Liam Shorte

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All posts tagged Cash rate

SMSF Investment Decision Checklist

I get a lot of emails from SMSF Trustees who have read my article What can my SMSF invest in? asking about a best practice process for deciding on and implementing a new investment with their SMSF.

So here is a basic checklist you should tick off for every investment just to avoid problems.

Is the investment permitted by the SMSF trust deed?
Is the investment in accordance with the requirements of the fund’s SMSF investment strategy?
Is the purpose of making the investment to further the retirement benefits of the members of the fund ie. Does it satisfy the sole purpose test?
Ensure the investment doesn’t provide financial assistance or a loan to the fund’s members and their relatives.
Ensure the investment would not cause the SMSF to breach the 5% threshold for in-house assets.
If you as Trustee are not dealing with the other party of an investment on an Non-arm’s length income then ensure the deal isn’t more favourable to the other party.
Is the investment being acquired from a non-related party? Assets may only be acquired from related parties in limited circumstances. See this video for a short explanation

But what if you are not sure an investment ticks all the boxes?

While you should make your best effort to ensure that the investments are compliant with the legislation, it can often be difficult to tell whether a particular investment would be compliant or not.

For example, an SMSF trustee would be able to acquire a property from a member if that property was deemed to be business real property (BRP) but while for most BRP it is obvious that it satisfies the definition like a stand alone wharehouse, for other properties it is far from clear such as a retail shop with 2 residential units above it.

In this case, as trustee, you could either decide not to proceed with the acquisition or else they could seek further guidance. While trustees always has the option of seeking legal advice, they also have the ability to go straight to the ATO to seek their opinion before entering the transaction.

This guidance can be sought by using the “Request for self-managed superannuation fund specific advice available” on the ATO website.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on September 16, 2015 • Permalink

Posted in Checklists, SMSF Management

Posted by SMSF Coach - Liam Shorte on September 16, 2015

https://smsfcoach.com.au/2015/09/16/smsf-investment-decision-checklist/

Is your SMSF leasing commercial property: Tips and traps

I am not a lawyer but am constantly required to advise clients to get professional commercial or retail leases in place for properties they own in their Self Managed Super Fund and lease back to a related entity or a third-party. I was looking for some ideas on what to tell clients to look for in a proper lease agreement and Ian Macleod of R.P. Emery & Associates has kindly stepped up to provide our latest guest blog. So here are some greats tips and traps when leasing commercial property and remember you must establish a related lease on commercial terms and at arm’s length so while some issues may seem irrelevant, they become very important in proving to the Auditor that it is a commercial arrangement.

Ian Macleod -R.P. Emery & Assoc. + DIY Legal Kits

Ian Macleod -R.P. Emery & Associates + DIY Legal Kits

If you have purchased a commercial property with your Self Managed Super Fund, you will want to take all steps available to protect your valuable asset.

Here we’ve put together some of the most common traps faced by landlords when leasing commercial premises. We also offer some tips and guidance on how to safeguard and protect your investment property when leasing commercial space.

Obviously not all of these issues will apply if your business entity is leasing the commercial space back from your SMSF.

Research your tenant

Many problems can be avoided at the outset by properly researching your tenant and eliminating any undesirable candidates.

It is a lot easier to research your tenant before committing to lease the premises, than it is to deal with a problem tenant down the track.

Here is a list of standard searches and identification documents that a prudent landlord will request before signing a potential tenant to a lease:-

Credit check;
Bankruptcy search;
Photo ID such as passport and drivers licence for each tenant and guarantor;
Copies of tax returns and bank statements;
Company search (if the tenant is a company);
Details of prior business experience and financial viability;
Referrals from past landlords – pick up the phone and speak with previous landlords of the tenant.

This article might be helpful with the above searches.

Once you have collected the above searches and enquiries on a potential tenant, you will quickly start to build an impression of whether the tenant is an appropriate candidate for your premises. If any alarm bells ring, you should either request further clarifying information or move on to the candidate.

Is this a retail or commercial lease?

First step is to determine with certainty whether the leasing arrangement is a Commercial or Retail Lease. If it’s a retail lease it will be governed by the Retail Leases act that exists in each Australian state or territory. If it’s a straight commercial lease there is far less regulation.

State the parties correctly on the lease

The accurate identification of the parties on the lease goes to the heart of your agreement. Ensure that the tenant and any guarantors are correctly identified on the lease and match the spelling of the tenant’s individual or company names with copies of identification that you should have requested at the outset.

List any outgoings, costs or charges in the lease

Will you require your tenant to pay any additional costs in relation to the premises over and above the rent amount? These costs are called ‘outgoings’ and include things such as government rates and charges, security costs, maintenance charges, garbage disposal/collection fees, cleaning fees, air conditioning maintenance, elevator/escalator charges, etc.

If you are intending to charge your tenant outgoings, you must specify the outgoings in your lease otherwise you won’t be able to collect them.

Some landlords prefer to lump all of the lease costs together in the base rental amount, but others may prefer to charge tenants separately for any outgoings that may apply.

If your lease is for retail premises, you will also need to set out any outgoings in the Disclosure Statement given to the tenant before the lease is signed.

Guarantors

Guarantors are the individuals who guarantee the tenant’s obligations under the lease. They agree to be responsible for any loss or damage caused by the tenant.

As a landlord it is ideal to secure a guarantee, particularly if the tenant is a company.

If a tenant company defaults on a lease, the directors who stand behind the company will not be personally liable. This is due to the ‘limited liability’ of the company, which is seen as a distinct legal entity in its’ own right.

If the tenant is a company, it is strongly recommended that the directors are added to the lease in their personal capacity as guarantors. You must ensure that they sign the lease both in their capacity as the directors of the tenant company and in their personal capacity as guarantors.

Security deposit or bank guarantee

It is important to take security in the form of a cash deposit or bank guarantee, to adequately safeguard your investment should things turn sour. If the tenant defaults under the lease, you can draw on the security deposit or bank guarantee for any losses or damages due to the tenant’s breach.

Make sure the tenant has provided you with the security deposit (or bank guarantee) before they take possession of the premises. The tenant will quickly lose motivation to provide the security once they are in the property.

If the tenant is providing a bank guarantee, they should speak to their bank as early as possible in the negotiations, as there is often a wait for bank guarantees to be drawn up.

Permitted use

Give some consideration to a well worded permitted use definition in your lease. If you don’t provide some boundaries as to how the tenant may use your premises, you may find yourself uncomfortable with how your premises is being used.

While a well worded ‘permitted use’ definition will give you control over how the tenant is using your premises, if overly tight or restrictive, then the tenant may not have enough scope to organically grow and expand their business. In this regard, your permitted use definition should balance the needs of the tenants and give them room to grow or expand their business activities over time if they choose to do so.

Increasing the rent over time

If you are intending to review the rent over the term of the lease, then you will need to make provision for this in your lease. Make sure that you state the intervals at which the rent will be reviewed and the method by which the rent will be adjusted.

Common methods of rent review are: by reference to the movement in CPI, by a fixed percentage (e.g. 3%) or by a fixed amount (e.g. $100). The frequency by which the rent can be adjusted also needs to be stated, for example, on each anniversary of the lease start date, or every 3 years, etc.

Unless specified in your lease, it is unlikely you will be able to increase the rent throughout the term of the lease. If your lease is for retail premises, you will also need to specify the details of any rent reviews in the Disclosure Statement given to the tenant before the lease is signed.

Insurance cover

If you require the tenant to take out specific types of insurance cover over the premises, you must state so in the lease. Examples are:-

stock, furnishings and plant and equipment insurance;
legal/public liability insurance; and
plate-glass insurance.

Your lease should require that the tenant provide copies of all up to date insurance policies to the landlord at the start of the lease and on renewal of the policies.

Retail premises lease: give the appropriate documentation to the tenant

Each state and territory will have a specific definition but as a general rule if your tenants are selling or hiring goods or services direct to the public, then the lease will be a ‘retail lease’.

Retail leases come under state specific retail leasing legislation. When beginning lease negotiations for a retail lease and before the lease is signed, you will need to give your tenant a Disclosure Statement outlining the key aspects of the lease, and a copy of the proposed lease.

Once the lease has been signed by the parties the landlord is required to provide the tenant with a full copy.

Be aware that if the Disclosure Statement is not given, or if it contains false or misleading information, then the tenant will have the right to terminate the lease within a certain time frame.

Monitor the tenant’s performance of lease obligations

It is important that you actively monitor your tenants’ performance of its obligations under the lease during the lease term.

Dealing with breaches and where necessary, terminating the lease, can be a drawn out process. As such, it is important that you identify any breaches as soon as possible so that you can begin the process of having the tenant rectify the breach and if necessary, terminate the lease.

Addressing breaches early will ensure that any losses due to unpaid rent or damages, are kept to an absolute minimum.

Monitor:-

Rent payments – make sure rent is paid on time and at the correct amount;

The physical condition of the property – frequently inspect the premises to identify whether the property is being adequately maintained in good state of repair (fair wear and tear accepted);

The use of the property – is the tenant using the premises as permitted. Make sure the tenant is not using the premises for an illegal or dangerous purpose.

Overdue rent payments or damage to property can quickly add up, so it is imperative that you actively monitor your tenant and your property throughout the lease term.

Keep up to date with repairs and maintenance

Keep up-to-date with your responsibilities under the lease – especially with regards to repairs and maintenance of the premises.

This not only ensures a happy tenant and helps to maintain a harmonious relationship between landlord and tenant – it also goes towards maintaining and increasing the value of your valuable investment.

Make sure your lease has an appropriate exit clause

Even if you have taken every precaution available, sometimes things still don’t work out. In this regard, it is worth asking yourself at the outset: what happens if things go wrong? Will I be able to end the lease early?

If your tenant is causing you problems, stress and costing you money, an effective exit clause in your lease will enable you to end the lease promptly and efficiently.

Most leases specify that the lease can be ended early if an ‘event of default’ occurs. Common ‘events of default’ include:-

Non-payment of the rent for 14 days or more;
Breach of the lease;
If the tenant becomes bankrupt or insolvent.

