Superannuation Guarantee Age Limit to be Abolished in 2013


This change last November has gone under the radar but its needs to be highlighted as it will be especially important to Self Managed Super Fund members who run their own businesses as it will enhance their ability to tax plan and continue contributing to Super tax effectively.

The Government has announced that the 70 year age limit for superannuation contributions required to be made by an employer under the Superannuation Guarantee (Administration) Act, 1992 will be abolished.  Currently, employers are not required to make any SG contributions in respect of employees once they attain age 70.

The Government had originally aimed to increase the age limit to 75 but has subsequently decided to remove the age limit entirely.

This is a win for older working Australians with the House of Representatives passing amendments to the Superannuation Guarantee (Administration) Amendment Bill 2011 that abolish the superannuation guarantee age limit.

From 1 July 2013, eligible employees aged 70 and over will receive the superannuation guarantee for the first time. This increases the coverage of the superannuation guarantee scheme to an additional 51,000 Australians aged 70 and over, who will get the benefit of the superannuation guarantee if they continue working.

“Making superannuation contributions compulsory for these mature-age employees will improve the adequacy and equity of the retirement income system, and provide an incentive to older Australians to remain in the workforce for longer,” Mr Shorten said.

A 1 July 2013 commencement date provides time for employers and older Australians to adjust to the new superannuation arrangements.

The changes will also ensure that employers will be able to claim income tax deductions for superannuation guarantee contributions made to employees aged 70 and over from 1 July 2013.

It ensures employers will not bear a higher cost in employing workers 70 and over compared with other workers.

Feedback always appreciated.

Liam Shorte B.Bus SSA™ AdvDipFS AMC

Financial Planner & SMSF Specialist Advisor™

       

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in NextGen Wealth Solutions, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

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™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook  Follow Liam on Google+     

Verante Financial Planning

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in Verante financial Planning, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

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™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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 Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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.

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