the capital value of even “conservative”options.

It is important to understand that there are certain regulatory limitations placed on SMSF; for example, a fund cannot borrow money to invest in assets such as property or shares unless the funds are provided through a Limited Recourse Borrowing Arrangement (LRBA) .

A fund cannot acquire assets from related parties of the fund or invest in in-house assets; for example the fund could not purchase your assets (such as your house or residential investment property) from you. Other restrictions placed on the fund include the inability to lend funds to members or their relatives or to provide the assets of the fund as security for personal borrowing.

As part of our service, we can provide you with access to a range of investments for your SMSF.

Can I invest in equipment and leased it to my business?

Technically yes but there are so many ways you can get in trouble it may not be worth the hassle. I went into this in more debt in this article.

Can I buy a Classic or Vintage Car within my SMSF?

Again technically and theoretically yes you can, but it would be very difficult with many pitfalls. You’d also have to be able to prove to the ATO that the investment meeting the sole purpose test and was going to generate income for your retirement and not for personal enjoyment now! You can own but you or a related party cannot drive it even for maintenance purposes! If you invest in classic cars, they would have to be hired out to generate income. It would be difficult for you to drive. Remember if you are driving you need to be covered by the vehicle’s insurance, and that would make it obvious to the ATO you are using the car for your own purposes.

Can I use a property within my SMSF?

SMSFs are expressly forbidden from investing in the family home or holiday home for your personal use. But they are able to invest in investment properties – as long as the property is only used for investment purposes. Likewise properties within holiday resorts or golf courses can draw the ire of the ATO as again you may be seen to benefitting members personally rather than providing for retirement

This means fund members can’t go and stay in the property or rent it out to family members. The property should generally be managed by a real estate agent to satisfy the sole purpose test regulations unless you can show genuine evidence that you are managing it professionally yourself.

If I want to push the limits! Coins, jewellery, antiques, wine and art?

You can invest in coins – but you can’t display them if you want to satisfy the sole purpose test. Coins are collectables if their value exceeds their face value. Therefore, if bullion coins have a value that exceeds their face value and they are traded at a price above the spot price of their metal content, they will be a collectable and your SMSF must comply with regulation 13.18AA in relation to the investment

Likewise, you can invest in wine but you can’t drink it unless you are in pension fully retired and taking it out as a lump sum pension payment! If your fund acquired the wine on or after 1 July 2011 it must not be stored in the private residence of any related party. A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.

SMSF investments in art operate in a similar way. You can’t hang it in the hall at home, but you can rent it to a non-related company or an art bank that rents out artworks on an ongoing basis.

Here is a link to the ATO’s guidance on leasing and selling artworks:

ok so what about stepping into the Cryptocurrency or Bitcoin mania?

Just because it may be possible does not mean you should. If you want to then you need to do some major research and follow normal compliance rules to the Nth degree. Read my blog SMSF Research – BITCOIN, DOLLARS, GOLD: What Is the Future of Money?

Although it might seem like a good idea to use your super to invest in exotic assets, the value of these types of investments is notoriously volatile and the market for these asset classes is generally pretty illiquid. If you have special or professional knowledge in a particular subject then you may be able to put forward a better case than an ordinary person for engaging in those assets as part of your funds strategy. Again make sure that you are not using your SMSF or its assets to prop up your own business.

I hope these thoughts have been helpful and please take the time to comment if you know of other investments as I know this is not an exhaustive list. Would love some feedback as well.

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 Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

76 Comments

by SMSF Coach - Liam Shorte on March 26, 2012 • Permalink

Posted in Asset Allocation, Financial Planning, Franking Credits, Pensions, SMSF, Superannuation, Tax Planning, Term Deposits, Trustee

Tagged antiques, art, Asset Allocation, ATMS, classic cars, DIY Super, International, Investing, Investment, SMSF, Strategy, superannuation, Tax Planning, Trustee, wine

Posted by SMSF Coach - Liam Shorte on March 26, 2012

https://smsfcoach.com.au/2012/03/26/what-can-my-smsf-invest-in/

Understanding transition to retirement pensions

If you have reached your preservation age you can use a transition to retirement pension to access your superannuation as a non-commutable income stream while you are still working. This may be particularly attractive if you have reduced your working hours and need to top-up your income to maintain your standard of living.

