Liam Shorte

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Class SMSF Benchmark Report Shows SMSF Investors Using the Newer Platforms

In it latest quarterly review of the SMSF sector Class have indicated that Platform use is actually rising a little among SMSF Trustees from 55% to 58%. However there is some change in the guard in terms of which platforms are seeing inflows. From the media release on the report:

Investment platforms have maintained their share of self-managed super funds in the past two years but the market share of the providers has shifted in favour of the non-aligned in the latest Class SMSF Benchmark Report.

The September quarter Report, based on an analysis of 120,000 SMSFs, shows that slightly less than 1 in 5 SMSFs use platforms and this has remained relatively stable for the past two years. However, the proportion of assets these funds hold on the platform has actually increased since 2014, from 55% to 58%, suggesting that predictions of the imminent demise of platforms in the SMSF market are premature.
However, the market share of different platform types has shifted significantly over the same period.

While all platforms increased the value of SMSF assets they held, most institutional platform providers lost ground compared to their non-aligned peers, especially Praemium, HUB24 and netwealth. The notable exception among the institutions was BT, which was able to build on its leading position and grow from 41% to 46% of all platform assets. Excluding BT, institutional platforms saw their share of platform assets drop from 47% to 40%.

I don’t find this a surprise as BT has launched its new generation BT Panorama platform which works especially well for SMSF investors. You can access Cash, very competitive Term Deposits from BT, Westpac and St George as well as shares, hybrids, ETFs, managed funds and managed accounts all on the one reporting platform as well as include external assets in the report. We have started using this platform for new clients as it is keenly priced with no administration charge for cash or term deposits and competitive admin fees for shares and managed funds.

Platform users more likely to use Managed Funds

Again the report also shows a higher use of managed funds by those using Platforms which no doubt is due somewhat to the preference for platforms by many SMSF advisers and also that many trustees use platforms to access sectors or managers they can’t get direct/retail. Again from the report:

The Report also found that SMSFs that use a platform allocate their assets differently to those that don’t. SMSFs that use platforms hold less cash and direct property but almost three times the percentage of managed funds as other SMSFs.

While the two categories of SMSFs have a similar direct exposure to shares, those that use platforms appear to be increasingly holding their equities off the platform, such as through a broker.

You can access the full Class Benchmark report and previous release here

I found the table of the Top 20 investment holdings in each class very insightful as it shows the increase in use of ETFs in SMSF portfolios. Hear is a summary of the top 5 ETFs from the data:

1 IVV   Ishares S&P 500 ETF – Chess Depositary Interests 1:1 IshS&P500
2 IOO Ishares Global 100 ETF – Chess Depositary Interests 1:1 Ishglb100
3 STW SPDR S&P/ASX 200 Fund – Exchange Traded Fund Units Fully Paid
4   VTS   Vanguard Us Total Market Shares Index ETF – Chess Depositary Interests 1:1
5   VEU Vanguard All-World Ex-Us Shares Index ETF – Chess Depositary Interests 1:1

Likewise the top 5 Managed funds

1 PLA0002AU   Platinum International Fund
2   MGE0001AU Magellan Global Fund
3   PLA0004AU   Platinum Asia Fund
4   FID0008AU   Fidelity Australian Equities Fund
5   MAQ0482AU Winton Global Alpha Fund

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.

1 Comment

by SMSF Coach - Liam Shorte on November 22, 2016 • Permalink

Posted in Enduring Power of Attorney, Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on November 22, 2016

https://smsfcoach.com.au/2016/11/22/class-smsf-benchmark-report-shows-smsf-investors-using-the-newer-platforms/

How to Use Insurance to Pay Out an SMSF Property Mortgage on Death or Disability

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

example-1-tax-dependants

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

example-2-non-tax-dependants

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

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

Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on November 17, 2016 • Permalink

Posted in Estate Planning, Insurance Strategies, Life Insurance, LRBA, Property, SMSF Exit Strategies, SMSF Management

Posted by SMSF Coach - Liam Shorte on November 17, 2016

https://smsfcoach.com.au/2016/11/17/how-to-use-insurance-to-pay-out-an-smsf-property-mortgage-on-death-or-disability/

How to sell a business tax-effectively using small business capital gains tax (CGT) concessions

Small business is hard work. Ask any small business owner and he or she will tell you about the hard work, sacrifices and many hours of dedication it’s taken to get to where they are. Many see their business as their superannuation and have poured profits back in to it over the years. Which is why when they sell, they absolutely deserve to get the highest return they can.

While the 2016 federal budget was full of surprises and we have seen back-flips and changes to the proposals, there was some relief for small business owners. All the media attention has been on the changes proposed to be made to superannuation contributions and balances in pension phase. There was, however, some welcome news for small business owners with regard to continued access to the small business CGT tax concessions.

So what do you know about these very valuable concessions and how do you qualify for them if you are selling a business or business assets. Firstly, identify if you need to be considering them at all:

Are you selling a business asset and expecting a significant capital gain?
Are you looking to retire after the sale of your business?
Do you wish to use the sale proceeds to fund your retirement?

How does it work?

Subject to meeting the basic requirements, business owners can take advantage of the Government’s small business concessions to reduce or even extinguish any capital gains tax (CGT) realised from the sale of a business or business asset.

If the business asset was held for more than 15 years, and the owner is either over 55 and retiring or permanently incapacitated when the asset is sold:

• any capital gains could be disregarded; plus
• up to $1,415,000 of any sale proceeds could be contributed into super without counting towards the concessional or non-concessional contributions caps.

What does it mean for me?

This is potentially a significant opportunity for small business owners. Not only does it provide scope to reduce your CGT liability, it also allows you to turn the proceeds from the sale of your business into a tax-effective income stream in retirement
through your super.

If you’re considering this strategy, it’s important to seek professional financial, legal and tax advice specific to your circumstances. You should also note that lifetime limits apply to all contributions under these concessions, and the specific forms must be completed and given to the super fund before or at the time the super contribution is made to be effective.

How do I know if I qualify?

To be eligible for the small business CGT concession, you need to meet the following basic requirements:

• Your net asset value is less than $6 million or your business turnover is less than $2 million p.a. Your net asset value includes assets used in your business but are owned by
your affiliates or an entity connected with you.

• The asset you own is an ‘active’ asset – meaning it has been used or held ready for use in a business carried on by yourself (whether alone or in partnership), your affiliate, your
spouse, your child under 18 or an entity connected with you.

• The asset has been used in the business for at least half of the ownership period or for a minimum of 7.5 years if you’ve owned it for at least 15 years.

Strategy in action

Sarah and James are joint owners of a retail shop in a small town from which they’ve run their newsagency for the last 20 years. They acquired the property in 1992 for $300,000 and have
continuously owned it outright.

In 2015, in line with their pending retirement, Sarah and James sold the property for $1 million. Both aged 60, their net assets are less than $6 million and they are looking to use the sale proceeds to fund their retirement.

Because they’ve owned their shop for more than 15 years and are retiring, Sarah and James would be eligible for the small business CGT concessions. They can apply the sale of their business as follows:

• Proceeds of sale: $1 million
• Capital gain: $700,000 ($1 million – $300,000)
• Assessable capital gain: $0

As a result, Sarah and James can contribute $500,000 each into super under the CGT cap election without it affecting their concessional or non-concessional contributions caps for the financial year. This means they could potentially contribute more into superannuation or an SMSF in the same year under their other contribution caps.

