All posts tagged Castle Hill

Owning your business property in a SMSF


Business Premises

Business Premises owned by SMSF

Interested in property and also running a business? Then one popular strategy used by many small business owners is to own their business premises in their self managed superannuation fund (SMSF).

Before we start let me emphasise, this is not a strategy to prop up a failing business.

There are a number of benefits in adopting this strategy:

  • As superannuation is generally more tax-effective than other investment entities you can have one of your major assets owned by a separate entity to yourself or your business thereby offering a greater degree of diversification of risk and ;
  • some asset protection as in the event of severe financial difficulty or even bankruptcy, creditors find it more difficult to get access to or create caveats over super fund investments as long as the premises were bought or transferred to the SMSF in good times, for clearly documented reasons and not deliberately to prevent creditors efforts to seek redress.
  • By having the premises owned by the fund rather than a third-party landlord you have more freedom to add fixtures and fittings, additional capacity and make changes to the layout without having to seek someone else’s approval and have surety of tenure that the costs can be recouped over time rather than worrying about ability to renew a lease at the landlords whim.
  • By accessing the capital held in a self managed super fund, your business can have more flexibility to make better use of its own capital to build or maintain the business.
  • It can often make it easier to sell a business later or pass it to family if they are not burdened with the capital requirements of funding a property purchase as part of the deal. This can also be a very stable income source in retirement as commercial / industrial property rents are often 7% or more.

When a SMSF owns real estate and you want to lease it back to your business which is seen as a related party of the fund the property must meet the definition of business real property (BRP).

Related parties of your fund include all its members, all their relatives and entities that those members and relatives control, or are deemed to control.

The definition of business real property is in subsection 66(5) of the SIS Act:

business real property , in relation to an entity, means:

a)    any freehold or leasehold interest of the entity in real property; or

b)    any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer; or

c)    if another class of interest in relation to real property is prescribed by the regulations for the purposes of this paragraph – any interest belonging to that class that is held by the entity;

where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), but does not include any interest held in the capacity of beneficiary of a trust estate.

Accordingly, two basic conditions must be satisfied before an SMSF, or any other entity related to or dealing with an SMSF, can be said to hold business real property :

  • the SMSF or the other entity must hold an eligible interest in real property; that is an interest identified in paragraph (a), (b) or (c) of the business real property definition; and
  • the underlying land must satisfy the business use test in the definition, which requires the real property to be ‘used wholly and exclusively in one or more businesses’ carried on by an entity.

For more detail and numerous examples of Business Real Property you should see Self Managed Superannuation Funds Ruling SMSFR 2009/1

If the property does not easily fit the definition of a BRP, then the asset will be considered an in-house asset and my advice is to not to push the limits of the ATO’s patience. Seek good legal and tax advice to ensure you understand all the implications and requirements of having or transferring a property into a a SMSF

SMSFs with in-house assets need to make sure that their fund’s total in-house assets do not exceed 5 per cent of the market value of all the fund’s assets. The 5% test is measured at acquisition and at the end of each financial year. If there is a breach, then corrective action must be taken.

Document the Lease

To keep the relationship on an arm’s length basis do not take short cuts, treat the lease like it was between 2 unrelated parties out and  formal lease between the SMSF and the tenant (your or any other business). The terms of the lease should be clear and easily identified by an auditor reviewing the actions and paper trail of the trustees.

As trustee’s you are dealing with this property on behalf of the SMSF so you must be prepared to enforce the terms of the lease with the tenants. Lease payments must be paid on time and I recommend a direct debit be set up to ensure the temptation to delay or miss payments is avoided. If the business fails to meet its rental payment schedule the default penalty clauses must be enforced as they would for a third-party lease.

TIPS

For an online source to a flexible comprehensive lease agreement that ticks all the boxes  you can visit DIY Legal Kits – Lease Agreements

Example

Peter the Physiotherapist is specialising in rehabilitation and water therapy and needs a property where he can install heavy equipment bolted to the floors and a hydrotherapy pool.