There was another great benefit of setting up the pension which was that all the funds supporting the pension move in to a tax exempt status. Yes that means those funds paid no earnings tax and in fact they received a full refund of any franking credits on your investments. For the average investor this can increase your returns by 0.5% to 1% a year risk free every year! However that tax free status was removed as of 1 July 2017.

The strategy still remains effective for those needing a boost in income or those who can combine the pension with salary sacrifice.

What is a transition to retirement pension?

Transition to retirement pensions allow you to access your superannuation as a non-commutable income stream, after reaching preservation age (see below), but while you are still working.

The aim of these income streams is to provide you with flexibility in the lead up to retirement. For example, you may choose to reduce your working hours and at the same time access your superannuation as a transition to retirement pension that can supplement your other income. It may also allow you to salary sacrifice to give your retirement savings a boost.

Not all superannuation funds offer the transition to retirement pensions, so you need to check with your own fund to see if they do. You can also start one in a self-managed superannuation fund.

Are there any special characteristics?

These pensions are essentially like a normal account-based pension, but with two important differences.

Firstly, they are non-commutable, which means they cannot be converted into a lump sum until you satisfy a condition of release, such as retirement or age 65.

Secondly, you have a minimum pension amount you must withdraw each year but you can only withdraw up to 10% of the account balance (at 1 July). No lump sum withdrawals are allowed.

What is my preservation age?

Your preservation age is generally the date from which you can access your superannuation benefits and depends upon your date of birth.

Date of birth	Preservation Age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

How are transition to retirement pensions taxed?

Transition to retirement pensions are taxed the same as regular superannuation income streams.

If you are under age 60, the taxable part of your pension will be taxed at your marginal rate, but you receive a 15% tax offset if your pension is paid from a taxed source*.

However, once you reach 60, your pension is tax-free if paid from a taxed source*.

Most people belong to a taxed superannuation fund. Some government superannuation funds may be untaxed and you will pay higher tax on pensions.

Can you still contribute to superannuation?

As long as you are eligible to contribute, you and your employer can still contribute to superannuation for your benefit. In any case, your employer’s usual superannuation guarantee obligations would still apply. You need to have an accumulation account to pay these amounts into.

Is a transition to retirement pension right for you?

Transition to retirement pensions can provide you with flexibility in the years leading up to your retirement and can help to boost your retirement savings in some circumstances.

People who might find the transition to retirement pensions attractive include those who:

have reduced working hours from full-time to part-time, eg down to three days per week. The reduced salary can be topped up with income from the transition to retirement pension
are able to salary sacrifice to your superannuation or your spouse’s super for tax savings – the outcome of combining the transition to retirement pension with salary sacrifice can be a greater build-up of superannuation savings by the time you reach actual retirement

The transition to retirement rules and associated strategies can be very complicated. It is recommended that you seek expert advice from your financial adviser before deciding if this type of income stream and strategy is right for you.

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 year the year to get organised or it will be 2030 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF016_Fellow_Logo_CMYK

Tel: 02　9899 3693, Mobile: 0413 936 299

PO Box 6002 BHBC, NORWEST NSW 2153

40/8 Victoria Ave , CASTLE HILL NSW 2154

Suite 4/1 Dight St, Windsor NSW 2765

Corporate Authorised Representative of Viridian Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

11 Comments

by SMSF Coach - Liam Shorte on March 14, 2012 • Permalink

Posted in Asset Allocation, Binding Death Nominations, Financial Planning, Franking Credits, Pensions, Reversionary Pension, SMSF, Superannuation, Tax Planning, Term Deposits, Trustee

Tagged Asset Allocation, DIY Super, International, Investing, Investment, Pensions, SMSF, Strategy, Tax Planning, Transition, TRAP, TRIS, Trustee

Posted by SMSF Coach - Liam Shorte on March 14, 2012

https://smsfcoach.com.au/2012/03/14/understanding-transition-to-retirement-pensions/

7 Common SMSF Pension Errors

Having set up over 120 pensions and taken over many other clients we know that having the right documentation and following the guidelines set down for accessing pensions is essential to remain compliant and access tax exempt status. Here are some of the common mistakes we see on documentation of pensions that clients bring to us from other sources.