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

1 Comment

by SMSF Coach - Liam Shorte on November 7, 2016 • Permalink

Posted in Contribution Strategies, Retirement Planning, Small Business CGT

Posted by SMSF Coach - Liam Shorte on November 7, 2016

https://smsfcoach.com.au/2016/11/07/how-to-sell-a-business-tax-effectively-using-small-business-capital-gains-tax-cgt-concessions/

There is more to success in life than money.

Financial Security

In my search for more information for my SMSF clients on building wealth, achieving happiness and financial security I’m pleased to share with you part 1 of NAB’s latest whitepaper: Rethink Success.

This research explores what ‘success’ looks like for 2,000 Australians aged 16-70 years, and considers the importance and relevance of quantitative measures of success such as wealth, status and home ownership against qualitative factors such as experience, personal fulfilment and wellbeing.

Key insights

Australians rank happiness as the top measure of success
There is a disconnect between what Australians value personally, and what we think society values
Success is a work in progress, with 71% believing they’re still working towards achieving it
This research also highlights the value Australians place on the experiences money enables them to have such as feeling financially secure, travelling overseas and buying a house.

Please read the full report here whitepaper, and share it with your partner, spouse and family and maybe come and see us about a plan to help achieve your financial peace of mind which can aid that search for happiness.

Liam Shorte

1 Comment

by SMSF Coach - Liam Shorte on October 25, 2016 • Permalink

Posted in Financial Planning, Lifestyle

Posted by SMSF Coach - Liam Shorte on October 25, 2016

https://smsfcoach.com.au/2016/10/25/there-is-more-to-success-in-life-than-money/

Busting the myth that you should dispose of assets to increase Age Pension

What follows is a case study prepared by the Actuaries Institute’s Superannuation Projections and Disclosure (SPD) Subcommittee and if any one has advised you to dispose of assets to get more Centrelink/DVA Aged Pension in reaction to the reduced Assets Test in January 2017, then you should read this article. You should not act on strategies that affect short-term income unless you look at the long-term results too.

The Actuaries Institute’s Superannuation Projections and Disclosure (SPD) Subcommittee designed a projection model to estimate the income that assets would support during retirement for a number of case studies.

The Importance of Projections in Developing Retirement Strategies

Experts are thick on the ground these days, sometimes with free advice that can prove costly later on. And it seems experts are particularly fond of advising retirees and those about to soak up the sun on weekdays about how and when to spend their money. One strand of free advice at the moment involves recommending that retirees should spend a bit more, or indeed a lot more, to secure a higher pension to take into account impending changes to the asset test.

Understandably, these changes from January 1 next year have many retirees and those close to retiring thinking hard about whether they should change their financial arrangements. To be more specific, after this date the age pension reduces by $78 per year for each $1,000 of non-home assets over certain thresholds. At first glance, this looks like you’d have to earn over 7.8% on the extra $1,000 or you’d be better off without the extra $1,000 of assets.

The Actuaries Institute cautions that retirees destined to live to a ripe old age should think twice before accepting some of the advice recently aired on this topic. Indeed, this advice ignores the fact that a partial age pension entitlement generally increases throughout retirement as assets reduce. The SPD Subcommittee have designed a projection model to estimate the income that assets would support during retirement for a number of case studies.

A Case Study

The SPD considered a number of scenarios. They were based on two single females (Anne and Barbara) who own their own homes. Their only asset, other than their home, was a balance in an allocated pension. It was assumed that the allocated pension was the only source of income for both women and that they continued to live in their own homes throughout their retirement. The modelling also assumed that the required level of income each year (the combination of the age pension and income from the allocated pension) would be equal to the annual expenditure of ASFA’s comfortable lifestyle for a single person indexed to CPI.

In this case study, we examine one of the scenarios considered.

This scenario assumes the two women plan to retire at age 65 on 1 January 2017 with potentially identical superannuation assets of $450,000. To highlight the long-term impact of spending some of the superannuation assets before retirement, we assumed that Anne increases her spending before 1 July 2017 so as to reduce her retirement assets and receive a higher age pension than Barbara, who decides to save her money. The additional spending was assumed to reduce Anne’s final retirement benefit available on 1 January 2017 to $250,000.

Chart 1 below provides a year-by-year projection of the incomes of these two individuals to age 100.

Chart 1 – Total income if retiring at age 65

Note: all projected values have been discounted to Today’s Dollars at the rate of Wage Inflation.

Assumptions Net investment return on allocated pension assets – 6.5% pa compound

Wage inflation – 3.5% pa compound

Price Inflation – 2.5% pa compound

Increase in desired income – Price inflation

Increase in age pension rate – Wage inflation

Increase in age pension asset test thresholds – Price inflation

The green and purple lines show the total income received in Today’s Dollars. The blue and red lines show the annual amount of age pension received.

It can be seen that the aged pension paid to Anne in the early years is higher because the pension assets she owns do not reduce her age pension. However, because Anne has less pension assets she exhausts her assets by age 84, after which she must live on the age pension or use her home to generate additional income.

Barbara, however, at age 84 still has pension assets and therefore receives a higher level of income than Anne for the rest of her retirement. Also Barbara’s total income received is equal to or greater than her desired income level throughout retirement. She will also maintain a balance in her allocated pension throughout retirement and can continue without resorting to using her own home to generate additional income.

An examination of the projected asset values is also instructive. Chart 2 below shows the value of their pension fund assets at the end of each year during retirement.

Chart 2 – Asset Values if retiring at age 65

Note: all projected values have been discounted to Today’s Dollars at the rate of Wage Inflation.

Barbara has significantly greater pension fund assets throughout retirement. This provides added flexibility in her spending pattern. It also allows for aged care costs or bequests in later age. The additional assets also provide a buffer if the net investment earnings are less than the 6.5% we have assumed. Importantly, the fact that Anne receives a larger age pension in the early retirement years does not indicate what strategy results in the best long-term outcome.

The example and related discussion above highlight the significant challenges involved in retirement income modelling and strategy choice. Such tasks cannot be properly addressed through conclusions based upon calculations of a retiree’s first year age pension and allocated pension income entitlements.

The interaction of the many pieces of Australia’s retirement income system is complex. It includes assets and income test rules for the pension, minimum superannuation assets withdrawal requirements and the interaction of other factors such as inflation and investment returns. Any conclusions based on only considering the income generated in the first year after retirement are liable to be incorrect. Only the output of a year-by-year projection can clearly show how these factors interact throughout a person’s retirement.

Retirees must make decisions about spending capital over time. Ideally, these should allow for a sensible assessment of future cash flow. Year-by- year projections throughout retirement are vital to capture the dynamic nature of the age pension rules as asset values change. However, this is just the start. Given each retiree has an unknown lifespan and faces unknown investment returns, people have valid concerns about outliving their capital. Models like this one can be extended to assess a full distribution of likely outcomes and take into account the retiree’s asset mix and even health status. This allows people to make informed decisions that meet their required levels of certainty.