Generally, before you can terminate a lease, you will need to give the tenant notice of any breach, and a reasonable time to rectify the breach.

Use the appropriate termination procedure to end the lease early

If the tenant defaults under the terms of the lease, don’t rush in like a bull at a gate and re-take possession of your premises. You still have certain obligations to the tenant, such as giving the tenant quiet enjoyment, which must still be adhered too.

Should the tenant breach the lease, you must follow the procedure set out in the lease and comply with your obligations at law.

Generally, you need to give the tenant notice of the breach and allow them a reasonable period of time to rectify the breach before terminating the lease.

Your notice should identify the breach, identify the steps to be taken to rectify the breach, and provide a reasonable time frame for the breach to be rectified.

Finalise lease documentation before giving the tenant possession of your premises

Your negotiations with the tenant should be complete and the lease documentation finalised before the tenant is given possession of the premises.

A tenant is given certain rights at law at the time possession of the premises is granted. If the terms of the lease are not negotiated and finalised before the tenant moves in, then this can cause issues down the track.

Conclusion

These are some of the pertinent issues to consider when leasing a commercial space. Your obligations don’t end once you secure a tenant. As outlined above, you should be actively involved in your lease not only at the start, but also during the term of the lease and at the lease end.

If your business is leasing the property back from your SMSF, most of these potential issues will not be relevant to you.

However, you will still do need to conduct the lease transaction between your business entity and your SMSF on an ‘arms’ length’ basis on commercial terms as if it were between two unrelated parties. For this reason, you should still prepare a written commercial property lease or a retail lease.

Thank you Ian

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

3 Comments

by SMSF Coach - Liam Shorte on August 21, 2015 • Permalink

Posted in Property, SMSF Management

Posted by SMSF Coach - Liam Shorte on August 21, 2015

https://smsfcoach.com.au/2015/08/21/is-your-smsf-leasing-commercial-property-tips-and-traps/

Using the Contributions Holding Account for 30 June Tax Planning

When the Australian Taxation Office (ATO) released interpretative decision ATO ID 2012/16 (withdrawn but relevant) and Tax Determination 2013/22, we received a number of inquiries from people with one-off large capital gains or income from irregular contracts looking to implement a contributions holding account (or suspense account) strategy affectionately known as “the Double Dip” strategy. I deliberately do not use the commonly used name “reserving strategy” as the ATO seems to frown on “Reserves”.

The details of the strategy are outlined in the ATO’s interpretative decision and in effect allow for a taxpayer to ‘double-dip’ on claiming a tax deduction for superannuation contributions, with the crediting of any June contributions being applied no later than 28 July in the following financial year (refer SIS Reg. 7.08(2)).

You use a contributions holding (or suspense) account and place a contribution during June (and claim that contribution as a tax deduction in that year if it is a concessional contribution) but the amount is then credited to your member account anytime from 1 July to 28 July, which is when the amount will be counted as a contribution and counted against the new financial year’s contribution caps.

Now right at the start let me advise you that the ATO’s systems are not able to cope with this strategy so there is a “work-around” needed and it is just part of the process of implementing this strategy and nothing to be worried about.

Here are the steps involved:

Read your Deed to ensure there are no clauses preventing the operation of a contributions holding account (I would be surprised if there are, but read the deed anyway, it’s a good habit).
Read the above Tax Determination 2013/22 to understand clearly the details of how to effectively implement this in a contribution holding account strategy, from start to finish across personal and SMSF tax entities..
Report the full contributions within your SMSF Annual Return – ensure that the accountant/administrator paid the necessary contributions tax on the entire contribution.
Where you are self-employed (or substantially self-employed), ensure that the Notice of intent to claim or vary a deduction for personal super contributions (NAT 71121) is correct for the current year and submit the form. Follow the exact rules that apply to ensure a valid notice exists, as per s290-170 of the ITAA 1997. Most advisers call the form a “NOITC”.
Remember the contribution tax was paid in the first year so you need to gross-up the amount to be allocated in the following financial year.
Complete a Request to adjust concessional contributions (NAT 74851) before or at the same time you complete your SMSF and Personal tax return. The instructions for this form also provide instructions on how you, as a trustee or your administrator, complete the SMSF annual return to correctly account for the contributions reported on this form.
Minute the operation and movement of money in this strategy to ensure there are complete and accurate records.

Worked Example – Using the Contributions Holding Account

Tony is a 59 year old self-employed mechanic, who sold a Sydney property this year that he had held for 15 years. He has a very large capital gain (lucky bugger) and wants to minimise his tax. His SMSF Specialist Advisor (Me Me Me!) and Tax agent agree that he should use the “Double Dip” contribution strategy to make $60,000 worth of concessional contributions to his SMSF and claim them as a tax deduction this financial year. they have confirmed that he will have a lower-income next year and hence the deduction will be more valuable to him by claiming it this financial year.

He has already made $30,00000 worth of contributions so far so he makes a contribution of $30,000 to his SMSF this financial year in June, and claims the deduction for this year. The total amount of $60,000 will count as an assessable concessional contribution this year and will count as taxable income of the super fund this year. Best practice would be to make the $30,000 contribution separate to previous $27,500 contribution and it must be done in June not any earlier.
Tony completes the Notice of intent to claim or vary a deduction for personal super contributions (NAT 71121) and provides it to the fund trustee(s) to pass to the Accountant / Administrator. The full $60,000 is treated as fund income for that year and the contributions is accounted for in the tax payable for that year.
The first $30,000 is allocated to the member’s account before 30 June.
The fund does not allocate the other $30,000 of this money to his member account in FY 2025, but rather allocates this money to a ‘contribution holding account’ or a ‘suspense account’ in the SMSF. The $30,000 is therefore delayed being allocated to his member account until the next month which is July 2025 and hence in the new financial year. The grossed up contribution will then be counted against his concessional contributions cap for the second year.
4. In the following month of July (but prior to the 28th of the month), the money is then allocated to Tony’s account and it counts as a concessional contribution in that new financial year using his full $$30,000 concessional cap.
Tony then completed his Request to adjust concessional contributions (NAT 74851) and submits to the ATO before or at the same time he completes his SMSF and Personal return

Documentary evidence

After the form is lodged, the ATO may then request additional evidence and documents to support the taxpayer’s election. This may include:

A copy of the fund’s trust deed, which shows the ability for the fund to hold unallocated contributions
Trustee minutes outlining the resolutions to allocate to and from the contribution holding account
Minutes of the decision to allocate funds to the contribution holding account
Contribution holding account investment strategy
Bank statements from your SMSF that confirms the contributions being paid for the period your application relates to
Evidence of the reallocation within 28 days of the end of the month.

Note that having used the cap he has no ability to use further contributions to reduce his income in the new financial year unless he continues to use a reserve each June.

Oh and true SMSF DIYer’s, please don’t try this at home on your own. Get advice and do it right!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98993693, Mobile: 0413 936 299

PO Box 6002 Norwest, Baulkham Hills NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 41 34 605 438 042, AFSL 476223

9 Comments

by SMSF Coach - Liam Shorte on June 19, 2015 • Permalink

Posted in Contribution Strategies, Contributions, Financial Planning, Salary Sacrifice, Superannuation, Tax Planning

Posted by SMSF Coach - Liam Shorte on June 19, 2015

https://smsfcoach.com.au/2015/06/19/using-the-contributions-holding-account-for-30-june-tax-planning/

SMSF Life insurance policies held for the purposes of buy –sell arrangements

In another harsh interpretation by the ATO, they has recently released an interpretative decision which says that insurance held in a self managed superannuation fund (SMSF) to fund a buy-sell agreement may breach the sole purpose test and the prohibition on giving financial assistance.

Darth from the ATO

ATO ID 2015/10

In this interpretative decision the ATO explored a situation where a member of an SMSF and his brother run a business through a company in which they were the only two shareholders.

The SMSF member and his brother entered into a buy-sell agreement. The terms of the agreement required:

the SMSF to purchase a life insurance policy over the life of the member with the insured amount based on an agreed market value of the member’s shares in the company;
the company to make contributions to the SMSF which the SMSF trustee would then use to pay the premiums on the insurance policy. These contributions were in addition to superannuation guarantee contributions and salary sacrificed contribution; and
on the death of the member:
- the insurance proceeds were to be paid to the SMSF trustee who would then add the proceeds to the member’s benefits;
- the SMSF trustee would then pay the deceased member’s death benefit (including the policy proceeds) to their spouse; and
- the deceased member’s shareholding in the company would be transferred to the member’s brother for nil consideration and the deceased member’s spouse will relinquish all claims to that shareholding in the company.

The ATO ruled that the SMSF trustee’s purchase of the life policy contravened both the sole purpose test under section 62 and section 65(1(b) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) which covers the giving of financial assistance by an SMSF to a member or their relative. Breaching the sole purpose test and/or the financial assistance provisions can lead to the SMSF being non-complying and significant monetary penalties being imposed on the SMSF trustees.

Sole purpose test

Broadly the sole purpose test requires an SMSF to be created for the core purposes of providing retirement benefits and death benefits.

Whilst historically the ATO has provided guidance that superannuation funds involved in buy-sell arrangements would not contravene the sole purpose test, the ATO’s decision in ATO ID 2015/10 represents a new position taken by the ATO. Under this new position the ATO indicates that in assessing whether the sole purpose test is met, it will look at all the wider circumstances surrounding a trustee’s decision to make an investment or carry out a particular activity. In the context of buy-sell arrangements this involves the manner and circumstances in which the SMSF are to hold the insurance policy.

Subsection 62(1) of the SISA expressly allows an SMSF to be maintained for the provision of death benefits.
However, the manner and circumstances in which the SMSF came to hold the policy in question caused the ATO to conclude that the benefits sought by the parties of the agreement cannot be regarded as being merely incidental to the core purpose of providing death benefits. The buy-sell agreement is a major component of the member’s and his brother’s company succession plan.