1. Pension entitlement – don’t bend the rules

You must be over the preservation age to commence a pension. This means that you must have reached the preservation age at the time the pension documents say the pension starts. A common mistake is to assume this means at the time the first pension payment is made, which is wrong. For example, you may be turning which is your preservation age on the 1st of October and think that you can start the pension on the 1st of July but not pay any pension payments until after the 1st of October and get the full year of tax exempt income. This is not possible; in order to start the pension you must have reached the preservation age at the 1st of October. the income for that year will be split pro-rata across the period in accumulation phase pre- 1st of October and in pension phase after that date.

2. Market valuation of assets funding the pension

SMSF Advisors, Accountants and trustees must make sure the assets of the fund are valued at market rates before the pension is calculated. Further they should ensure the assets are revalued at the end of financial year. This is important in determining the level of pension in the coming year is correct and reflects the true value of the assets in the fund. There used to be some leeway especially with property but auditors now seem to be implementing a more rigorous checking system to ensure property values are updated annually.

3. Use a Comprehensive Pension Kit

Timely documentation is essential to ensure that the pension actually commences when you want it to commence. Typically, a pension may start well before an actual pension payment is made as often the financials for the SMSF are not completed yet. Often the pension start date will be 1st July and the actual pension payment may be made quarterly or half-yearly later in the year. The pension kit should reflect this and include at a bare minimum such things as a pension request form from the member to the trustee(s), minutes of the trustee acknowledging and agreeing to the request, notification from the trustee to the member with a draft pension agreement stating the type of pension, start date, frequency of payments and if a reversionary pension is to be applied. Importantly, it should also include a Product Disclosure Statement which is a legal requirement. The initial pension documentation does not have to have the exact figure of the pension amount but should refer to the fact that this figure will be clarified once the financials are completed. We update the initial kit with a set of minutes after the financials are provided which shows the exact amount in the pension and the relevant minimum and maximums or selected pension payment for that year and the Tax free component of the pension.

Your SMSF advisor of accountant should be able to help with this documentation.

4. Minimum Pension Payments (don’t ignore letters from your advisor!)

Pension payments are only tax-free if you met the conditions required to take advantage of the Tax Exempt Pension Income within the fund (0% tax on the income from the assets supporting the pension). The minimum pension amount must be paid within the financial year. This means that the pension payment must physically leave the SMSF bank account by the 30th June. That is a benefit is paid when the member accepts the money, banks the cheque which is subsequently honoured or receives a credit by way of electronic transfer from the SMSF. As an example, if at the 30th June you have made $6,000 worth of pension payments but your minimum pension payment for the year is $10,000, the $4,000 cannot be carried over and paid at a later date. In this instance the fund has failed to meet its pension requirements and the pension would be invalid and the entire pension account subject to tax for the full year.

During the financial year all pensions paid must be paid in “cash”;. That is a benefit is cashed when the member accepts the money, banks the cheque which is subsequently honoured or receives a credit by way of electronic transfer from the SMSF. Therefore if a member receives a cheque dated 30/6 and banks it after 30/6, this amount cannot be classed as “cash” for the year ending 30/6 on the cheque. Also a member cannot receive a pension via an in-species transfer from the SMSF to the member.

Our process is to remind clients in April/May each year by advising them in writing the minimum amount payable by the 30th June. We ask clients to confirm they have taken these payments by ticking a questionnaire and returning it to us. If you are receiving a Transition to Retirement Pension the advice also indicates the maximum amount of pension and requests confirmation that this has not been exceeded.

Some strategies are in place for correcting errors before the 30th of June but once that clock ticks over to 1st of July there is little that can be done to amend strategies.