A longer article which considers all the scenarios examined by the SPD Subcommittee is also available. If a copy of the longer article is required (or if there are any questions on the material contained in this article) please contact Andrew Boal, Convenor of the Institute’s Superannuation Practice Committee. See the original article here The Importance of Projections in Developing Retirement Strategies

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

1 Comment

by SMSF Coach - Liam Shorte on October 10, 2016 • Permalink

Posted in Age Pension, Centrelink, Pension Strategies, Retirement Planning, Superannuation

Posted by SMSF Coach - Liam Shorte on October 10, 2016

https://smsfcoach.com.au/2016/10/10/busting-the-myth-that-you-should-dispose-of-assets-to-increase-age-pension/

Court Defends Superannuation Death Benefits from Bankruptcy

I keep hammering it in to my small business clients that while they may be passionate about their business and absolutely certain it will succeed, that they need to have a Plan B. Things can and do go wrong no matter how hard you work.

Superannuation is that Plan B in many cases. By putting away a portion of your profits each year to super you can minimise your tax obligations, save for retirement and protect some of your hard-earned wealth from unforeseen circumstances like a business collapse.

I always give an example of the client who had a very successful software business that was making decent money every year who listened to me and put funds away in superannuation yearly despite not wholly trusting the system. 6 years ago a dodgy overseas firm copied and made minor changes to his software and sold it for 10% of his price, thereby decimating his profits. He could lose everything as the ensuing defence of his patents in court cases is wiping out his personal and the company’s finances. Even if he wins, they could just keep their assets overseas and he has no chance of recovering costs and damages. The one thing protected is his Superannuation which will provide a decent if not a bit less comfortable retirement than expected.

A recent case shows the benefit of having superannuation funds when all else fails to protect you and your loved ones. In the case of Trustees of the Property of Morris (Bankrupt) v Morris (Bankrupt) [2016] FCA 846 shows just what happens when superannuation, bankruptcy and the payment of death benefits intersect.

Background
Ms Morris became bankrupt 3-4 months after her husband, Mr Foreman, died. Mr Foreman held two policies with two different superannuation funds: AustSafe Super and Plum Super.

After becoming bankrupt, Ms Morris received three separate payments. Plum Super made a life insurance payment of $311,865.95 to Mrs Foreman, which is not controversial as section 116(2)(d)(ii) of the Act provides that divisible property does not extend to life assurance policy proceeds of a bankrupt—or their spouse—received on or after the date of bankruptcy. SAFE

What was ‘controversial’ was AustSafe Super’s payment of $45,392.48 and Plum Super’s payment of $67,240.27. Those funds made these payments to the bankrupt under discretionary powers, as Mr Foreman had not nominated any dependents or beneficiaries.

Mrs Morris’s bankruptcy trustees applied to court in respect of these payments arguing that the superannuation monies received by the bankrupt were after-acquired property that vested in them (as bankruptcy trustees) and was therefore divisible among the bankrupt estate’s creditors. Uh Oh trouble!

I am not lawyer so I will not go in to details of the argument but I am happy point you to a good lawyer for the detail of the argument and some interpretation of the decision in a good blog by Bryce Figot of DBA Lawyers – See more at here and the actual case decision here

In summary

Justice Logan held that prior to the superannuation fund trustees’ exercising their discretion in favour of Ms Morris, she had no interest in either fund; however, upon this favourable decision, an interest was then created in the superannuation funds, and therefore these payments (totalling $112,632.75) made to Ms Morris (after bankruptcy) were held to be captured by s116(2)(d)(iii) and s116(2)(d)(iv) of the Act. Consequently, the bankruptcy trustees were unsuccessful with their application.

So superannuation death benefits received by the bankrupt were protected from Bankruptcy Trustees

I have not seen any previous guidance or authorities about the meaning and effect of the above sections of the Act, however the decision seems to be consistent with the intention of legislation to protect and preserve benefits in respect of retirement for both members of funds as well as their spouses and dependents.

If you or your spouse are in business or a highly litigious profession or high risk investors that could lose all if investments go wrong then come and talk to us about Your Plan B

I hope this guidance has been helpful and please 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

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by SMSF Coach - Liam Shorte on October 5, 2016 • Permalink

Posted in Bankruptcy Protection, Estate Planning

Posted by SMSF Coach - Liam Shorte on October 5, 2016

https://smsfcoach.com.au/2016/10/05/court-defends-superannuation-death-benefits-from-bankruptcy/

Opportunities after Government back-flip on the superannuation reforms announced in the 2016 Budget.

Superannuation – What’s in , What’s out the door!

So the ironclad changes to superannuation turned out to be more flexible and government policy more akin to a revolving door, one second its in and next it’s out the door. I am angry that the government created all this angst over the last 6 months only to water-down the changes and have damaged yet again the confidence in the superannuation system. They should have consulted with industry, ATO and their own members before announcing such major changes. However change was needed so at least they did show flexibility.

Below is a summary of the measures that have been amended. The detail of each measure will only be known once draft legislation is published and the final outcome will only be known after Parliament considers the legislation.

Non-concessional contribution cap – Lifetime limit –gonnnnnee!

The original proposal was to replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

To ensure the passage of the Government’s broader superannuation package through the Parliament, Treasurer Scott Morrison confirmed this measure is to be replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on four times the lower concessional contribution cap of $25,000.

However, people with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year. Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the fund balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.

Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.

As the existing rules remain until 1 July 2017, SMSF trustees and other superannuants who are able to utilise the existing thresholds should consider doing so once the legislation is finalised. This is particularly important for those who have total superannuation savings of close to or exceeding $1.6 million. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make an NCC.

So if an SMSF member is under age 65 and hasn’t triggered the bring-forward rules, they could do so this year and contribute up to $540,000 this financial year. This is a real opportunity for those who were concerned they wouldn’t be able to make any further contributions.

Recontribution Strategy back on the table

The recontribution strategy can now be reconsidered where appropriate but limited to the new $100,000 or 3 times that using the bring forward rule if under 65. This may help improve the taxable/ tax-free components of your account and aid with reducing tax on death benefits to non-dependant beneficiaries.

Important Note for Small Business Owners: There are no changes to the contributions made under the CGT cap amount of up to $1.415 million relating to the small business CGT concessions.

Work test over 65 to continue

The Government will retain the existing requirement that you must meet a work test to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement). So to make a contribution after age 65 you need to work at least 40 hours in a 30 day period during the year and before you make the contribution. You are also limited to $100,000 non-concessional contributions with no 3 year bring forward available to you.

Catch up concessional contributions

The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 from 1 July 2017. However, the commencement date for the catch up contributions will be delayed until 1 July 2018.

From 1 July 2018, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire.

This measure is limited to individuals with a super balance of less than $500,000. There is no detail as to when the account balance is assessed to determine eligibility.

If who have the capacity to fully utilise the current CC cap for 2016/17 may wish to consider doing so before the CC cap reduces.

Others measures going ahead as proposed.

Reduce the CC cap to $25,000 from 1 July 2017
$1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017
Tax on earnings for amounts held in a transition to retirement pension
Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on CCs
Ability for all individuals to claim a tax deduction for superannuation contributions with the removal of the 10% test
Increase of the income thresholds for eligibility for the spouse superannuation contribution tax offset
Introduce the Low Income Superannuation Tax Offset (similar to the Low Income Superannuation Contribution which will be abolished from 1 July 2017)
Abolish anti-detriment payments
Apply the measures to defined benefit funds.