A suitable property is available locally for $750,000. The problem is that the business doesn’t have the capital to purchase the property or the capacity to borrow that amount.

Peter and his wife Margaret have their own SMSF which has $450,000 in the fund.

Peter & Margaret decide that SMSF should purchase the property using a Limited Recourse Borrowing Arrangement to borrow the other $400,000 plus costs leaving $100,000 liquid cash in the fund.

They must use a Holding trust arrangement to hold the property under this type of scenario.

A lease must be put in place between the SMSF and the Business

A commercially comparable rent needs to be agreed and paid from the business to the SMSF.

The SMSF is a very tax effective investment vehicle in the long-term as once the members enter pension phase, the CGT and tax on rental income can be minimised.

For more details on how borrowing to buy a property in an SMSF works please see the following 3 part series of articles from earlier this year:

Property through super in a SMSF – Part 1: Background

Property through super in a SMSF – Part 2: The Process

Property through super in a SMSF – Part 3: 20 most common mistakes

Before contemplating this type of transaction is contemplated, it’s essential to consider the member’s long term retirement needs and the super fund’s investment strategy. Consider what are the impacts on the super fund in terms of liquidity, diversification, returns on the investment and what if the business fails and the  property remains vacant unable to find a suitable tenant.

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments in the section below.

To discuss your needs you can contact me at my Castle Hill or Windsor offices or I am happy to use Skype, phone or email as suits your needs.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

1 Comment
by SMSF Coach - Liam Shorte on July 29, 2013  •  Permalink
Posted in Borrowing, Property
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Posted by SMSF Coach - Liam Shorte on July 29, 2013

https://smsfcoach.com.au/2013/07/29/owning-your-business-property-in-a-smsf/

Make sure you do not leave SMSF money idle in savings accounts


Have you put aside some money in a savings account or high interest savings account that you have put aside and are not making transactions on? Well beware of you could find the funds get nabbed by the Government when after 3 years they qualify as a “Dormant Account“.  Missing Money

I was alerted to this by an Accountant friend who held some of their SMSF money in an online high interest savings account and had parked a fixed amount there for more than 3 years as it was earmarked for a specific future use. Low and behold the Government nabbed it as it qualified as a Dormant Account. It was not some minor amount either as it was over $10K!

So if you have such an account look after your interests and make a small transaction yearly to ensure it remains “Active”. As little as 1 cent being transferred in or out will keep the account as on Active status. As a Trustee it’s your duty to look after the money of the Self Managed Super Fund and to take reasonable care to protect it..

Unforeseen Outcomes

The action of the government raises an issue for fund administrators and auditors:

The client has not met a condition of release so the money is restricted and should not leave the fund so the question is has this money left the superannuation system or not?

Further, if the funds are to be claimed back with this good online provider is arranging asap, as the funds will be coming from outside of the SMSF fund will they be considered a form of contribution?

Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

1 Comment
by SMSF Coach - Liam Shorte on June 28, 2013  •  Permalink
Posted in Audit, News & Stats
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Posted by SMSF Coach - Liam Shorte on June 28, 2013

https://smsfcoach.com.au/2013/06/28/make-sure-you-do-not-leave-smsf-money-idle-in-accounts/

One Page SMSF End of Financial Year Checklist 2013


Ok last day to get your SMSF fund in order and ensure we are making the most of the strategies available to us. Here is a one page checklist of the most important issues that you should address with your advisors well before the year-end. For more detail on each issue visit the full article on The SMSF Coach – EOFY 2013 Strategies

1. It’s all about timing! Forget about doing anything for your fund after the Thursday June 27th
2. Review  Your Concessional Contributions – 25K , 25K, 25K max
3. Review your Non-Concessional Contributions
4. Co-Contribution
5. Spouse Contribution
6. Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)
7. Check any payments you may have made on behalf of the fund.
8. Notice Of Intent To Claim A Deduction
9. Contributions Splitting
10. Off Market Share Transfers (selling shares from your own name to your fund)
11. Pension Payments
12. Reversionary Pension is often preferred option to pass funds to spouse or dependent child.
13. Review Capital Gains Tax Position of each investment
14. Review and Update the Investment Strategy not forgetting to include Insurance of Members
15. Collate and Document records of all asset movements and decisions
16. June Contributions Deductible this year but can be allocated across 2 years.
17. Market Valuations of all assets now required
18. In-House Assets – keep below the 5% limit at all times
19. TPD Insurance (Total Permanent Disability – basically “never work again” insurance)
20. Do you need to update to a Corporate Trustee
21. Check the ownership details of all SMSF Investments
22. Review Estate Planning and Loss of Mental Capacity Strategies.