5. Tax and Estate Planning -Tracking the Tax Free Component Amount/Percentage

On commencing a pension the Tax Free and Taxable Components need to be calculated. This percentage split remains the same for the life of the pension. The tax free percentage is calculated by dividing the Tax Free Components by the total starting balance of the pension. The Tax free component should be shown in your Pension Kit (once financials completed) and then reaffirmed in your members account statement annually.

Why is this important if Pension payments are tax free?

The tax free component does not refer to the annual pension payments. The Tax Free Component percentage becomes relevant upon death of the last member without a reversionary beneficiary and can make significant difference to the tax paid by your dependents (particular adult children). Good pension planning may see more than one pension being set up for a member with each Pension allocated towards the most tax efficient recipient beneficiary. i.e. spouse may receive pension with low tax free % while adult children receive the pension with a higher Tax free %.

Some smaller accountants or those who do not have the relevant software may not be tracking your Tax Free component and this may cause a problem later when your remainder pension needs to be distributed. Check your last statement and If in any doubt you should discuss with your accountant or SMSF Advisor.

6. Ongoing Contributions

A member’s pension account cannot receive new contributions during the year. You can make contributions but these contributions must be credited to a separate accumulation account. A SMSF a member may have more than one pension account but cannot have more than one accumulation account. As an aside this is necessary for a Transition to Retirement Strategy combined with Salary Sacrifice to work properly.

You can rollback (stop) a pension and add the accumulation account balance and then start a new pension. We term this as RCR (Rollback, Consolidation and Recommencement). Before stopping a pension you must ensure that you first pay the minimum pension to keep the fund tax exempt for the year to that date. For this reason we often rollback the pension at the end of the financial year and recommence on 01st July.

7. Actuarial Certificate

If you have a pension account and accumulation account during the year (i.e you have made contributions) and the fund’s assets have not been segregated you will need to obtain an actuarial certificate to identify the tax exempt percentage of the investment income. The Actuarial Certificates are normally outsourced by the Accountant to an Actuary but you should ensure that they do take responsibility for arranging it for you annually.

As you can see these pension rules can be a minefield to negotiate and advice from a SMSF Specialist Advisor is highly recommended. Through Verante’s SMSF Coaching Service we remind our clients that when it comes to “their money” that there is no such thing as a silly question. With pensions it is essential to get it right up front and double-check before June 30th!

I hope these thoughts have been helpful and please take the time to comment if you know of other common mistakes as I know this is not an exhaustive list. Would love some feedback as well.

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 Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

1 Comment

by SMSF Coach - Liam Shorte on February 25, 2012 • Permalink

Posted in Divorce, Financial Planning, SMSF, Superannuation, Tax Planning, Trustee

Tagged Asset Allocation, DIY Super, International, Investing, Investment, SMSF, Strategy, Tax Planning, Trustee

Posted by SMSF Coach - Liam Shorte on February 25, 2012

https://smsfcoach.com.au/2012/02/25/7-common-smsf-pension-errors/

10 common mistakes made by many SMSF Trustees

I run regular sessions educating Trustees in small groups on how to utilise their SMSF and to avoid common mistakes so I thought I should share the more common ones. Self managed superannuation funds can be kept simple or they can involve very complex strategies. The superannuation system has many rules and regulations that members need to adhere to. To ensure that you avoid the traps when it comes to self managed superannuation read on!

1. Jumping in too early with a low balance.

Unless you expect to make regular large contributions in the coming years or expect to put a large lump sum (e.g. inheritance) in soon, the administration fees of maintaining a Self Managed Superannuation Fund will erode away any profits and may also eat into your contributions. The general agreed rule of thumb among honest SMSF professionals for a minimum balance for a Self Managed Superannuation Fund would be $200k. This would only be on the proviso you would be making contributions at or near your concessional cap depending on your age and that you may also be adding some non-concessional funds on a regular basis so that your fund has $400-$500K within 3-5 years.

If there are 2-4 members that are contributing to the fund with frequently largely sized contributions this can justify the use of a self managed superannuation fund earlier. Just remember that generally it costs around $2,200.00 per annum in auditing, accounting, tax agents fees and ASIC fees for the fund as well as a general 1% investment fee.