While I understand the need for budget secrecy to some extent, the government need to understand that their changes effect major systems like the ATO, Superannuation software and Accounting software as well as the reality that not all superannuation balance or contribution history information is available or up to date.

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

1 Comment

by SMSF Coach - Liam Shorte on September 16, 2016 • Permalink

Posted in Contribution Strategies, Contributions

Posted by SMSF Coach - Liam Shorte on September 16, 2016

https://smsfcoach.com.au/2016/09/16/opportunities-after-government-back-flip-on-the-superannuation-reforms-announced-in-the-2016-budget/

Small APRA Fund as an Exit Strategy for SMSF Trustees

On the home page of this blog I outline the Benefits of a Self Managed Super Fund – SMSF in some detail. Well, when looking at any investment structure I always like to assess the alternative options and eventual exit strategies. While many of you will know of the Retail and Industry superannuation fund options, you may not be as familiar with a close relation to the SMSF known as a Small APRA fund (SAF). So let’s look at little closer at this option.

What is an Small APRA Fund (SAF)?

An SAF is similar to an SMSF but instead of the client(s) being the trustee(s), a professional licensed trustee is responsible for all of the administrative, compliance and legislative responsibilities of running the superannuation fund.

SAFs offer an alternative for clients looking for the increased flexibility of an SMSF but without the burden of being a trustee and the associated compliance risk. They are also an effective solution for clients who are non-residents or bankrupt and therefore unable to be trustees of an SMSF.

I always warn new clients that if your career or business relies on you being a director then you must take the decision to set up an SMSF very carefully and be ready to put the time and effort in or choose SMSF specialist advisors to ensure your fund remains compliant so that you don’t lose your ability to be a director of any company because of breaching SMSF legislation.

SAFs provide all of the legislative advantages afforded to SMSFs, without the risks associated with breaching legislative compliance requirements.

Let be very honest up front and say this is not a suitable option for small balances as you are incurring an extra layer of trustee fees. However for those with larger balances the option can be very cost-effective especially when you consider the ability to relieve yourself of the trustee responsibilities.

Main benefits of the SAF structure

1. Offloading the Compliance risk

The main advantage of running an SAF is that the compliance risk is borne by the professional licensed trustee whose core responsibility is the provision of trustee services. If an SAF is in breach of the rules, the members of the fund will not be liable for the compliance mistakes of the professional trustee. In an SMSF, all members must be a trustee or director of a corporate trustee which means all members bear the compliance liability. You cannot claim your spouse was solely responsible for running the fund. One case clearly shows the risk of being a “silent trustee”where the verdict found the former wife, in her role as a trustee of the fund, was personally liable when it became non-complying after her former husband stripped out most of the assets and headed overseas. See Shail Superannuation Fund and Commissioner of Tax [2011] AATA 940

2. Administration of the fund

A professional licensed trustee in charge of an SAF typically appoints professional organisations to carry out the administration of the fund or is skilled and experienced enough to avoid common breaches of legislative requirements. As the professional licensed trustee administers all information and transactions, record keeping is typically timely and accurate. In SMSFs, the trustees are typically responsible for collating all the documentation and reports so their chosen administration service can prepare the financials of their fund (Not so hard as it sounds nowadays but when your busy?…paperwork suffers)

3. Travelling overseas for extended periods

SAFs are more flexible for people who may go overseas for an indefinite period compared to SMSFs which are strictly regulated in that circumstance. Members of an SMSF who relocate for an extended period of time have to fulfil two requirements – the central management and control of an SMSF needs to be in Australia, and the active member test needs to be fulfilled . If any of these requirements are breached, the SMSF loses its residency status, is deemed non-compliant and will face exorbitant penalty taxes of up to 46.5%. An SAF however can have offshore members – as long as they are Australian residents for tax purposes.

4. Protection and access to Superannuation Complaints Tribunal

In the case of fraudulent conduct or theft, SAFs have more readily available redress options including a grant of financial assistance as statutory compensation and access to the Superannuation Complaints Tribunal which deals with complaints about the decisions and conduct of APRA-regulated fund trustees and other decision makers. Conversely, no compensation scheme exists for SMSFs and they instead have to rely on courts to resolve disputes or look to the Corporations Law to take action against a financial adviser, accountant or administrator for losses they believe are due to misconduct, negligence or inappropriate action.

5. Disqualified persons – Bankruptcy or Criminal record

Individuals are not allowed to be trustees of an SMSF or directors of a corporate trustee if they have committed a crime involving dishonesty such as fraud, theft or embezzlement or if they have been declared bankrupt. The Tax Office will ban individuals from taking on positions of responsibility in an SMSF if it believes the person has breached the superannuation laws either very seriously or persistently or it believes the person is not a fit or proper person and hence should be disqualified. There are no issues with a disqualified person becoming a member of an SAF as they are not required to fill the role of trustee and it is in fact an often preferred solution for those with an SMSF who find themselves in that unenviable position with assets that aren’t liquid.

6. Responsibility concerns due to ageing or onset of mental illness

Some older people may prefer to use an SAF because they have reached an age where they are no longer able, or may not want to, make effective management and operational decisions. SAFs still allow investors to be in charge of the asset allocation – subject to trustee approval (but they are becoming a lot more flexible) – and to maintain or acquire a similarly broad range of assets and avail of strategies available to SMSF investors. Problems often arise in an SMSF when an older trustee loses the capacity to function and participate in the fund’s inner workings whereas in an SAF, the professional licensed trustee will continue to manage the fund for the benefit of its members.

7. Estate planning

There are a number of estate planning scenarios where an SAF being a better alternative to an SMSF. In an SMSF, the death of a fund trustee changes the composition of the trustees and may provide potential for disputes especially in blended families. In an SAF, the licensed trustee is an independent and unbiased party with no family relationship issues that we often see arise with estates. In an SMSF, it is possible to try to include safeguards into the trust documentation; however, if one of several feuding beneficiaries has the cheque book, it may take the remaining beneficiaries considerable time and expense to track down the person and the money. As one colleague said:

“a remaining trustee with a cheque book can do a lot of damage to an SMSF balance while family fight for control in the courts”

8. Taking care of vulnerable beneficiaries

SAFs can provide very tax effective death benefit income streams to intellectually disabled adult children. The hurdle of the person with a disability or their legal personal representative needing to be a trustee is removed because, unlike an SMSF, an SAF has a professional trustee. The use of the professional trustee also ensures that ongoing services can continue to be provided to a disabled person is over 18 and once the parents have died or lost capacity. There is the ability to pay a death benefit income stream to the disabled child and then have any capital remaining return to the parent’s estate on death.

9. Employer – Employee Fund

In an SMSF, a trustee cannot be an employee of another member – unless they are family. In an SAF however, a member can be an employee of another member. Further, since SAFs have a professional licensed trustee, the related-party issues that crop up in an SMSF are not an issue in an SAF.