As always please contact me if you want to look at your own options as we are currently taking on new clients. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of 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.

Leave a comment
by SMSF Coach - Liam Shorte on June 27, 2013  •  Permalink
Posted in Audit, Checklists, Contribution Strategies, Financial Planning, SMSF, SMSF Management
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Posted by SMSF Coach - Liam Shorte on June 27, 2013

https://smsfcoach.com.au/2013/06/27/one-page-smsf-end-of-financial-year-checklist-2013/

Can My SMSF Buy And Lease Plant And Equipment To My Business


ID-100210503

Plant or Equipment in an SMSF?

I get this question on Plant and Equipment financing regularly from business clients with an SMSF. The technical answer is yes subject to complying with the regulatory provisions of SIS Act. In reality for most businesses the answer is most likely NO as there are so many ways you can breach one or more of the rules governing this area. Let’s look at some of those rules.

Firstly it is a requirement that a SMSF and any assets it considers purchasing must meet the Sole Purpose Test.

Sole purpose test

• Section 62: trustee must ensure fund is maintained solely for core purposes, such as benefits to members upon retirement and ancillary purposes

Other relevant issues include:

Formulating Investment Strategy

Section 52: trustee must formulate and give effect to investment strategy that has regard to whole of circumstances including:

• risk involved in making, holding and realising, and likely return from investments having regard to objectives and expected cash flow requirements

Lending to members, relatives and financial assistance:

Section 65: A trustee must not lend fund money or provide financial assistance to:
• member of fund OR relative of a member

• ‘Financial assistance’ has no technical meaning and their frame of reference is language of ordinary commerce … one must examine commercial realities of transaction and decide whether it can properly be described as giving of financial assistance (Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1, 10)

In-house asset rules:

An In-house asset is:
• loan to ‘related party’
• investment in ‘related party’
• investment in a ‘related trust’
• asset subject to lease between trustee and a related party (this is the one that matters in your case)

However a SMSF can have up to 5% of fund’s assets in invested “in-house” assets without breaching the rule so if the equipment’s value were less than 5% of the funds total value then you would not be in breach of this rule….but remember the other rules hold equal importance. Also it is important that this rule is met on an ongoing basis so if stock markets drop or cash is taken out of the fund for pensions you need to revisit the value of the in-house asset.

Arm’s length requirements:

Section 109(1): A trustee must not invest unless:

• the trustee and the other party are dealing with each other at arm’s length OR
the terms and conditions are no more favourable to the other party than if they were at arm’s length
• Section 109(1A): If trustee invests and is required to deal with investment with another party not at arm’s length, must deal as if were at arm’s length

• The term ‘at arm’s length’ is not defined in the SIS Act so open to interpretation

• implies dealing that is carried out on commercial terms again subject to interpretation

• useful test to apply is whether prudent person, acting with due regard to own commercial interests, would have made the investment (APRA v Derstepanian (2005) 60 ATR 518, 524)

So example of how this works:

Let’s say you have $600,000 in your SMSF and you want to purchase an excavator for $25,000 to lease to your own business.