The SMSF is required to use contributions made to it in a manner that may not accord with its investment strategy. The SMSF is essentially directed to invest contributions made to it in an asset it may not otherwise choose to hold.
Having the policy held in the SMSF enables the member’s brother to gain total ownership of the company after the member’s death without personally incurring any expenditure. This immediate benefit to a related party (who is not a member) of the SMSF cannot be described as something that is incidental, remote or insignificant provided to the members of the fund.

Financial assistance provided to a relative of a member

In addition to the sole purpose test concerns discussed above, as the terms of the agreement allow the member’s brother to obtain total ownership of the company upon the member’s death without the need to pay any consideration, the SMSF was also seen to be providing financial assistance to a relative of the member (eg the brother). S.65 of SISA prohibits a SMSF trustee from assisting a member or relative of a member using the fund’s resources. The ATO concluded that the arrangement constituted the provision of financial assistance to the member’s brother which is in breach of section 65(1)(b) of the Act.

What should SMSF’s involved in new buy-sell agreements do?

Although ATO ID 2015/10 is not a binding public ruling, it outlines the ATO’s current position on superannuation and buy-sell arrangements. SMSF trustees and their advisers considering new buy-sell arrangements with the ownership of the policy held in superannuation (SMSF or retail) should consider alternative ownership structures instead.

Existing SMSF arrangements

Unfortunately despite ATO ID 2015/10 representing a change of position by the ATO on buy-sell arrangements, the ATO has not outlined any grandfathering provisions in relation to existing buy-sell arrangements where SMSFs have been involved on the basis of the ATO’s previous view that the sole purpose test was not breached.

As a regular review of the SMSF’s investment strategy is required, which also involves a review of the fund’s insurance arrangements, this review should prompt a discussion by the Trustee(s) around whether existing insurance cover is still required and whether it is still appropriate to hold the cover inside or outside of superannuation.

When conducting such investment strategy reviews, Trustee(s) who have existing buy-sell insurance arrangements funded through their SMSF are encouraged to:
• discuss their options with the fund’s auditor, and/or
• seek SMSF Specific Advice, relevant to their arrangement, from the ATO.

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 May 25, 2015 • Permalink

Posted in Insurance Strategies, Trustee

Posted by SMSF Coach - Liam Shorte on May 25, 2015

https://smsfcoach.com.au/2015/05/25/smsf-life-insurance-policies-held-for-the-purposes-of-buy-sell-arrangements/

8.06% Drop in Income – That’s What the RBA Rate Cut Means for Cash Investors

Rates Down Again!

With the RBA cutting interest rates 25 basis points to a new low of 1.75 per cent and some banks already announcing plans to pass on the cuts in full to mortgage clients, it can’t be long before they also cut their Term Deposit and cash rates, here’s what self funded Australian retirees can expect:

Sum invested in Cash / TDS	Return at best current rate 3.1% for 1 year	Return after 0.25% drop	Drop in income
$250,000	$7,750	$7,125	$625
$500,000	$15,500	$14,250	$1,250
$750,000	$23,250	$21,375	$1,875

So that equates to a drop of 8.06% in income for those conservative investors who stick to cash and fixed interest based investments.

Not more than a year ago you could still get 3.5% on a Term Deposit so the drop in income over the last 2 years has been more like 18.5%. Could a normal family suffer that loss income ?

Meanwhile Centrelink will most likely not review Deeming Rates until September 20th and there is no certainty they will react to the drop in interest rates. If they don’t then the next review is not until March 2017. Why Scott Morrison did not address this in March when he knew an election was in the offing surprises me. there will be a lot of grey army voters very angry with the coalition.

The government will claim that the low inflation rates mean no real difference for you and a real “she’ll be right” attitude from Ministers on huge salary packages.

Tell them “THEIR DREAMING” and it’s your REALITY!.

Some tips for those affected:

Forget about loyalty and shop around for the best deal
Consider taking on some additional risk but drip feed slowly in to any investment
Don’t chase yield blindly as you may lose your capital
Get some advice to ensure you are maximising your entitlements. See a Centrelink Financial Information Service Officer
See a Financial Planner to discuss ways of improving how you are invested and hopefully your returns.

If you want to know current thinking on the amount needed then read my earlier article How much do I need to live comfortably in retirement?

Feel you are falling behind? Then read 10 Tips For Salvaging Your Retirement Plans and then contact me for personal advice.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of jscreationzs at FreeDigitalPhotos.net

Leave a comment

by SMSF Coach - Liam Shorte on May 3, 2015 • Permalink

Posted in Retirement Planning, Term Deposits

Posted by SMSF Coach - Liam Shorte on May 3, 2015

https://smsfcoach.com.au/2015/05/03/8-per-cent-drop-in-income-thats-what-the-rba-rate-cut-means-for-cash-investors/

A Closer Look at the Latest ATO SMSF Statistical Overview

Delving deeper in to SMSF stats

It is always nice to see how the SMSF sector is progressing and what are the new trends identifiable from the financial returns and other interactions between the ATO and Trustees, even if they are relying on old data. The ATO has recently released the fifth edition of its annual statistical report on SMSFs. The overview provides high-level observations and commentary on the 2012–13 statistics gathered from SMSF annual returns, SMSF registrations and auditor contravention reports it receives.

The statistical highlights from the ATO 2012–13 overview are:

SMSFs account for 99% of the total number of funds and 30% of the $1.9 trillion total super assets in Australia. No surprise as each fund has 2-4 members maximum whereas a fund like Australian Super has millions of members known affectionately by a number! Stand up 24601 (ok, I could not miss a chance to use this from Les Miserables!). Also no surprise that they hold so much of the assets as they are the “retirement vehicle” of choice so more attractive to older members with big balances, but the tide is changing and costs reducing.
The 40 somethings are starting to engage. The SMSF sector grew by about 29% between 2010 to 2014 and it is the continuing rise in numbers of younger trustees that is starting the shape the future direction of the SMSF service industry
source: ATO

Whilst 53% of members were aged 35-55, the sector is now seeing significant growth in the lower end at the 35-44 age bracket. The ATO has highlighted within the report that for the first time, the median age of SMSF members of newly established funds in 2013 was below age 50.
At 30 June 2013, SMSFs held $9.2 billion in borrowings and $3.8 billion in other liabilities – 1.9% and 0.8% of total assets respectively. The proportion of SMSFs with borrowings increased progressively to 5% in 2013. So while a drop in the ocean compared to the total asset pool, the rise of SMSF borrowing needs to be monitored and I believe ‘managed’ so members can leverage for long-term gains but with safeguards in place like lower LVRs, full disclosure of all referral fees, marketing budgets, commissions, finders fees or whatever you want to call the huge payments made to third parties in the property sales process. If you know the sales person or “funnel” you are buying from are getting $40,000 in payments on that $400,000 property then at least you know you are starting from well behind. At the moment, novice or time-poor investors don’t see the full extent of the “dipping into the honey pot”.

It is estimated that SMSFs experienced a positive return on assets of 10.5% in 2012–13, the highest achieved over the five-year period. I hate people quoting one-year returns when people are or should be focused on long-term investing. Show me the 5, 7 and 10-year numbers! I know the ATO may be able to do this in a few more years once they have enough data. Quoting 1-year numbers is like telling me you saved some money last year without admitting that the previous 10 years you racked up huge debts and the savings last year were only because your mum gave you some money.

SMSFs directly invested 78% of their assets, mainly in cash, term deposits, and Australian listed shares. I suspect the people with this sort of allocation are not using financial advisers or investment consultants as most of my clients have healthy allocations to international shares, bonds and property. SMSF Trustees need coaching and education not preaching or gloating about missed returns to step out of their comfort zones.

The majority of SMSFs continued to be in the accumulation phase (63%); however, over the five years, there was a shift of 7% of SMSFs moving into the full pension phase. The “Grey Army” will likely get stronger and more vocal with retirement incomes to protect and they should have more influence on future Government “tinkering.” Rise up and be heard or they will sweep the rug from under you!

At 30 June 2014, 77% of all SMSFs had individual trustees, rather than a corporate trustee. Of newly registered SMSFs in 2014, 92% had individual trustees. This is a shame and a reflection of poor advice or no advice and lack of foresight. Any trustee who feels it is ok to subject their surviving spouse to reams of paperwork at the same time as losing their lifelong partner just to save $700 should forewarn them now so they know what to expect. Read my previous blog Why Self Managed Super Funds Should Have A Corporate Trustee to understand why.

For the year ended 30 June 2013, 63% of SMSFs were solely in the accumulation phase, with the remaining 37% making pension payments to some or all members in retirement. Of these, 11% were in partial pension phase (making payments to some members), while 26% were in full pension phase (making payments to all members). If you are over 55 then you should at least explore the Transition to Retirement Pension option. Don’t complain about tax and investment returns while ignoring low-risk strategies to improve your position. Read Understanding transition to retirement pensions fro some ideas.

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 Stockdevil at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on April 24, 2015 • Permalink

Posted in News & Stats

Posted by SMSF Coach - Liam Shorte on April 24, 2015

https://smsfcoach.com.au/2015/04/24/a-closer-look-at-the-latest-ato-smsf-statistical-overview/

The Hidden Value of Great Financial Planning

Following on from my own article on our main VERANTE website called Services We Provide as Professional Financial Planners I read a great white paper from a UK not-for-profit organisation called Sensible Investing who are committed to promoting clear, concise and independent information about investing and, specifically, the benefits of evidence-based (or passive) investing. I asked for permission to share the ideas and so here is a guest blog from them. A long read but a worthwhile read for anyone doing long-term planning and needing to understand what a financial planner can add in terms of value.

A man who does not plan long ahead will find trouble at his door

Confucius

The equation between the value that a client receives and the fees that they pay needs to make sense. Yet, because the benefits of good advice often materialise in the far-off future, it is sometimes easy to miss, or dismiss, the value received along the way. Market noise, emotions and periods of what may seem like inactivity on an adviser’s behalf, can also impact on the perception of value. This volume of Acuity is a reminder of the seen and, as importantly, the often unseen or unappreciated value that a great financial planning firm can deliver to its clients.