In summary while an SMSF may be ideal for people who want to be fully in control of their investment decisions and retirement savings, an SAF is ideal for those who would like to actively participate in investment decisions but retain a low-level of compliance and legislative responsibilities. It is possible to switch from an SMSF to an SAF or vice versa without incurring capital gains tax as all they have to do is retire as trustees themselves and appoint a professional licensed trustee to govern their SAF.

So why may a SAF be a better option than a Retail or Industry Fund?

Moving to a SAF is Not a CGT event whereas it would be if you moved to a retail or industry fund
Likely to be able to keep assets such as direct shares, bullion, collectables and residential and commercial property subject to rules.
The member can still direct investments within the approved list
Member directed death benefit nominations are still possible and in fact often more achievable as the trustee can follow your wishes.
No issues with single member funds
Retains privacy for those in high-profile positions

I would like to acknowledge that much of my information in this area has been gathered from articles and presentations by Julie Steed of Australian Executor Trustees who are very experienced in running SAFs and working as a team with clients and their financial planners.

I hope this guidance has been helpful and please comment below. 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 additional information on switching fund structures.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

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by SMSF Coach - Liam Shorte on August 29, 2016 • Permalink

Posted in Estate Planning, SMSF Exit Strategies, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on August 29, 2016

https://smsfcoach.com.au/2016/08/29/small-apra-fund-as-an-exit-strategy-for-smsf-trustees/

A Dream without a Plan is just a Wish – Dare to Dream

Source: FPA Dare to Dream national research report conducted by McCrindle Research, August 2016

So do you or a family member or friend talk about your future dreams of an early retirement or what you plan to do in retirement but then give a big sigh and say it is “Just a dream” or “a pipe dream” or maybe put it in the “to hard basket” to try and achieve those goals. Realistic goals are achievable with good planning and some of the whackier ones just take a little more effort or courage!

Did you know that this week is Financial Planning Week? Every year, the Financial Planning Association (FPA) holds Financial Planning Week, to remind Australians about the importance of financial planning.

The theme for this year is “Dare to Dream” and I think it’s a great reminder of why we need a plan in place to realise our biggest dreams. After all, financial planning is not just about numbers – it’s about deciding what we want out of life, then putting in steps to achieve it. It’s also a nice reminder about the importance of financial independence – whatever life stage we find ourselves at.

This short video featuring Jane Caro sets the scene to the dare to dream challenge:

So are you ready to read a bit more? Something you might find particularly interesting, is the Dare to Dream research report which has some eye opening insights about how Australians feel about their financial future. The report highlights that whilst one in two Australians dream more about the future now than five years ago, a massive 63% have made “no plans” or “very loose plans” to practically achieve those dreams. Just click the link Dare to Dream research report

The report also shows that property is still a big part of the ‘Great Australian Dream’ (surprisingly even for Gen Y), and that the biggest financial regret in life for Australians is a lack of saving (a huge 47% stated this!). The report is well worth a read.

The FPA has also developed a fun online quiz, to help you discover what kind of financial personality you are. I encourage you to take the quiz and share it on Facebook with your family and friends. You can access this quiz here at Dreamer Profiles

Oh in case you want to know I got “Mover and Shaker” as my financial personality ….my dreams have already been put in to an Action Plan…what about yours?

I hope this guidance has been helpful and please take the time to comment or at least let me know what your personality result was! 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 and achieving those dreams. 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

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by SMSF Coach - Liam Shorte on August 23, 2016 • Permalink

Posted in Enduring Power of Attorney, Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on August 23, 2016

https://smsfcoach.com.au/2016/08/23/a-dream-without-a-plan-is-just-a-wish-dare-to-dream/

ATO Clamps Down on Trustee for Superannuation Early Release Scheme

In my earlier blog Get Super Scheme Smart – ATO warns on dangers of retirement planning schemes I went through the ATO guidance and their push to educate trustees about early release schemes and fraud attempts. In a recent case they showed that they will enforce the penalty regime where a trustee has deliberately flouted the rules. The penalty, $40,000 and loss of right to be a trustee in future.

The case of Deputy Commissioner of Taxation v Rodriguez resulted in significant penalties being imposed following a large number of unauthorised withdrawals by an SMSF trustee.

In this case, the fund trustee fabricated a loan arrangement, made cash withdrawals to purchase gold bars (later selling them and depositing the proceeds of sale into his own bank account), as well as making a number of other unauthorised withdrawals for his own personal benefit over a number of years.

The court considered that there had been the following contraventions of the SIS Act:
− in making the loans and giving financial assistance the trustee failed to ensure that the fund was maintained solely for one or more of the purposes prescribed in section 62(1)
− in making the loans and giving financial assistance, the trustee failed to ensure that the fund did not lend money or give any other financial assistance using the resources of the fund to a member, contravening section 65(1)
− the trustee failed to prepare a written plan specifying: the amount by which the in-house assets of the fund exceeded the market value ratio of 5% at the end of each income year; and the steps by which the trustee proposed to dispose of the in-house assets equal to or greater than the excess amount, contravening s 82.

In imposing the penalties, the court took into account the trustee’s cooperativeness with the ATO, investigating officers, solicitors and the court process. The court also accepted that the trustee was contrite and apologetic, and was a person of good character. It was also apparent from the material before the court that the trustee was a troubled person at the time of the contraventions.
It should also be noted that some attempt had also been made to repay amounts withdrawn (including an interest component).

In addition to a monetary penalty of $40,000, the trustee was barred from acting as a trustee.

This should be taken as a strong warning to small business owners and company directors who may also endanger their ability to control their business or be a company director in their business life because of issues caused by managing their Self Managed Superannuation Fund poorly.

For those who feel the additional risk of running an SMSF may expose their career to unacceptable risk then they should consider a retail or industry fund or if you have assets that are unable to be held via one of those, like a property, art or bullion, then you should consider moving the Trustee responsibilities to a professional trustee via a Small APRA fund. I will deal with this option in a future blog.

If you are in a position of financial hardship or want to do a complex investment then why not contact us to se if there is a legal way to achieve the same goal without getting yourself in trouble.

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on August 22, 2016 • Permalink

Posted in Enduring Power of Attorney, Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on August 22, 2016

https://smsfcoach.com.au/2016/08/22/ato-clamps-down-on-trustee-for-superannuation-early-release-scheme/

Should SMSF trustees take part in the Telstra Buy-back

In line with my philosophy of find good information for clients quickly, here is a guest blog from Dr Don Hamson of Plato Investment Management on the proposed Telstra Buy Back.

Token Telstra Buy-back Mark II

On 11 August 2016, Telstra announced it would return $1.5B in capital to shareholders, $1.25B in an off-market buy-back and $0.25B in an on-market buy-back. The off-market buy-back is similar in structure to the $1B 2014 Telstra buy-back. We still believe this is pretty much a token buy-back. At $1.25B it represents less than 2% of Telstra’s current market capitalisation, and so we expect the buy-back will be fairly heavily scaled back (the 2014 buy-back was scaled back by 70%). And similar to the 2014 buy-back, our estimates suggest this buy-back will likely be only significantly worthwhile for zero taxed Australian investors such as pension phase superannuation and charities, although value for taxed investors will ultimately depend on individual circumstances. For a zero taxed pension investor, we currently estimate that the buy-back will be worth approximately 9% more than selling Telstra into the market, assuming the buy-back goes off at the maximum allowable 14% discount to market price (using the August 11 2016 closing price of $5.51 as market price – refer Chart 1).