  1. The SMSF Trustees do their research and minuted how they calculate a lease rate that takes into account market return on their investments, allows for the depreciation of the asset and insists on the insurance of the vehicle with its interest noted on the policy to protect its investment. They are satisfied that this provides a decent return for the fund not correlated to the other assets of the funds invested in shares and term deposits. Sole Purpose, S62 and S52 satisfied.
  2. They amend the SMSF Investment Strategy to include this type of asset with the target allocation to “Other Assets” or specifically have an allocation to “Plant & Equipment”
  3. They ascertain that the business could be approved to obtain finance for the excavator from a third-party on similar terms. Section 65 met as clear finance available elsewhere and that this is not the reason why the arrangement is being entered into.
  4. As the value of the excavator ($25k) is less than 5% of the fund ($30K) it does not breach the In house asset rule. This needs to be monitored annually.
  5. They arrange for a written commercial lease agreement comparable with the standard lease available in the market to be entered into by all parties. S109(1) satisfied

So in summary, yes it can be done but in reality there are so many ways you can trip up that it is really not worth the hassle and raising the eye of the ATO or challenging your Auditor’s patience. Your first step is to engage your Accountant and a SMSF Specialist before considering these types of strategies. I would be interested to receive comments from people who have implemented these strategies.

Why not checkout my article ” What can my SMSF invest in?” as a good place to start.

As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of 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 Supertrooper at FreeDigitalPhotos.net

18 Comments
by SMSF Coach - Liam Shorte on June 19, 2013  •  Permalink
Posted in Investment Strategies, Property, SMSF, SMSF Management
Tagged , , , , , , , , , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on June 19, 2013

https://smsfcoach.com.au/2013/06/19/can-my-smsf-buy-and-lease-plant-and-equipment-to-my-business/

Can I still transfer shares I own to my SMSF?


YES you definitely can if they are listed shares, unlisted cause a lot more issues.

In an unexpected move back on 30 May 2013 the Government decided not to proceed with the proposed banning of off-market transfers of listed securities (shares, listed hybrids etc) by  people to their self managed super fund (SMSF). This means that shares can still be transferred between SMSFs and related parties off-market as of March 2021

The Government had previously announced that off-market transfers of listed securities between SMSFs and related parties would be banned from 1 July 2013. It was announced as a measure to prevent people abusing the system even though there was little proof of any abuse being widespread. Hopefully, the fact that they went so close to legislating such measures will serve as a warning to those who tinker at the margins of abusing the facility. I would expect the ATO to use the new penalty regime to target a few clear cases of abuse to ensure that the message gets through loud and clear!  (more…)

2 Comments
by SMSF Coach - Liam Shorte on May 30, 2013  •  Permalink
Posted in Contribution Strategies, SMSF
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Posted by SMSF Coach - Liam Shorte on May 30, 2013

https://smsfcoach.com.au/2013/05/30/can-i-still-transfer-shares-i-own-to-my-smsf/

ASIC Releases CHECKLIST for those giving SMSF Advice


The latest ASIC REPORT 337: SMSFs: Improving the quality of advice given to investors includes a useful checklist for those dealing with SMSF advice to the normal person in the street or in technical terms “retail clients”. It also includes some useful examples. Here is the Checklist and I would suggest all those  including Licensed Accountants, Financial Planners, Lawyers, Mortgage Brokers, Property Developers and Share Brokers be prepared to ensure your clients have considered all 32 issues raised or you leave yourself open for scrutiny and litigation if you have been involved in the recommendation of the structure.

Have you considered a SMSF and sought advice? Did your “adviser” mention these issues?

Appendix: Tips for advice providers

Table 6: Some tips for advice providers giving advice to retail clients on SMSFs

Issue: Role and obligations of SMSF trustees

What you should do or consider

C1      The ATO regulates SMSFs and provides a number of useful publications on its website about the obligations and duties of trustees in managing an SMSF. As good practice, you should:

(a)  direct investors to the relevant pages on the ATO website; or

(b)  provide investors with a copy of key ATO publications with their SOA to ensure investors understand their obligations.