Financial planning: the world’s best kept secret

As you are reading this, we can assume that you are one of the few, lucky people who have discovered proper, lifelong financial planning. Almost everyone worries about time and money, what the future may hold, and the decisions and choices that they face; yet few realise that financial planning is the key to sorting it all out. In the bad old days, people went to IFAs for help and in all likelihood got sold a bag of commission-laden products under the pretext of ‘advice’. Fortunately, today, a small group of high quality, local, boutique financial planning firms has emerged providing truly great financial planning.

The problem is that most people don’t know what ‘financial planning’ is or understand how valuable it could be to them. Instead of trying to define what financial planning is in a few choice words, it is probably more useful to think about it in terms of the questions it answers. Here are some examples:

Lifestyle worries

• What does the future hold?
• Will we be able to maintain our current standard of living when we retire?
• When will I/we be able to retire safely?
• Will we need to downsize the house to survive?

Money worries

• How much is enough?
• Will we run out of money?
• Can we manage financially if one or both of us needs long-term care?
• Can we afford to put our children through private school?
• Can we have more holidays?

Money and life challenges

• What happens to my partner if I die? Will they be alright?
• What happens if the markets deliver really poor returns?
• How can we help out the children and grandchildren?

Good financial planning helps to resolve these kinds of questions. It helps people feel confident that they have the financial flexibility to survive whatever life and the markets may throw at them. It is also comforting for them to know that they have a trusted finance professional on hand, who intimately understands their family’s circumstances and goals, and who will monitor their finances over time and help them to make the tough decisions that they will inevitably face along the way. That’s the true value of financial planning. Cash flow models, sensibly structured portfolios, tax efficiency and contingency planning
are simply the tools that experienced planners use to help them to build and maintain the working plan.

In exchange for the financial planning service, clients pay an annual fee. It is often easy to appreciate the value received in the first year, and easy to forget or appreciate the value on an ongoing basis. The financial planning relationship can be broken down into three
key phases of value.

Value phase 1:

Sorting out the mess and building the plan

New clients often arrive with a proverbial suitcase of bits and pieces collected over the years, such as a number of pension plans, with-profits bonds, endowment policies, life insurance and a stock broker or IFA managed portfolio. They invariably have concerns about what the future holds, and have a strong desire to get their finances in order. Some do not have a clear vision of what they want their future to look like, whilst others lack the confidence that the suitcase full of products will get them there. That’s a stressful place to be.

The first and most vital step is to help clients to set out their vision for the future, both in terms of lifestyle goals and the money needed to fund them. Understanding how important it is that they are achieved is critical. Next comes the analytical work, which may involve using cash flow modelling tools to gauge the magnitude of the gap between the client’s vision and the financial reality (or to plan a range of possible scenarios).

In some cases, the two may be close. In others the gap may be wide. For some this may mean tough choices: saving more, retiring later, downsizing the house or leaving less for the children. For others, this might mean the chance of actually spending more, gifting money early or pursuing philanthropic interests. Empowering clients to make sensible choices is the objective of the planning process.

The resulting ‘plan for the future’ becomes a joint effort between client and planner. The overall strategy is agreed and recommendations are made to reposition the affairs of the client, potentially across a broad range of areas including asset allocation, investments, tax, wills and contingency planning. Once sorted, the client is then back in control of their future and their finances. The actual implementation can be complex, detailed and time-consuming for the financial planning team, as dealing with product companies can be a tortuous process! The value received is easy to see and even sometimes quantifiable,
such as the measurable benefits of restructuring to reduce Inheritance Tax liabilities, other taxes or reducing costs.

Value phase 2:

Plan progress and progressing the plan

Financial planning is not a ‘set-and-forget’ process; far from it, in fact. Regular review meetings help to provide clients with an insight into how things are going relative to the plan. They are also an opportunity for the client to raise issues or discuss changes to their circumstances, and for the financial planner to raise concerns about the progress of the plan and if there are any decisions that need to be made or actions taken. Reviewing past progress is important, but backward looking.

What is more important is the future and how the plan needs to progress from this point forward. Some issues and consequent decisions faced may relate to events in the client’s life, or may be more technical issues that sit in the financial planner’s jurisdiction. The latter may relate to things like new investment ideas or solutions, changes in pension or tax law, and refinements to the long-term portfolio strategy (remember that the true value when it comes to investing lies not just in the initial structuring of a robust portfolio, but the adviser’s role as a foil to avoid the truly dangerous combination of investor emotions and bad, yet often tempting, investment ideas). On some occasions, there will be little new to report, but that does not mean that no value was received: the financial
planner is out there reviewing, analysing and interpreting a wide range of different issues and challenges on the client’s behalf. Clients have better things to be doing with their time!

Over the many years that a client maintains a professional relationship with a financial planning firm, some may be quite uneventful, but they can always be confident that they remain on track and that their adviser has his or her eyes and ears open to issues that may affect them or are of concern and need to be flagged. There will be times when events are momentous, either in the client’s life (divorce, ill-health, an unexpected inheritance or triplets) or in the planner’s world (the markets falling precipitously, as they will do from time to time, or the Chancellor’s new pension regime, for example). Understanding the issues faced, finding a solution that makes sense, facilitating decisions that need to be made and having the fortitude to execute under pressure, is where great financial planners come into their own.

Value phase 3:

Long life, death and immortality!

There are also some more subtle areas of the value of a long-term relationship with a trusted financial planner. For many people, living longer is a two-edged sword. On the upside, we can all now expect to live materially longer than our grandparents’ generation. In fact it has been estimated by the Office for National Statistics that 8% of men and 14% of women age 65 today are projected to live to 100. On the downside, we also know that with longevity comes attendant health problems, not least the rise in dementia. It is a very distressing and worrying time when someone falls ill and often many life and financial decisions need to be made at this difficult time. A financial planner, who has arranged for powers of attorney to be prepared long before they are needed, and who knows the
family and their financial circumstances well, is well-placed to provide advice, support and to facilitate the financial consequences of the new change in circumstance at these stressful times.

Many clients – often one of a couple who takes more interest in the finances than the other – worry about what will happen to their partner on their death. Having a trusted financial planner (and an up-to-date plan), allows them to be confident that, in the event of their death, their partner will be well cared for financially and that their affairs are in order. Probate too, is a far easier process when everything is organised.

Most people would like to feel that they will, in some way, leave behind a lasting legacy. For some, that can mean spending time and money supporting their philanthropic works and for others it may mean passing on wealth from one generation to the next. The proposed changes in pensions legislation have created an opportunity to pass on wealth to future generations in a tax effective manner, for example. Again, financial planners can play an important role in helping clients to make decisions surrounding such issues.

In conclusion

It is easy to forget when you meet with your financial planner for your annual review meeting that the scope and value of the relationship is far deeper and more important than worrying about the 12-month market noise that has resulted in your portfolio going up and down, or the fact that neither your portfolio nor the plan has changed much. Meeting your goals, feeling confident in the future and having the time to enjoy the opportunities that your money provides you, your family and your community are what really matter.

Delivering ‘peace of mind’ may sound a bit trite, but that is the goal, consequence and value of great financial planning.

For access to the White Paper and some other great articles from Sensible Investing visit http://sensibleinvesting.tv

Turned 65 this year? Superannuation Contribution Rules, Limits and Traps

I have had three calls this week on the subject of making contributions for people who turned 65 this year and want to make non-concessional (after tax) contributions to their funds. I have had to tell one to reject the contribution already made. one to go do some work and the other to relax. The lessons to learn are; do not listen to friends, don’t rush in and seek professional advice from your accountant, financial planner or if you are really smart a SMSF Specialist Advisor™.

Get advice – Get it right

GENERAL INFORMATION ONLY: DO NOT RELY ON THIS CONTENT FOR YOUR PERSONAL SITUATION – GET PERSONAL ADVICE.

If you are 64 then you can still make a contribution of up to the $300,000 max up to June 30^thas long as long as you have not triggered your “bring forward” cap previously or exceeded your Total Super Balance Cap.
If you have turned 65 this year already then you can still make a contribution of up to the $300,000 max up to June 30^thas long as you meet the work test this year (40 hours in 30 days) or if you meet the criteria for the Work Test Exemption which applies from 1 July 2019. Again you must not have exceeded your Total Super Balance Cap
If you have turned 65 this year already and have not met the work test yet, then you cannot make a contribution until after you meet the work test this year (40 hours in 30 days).

So here is how each of my callers found my advice essential to making their decision.

Client 1

He turned 65 in January 2018 and had fully retired but made a large contribution on the basis he would be managing their son’s business for 2 weeks in June 2018 and would meet the work test easily. As he had not met the test at the time of contribution I had to tell him as SMSF Trustee, he had to reject the contribution and return the funds to his personal account. They can contribute the funds in late June after meeting the work test.

Client 2

He is fully retired and turned 65 in March and at least called me before making the contribution. He has not met the work test yet but has an offer of part-time work in the “Big Green Shed”. Great way of meeting the 40 hours in 30 day Work Test and I personally would probably pay them to work there as I spend so much time and money in there already.

Client 3

She is still working but turns 65 next week and sent through an urgent request to sell down shares in her personal name and so I called to ask why and “her friend had told her she could not use the bring forward rule after her 65th birthday.” So she had panicked and decided to sell down what are excellent shares but with huge capital gains. I had to tell her to relax and take a breath! We have a term deposit maturing in the May and can use that to make the contribution and avoid the estimated $300,000 CGT on the sale of the shares. As she running her own business, she has met the work test and can make her $300,000 contribution anytime up to June 30th 2020 as long as she does not exceed her Total Super Balance cap..

So here is a breakdown of the specific contribution rules applying at various ages.

If you turn 65 in a financial year the question of whether you are able to make a contribution to superannuation depends on:

• the amount you wish to contribute;

• whether you wish to claim a tax deduction for all or some of the contribution;

• whether you need to meet a work test during the year;

• whether you are under your Total Super Balance Cap.