The actual value of the buy-back will depend on where the share price of Telstra is trading at the conclusion of the buy-back, and the final buy-back discount to that market price. In 2014 we saw the value of the buy-back decline from initial estimates, primarily because the Telstra share price declined between the announcement date and the buy-back conclusion date, resulting in a declining fully franked dividend component. On our estimates the 2014 Telstra buy-back ended up being of marginal value (approximately 3%) for pensions phase investors, and of no value for higher taxed investors.

We recommend investors seek their own personal taxation advice.

Chart 1 provides an estimated illustrative example of the value of the Telstra buy-back for a pension phase superannuation investor. We have estimated the buy-back for pension phase superannuation funds using a $5.51 “market” price for Telstra. According to the 11th August Telstra announcement the actual market price for the purposes of the buy-back will be the “weighted average price of Telstra’s ordinary shares on the ASX as Telstra may determine in its discretion over the five trading days up to and including the date the Tender Period closes” (30 September 2016). Using $5.51 as “market” price, a 14% discount would equate to a $4.74 buy-back price. With the capital component being $1.78, the other $2.96 would represent a fully franked dividend, which would have a $1.27 franking credit attached. For a tax-exempt Australian investor (e.g. SMSF in pension phase), we estimate the buy-back at a 14% discount would be worth approximately $6.01 (disregarding the time value of money), representing about $0.50 or 9% more than the $5.51 “market” price of Telstra.

Chart 1. Estimated value of the 2016 Telstra buy-back for tax exempt investors using August 11 2016 closing price.

Source: Plato, Telstra

The value of the buy-back for other investors will depend on the tax situation of each investor. However, we normally expect buy-backs to be of most value to tax exempt investors, so we expect it to be worth less than the 9% number for higher taxed investors. We would recommend individual investors seek professional tax advice based on their individual tax circumstances.

Whilst the 2016 buy-back looks somewhat better that the 2014 buy-back, it still falls short relative to previous buy-backs such as the 22% benefit of the 2011 BHP buy-back. The reason why the Telstra buy-back is of lesser value to the BHP buy-back is because the capital component is quite large relative to the expected buy-back price. Notwithstanding this, given the 2014 Telstra buy-back was heavily oversubscribed, resulting in a 70% scale-back of tendered stock at the maximum 14% discount, in our view we would similarly expect this Telstra buy-back to be heavily oversubscribed and likely to be priced at the maximum 14% discount. So whilst we believe it might be worth approximately 9% for zero taxed pensioners, this 9% will only be on shares which are successfully tendered.

In our analysis we have assumed the Telstra buy-back will go off at the maximum discount of 14%. Whilst unlikely in our opinion, if the buy-back goes off at a smaller discount, then it will be worth more than our above estimate for a pension phase superannuation investor.

Dr Don Hamson (Click name for full bio)

Managing Director

Plato Investment Management

This communication has been prepared by Plato Investment Management Limited ABN 77120730136 Authorised Representative No. 304964 of Pinnacle Investment Management Limited AFSL 322140. This communication is prepared for general information purposes only. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice relevant to their particular circumstances, needs and investment objectives.

Disclosure: I do use Plato Australian Income Fund for some of my client portfolios but this was not a paid article and simply sourced for the benefit of my blog readers.

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

2 Comments

by SMSF Coach - Liam Shorte on August 18, 2016 • Permalink

Posted in Buy-backs, Franking Credits

Posted by SMSF Coach - Liam Shorte on August 18, 2016

https://smsfcoach.com.au/2016/08/18/should-smsf-trustees-take-part-in-the-telstra-buy-back/

Current Views on the Big 4 Aussie Banks for SMSF Investors

Plenty out there in the media about the results of the Big 4 Aussie Banks, CBA, NAB , Westpac and ANZ. As this is an education blog I always like to see how the global fund managers (with a strong Aussie equities team) view our banks as they do not tend to have that home country bias and their views are refreshing. So here are a few videos from the team at Franklin Templeton. Not plugging their product just like their educational material and market insights.

As the Australian banking sector continues to experience challenges in response to market and regulatory drivers, we thought it would be timely to catch up with Alastair Hunter, Lead Analyst and Investment Manager at Balanced Equity Management (owned by Franklin Templeton Investments) for his latest perspectives on the Australian banking sector.

Views on the Big 4 Banks – Watch Video (4.54)

Here Alastair talks us through the key factors he identifies as driving bank share prices from capital requirements through to dividend sustainability, and the Franklin Templeton team’s preferred overweights in the sector.

Impact of Brexit and FinTech on Australian Banks – Watch Video(4:54)
In this video, Alastair discusses the direct and indirect impacts on the sector from the Brexit referendum and some of the potential ramifications for bank funding costs from changing dynamics in international markets. He also considers some of the factors impacting on the sector from new Fintech entrants and how the banks may adopt new technologies to drive innovation for their benefit.

Disclaimer: Franklin Templeton Investments Australia Limited (ABN 87 006 972 247) (Australian Financial Services Licence Holder No. 225328) issues this publication for information purposes only and not investment or financial product advice. It expresses no views as to the suitability of the services or other matters described herein to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. A Product Disclosure Statement (PDS) for any Franklin Templeton funds is available from Franklin Templeton at Level 19, 101 Collins Street, Melbourne, Victoria, 3000 or www.franklintempleton.com.au or by calling 1800 673 776. The PDS should be considered before making an investment decision.

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

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by SMSF Coach - Liam Shorte on August 12, 2016 • Permalink

Posted in Franking Credits, Results Season

Posted by SMSF Coach - Liam Shorte on August 12, 2016

https://smsfcoach.com.au/2016/08/12/current-views-on-views-on-the-big-4-aussie-banks-for-smsf-investors/

Get Super Scheme Smart – ATO warns on dangers of retirement planning schemes

The old adage “if it sounds too good to be true then it usually is” holds firm especially with superannuation “release” schemes. The ATO is stepping up its education efforts to help consumers while clamping down on promoters of such schemes. Here at SMSF Coach and our sister firm Verante Financial Planning we are always willing to offer a second opinion on any recommendation you are concerned about.

The Australian Taxation Office (ATO) is extending a helping hand to pre-retirees through Super Scheme Smart, a new initiative launched recently that educates people on the dangers of risky and illegal retirement planning schemes.

The ATO has identified a significant number of retirement planning schemes designed solely to help people avoid paying tax on their assets in an illegal manner and is working to close these down.

From the ATO media video below with ATO Deputy Commissioner, Michael Cranston, he warns:

While retirement planning schemes can vary, there are some common features that people should be aware of. Usually these schemes:
• are artificially contrived and complex, usually connected with a SMSF
• involve a lot of paper shuffling
• are designed to leave the taxpayer with minimal or zero tax, or even a tax refund
• aim to give a present day tax benefit by adopting the arrangement

Individuals caught using an illegal scheme identified by the ATO may incur severe penalties under tax laws. This includes risking loss of their retirement nest egg and also their rights as a trustee to manage and operate a SMSF.