C2      You should explain to investors that, by law, each trustee has duties and obligations to:

(a)    act honestly in all matters concerning the SMSF;

(b)    exercise skill, care and diligence in managing the SMSF;

(c)     act in the best interests of all SMSF members;

(d)    take appropriate action to protect SMSF assets and manage them separately from the trustee’s own affairs;

(e)    comply with the SMSF trust deed and review and update it as required;

(f)     be responsible for and control the SMSF, even where the trustees outsource the required expertise or one trustee is more actively involved in the day-to-day running of the SMSF;

(g)    have a documented investment strategy that considers all the circumstances of the fund, and review and update the investment strategy as the members’ financial situation, needs and objectives require;

(h)    consider insurance for fund members as part of the fund’s investment strategy;

(i)      understand which investments are restricted and that SMSF investments must be made solely to pay retirement benefits to members or the members’ dependants if a member dies;

(j)     accept and document contributions in accordance with the superannuation laws;

(k)    ensure the SMSF’s money is invested appropriately (even if the trustee outsources the investment to an advice provider);

(l)      keep proper and accurate tax and superannuation records (e.g. minutes of all investment decisions) and allow members to have access to such information and records;

(m)   comply with the superannuation and tax laws (and the Corporations Act for corporate trustees);

(n)    value the fund’s assets at market value for the purposes of preparing financial accounts and statements;

(o)    have the SMSF audited annually by an independently approved auditor;

(p)    comply with the reporting obligations to the ATO (e.g. report contributions from members, lodge annual returns, report on any changes to trustees, directors or members of the SMSF; lodge a business activity statement if the SMSF is registered for Goods and Services Tax (GST));

(q)   pay the supervisory levy and the SMSF’s income tax liability when due;

(r)    refrain from entering into contracts or behaving in a way that hinders trustees from performing or exercising functions or powers;

(s)   refrain from entering into transactions that circumvent restrictions on the payment of benefits; and

(t)    ensure that the money in the SMSF is only accessed by members when the trust deed and law allow it.

C3      You should explain to investors that, within 21 days of becoming an SMSF trustee, they will need to complete the ATO’s trustee declaration.

C4      You should walk investors through the ATO’s trustee declaration, explain each obligation and duty, and allow investors to ask any questions about their obligations.

C5      If you do not adequately understand the role and obligations of SMSF trustees, it is inappropriate for you to advise investors about SMSFs.

ISSUE: Suitability of an SMSF structure

What you should do or consider

 C6      You should discuss the investor’s fund balance size and whether it is likely to be cost-effective for the investor to set up an SMSF. Cost is just one factor to  consider and does not mean by itself that an SMSF will be appropriate or   inappropriate for the investor.

C7      You should discuss the likely costs associated with running an SMSF, including the costs of establishment, ongoing investment management, compliance and advice,

and explain these costs to the investor before making a recommendation to  establish an SMSF.

C8      Before recommending an SMSF, you should consider the investor’s ability and

willingness to manage the fund and meet their trustee obligations on an ongoing basis.

C9      Be aware of ‘red flag’ indicators that may suggest an SMSF will not be suitable for an investor, including, but not limited to:

(a) a low fund balance where the members have a limited ability to make future contributions;

(b) the investor wants a simple, low-touch superannuation solution;

(c) the investor wants to delegate decision-making to someone else;

(d) the investor does not have a lot of time to devote to managing their financial affairs;

(e) the investor has little investment decision-making experience;

(f) the investor, or suggested trustee, is an undischarged bankrupt or has been convicted of an offence involving dishonesty (as such, persons are prohibited from acting as a trustee); and

(g) the investor has a low level of financial literacy.

C10     You should explain to investors approaching the pension phase that there may be a point at which the SMSF may cease to be cost-effective because fixed costs will remain constant or increase while the balance of the fund diminishes.

C11     Where appropriate, you should discuss SMSF succession planning issues with investors (this will be more relevant for older investors). Some key questions to discuss include:

(a) For investors who are individual trustees, what will happen if one of the     trustees dies?

(b) If one trustee (the controlling trustee) is more actively involved in the day-to-day management of the SMSF, what will the less active trustee do if the  controlling trustee is unable to manage the SMSF?

ISSUE: Risks of an SMSF structure

What you should do or consider

 C12     You should warn investors looking to set up an SMSF about the lack of Government compensation available to SMSFs. This information will help investors properly weigh up whether an SMSF structure is right for them.