Here are some tables that put it all together.

Table 1: Non-concessional Contributions

Age at the beginning of the financial year	Work test or Work Test Exemption to contribute?	Maximum non-concessional contribution without penalty
Less than 64	No	As long as you have room in your Ttoal Super Balance cap, $100,000 standard non-concessional contribution; $300,000 two year bring forward rule is triggered if greater than $100,000 has been contributed in year 1.
64	Only required if age 65 when contributing	As long as you have room in your Ttoal Super Balance cap, up to $300,000 if two year bring forward rule is triggered.
65 and up to the person’s 75th birthday*	Yes	As long as you have room in your Ttoal Super Balance cap, $100,000 standard non-concessional contribution.

Table 2: Personal Concessional Contributions*Once a person reaches 75 they can contribute up until 28 days after the month in which they turn 75.

Age at the beginning of the financial year	Work test or Work Test Exemption to contribute?	Maximum concessional contribution without penalty
Less than 64	No	$25,000
64	Only required if age 65 when contributing	$25,000
65 and up to the person’s 75th birthday*	Yes	$25,000

So what is the WORK TEST EXEMPTION?

Work test exemption (applies form 1/7/2019)

Allows an individual’s super fund to accept voluntary contributions made by individuals ages 65 to 74 for an additional 12-month period from the end of the financial year in which they last met the work test, subject to their total super balance being less than $300,000.

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

7 Comments

by SMSF Coach - Liam Shorte on April 13, 2015 • Permalink

Posted in Contribution Strategies, Trustee

Posted by SMSF Coach - Liam Shorte on April 13, 2015

https://smsfcoach.com.au/2015/04/13/turned-65-this-year-superannuation-contribution-rules-limits-and-traps/

Tips for Positioning Your SMSF Portfolio for Volatile Times

SMSF Portfolio Management

I am becoming increasingly cautious in the portfolio guidance for clients in the current market where very low interest rates have driven equities and property higher, faster and seemingly without any concern for lack of underlying sustainable growth in earnings.

From what I am reading and from listening to market commentators we are probably going to see the domestic, European and USA share markets thrive over the coming months but the chance of a entrancement has increased significantly for different reasons. Here it is low-interest rates driving our market and alone that is dangerous without economic growth. In the US they also have very low rates but they have a recovering economy which underpins the growth in share prices there as companies improve earnings but if the cost of servicing debt rise that will affect the share market. In Europe they have just started Quantitative Easing (money printing) so easy access to capital will spur on their share and property sectors but that may set them up for more pain in the long-term if they don’t see sustained spending and growth in their economies.

There is plenty of talk of a pull back in share markets when the US Federal Reserve starts increasing its interest rates. We probably already see the first one or two rates priced in to the market and hence the current volatility so it maybe the third or fourth rise that causes a share market pull back.

So how can a SMSF trustee prepare for a short to medium term change in market sentiment and a possible 10-20 per cent drop in markets.

For our clients we are retaining our long-term strategies but reviewing asset allocation. Taking the basic advice to “Sell High Buy Low” but in a gradual movement over 6-18 months. Basically banking some of the profits and re-balancing portfolios with an eye to future volatility.
We are dampening down return expectations: After a sustained period of decent returns post GFC we know share and property markets will revert to the mean as explained by Roger Montgomery in a recent Cuffelinks Article This is mean (-reverting that is) so we are going back to focusing clients on the outcome they were seeking such as a 6% net return in retirement funding a 5% pension drawdown.
Not chasing “Yield” stocks. We are spending a lot of time explaining to clients that you can lose on capital value on “blue chip yield” stocks. Most already have a decent exposure so we are just asking them to be patient and look for opportunities on the dips.
Educating clients that higher volatility will be the norm for a prolonged period: As global interest rates start to revert to their long-term averages this could easily trigger capital losses in the bond markets so not to be complacent about exposure to any sector even if labeled “Defensive”.
As Roger Montgomery mention in the article above “Cash is Ammunition” so we are recommending building cash reserves to capitalise on opportunities from market corrections. Yes rates are low but a good purchase on a dip can swing the return balance significantly in your favour. Patience!

Traditionally, May and June are statistically volatile and weak months as investors review risk exposure, do some tax loss selling as they approach the end of the financial year. There is a market adage “Sell in May and go away” which although not a certainty, does have a history to be aware of when positioning portfolios. Here is a great article by Marcus Padley from 2009 but still relevant that explains this phenomenon in good detail: Sell in May and go away.

Sell in May and Go Away

We are not suggesting exiting portfolios but we are are recommending sitting on the fence ready to buy on significant dips rather than just buying into the current market and diversification and asset allocation is key at present.

I would love to here other’s sentiments so please take the time to comment below with your own strategy, tips or critique.

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 April 9, 2015 • Permalink

Posted in Investment Strategies, SMSF Management

Posted by SMSF Coach - Liam Shorte on April 9, 2015

https://smsfcoach.com.au/2015/04/09/tips-for-positioning-your-smsf-portfolio-for-volatile-times/

55 No Longer Target Age for Transition to Retirement Pension Strategy

The milestone for when you reach preservation age and can access your super is now starting to change. The gradual move from 55 – 60 for access to Superannuation has begun.

If you are already over 55 then you can ignore this blog and you should be reading Understanding transition to retirement pensions

If you are over 59 and not in a Transition to Retirement pension then you really need to read this article Aged 59 – 64 and not on a Transition to Retirement Pension – SHAME ON YOU

For those approaching 55, listen up! As we approach 1 July 2015, we encourage you to check if you have met your preservation age requirements prior to planning for the new tax year. You may finally be able to make the most of the superannuation and tax systems and open up some lifestyle options for yourself like reducing work hours or pursuing an alternative career while maintaining a steady income stream.

However if you have not met your preservation age, you may not be able to:

open a Transition to Retirement (still working) or Account Based (met other condition of release) Pension Plan account;
withdraw a lump sum super amount (fully retired); or
process a contributions splitting request.

From 1 July 2015, your preservation age can range between 55 and 60 years of age, depending on your date of birth.

Your preservation age is determined using the following table:

Date of Birth Preservation	Age	Preservation age reached in year:
Before 1 July 1960	55	2014-15
1 July 1960 – 30 June 1961	56	2016-17
1 July 1961 – 30 June 1962	57	2018-19
1 July 1962 – 30 June 1963	58	2020-21
1 July 1963 – 30 June 1964	59	2022-23
After 30 June 1964	60	2024-25

Using a Transition to Retirement Pension means you can move your funds to Tax Free earnings phase, draw a tax efficient pension and use salary sacrifice at the same time to build a bigger nest egg for retirement. All without reducing your net take home pay! The other option is to use the TTR to reduce your working hours and supplement your lower earnings with a small pension and really transition to your retirement as the strategy intended.

Either way if you are over or approaching your retirement age then speak to a well rated financial adviser as there are a number of very clever strategies around pensions, tax and debt recycling that they can use for you now that you are UNPRESERVED!

Are you looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

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 April 1, 2015 • Permalink

Posted in Pension Strategies, Tax Planning

Posted by SMSF Coach - Liam Shorte on April 1, 2015

https://smsfcoach.com.au/2015/04/01/55-no-longer-target-age-for-transition-to-retirement-pension-strategy/

How to Qualify for the Commonwealth Seniors Health Card

Deeming Rates have changed again and so that makes it a little easier to access the Commonwealth Seniors Heath Card (CSHC) so I thought I should revisit the way you can access this valuable benefit.

A key change to legislation that commenced on 1 January 2015 impacts the Commonwealth Seniors Heath Card (CSHC) Income Test. Previously the Income Test only looked at a person’s adjusted taxable income, however the new rules include deemed income from account-based income streams. This may mean higher assessable income for some, making them ineligible for the card. For others, it may mean the loss of the card under certain situations from 1 January 2015.

It is important that SMSF Trustees and Self Funded Retirees in general understand how these new rules work and how they can impact them in different scenarios so that appropriate adjustments can be made to their strategies where necessary.

So here in this guide, we look at the rules around the CSHC as they apply from 1 January 2015 and the implications on different client situations. We will also explore options available to those effected from 1 January 2015 that can help them obtain or retain the card.

The benefits

The CSHC is designed to assist eligible self-funded retirees with certain medical and prescription costs. A summary of these concessions and other benefits available to card holders are as follows:

prescription medicines at concessional rates through the Pharmaceutical Benefits Scheme (PBS)
access to PBS prescriptions, generally without charge, for the remainder of the calendar year after reaching the PBS Safety Net
bulk-billed doctor (GP) appointments, at the discretion of the GP (the Australian Government provides financial incentives for GPs to bulk-bill concession card holders)
tax-free energy supplement1 of $366.60 per annum for singles and $275.60 per annum for each member of a couple
tax-free seniors supplement2 of $886.60 per annum for singles and $668.20 per annum for each member of a couple
concessional travel on Great Southern Rail services (the Indian Pacific, the Ghan and the Overland)
other concessions offered by local governments and private businesses at their own discretion. These concessions vary between states and territories.

Eligibility

With the exception of the Income Test, eligibility for the CSHC has largely remained unchanged. To qualify for the card a person must:

have reached the qualifying age for the Age Pension (currently 65 for men and women) or Department of Veterans’ Affairs (DVA) Service Pension (currently 60 for veterans and 65 for non-veterans)
be an Australian citizen, a holder of a permanent visa, or a Special Category Visa holder and meet other residence requirements
reside in Australia
not be receiving a Centrelink pension or benefit, a DVA Service Pension or Income Support Supplement
meet the requirements of an Income Test (there is no Asset Test when determining eligibility for the card)
provide their tax file number.

Applicants are required to be in Australia at the time of claim, however once received, card holders can travel outside Australia temporarily without having their card cancelled providing the period of absence is less than 19 weeks. This will be particularly important for those who wish to retain grandfathering on their account- based income streams (discussed further under the grandfathering provisions section).