The ATO is delivering practical help and information through their Super Scheme Smart website, including a comprehensive information pack, case studies and videos, as well as sending taxpayer alerts into the community about schemes and why they don’t fit within the law.

Mr Cranston urged people undertaking retirement planning to remain vigilant and to come forward if they believe they are at risk or are already involved in a scheme.

“Retirement planning makes good sense provided it is carried out within the tax and superannuation laws. Make sure you are receiving ethical professional advice when undertaking retirement planning, and if in doubt, seek a second opinion from an independent, trusted and reputable expert.

“We do our best to shut down dodgy schemes but the best defence is working together. Blowing the whistle on those promoting retirement planning schemes will help us stop them from risking your or others’ retirement savings,” Mr Cranston said.

All those approaching retirement who are yet to get “Super Scheme Smart”, are encouraged to take advantage of these resources and report promoters of dodgy schemes by calling 1800 177 006, or via email to reportataxscheme@ato.gov.au

Some examples provided of the current schemes they are concerned about include:

The schemes the ATO are currently worried about include:

Dividend stripping – Where the shareholders in a private company transfer ownership of their shares to a related SMSF so that the company can pay franked dividends to the SMSF. The purpose being to strip profits from the company in a tax-free form. (refer to Taxpayer Alert (TA 2015/1))
Non-arm’s length limited recourse borrowing arrangements – When an SMSF trustee undertakes limited recourse borrowing arrangements (LRBAs) established or maintained on terms that are not consistent with an arm’s length dealing. For more information, see Practical Compliance Guide.
Personal services income – Where an individual (with an SMSF often in pension phase) diverts income earned from personal services to the SMSF where it is concessionally taxed or treated as exempt from tax (refer to Taxpayer Alert (TA 2016/6)).

As mentioned above at Verante Financial Planning we take very good care of our clients and ensure all our client strategies are fully compliant and tick all the boxes so our client can sleep securely at night know that while they have used the superannuation and tax systems to maximise their savings position, they are always within the regulations and the spirit of the law.

The whole focus of this blog, the SMSF Coach is about educating and promoting use of legal strategies and we are consistently warning people of the pitfalls of some strategies and investments out there such as our recent warning on the failed GUEVRA IPO not being suitable for SMSF clients or our very popular Property through super in a SMSF – Part 3: 20 most common mistakes

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

1 Comment

by SMSF Coach - Liam Shorte on July 27, 2016 • Permalink

Posted in Enduring Power of Attorney, Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on July 27, 2016

https://smsfcoach.com.au/2016/07/27/get-super-scheme-smart-ato-warns-on-dangers-of-retirement-planning-schemes/

Why Every SMSF Member Should have an Enduring Power of Attorney

Let’s start with a definition of what is an Enduring Power of Attorney (EPoA).

An enduring power of attorney is a legal agreement that enables a person to appoint a trusted person – or people – to make financial and/or property decisions on their behalf. An enduring power of attorney is an agreement made by choice that can be executed by anyone over the age of 18, who has full legal capacity.

We make decisions for ourselves on a range of family, work and lifestyle issues everyday and often we are reluctant to admit that there may come a time when we may no longer be able to do so. People don’t like to think about becoming mentally incapacitated by illnesses such as Alzheimer’s or dementia, or becoming physically or mentally incapacitated as the result of an illness or accident. But if it does occur it is vital there is a vehicle in place allowing someone else to legally make decisions.

If we have legal documents prepared prior to us losing capacity to make them, our decisions can be made by someone we know and trust. If we do not have those documents in place before we lose capacity then decisions may have to be made by a government department set up for the purpose of dealing with financial and personal affairs of an incapacitated person.

Most of us given the choice would probably choose the first one but to do this we need to make the documents whilst we have the mental capacity to make them. A person has capacity to make valid legal documents if they can understand why they are making the document and the choices which may be involved (choosing a person to act for you). You must be able to weigh up the result of giving power to someone else to act for you and you must be able to communicate your decision to make a legal document.

The main reason why we have legal documents giving a person or persons the power to act for us is that they will know our wishes and preferences and will act in our best interests. It is also a cost-effective way of protecting our family, finances and assets.

So why is it important for an SMSF member to have an EPoA

Well except in very limited circumstances, a self managed superannuation fund will only qualify as an SMSF where each member of the fund is either a trustee of the fund or a director of the fund’s corporate trustee. It is because of this threshold requirement for existence as an SMSF that the EPoA becomes a very important document for the SMSF member.

Consider the implications for the SMSF if someone is incapable of making decisions:

How does the SMSF run?
How can documents be executed?
How does a corporate trustee operate?
How can a new trustee appointed?
How will assets be bought or sold?
How are pensions or lump sum withdrawals approved and facilitated?

If there isn’t an EPoA what can happen?

Documents requiring two signatures, can’t be executed
Possible Audit contravention
The ATO may render the fund non-complying
Cannot roll-out an incapacitated member as SIS regulations require member consent (can’t be given if incapacitated)
Apply to QCAT, VCAT, NCAT, SAT(for WA) – Civil and Administrative Tribunal
Apply for guardianship
But who will they appoint? Surviving spouse, son/daughter, Public Trustee?
Do you think the Public Trustee wants to be running a SMSF?
What happens to the SMSF while waiting?

Technical Part (I don’t like to quote reams of legislation but sometimes it is necessary)

Subsection 17A(3) if the Superannuation Industry (Supervision) Act 1993 (SISA) provides that an SMSF will continue to be an SMSF where, amongst other things:

(b) the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during any period when:

(i) the member of the fund is under a legal disability; or

(ii) the legal personal representative has an enduring power of attorney in respect of the member of the fund;

The term “legal personal representative” is defined at subsection 10(1) of the SISA as follows:

… the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person.

So, in short, under the superannuation legislation:

the enduring power of attorney is the key to allowing a fund to continue to qualify as an SMSF notwithstanding that the member may not be acting as trustee of the fund;
the enduring power of attorney “relief” can be invoked to assist not only when the member is under a legal disability.

However, as also evident from the above, the fact of the EPoA being drawn up, properly signed and sitting in someone’s drawer is not enough.

Implementing the exercise of the EPoA with your SMSF

In order to meet the requirements set out in the Superannuation Industry (Supervision) Act and the Self Managed Superannuation Funds Ruling SMSFR 2010/2, the following conditions must be satisfied:

The LPR/EPoA must be appointed as a trustee of the SMSF, or as a director of the corporate trustee of the SMSF. The appointment of the LPR/EPoA must be in accordance with the trust deed, the constitution of the trustee company (if any), the Superannuation Industry (Supervision) Act, and any other relevant legislation (such as the Powers of Attorney Act 1998 (Qld), the Guardianship and Administration Act 1990 (WA) and the Corporations Act 2001 (Cth)).

A member who has lost capacity must cease to be a trustee of the SMSF or a director of the corporate trustee upon the appointment of their LPR.

Where the EPoA appoints multiple attorneys, one or more of those attorneys can be appointed as trustee or as director of the corporate trustee in place of the member.

Similarly, multiple members are able to execute an EPoA for the same LPR, who can be appointed as a trustee or a director of the corporate trustee in place of each of those members.