C13     You should warn investors that SMSF trustees and members do not have access to the Superannuation Complaints Tribunal (SCT) to resolve complaints.

C14     You should explain the advantages and disadvantages of establishing an SMSF with a corporate trustee versus individual trustees, and provide investors with relevant ATO publications via hard copy or web-links.

C15     If the investor’s proposed membership structure of an SMSF is unusual, you may need to spend more time discussing the duties and obligations of trustees, the risks associated with the membership structure, and the importance of having a    well documented, specific investment strategy and a trust deed that contains  dispute resolution clauses.

C16     You should reiterate the role and responsibilities of trustees, and explain that, even if one trustee is less actively involved, they are equally liable for the SMSF’s compliance with the superannuation and tax laws.

C17     When you recommend an SMSF to an investor, you will need to discuss their insurance needs. This will often involve discussing:

(a) their existing insurance coverage;

(b) the level of insurance coverage they will need in future;

(c) the cost and options for maintaining, increasing or decreasing (as appropriate)

their existing insurance coverage through an SMSF;

(d) whether the investor has any health issues that may affect their ability to get

insurance coverage;

(e) the advantages and disadvantages of retaining a portion of their APRA- regulated superannuation for insurance purposes (if considered appropriate); and

(f) the impact of the insurance recommendation on the investor’s SMSF balance.

C18     If you identify an investor needs advice on insurance, you must consider and   advise the investor on their insurance needs before recommending an SMSF be established. If you do not have the necessary expertise to provide insurance   advice, you should notify the investor and refer the investor to an advice provider who has the expertise to provide the advice.

Issue Investment strategy

What you should do or consider

C19     You should explain to investors the sole purpose test and the requirement for investments to be made and maintained on an arm’s length basis.

C20     When you are advising investors on their SMSF investment strategy, you should explain the benefits of asset diversification and investing across a number of   asset classes (e.g. shares, real property and fixed interest products) in a long-term investment strategy.

C21     You should explain to investors that some investments are restricted and that it is the trustee’s obligation to ensure that the SMSF does not make restricted Investments: see tip C2(i).

C22     You should explain to trustees that they are required to regularly review the    fund’s documented investment strategy to ensure that it suits the needs of fund members.

C23     If you are recommending that an SMSF be established to invest in a single asset, you should ensure that the SOA adequately documents the basis for the advice in

light of the investor’s financial situation, needs and objectives. In particular, you should set out why the investment is appropriate, rather than a diversified investment portfolio, and whether the investment will generate a sufficient return      to fund the investor’s retirement needs and, if not, what the exit strategy is and any costs or risks associated with this exit strategy.

C24     You should explain to investors that the SMSF investment strategy is likely to change as members approach the retirement phase and their needs and circumstances change.

C25     If an investor has a preference towards a real property investment, you should consider whether the real property investment is appropriate.

C26     If you are recommending a real property investment, you should discuss with the investor:

(a) the needs and circumstances of the fund members (e.g. their age and retirement needs);

(b) if the recommendation involves an investment loan, how long it will take for the investor to repay the loan;

(c) the investor’s ability to repay the loan if an unexpected event occurs (e.g. the investor becomes unemployed for a period);

(d) how the investor’s retirement will be funded by the real property investment (i.e. through the sale of property or through rental income);

(e) how likely the property can be sold quickly (i.e. whether it is in a high-demand area); and

(f) what the investor will do if the property is not rented for a period.

Note: If the investment property is not the SMSF’s sole asset, you may need to spend less time discussing the above issues.

Issue: Switching from an APRA-regulated superannuation fund

What you should do or consider

C27     When recommending an SMSF, you will need to explain the charges and significant consequences the investor will, or may, incur as a result of changing (fully or partially) from an APRA-regulated fund to an SMSF.

C28     When discussing the consequences of a switch, you will need to use language and concepts that the investor will understand.

C29     If you assess an investor has a low level of financial literacy; an SMSF will not be an appropriate retirement savings vehicle for the investor.