The Income Test

From 1 January 2015, the Income Test assesses both a person’s ATI and deemed income from account-based income streams that are not grandfathered.

A person will satisfy the Income Test if their ATI plus deemed income from their account-based income stream is below the relevant income threshold.

Income thresholds

The income thresholds are indexed on 20 September each year and are currently:

Table 1: CSHC income thresholds applying from 20 September 2014 to 19 September 2015

Single	Couple (combined)	Couple separated by illness (combined)
$51,500	$82,400	$103,000

These income limits are increased by $639.60 for each dependent child in the person’s care.

Adjusted taxable income (ATI)

Adjusted taxable income is the sum of:

taxable income
reportable superannuation contributions (salary sacrifice, personal deductible and additional employer contributions)
total net investment losses (including net rental property losses)
target foreign income (income and certain other amounts from sources outside Australia that are not included taxable income or received as a fringe benefit), and
employer provided fringe benefits.

For many people applying for the CSHC, the most important component of their ATI is their taxable income. However, there are circumstances where the other components of their ATI may be important such as where the person claiming the CSHC or their spouse is still working (e.g. on a part-time basis).

To verify the person’s income, Centrelink/DVA will generally require their tax return and/ or tax notice of assessment for the financial year prior to the year of claim. In situations where the person does not complete annual tax returns, Centrelink/DVA will request other documentation to verify the person’s ATI.

For example, where a person only receives tax-free income from an account-based pension and does not complete an annual tax return, Centrelink/DVA will request their latest superannuation statement to work out deemed income (see the following section on deemed income for further information).

For others, an estimate of their income as opposed to their tax return can be used. This is where they are able to demonstrate a change in their personal circumstances, such as retirement and ill-health, which would cause their income to be significantly different to their tax return.

Managing adjusted taxable income

Where a person is expected to exceed the CSHC income threshold for a particular income year, and where they have significant ATI, a few options that may help bring them back below the threshold include:

investing in an insurance/investment bond as earnings are internally taxed at a maximum rate of 30% and are not included in a person’s assessable income for tax purposes
investing in a non-account-based non-superannuation term or lifetime annuity that has a deductible amount for tax purposes
setting up a family trust and distributing income to other beneficiaries
invest in growth assets instead of income producing investments
deferring and/or spreading realised capital gains across multiple income years.

Deemed income

From 1 January 2015, account-based income streams will be deemed and included as part of the CSHC Income Test unless grandfathering provisions apply. Where grandfathering does not apply to the account-based income stream, the entire account balance will be used to work out deemed income.

It is important to note that deemed income is in addition to ATI; meaning a person with no ATI (e.g. a retiree with no other income apart from tax-free income from an account-based pension) may still be ineligible for the card if their account-based income streams have large account balances. The table below shows the amount required in account-based income streams to have deemed income exceed the relevant CSHC income threshold (assuming no ATI). It also highlights how this amount changes from 20 March 2015 and if deeming rates were to rise to 3% and 4.5%.

Table 2: Total account-based income stream balance that would exceed the CSHC income threshold

Applicants are:	Deeming rates as at 20 March 20151.75% and 3.25%	If deeming rates are 3% and 4.5%
Single	$1,606,770	$1,160,445
Couple	$2,572,124	$1,857,645
Couple separated by illness	$3,205,970	$2,315,423

Also worth noting is that, unlike deeming of financial investments for social security pensions (although the same deeming rates and thresholds are used), only the account-based income stream will be deemed i.e. other financial assets are not deemed under the CSHC Income Test.

If you want to know current thinking on the amount needed for a comfortable retirement then read my earlier article How much do I need to live comfortably in retirement?

Feel you are falling behind? Then read 10 Tips For Salvaging Your Retirement Plans and then contact me for personal advice.

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

5 Comments

by SMSF Coach - Liam Shorte on March 20, 2015 • Permalink

Posted in Centrelink, CHSC, Retirement Planning

Posted by SMSF Coach - Liam Shorte on March 20, 2015

https://smsfcoach.com.au/2015/03/20/how-to-qualify-for-the-commonwealth-seniors-health-card/

Stamp Duty on Transfers of Property to an SMSF

Immediately after I published my last blog Stamp Duty Requirements on Change of SMSF Trustees I got questions on stamp duty on property transfers to a Self Managed Superannuation Fund. At first I attempted to the answers myself but to ensure ongoing accuracy I am pleased to have Caroline Harley, one of the best lawyers in the SMSF sector review and update this information.

Caroline Harley | Special Counsel

So here is the current breakdown on stamp duty for property investors or small business owners looking to move property they own personally in to their SMSF.

Stamp duty imposed by State and Territory governments should always be researched and considered before transferring land to an SMSF. Concessions or exemptions from duty may be available depending on the State or Territory in which the land is situated.

This concession can be very significant. If the SMSF purchases NSW land/property from a member with a market value of $500,000, the duty which would apply (but for the concession) is $17,990. With the concession, the saving in duty is $17,240 as concessional duty is only $750.

Reminder: the land/property must be business real property owned in the personal name of the member rather than a company (otherwise the trustee would not be permitted to acquire the real estate).

The provisions of the duties legislation of each State or Territory differ, however where concessions or exemptions are available they generally require the transferor to continue to be the beneficial owner of the land (this relates to business real property as it is the only land which an SMSF may directly acquire from a member).

The following tables set out the details of the stamp duty offices and relevant provisions of the relevant legislation in each State and Territory. This is up to date as at 27 February 2017.

NSW	Transfer to a SMSF
Duty payable	$750 subject to conditions being met. Previously $500 but increased 01/02/2024. Depending on the documentation in place for the transaction you may be able to apply for a retrospective re-assessment and obtain a refund. An SMSF specialist lawyer would be able to advise you on this.
Relevant provisions	62A NSW Duties Act 1997
General description of legislation	Nominal duty is charged on a transfer of dutiable property from a person to a trustee of an SMSF where the: transferor is the only member of the super fund or the property is to be held by the trustee solely for the benefit of the transferor (ie property or proceeds of sale of property cannot be pooled with property held for another member and no other member can obtain an interest in the property or proceeds of sale); and property is to be used solely for the purpose of providing a retirement benefit to the transferor.
Document-ation	Evidence that it is a complying SMSF as at the date of the agreement/transfer, copy of minutes of meetings of the SMSF stating the intention to have the property transferred to it and confirming that the property was owned beneficially by the transferor member, copy of the SMSF trust deed or a variation to it, showing a non revocable clause that the property is segregated for the transferor member’s benefit only (follows wording in section62A(2))
Legislation	Duties Act 1997 (NSW)
Legislation website	http://www.austlii.edu.au/au/legis/nsw/consol_act/da199793/
Office	Office of State Revenue
Website	http://www.osr.nsw.gov.au

VIC	Transfer to a super fund
Duty payable	No duty subject to conditions being met
Relevant provisions	Section 41 Vic Duties Act 2000
General description of legislation	No duty is charged in respect of the transfer of dutiable property made without monetary consideration to a trustee of a super fund, where there is no change in beneficial ownership (again, property must be held in the personal name of the member and not a company name). A transfer of property to a trustee of a super fund by a beneficiary of the fund does not, for the purposes of this section, effect a change in the beneficial ownership of the property.
Document-ation	Documents are required – refer to ‘Evidentiary Requirements for Dutiable and Exempt Transactions’ on SRO website
Legislation	Duties Act 2000 (VIC)
Legislation website	http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/
Office	State Revenue Office (SRO)
Website	http://www.sro.vic.gov.au/land-transfer-duty

No luck in QLD

QLD	Transfer to a super fund
Duty payable	$20 subject to conditions being met
Relevantprovisions	You can claim this concession on transfer duty if you: transfer dutiable property between superannuation funds to merge or split the funds create a trust of dutiable property because of the variation or reconstitution of a superannuation fund. (Read more about transfer duty on trusts.) The superannuation fund must become a complying superannuation fund within 1 year. A complying superannuation fund is: a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (Cwlth), section 42 or 42A an exempt public sector superannuation scheme under that Act.
General desc-riptionof legislation	A transfer of dutiable property is a concessional dutiable transaction.
Document-ation	Duties office form and documents are required. https://www.publications.qld.gov.au/ckan-publications-attachments-prod/resources/755a8bd9-7134-4a5f-85e7-a54c747ec7bd/form-d2.6-v2-effective-7-jan-2008.pdf?
Legislation	Duties Act 2001 (QLD)
Legislationwebsite	http://www.austlii.edu.au/au/legis/qld/consol_act/da200193/
Office	Office of State Revenue
Website	http://www.osr.qld.gov.au/duties/index.shtm l

WA	Transfer to a super fund
Duty payable	$20
Relevant provisions	Sections 122 – 124 WA Duties Act 2008
General description of Legislation	Nominal duty is charged on a transfer of dutiable property by a person to the trustee of a super fund where –

	▪ there is consideration for the transfer; and
	▪ only the transferor can be a member of the super fund or the property is held in the superfund specifically for the transferor (ie property cannot be pooled with the assets of another member and no other members can obtain an interest in the property); and
	▪ the property (or if sold, the proceeds) can only be held in the superannuation fund to be provided to the transferor as a retirement benefit.
	If the fund subsequently fails to satisfy any of the requirements (above) full stamp duty is payable in respect of any dutiable property still held.
	Nominal duty is charged under section 124 in respect of a transfer of dutiable property to the trustee of an SMSF that is an employer sponsored fund where –
	there is no consideration for the transfer.