A member is also able to execute an EPoA in favour of an existing member who is a trustee or director of the corporate trustee. In this case, the incapable member can cease to be a trustee, or director of a corporate trustee, and their LPR, already a trustee or director in their own capacity, will also be considered to be appointed in the capacity as LPR for the incapable member.

Acting as a trustee under the EPOA

Once appointed, the attorney performs their duties as trustee or director of the trustee company as a trustee or a director rather than as attorney or agent for the member. The attorney will be subject to the obligations of a trustee and must sign the trustee declaration stating that they understand their duties as a trustee. The attorney cannot be a disqualified person and must be eligible to be appointed as trustee.

The decision to act as an attorney and the legal duties are significant. The attorney must:

Consider the interests of the donor when making decisions as the attorney;
Take care of property/assets;
Avoid conflicts of interest;
Comply with relevant legislation, and
If necessary, prove that they have been appointed your attorney.

In summary

While the decision to grant an EP0A should not be taken lightly, it is an important document which all adult Australian’s should have in place, but it is particularly vital that every adult who is a member of a SMSF execute a valid EPoA. Failing to have an EPoA can result in delays or a financial disaster if a member loses capacity. Having an EPoA will ensure that upon the loss of capacity of a member, the fund can continue to be a complying SMSF.

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

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by SMSF Coach - Liam Shorte on July 19, 2016 • Permalink

Posted in Enduring Power of Attorney, Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on July 19, 2016

https://smsfcoach.com.au/2016/07/19/why-every-smsf-member-should-have-an-enduring-power-of-attorney/

How you can Fund Children’s Education in your Will

Well this blog is not about Self Managed Super Funds but is about a matter close to the hearts of many of my clients. As a parent or grandparent, ensuring that children receive a good education is one of the most common concerns raised with us at Verante. Many people want to leave provision in their wills for such costs so here is one of our preferred strategies.

You can establish a dedicated education fund through a testamentary trust in your Will. This is a tax-effective and flexible way to provide for the education of your children or grandchildren. It can also help to ensure that the funds you want to be applied for their education are preserved and not misused by young beneficiaries or caught up in the complications caused by the rise of complicated blended families (his, hers and ours issues).

If you are a grandparent, leaving bequests via a testamentary trust for payment of education fees and related costs for your grandchildren is a more tax effective method of providing for their education rather than leaving additional bequests to their parents that may be caught up in marriage breakdowns, business bankruptcy or litigation.

What is a testamentary trust?

In general, a trust describes an ownership structure where the assets of the trust are held by a person or organisation (the trustee) for the benefit of other individuals or organisations (the beneficiaries).

A testamentary trust is a trust that is created within and by your Will. You need to arrange it as part of your Will making but it only comes in to effect on your death.

A testamentary trust may be created using specified assets, a designated portion of your estate or the entire remaining balance of your estate. Multiple trusts may be created by the one Will.

Normally the Trustee of this trust will be the executor of your estate, a surviving spouse or sibling of the deceased. You also have the option of appointing an Independent trustee company. Often this trustee will step down when the beneficiary reaches a target age or completes their education.

What is an education fund?

Assets inherited directly by your beneficiaries become part of their personal assets and are under their control. The future of these assets depends on the beneficiary’s ability to manage their own financial affairs, with no guarantee that the assets will be applied for any particular purpose, such as their education.

An education fund is a trust which focuses on funding the education of a particular beneficiary (the ‘primary beneficiary’). It gives you assurance that the income of the trust will be directed to the educational and other purposes you have specified in your Will.

You set the terms of the testamentary trust in your will. These terms can restrict the ability of any of the beneficiaries to control the activities and investments of the trust or give them complete control. You are in effect choosing to ‘rule from the grave’ to ensure that the inherited assets are protected and used sensibly for the benefit of the primary beneficiary

How does an education fund operate?

The typical features included in an education fund are:

The trust can be funded by your some or all of your assets and by payments in consequence of your death such as superannuation death benefits or insurance proceeds paid to your estate.
A proportion of your estate is held on trust until the primary beneficiary (child/children) achieves a particular level of education or satisfies other conditions established in your Will. Many of our clients choose age 25.
The trustee has the power to apply the income and capital of the trust for a variety of purposes specified in your Will for the benefit of the primary beneficiary, with the emphasis being on the educational needs of the primary beneficiary.
During the financial year, income and capital are distributed to the primary beneficiary to the extent required for the approved purposes. Any remaining income is either accumulated within the trust or distributed to other beneficiaries, as directed by the Will.
When the primary beneficiary has satisfied the conditions specified in the Will (such as attaining a particular level of education or age), they gain control of the remaining balance in the education fund and may either continue the trust or vest it (end it) at any time.
If the primary beneficiary fails to satisfy the conditions within a specified period, the trustee may determine that the remaining balance in the education fund be distributed to other beneficiaries named in the Will or held on trust for the education of those beneficiaries (or their descendants).

An education fund will normally be a mandatory trust imposed upon the beneficiary due to your desire that they continue their education to a specified level. The beneficiary will not normally be given the option of terminating the trust or eventually inheriting the trust without satisfying specified conditions.

Example

George and Helen have a combined estate worth $1,500,000. They have three young grandchildren whom they wish to make their beneficiaries as they had already helped their children to set themselves up as financially secure.

George and Helen are concerned that, in the event of their deaths, their grandchildren will not be sufficiently mature to use their inheritance responsibly. They wish to establish an education fund to ensure that the grandchildren are encouraged to further their education, but are also adequately provided for during their developing years.

As a result, George and Helen’s Wills provide that 50 per cent of the inheritance received by a child ($250,000 each) will be held in testamentary trust funds on the following terms:

Until the beneficiary turns 25, their access to the income and capital of the trust is limited to specified purposes, such as:
- education expenses, including HECS liabilities
- hospital and medical expenses
- rent or accommodation charges
- electricity, gas and other utility payments
- maintenance and income support at the discretion of the trustee.

If a specified level of tertiary education has been completed by the age of 25, the beneficiary will be given full control of the trust at the time of attaining that educational level, with the ability to either continue the trust for tax planning purposes (as a tax-effective vehicle for supporting the education of their own children) or terminate it.
If the beneficiary does not attain the required level of education by the age of 25, the remaining balance of the education fund will be distributed amongst charities specified in the Wills.

The education funds will ensure that each child is adequately supported, but also given an incentive to further their education. If all children were from the one family you could use just one Trust.

Additional issues to discuss with your legal expert

Common areas which require further thought are:-

Whether to have one or several Trusts established under the Will
The selection of the appropriate trustee or trustees
The method of appointing replacement trustees
Whether some classes of beneficiaries are restricted to income and some to capital

Back-up Strategy

There is a second chance for your family to establish a testamentary trust after you die but this second chance must be taken advantage of within three years of your death. This enables a trust to be established from your assets and for the income to enjoy the same tax advantages as income derived through a testamentary trust. However, the assets used to establish the trust cannot exceed the amount which the beneficiary would have received under the law, if you died without a Will.

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 or get a referral do a recommended Estate Planning solicitor. 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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on July 11, 2016 • Permalink

Posted in Education costs, Estate Planning

Posted by SMSF Coach - Liam Shorte on July 11, 2016

https://smsfcoach.com.au/2016/07/11/how-you-can-fund-childrens-education-in-your-will/

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