2. Failing to educate yourself first, before you open your fund so you know the basic SMSF rules.

Self managed superannuation funds can be very complex, if you do not know the basic rules of a fund and you are not using a fund administrator like an Accountant or a specialised service, you are asking for trouble! As the number of self managed superannuation funds increase rapidly the ATO as regulators will begin to take a stronger position. Currently non compliant funds can lose up to 46.5% of the funds assets to tax plus fines for the Trustees!

There is jargon like concessional and non=concessional contributions and tax free and taxable components so take the time to understand them.

The main reasons of funds losing their compliance status is due to providing loans members. Anyone who has just started a self managed superannuation fund whether they have a manager or not that controls the funds should know the basic rules.

Here are some places to start:

ATO central access point for information on SMSFs http://www.ato.gov.au/super/self-managed-super-funds/

The SMSF Association is pleased to provide you with this ATO SMSF Trustee online resource. ATO approved SMSF Trustee Education Program

By the end of this course, you will have learnt;

The basic facts about Superannuation and Self-Managed Superannuation Funds
How an SMSF works
The investment rules for SMSFs
The administration process to keep your SMSF healthy.

http://www.smsftrustee.com/ The Self Managed Superannuation Fund Trustee Education Program has been released by the Joint Accounting Bodies

We run regular seminars on educational topics for SMSF Trustees in groups of 6-10 people. Contact us for more details liam@verante.com.au

3. Drawing on your SMSF for business or personal needs – Read and learn to stick by the Sole Purpose Test

Always remember it is your money but not yet! You are receiving generous tax concessions for providing for your retirement. Break the rules and you will lose those concessions! Self managed superannuation funds are not to be used to fund personal or business needs of the members of the fund or their relatives. While many may be able to justify a small loan for a short period of time there is a total restriction on lending to members of the fund or related parties which may be extended family members or entities such as Family Trusts, Companies or partnerships.

Another example would be if you invested in a holiday resort unit managed independently by a management company and as part of the arrangement, you are entitled to private use of the apartment, 2 weeks per year. This arrangement would breach of the sole purpose test if used by your or any related party.

4. Arranging for your SMSF to own your business premises without thinking the strategy through to the end

I actually love this strategy but there are positives and negatives to this situation and you will need guidance from your legal, accounting and SMSF Specialist Advisor. Many owners of small to medium enterprises use this as an effective strategy but others do a half-baked job and leave themselves exposed.

Pros:

Direct control of your super investments and a real understanding of where your money is invested.
The fund will pay only 15% tax on commercial rent paid
If the premises is sold no capital gains tax may be applicable once you are in pension phase and 15% or less if earlier.
You can be your own landlord with secured tenancy which allows you greater certainty when fitting out or installing equipment.
Keeps liquidity in the business to fund other costs.

Cons:

There are thousands of dollars in set-up costs and there are sometimes higher fees involved in getting a loan through your SMSF.
If a member of the fund dies without the proper insurance in place the fund may have to pay out death benefits leading to a rushed sale of the commercial premises.
If sold to a third-party then there is a possible loss of tenancy to the business which could destroy it.
There are strategies that can be built to avoid the cons, it is best to speak to an advisor so that they can see what is best for your personal situation.

5. Choosing the wrong type of Trustee for the job

76% of funds in this country still have Individual Trustees or a Trading company as trustee when a Sole Purpose Corporate Trustee would be much more suitable for long-term planning.

With individuals as trustees you need to change the name on all investments if one person leaves (divorce, death, Incapacity to act) or you add a new member (bring in a child, business partner or second spouse!). The paperwork involved is time-consuming and expensive just when it usually most inconvenient.

Please see my previous blog on this subject for more detailed discussion on this topic https://smsfcoach.com.au/2012/08/09/trading-company-as-smsf-trustee-or-sole-purpose-smsf-trustee-company/

6. Failing to plan for death or serious illness of a member

If the fund is run by a husband and wife or run predominantly by one member, if that member passes it could have devastating impact on the remaining member and the self managed superannuation fund. Strategies should be put in place so that all members involved in the fund understand the rules and regulations as well as the funds investment strategy.