Document- ation	Application form is required – ‘Superannuation Fund Transactions – Application for Nominal Duty’.
Legislation	Duties Act 2008 (WA) Also refer to Duties Fact Sheet – Superannuation Transactions
Legislation website	http://www.austlii.edu.au/au/legis/wa/consol_act/da200893/
Office	Office of State Revenue
Website	http://www.finance.wa.gov.au/cms/section.aspx?id=209

ACT	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	Duty is charged on a transfer of dutiable property.
Document-ation	Lodgement form and documents are required.
Legislation	Duties Act 1999 (ACT)
Legislation website	http://www.austlii.edu.au/au/legis/act/consol_act/da199993/
Office	ACT Revenue Office
Website	http://www.revenue.act.gov.au

SA	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	A transfer of property to a person who takes as trustee is deemed to be conveyance whether or not any consideration is given (except in certain circumstances regarding the transfer of family farming properties)
Document-ation	Lodgement form and documents are required
Legislation	Stamp Duties Act 1923 (SA)
Legislation website	http://www.austlii.edu.au/au/legis/sa/consol_act/sda1923157/

Office	Revenue SA
Website	http://www.revenuesa.sa.gov.au

NT	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	A conveyance of dutiable property is a dutiable instrument.
Document-ation	Lodgement form and documents are required
Legislation	Stamp Duty Act (NT)
Legislation website	http://www.austlii.edu.au/au/legis/nt/consol_act/sda151/
Office	Territory Revenue Office
Website	http://www.treasury.nt.gov.au

TAS	Transfer to a super fund
Duty payable	$50
Relevant provisions	Section 49 Duties Act 2001 (TAS)
General description of legislation	Where the duties office is satisfied there is no change in the beneficial ownership of the property duty chargeable on the transfer is $50. Also an exemption is available in certain circumstances regarding the transfer of primary production land.
Document-ation	For primary production see ‘Documentary Evidence requirements Guideline’, for other transfers duties office reviews each transfer on its own facts recommend seeking confirmation of eligibility prior to lodgement.
Legislation	Duties Act 2001 (TAS)
Legislation website	http://www.austlii.edu.au/au/legis/tas/consol_act/da200193/
Office	State Revenue Office
Website	http://www.sro.tas.gov.au

If you don’t get an exemption the the rates applicable are:

Moving Property to an SMSF is not something to be done lightly without looking at the pros and cons as well as the procedures in your state or territory.

We have design a 3 part guide to buying a property in an SMSF

Even more information and complimentary strategy ideas are available on our Property in a SMSF page. Contact Caroline for specific legal advice on your proposed strategy.

IMPORTANT

This information is current as at the date of publication but may be subject to change. This article is general in nature and has been prepared without taking into account a potential your objectives, financial situation or needs. Before making a recommendation based on this article, seek personal legal and tax advice and consider its appropriateness based on the your objectives, financial situation and needs.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

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

Image courtesy of jscreationzs at FreeDigitalPhotos.net

16 Comments

by SMSF Coach - Liam Shorte on March 12, 2015 • Permalink

Posted in LRBA, Property, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on March 12, 2015

https://smsfcoach.com.au/2015/03/12/stamp-duty-on-transfers-of-property-to-an-smsf-as-at-01-jan-2015/

Stamp Duty Requirements on Change of SMSF Trustees

Don’t you just love dealing with different sets of State and Territories legislation when dealing with property. I recently went through a whole strategy with a client before they told me that the property was in a different state and I had to start again as the rules were different in that state.

As someone who highly recommends the use of a Corporate Trustee for SMSFs I thought it would be handy to provide a guide to the various state and territory stamp duty provisions when changing trustees.

The following tables set out the contact details for the stamp duty offices and provisions of the relevant legislation in each State and Territory. Please make sure to check that they are still current with your legal and tax advisers before changing trustees. I remind you yet again that this is General Information only.

In summary the amount of duty payable on the appointment of a new trustee and resignation of a current trustee is:

NSW: Duty of $50 payable

VIC: No duty payable

WA: Duty of $20 payable

SA: No duty payable

QLD: No duty payable

TAS: Duty of $50 payable

ACT: Duty of $20 payable

NT: No duty payable

DETAIL

NSW	Change of trustees
Duty payable	$50
Relevant provisions	Section 54 (2A) NSW Duties Act 1997
General description of legislation	Duty is charged in respect of a transfer of dutiable property to a trustee of a self managed superannuation fund as a consequence of the retirement of a trustee or the appointment of a new trustee.
Documentation	No form required. Cover letter including background to the transaction and return address.Client identification required: Individuals – certified copy of document proving date of birth. Companies – ABN/ACN
Legislation	Duties Act 1997 (NSW)
Legislation website	http://www.osr.nsw.gov.au
Office	Office of State Revenue
Website	http://www.osr.nsw.gov.au

VIC	Change of trustees
Duty payable	Not dutiable
Relevant provisions	Section 33 Vic Duties Act 2000
General description of legislation	No duty is chargeable in respect of a transfer of dutiable property to a trustee of a complying super fund solely because of the retirement of a trustee or the appointment of a new trustee.
Documentation	Refer to ‘Evidentiary Requirements for Dutiable and Exempt Transactions’ on SRO Website.
Legislation	Duties Act 2000 (VIC)
Legislation website	http://www.legislation.vic.gov.au
Office	State Revenue Office (SRO)
Website	http://www.sro.vic.gov.au

WA	Change in trustees
Duty payable	$20
Relevant provisions	Section 119 WA Duties Act 2008
General description of legislation	Nominal duty is chargeable on a transfer of dutiable property to a trustee as a consequence of the retirement of a trustee or the appointment of a new trustee (if the transfer does not confer an interest in trust property to any other person to the detriment of the beneficial interest of any person).
Documentation	Refer to ‘Duties Information Requirements’ – change of trustee.
Legislation	Duties Act 2008
Legislation website	http://www.slp.wa.gov.au/legislation/statutes.nsf/default.html
Office	Office of State Revenue
Website	http://www.finance.wa.gov.au/cms/section.aspx?id=209

SA	Change in trustees
Duty payable	Not dutiable
Relevant provisions	Section 71(5)(d) SA Duties Act 1923
General description of legislation	A conveyance of property for the purpose of effecting the retirement of a trustee or the appointment of a new trustee is exempt from duty, where the beneficial interest of any beneficiaries of the trust has not changed.
Documentation	Application for Opinion form and document that conveys land to new trustee (is stamped as exempt).
Legislation	Stamp Duties Act 1923 (SA)
Legislation website	http://www.revenuesa.sa.gov.au/services-and-information/legislation.html
Office	Revenue SA
Website	http://www.revenuesa.sa.gov.au

QLD	Change of trustees
Duty payable	Not dutiable
Relevant provisions	Section 117
General description of legislation	Transfer duty is not imposed on a dutiable transaction for the sole purpose of giving effect to a change of trustee (where the interests of beneficiaries do not change and transfer duty has been paid on all trust acquisitions for which transfer duty is imposed for the trust before the transaction).
Documentation	Must be stamped. Lodgement form and statutory declaration required.
Legislation	Duties Act 2001 (QLD)
Legislation website	http://www.legislation.qld.gov.au/OQPChome.htm
Office	Office of State Revenue
Website	http://www.osr.qld.gov.au/duties/index.shtml

TAS	Change in trustees
Duty payable	$50
Relevant provisions	Section 37 TAS Duties Act 2001
General description of legislation	Duty of $50 is charged in respect of a transfer of dutiable property to a special trustee as a consequence of the retirement of a trustee or the appointment of a new trustee. Special trustee includes the trustees of a superannuation fund.
Documentation	See ‘Documentary Evidence Requirements Guideline’
Legislation	Duties Act 2001 (TAS)
Legislation website	http://www.thelaw.tas.gov.au
Office	State Revenue Office
Website	http://www.sro.tas.gov.au

ACT	Change in trustees
Duty payable	$20
Relevant provisions	Section 54(4)
General description of legislation	Nominal duty is charged for the transfer of dutiable property to a person as a consequence of the retirement of a trustee or the appointment of a new trustee for a self managed superannuation fund.
Documentation	 Conveyance lodgement form Memorandum of transfer – Form52T Change of trustee deed Evidence that the property was purchased by the fund
Legislation	Duties Act 1999 (ACT)
Legislation website	http://www.revenue.act.gov.au/legislation/
Office	ACT Revenue Office
Website	http://www.revenue.act.gov.au

NT	Change in trustees
Duty payable	Not dutiable
Relevant provisions	Schedule 2, Exemption 6
General description of legislation	A conveyance that is made solely for the purpose of effecting the appointment of a new trustee on the retirement of a trustee or as an additional trustee if – no beneficial interest passes in the property conveyed; and no change of beneficial interest occurs as a result of the transaction; and the property conveyed was acquired by the retiring trustee or existing trustee in the capacity of trustee by virtue of an instrument that was stamped or was exempt from duty. (This rewritten stamp duty provision refers to ‘a discretionary trust’ however the application of the provision remains the same as Item 9A of the repealed Stamp duty Act – which referred to a trust.)
Documentation	Refer to ‘Stamp Duty Lodgement Guide’
Legislation	Stamp Duty Act (NT)
Legislation website	http://www.treasury.nt.gov.au
Office	Territory Revenue Office
Website	http://www.treasury.nt.gov.au

IMPORTANT

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 jscreationzs at FreeDigitalPhotos.net

4 Comments

by SMSF Coach - Liam Shorte on March 9, 2015 • Permalink

Posted in SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on March 9, 2015

https://smsfcoach.com.au/2015/03/09/stamp-duty-requirements-on-change-of-smsf-trustees-as-of-01-jan-2015/

6 Key Considerations for your SMSF Investment Strategy

So your SMSF Administrator/Accountant is now having to use an Independent Auditor and suddenly you are being asked for more than just the 1 page SMSF Investment Strategy template provided by the Accountant that you used to sign without filling in the blanks and without considering its purpose.

The reason an Investment strategy is required by an SMSF and also required to be reviewed regularly is that personal circumstances changes as do markets and economies. You need to consider your investment portfolio in the light of these changes and this is a way of prompting you to do so as part of the annual review.

Each year we experience a lot of market and political volatility with differing views on where the economy is headed, leading to a subsequent impact on share and property markets.

As an investor is can be easy to get caught up in the short-term noise and lose focus. The SMSF Investment strategy requirement is a way of prompting you, the Trustee(s), to really consider what objectives you are trying to achieve and the strategies and asset allocation that you need to follow to achieve them.

Having a well thought out SMSF investment strategy is a key element in helping you achieve a smooth transition in to and through retirement.

Here are 6 important considerations in establishing your SMSF investment strategy.

Liquidity Needs: What life stage are each of the members in?
The members’ personal circumstances and life-stage will have the most important impact on your SMSF investment strategy. If you are all 20 years out from retirement, you may choose to invest for growth and ride with volatility of the share and property markets to benefit from the risk/return premium attributed to those sectors which are less liquid than cash and bonds. If however one or more of the members is approaching retirement or using a Transition to Retirement Pension strategy you may choose a more cautious approach to ensure sufficient income is available for pensions regardless of market ups and downs. That requires more active management to maintain some liquidity still seek a decent return through a diversified portfolio. For example we always recommend 12-36 months pensions are retained in cash or fixed interest to avoid selling assets in a downturn and reducing your capital value.
What’s the members’ risk tolerance
The ability of all involved to sleep comfortably at night without worrying about their investments should always be taken into consideration regardless of your age. If you or another member have no experience or confidence in certain market sectors, then short-term your investment strategy should be tailored accordingly. But you should then seek more information, education and guidance to build your knowledge and then your confidence in those missing sectors so that you can adopt a well diversified strategy long-term. It is generally accepted that the greater the risk of an asset, the greater the potential returns but this risk abates as time passes so riskier assets can pay off handsomely over time with less risk than perceived short-term. A portfolio designed to reduce your concerns while not providing optimal returns provides THE SLEEP FACTOR!
Asset allocation
Investing in the right asset classes is a major factor in the returns you will receive. Aussie Equities and Cash are not a full solution long-term. Cash and TD rates are currently low and our share market had a poor year last year and our economy is struggling while international equities, property and infrastructure are benefiting from improving economies, low interest rates and the dropping Aussie dollar. Your asset allocation should be reviewed annually and rebalanced to account for the returns from various asset classes and their future forecast. We are not saying make dramatic changes but do take tilts to certain sectors that will benefit from the current economic climate.
Avoid sector bias
The Big 4 Banks, Woolworths and Telstra do not make a diversified portfolio! Once you have decided which asset classes to invest in, it is important to diversify within those asset classes. Frequently I see investment portfolios with a narrow range of large Australian companies just like mentioned above providing very poor diversification – and leaving the overall investment portfolio heavily reliant on the fortunes of one or two sectors. Self Managed Superannuation Funds (SMSF) set up for the benefit of control without the willingness to take advice or learn about portfolio design, frequently lack diversification with an over reliance on one property, Australian shares and/or cash. With Control comes responsibility to learn and adapt.
Tax efficiency
Often the spur to look at complex and structured investments near June 30^th is the tax consideration. The amount of tax you pay on investment has a major impact on your SMSF investment strategy. Here is the tax basics for SMSFs:

15% tax on earnings and capital gains on assets held for less than 12 months in accumulation phase
10% tax on Capital Gains on assets held for greater than 12 months in accumulation phase
0% tax on earnings and capital gains on assets sold in pension phase

For example, if you were lucky enough to have bought 1000 CBA shares during the GFC at $30 and sell them now at $90 in accumulation phase you will pay $6,000 in tax with a net profit of $54,000. While if you were lucky to move in to pension phase you receive the full $60,000 tax-free. Tax is an important consideration and an understanding of the tax impacts which you purchase your asset in, and the tax payable when you dispose of the asset, are very important but should not be the sole driver of your Self Managed Superannuation Fund investment strategy.

Insurance Needs of the Members

Trustees of SMSFs now have to consider, as part of its Investment strategy “whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.”

This is a significant addition to the previous provisions, and has been prompted by the Super System Review panel noting that less than 13% of SMSFs have insurance. This is a subject on its own so please refer to my earlier article for guidance Self Managed Super Funds must include an Insurance Needs Analysis as part of the fund’s SMSF Investment Strategy.

It is important to update your investment strategy on an annual basis or more often if making large contribution or large investments to make sure you are maximising the probability of achieving your financial goals whilst reducing the risk of capital losses.

You can seek professional advice to help with your investment strategy, but remember: as trustee, you are still ultimately responsible for your fund’s investment decisions so next time you sign off a template provided by your administrator remember it is you that are responsible not them.

Please contact us on 02 9894 1844 or Liam@verante.com.au if you would like to review your current SMSF investment strategy, or need assistance in preparing an SMSF investment strategy that matches your members’ needs.

I’ll leave the last word or should I say video to the ATO

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　96993693, Mobile: 0413 936 299

PO Box 6002, NORWEST NSW 2153. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 41 621 447 345, AFSL 476223

Image courtesy of pakorn at FreeDigitalPhotos.net

4 Comments

by SMSF Coach - Liam Shorte on March 4, 2015 • Permalink

Posted in Audit, Investment Strategies

Posted by SMSF Coach - Liam Shorte on March 4, 2015

https://smsfcoach.com.au/2015/03/04/6-key-considerations-for-your-smsf-investment-strategy/

Multiple SMSFs may be a Smart Strategy for Property Investors

More than one fund! Am I kidding you? No I’m not as there are very valid reasons for using more than one SMSF for your investment needs.

To minimise Land Tax issues as detail further below but subject to State provisions;
To allocate certain assets for estate planning purposes to specific beneficiaries;
To keep a blended family superannuation interests separate;
To keep higher risk assets separate from other SMSF assets. (Retail shop with increased public liability risk);
To cater for separate risk tolerances for member of a family rather than running segregated accounts

So more on uses of multiple SMSFs by property investors

Land tax is a form of taxation applied to the value of any land that an individual or entity may own. For an individual their primary place of residence is normally exempt from Land Tax. Depending on your state or territory, land is a very broad term that encompasses vacant blocks of land, commercial and residential properties. I will be talking about NSW in this article.

Facts on NSW Land tax 2024

The Tax Year Threshold Rate for 2024 is $1,075,000

Tax on land value above the threshold $100 plus 1.6% up to the premium threshold.

Premium Threshold is $6,571,000

Tax on land value above the threshold is $88,036 for the first $6,571,000 then 2% over that

Strategy to manage land tax:

Land tax can be minimised by taking advantage of land tax thresholds that apply per entity not in aggregation. So Land tax can be controlled through the use of a separate Self Managed Super Funds (SMSF) for additional properties once you reach the exempt threshold ; .

Currently the Land Tax Free threshold sits at a land value of $1,075,000. Therefore any land value that exceeds this can be taxed at a rate as high as 2%. However, each SMSF is treated as a separate entity meaning each SMSF has its own $1,075,000 threshold. This allows property investors to hold their land across multiple SMSF’s in order to never exceed the threshold in any of these funds and in effect become exempt from land tax.

Example:

Sharon and Robert through their Love Property Superannuation Fund own an investment property in Castle Hill with land valued at $802,000 as part of a diversified strategy of their Self Managed Super Fund. Intent on expanding their property empire the couple has recently received pre-approval for an investment loan to purchase an additional property in Rouse Hill with land valued at $813,000. With this purchase the Love Property SMSF would have a combined Taxable land value of $1,615,000 obligating them to $8,740 in land tax.

However on speaking to their “SMSF Association Accredited SMSF Specialist Adviser“ (Yes you guessed ME!), Sharon and Robert set up a second Self-Managed Super Fund, Love More Property SMSF to purchase the second property. This means the land owned in their first SMSF is below the tax threshold and the land in their second SMSF is valued at below the tax threshold which effectively exempts Sharon and Robert from land tax. Running a second fund can be done for less than $2,000 per annum so a net saving of $6,740 per year or at least $67,400 over a 10 year property buy and hold strategy.

So you can see that multiple SMSFs are an effective tool to boost the returns of your property investment.

Be care of State Land Stax Legislation or Provisions

Strategy may not work in if there are grouping provisions. So please seek specialist tax advice.

https://www.sro.vic.gov.au/legislation/grouping

If you want to know see more about property in a Self Managed Super fund the go to the page https://smsfcoach.com.au/property-in-a-smsf/ for articles that cover most of the strategies and questions on this subject including Tips and Traps to be aware of in advance.

Feel you are falling behind? Then read 10 Tips For Salvaging Your Retirement Plans and then contact me for personal advice.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98993693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

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by SMSF Coach - Liam Shorte on February 27, 2015 • Permalink

Posted in Property, Tax Planning

Posted by SMSF Coach - Liam Shorte on February 27, 2015

https://smsfcoach.com.au/2015/02/27/multiple-smsfs-may-be-a-smart-strategy-for-property-investors/

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Liam Shorte

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All posts tagged Cash rate

But what if you are not sure an investment ticks all the boxes?

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Here are the steps involved:

Worked Example – Using the Contributions Holding Account

Documentary evidence

Note that having used the cap he has no ability to use further contributions to reduce his income in the new financial year unless he continues to use a reserve each June.

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Sole purpose test

Financial assistance provided to a relative of a member

What should SMSF’s involved in new buy-sell agreements do?

Existing SMSF arrangements

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The statistical highlights from the ATO 2012–13 overview are:

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Financial planning: the world’s best kept secret

Lifestyle worries

Money worries

Money and life challenges

Value phase 1:

Sorting out the mess and building the plan

Value phase 2:

Plan progress and progressing the plan

Value phase 3:

Long life, death and immortality!

In conclusion

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Client 1

Client 2

Client 3

So here is a breakdown of the specific contribution rules applying at various ages.

Here are some tables that put it all together.

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So how can a SMSF trustee prepare for a short to medium term change in market sentiment and a possible 10-20 per cent drop in markets.

We are not suggesting exiting portfolios but we are are recommending sitting on the fence ready to buy on significant dips rather than just buying into the current market and diversification and asset allocation is key at present.

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Income thresholds

Adjusted taxable income (ATI)

Managing adjusted taxable income

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Caroline Harley | Special Counsel

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DETAIL

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So more on uses of multiple SMSFs by property investors

Facts on NSW Land tax 2024

Strategy to manage land tax:

Example:

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