Effort should be made to ensure the “silent” member is aware of and has met the Accountant, Auditor, and Financial Advisor and is comfortable that they could deal with them in the event of needing them. What’s the use in having a city based advisor if your spouse does not feel comfortable driving into the CBD. Choose a local Advisor for your later years.

All shares should be properly Chess sponsored and all members should have access to account numbers and passwords.

Binding Death Nominations and Reversionary Pensions should be reviewed regularly to ensure they still meet your wishes. The idea of leaving 20% to a son or daughter may have been fine when the fund was doing well but is it still a good idea in 2017? Make sure you do not leave your spouse short!

7. Rolling to a SMSF without maintaining or transferring Insurance First.

One of the most important factors is to undergo a review of current insurances and to have life insurance integrated into your self managed superannuation fund. When transferring from retail, employer or industry superannuation fund look to get “Transfer Terms” from insurers to open a new policy in the name of the SMSF without extensive underwriting. DO NOT LEAVE THIS UNTIL AFTER YOU HAVE ROLLED OVER! Despite your own perception of your health and vigour, you may find it hard to find new cover on the same terms or any terms so preserve what you have. Often we keep a small balance in a retail or industry fund just to continue the insurances in there at the group or discounted rates available.

8. Getting behind on paperwork

More than just filing statements, trustees are required to document every decision that is made whether this is to make an investment, take out insurance, or change bank accounts. This should come in the form of minutes with details regarding who made the decision, on what day and where the decision was made.

The record keeping requirements of an SMSF can be quite onerous and failing to meet them is an easy way to fall foul of the ATO. Business owners usually have enough paperwork as it is, so paying professionals who can look after your record keeping may make sense for you.

9. Exceeding the contributions cap

The cap on concessional contributions has changed so often in the last decade that confusion reigns each year.

The cap on concessional contributions for 2018/19 is $25,000. The after tax contributions (non-concessional) is capped at $100,000 per annum

There are a number of ways members can get caught out and exceed the cap. For example,

if you are paying for life insurance held in another super fund, the insurance premium can be deemed as a contribution. This premium would then be levied at penalty tax rates.

If your employer made last year’s June Super contribution in July of this year.

We can show you strategies for a couple to get up to $800,000 to $1,200,000 into super in one year by using a mix of contributions and a holding account strategy.

10. Not having a proper Cash Hub and losing interest and paying unnecessary fees

If you go to your normal bank to set up a bank account for your SMSF, they will most likely suggest that you use a business bank account. These accounts generally have high monthly fees, transaction fees and provide little to no interest.

We estimated the average cash balance of SMSFs to be between $50,000 and $80,000. Based on these figures, by using business bank accounts, trustees may be costing themselves approximately $3,000 per annum in fees and lost interest.

There are better options out there. Look at Macquarie’s Cash Management Account almost matching the RBA cash rate (noting for first $5K). Link these to an ING Direct Savings Maximiser for the Fund or a RaboDirect Notice Saver Account paying up to 1.8 to 2.35% higher for cash. Use 6, 9 and 12 month Term Deposits where funds are not needed short-term.

Make sure all accounts are opened correctly in the name of all trustees. Get it wrong and it can cost a lot to rectify.

I hope these thoughts have been helpful and please take the time to comment if you know of others common mistakes as I know this is not an exhaustive list.

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 Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

3 Comments

by SMSF Coach - Liam Shorte on October 20, 2011 • Permalink

Posted in SMSF, SMSF Management, Superannuation, Trustee

Tagged Asset Allocation, audit, Baulkham Hills, Castle Hill, DIY Super, errors, International, Investing, Investment, mistakes, SMSF, Strategy, Tax Planning, Trustee, Windsor

Posted by SMSF Coach - Liam Shorte on October 20, 2011

https://smsfcoach.com.au/2011/10/20/10-common-mistakes-made-by-many-smsf-trustees/

Divorce in your 50’s or 60’s with an SMSF and/or Small Business to deal with?

Can a Small Business or SMSF survive?

Mel Gibson & Robyn Moore separated after being married for nearly 3 decades, Brad Pitt and Angelina Jolie for just 12 years. Greg Norman and his first wife Laura were together for 25 years and now he is on to his 3rd marriage!

These long-married celebrity couples are far from alone and throughout Australian society this is becoming a common occurrence. Fewer married couples are making it to their 25th, 30th and 35th wedding anniversaries—even as life expectancies have increased.

We as Financial Advisers and the Divorce lawyers we work with are seeing a growing number of long-married couples call it quits. This is being termed “Grey divorce” or “Empty Nest Scenario”

As years go by, kids leave home, business demands grow and they get close to retirement age, where they will have to be near one another more, one of them usually realises they don’t want to live the rest of their life in this manner or they want to seek out new experiences like international travel, a tree change or seachange or just want to concentrate on themselves or their business.

A long-married couple that has done well financially must figure out how to divide investments, superannuation and other retirement savings, investment properties and businesses started by one spouse during the marriage. They must contend with a crazy quilt of regulations—some federal, some state and some set out by superannuation legislation.

Pulling apart all the entangled arrangements woven into a web over 20 or 30 years is difficult and stressful. But dividing a nest egg in a way that allows both spouses to retire without worry is crucial when there is little work time left to make up any shortfall.

Many of my clients are in their 50s and are getting divorced after two or three decades. But the strategy for one client can be totally different for another who is different only in age. The plan or strategy for a woman in her late 50’s who has not been in the work force for 30 years is totally different to the one for woman in her early forties with a recent employment history.

For older women negotiating a financial settlement as part of separation or divorce, that money has to last the rest of their lives. Even if they are employed, there’s usually a huge difference between the husband and wife’s remuneration packages.

Splitting up assets like shares, managed funds, bank accounts and insurance policies is relatively straightforward. But some of the largest family assets can be much trickier. Among them:

The house. This property holds memories of children, is close to friends and represents a lifetime of effort and a haven of comfort during a stressful time. If you owned your home you felt safer than when renting. As a result many wives seek to have the home included in their part of a settlement not realizing that they will fall into that Asset Rich – Cash Poor Trap. Rates and upkeep still need to be met while the remaining assets received in the settlement then need to work even harder to meet living costs.

The Superannuation Nest Egg. A couple’s biggest asset, aside from their house, is often the superannuation accounts and the majority of the time one account is far larger than the other. Superannuation accounts are by law in individual names, but they are still considered marital property if they were earned or acquired during the marriage. Dividing it fairly could mean the difference for a non working spouse between a secure retirement and a hand-to-mouth existence.

Self Managed Superannuation Funds (SMSFs):

Many people think because they have a family SMSF and all the money is usually pooled together for investments, that all the money is owned jointly between the husband and wife. Time to refer back to the annual statements and look at the members reports which will reflect the true ownership of the funds as it is broken down between the members.

An SMSF with just a husband and wife members who are getting divorced will almost certainly involve one of the members moving to another fund. This may involve moving the current market value of the exiting member’s account balance as well as an agreed amount of their former spouse’s account balance.

These are two separate amounts and must be treated as such. These payments require totally different reporting requirements and also probably give rise to different income tax outcomes for the SMSF fund.

It is important to ensure that these super fund tax issues are sorted out with complete accuracy so that one member does not unfairly pay proportionately more tax than the other member.

The latest Family Law provisions allow the parties to enter into an agreement at the time of marriage breakdown specifying how the superannuation interest is to be divided. However, no actual splitting occurs until a member’s benefit is paid.

The Superannuation Industry Supervision Regulations 1994 allows the benefit in most superannuation funds to be split at the time of the divorce. Therefore, two separate interests are in effect created – one for the member spouse, and one for the non-member spouse.

A division of a superannuation interest may be initiated in one of three ways.

The parties may prepare a Superannuation Agreement, which they lodge with the trustee (together with proof of marriage breakdown or separation).

If both parties cannot agree on how the interest should be split, they must refer the matter to the Court. The Court will have the jurisdiction and the power to make an order about a superannuation interest that will bind the third-party superannuation trustee, or

Parties will be able to make a ‘flagging’ agreement. It prevents the trustee from paying out any benefit to the member spouse without first asking the parties how they wish to split the benefit. Parties would need to enter into a ‘flag lifting agreement’ at a future date to terminate the ‘flagging agreement’ and provide for the division of the superannuation split. This would be used where the parties are close to retirement and would rather wait and see the exact benefit before determining how to split it.

Where an interest in an SMSF is subject to a payment split under the Family Law Legislation Amendment (Superannuation) Act 2001:

Specified benefit components will be split on a proportionate basis to the overall split.

Any capital gains or losses that arise from the creation or foregoing of rights when spouses enter into binding superannuation agreements, or where an agreement comes to an end, will be disregarded.

When dividing up the assets in an SMSF we try to have an agreement to ensure that the spouse with lower income from employment receives the highest proportion of their member benefits as liquid assets or blue chip shares rather than property or illiquid investments. Often we can look at setting up Transition to Retirement Pensions to access tax effective cash flow from 55 onwards.

The Family Business:

Mid- to late-life divorce can cripple a business started during the marriage and owned by one spouse, because the other spouse is generally entitled to a share. Tax planning measures taken during good times to be able to distribute earnings across the family may now result in the business being torn apart as each spouse seeks to extract their equity in the business. Without careful planning, the business might have to be sold to comply with those terms or the business principal may have to take on excessive debt in their late 50’s to payout the former spouse.

We recommend that couples with a small business—especially those with children—enter into a “post-nuptial” binding financial agreement that spells out what happens to the business in the event of death and divorce. Such agreements, which need to be prepared by a solicitor well versed in Business and Family Law, are recognized in most states, are increasingly being used in estate planning, particularly for people in second marriages.

Summary:

Divorce later in life means you have to ensure you cover yourself for lifetime expenses

See the maximum liquidity and flexibility in dividing assets especially from an SMSF where there is flexibility.

Serious financial consideration should be made before fighting to hold on to the family home as it could become a burden you cannot afford.

Small Business owners must plan in advance for the handling of divorce or death of a business partner.

You need an Accountant, Financial Adviser and Lawyer used to dealing with Business as well as Family Law.

I hope this is useful information for you and we always welcome new client enquiries. Would love some feedback.

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

4 Comments

by SMSF Coach - Liam Shorte on August 12, 2011 • Permalink

Posted in Divorce, Financial Planning, SMSF, SMSF Management, Superannuation

Tagged Baulkham Hills, brangelina, budget, Castle Hill, Divorce, Dural, Entrepreneur, Hawkesbury, income planning, Self Managed Superannuation Fund, Smallbiz, SMSF, Strategy, superannuation, Tax Planning

Posted by SMSF Coach - Liam Shorte on August 12, 2011

https://smsfcoach.com.au/2011/08/12/divorce-in-your-50s-or-60s-with-an-smsf-andor-small-business-to-deal-with/

Future Service Benefits Deduction a more practical alternative to the Anti-Detriment tax deduction for SMSFs and another example of where SMSFs may lead to better outcomes.

I hit a real low when I hear a client is Permanently Disabled or Terminally ill and I am sure that is the same with most of you too but in our field of work it is a matter of when not if we have to deal with such a situation. My reaction is to always want to make the best of the situation from my point of view and add as much benefit and make life as good for that client as possible.

I have always looked at the anti-detriment deduction (no longer available for deaths after 30 June 2017) and wished there was something I could do for the client while living as well as helping their family afterwards. (more…)

7 Comments

by SMSF Coach - Liam Shorte on June 22, 2011 • Permalink

Posted in Estate Planning, Insurance Strategies, SMSF Management, Tax Planning

Posted by SMSF Coach - Liam Shorte on June 22, 2011

https://smsfcoach.com.au/2011/06/22/future-service-benefits-deduction-a-more-practical-alternative-to-the-anti-detriment-tax-deduction-for-smsfs-and-another-example-of-where-smsfs-may-lead-to-better-outcomes/

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