Issue: Alternatives to an SMSF structure

What you should do or consider

C30     Before recommending an SMSF to an investor, you should consider whether an APRA-regulated fund will meet the financial situation, needs and objectives of the investor. Many APRA-regulated funds now offer a DIY investment option.

C31     APRA-regulated funds may be more cost-effective for investors than an SMSF, depending on the size of the investor’s superannuation balance, and the extent to which the SMSF trustee(s) would engage external professionals to undertake administrative and other functions.

C32     Setting up an SMSF, which then invests through an investment platform, may not be as cost-effective for investors as becoming a member of a public offer investment

 Thoughts:

As a licensed Financial Planner and Accredited SMSF Specialist Advisor™ I can and do assess these 32 points with my clients and under my license I am required to put the recommendations in writing after considering and high lighting the above points.

There is therefore less chance of me recommending a SMSF to a person not suited to running one but if that should happen they may have recourse to my Professional Indemnity Insurance. However if they have received the advice to set up a SMSF from an unlicensed person then they may have no recourse to PI as that person’s cover would most likely exclude such claims.

As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

1 Comment
by SMSF Coach - Liam Shorte on April 18, 2013  •  Permalink
Posted in SMSF
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Posted by SMSF Coach - Liam Shorte on April 18, 2013

https://smsfcoach.com.au/2013/04/18/asic-releases-checklist-for-those-giving-smsf-advice/

SMSF End of Financial Year Checklist 2013


OK so here we are already in the last quarter and with only 3 months to the end of the financial year to get our fund in order and ensure we are making the most of the strategies available SMSF 2013 Checklistto us. Here is a check-list of the most important issues that you should address with your advisers well before the year-end.

1.       It’s all about timing!

First thing to note is that June 30th falls on a Sunday this year so forget about doing anything for your fund after the 27th as funds transferred from Friday the 28th are unlikely to hit an account before the 1st July.

2.       Review  Your Concessional Contributions – 25K!, yes only 25K,  yes 25K max

Maximise contributions up to concessional contribution cap but do not exceed the 25 K Concession Limits that applies to everyone who is eligible to contribute this year.  Excess contributions tax is nasty and should always be avoided. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.

3.        Review your Non-Concessional Contributions

Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name.  May you have proceeds from and inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control your tax bill.  Are you nearing 65, then consider your contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to $450,000.

4.       Co-Contribution

Check your eligibility for the co-contribution and if you are eligible take advantage.  Note that the rules have changed and are very different from previous years. To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.

5.       Spouse Contribution

If your spouse has assessable income plus reportable fringe benefits totalling less than $10,800 then consider making a spouse contribution. Check out the ATO guidance here

6.       Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)

You should review your ability to make contributions as if you If you have reached age 65 you must pass the work test of 40 hours in any 30 day period, in order to continue to make contributions to super. Check out ATO Age Related contribution guidance

7.       Check any payments you may have made on behalf of the fund.

It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.

8.       Notice Of Intent To Claim A Deduction

If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim a tax deduction’.  If you intend to start a pension this notice must be made before you commence the pension.

9.        Contributions Splitting

Consider splitting contributions with your spouse, especially if your family has one main income earner with a substantially higher balance. This is a simple no cost strategy I recommend everyone look at especially with the Government moving on taxing higher balance accounts. See my blog about this strategy here.

10.   Off Market Share Transfers (selling shares from your own name to your fund)

The proposed ban on Off-Market transfer of shares into a SMSF has been dropped. YEAH!  If you want to move any shareholdings into super you should still act early. Here is the Standard Form for Computershare and here is the Link Market Services Form

11.   Pension Payments

If you are in pension phase, ensure the minimum pension has been taken.  For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.

The minimum payment amounts have been by 25% for the 2012-13 years. The following table shows the minimum percentage factor (indicative only) for each age group.

Age Minimum % withdrawal 2012-13 year for certain pensions and annuities Minimum % withdrawal (in all other cases)
Under 65 3% 4%
65-74 3.75% 5%
75-79 4.5% 6%
80-84 5.25% 7%
85-89 6.75% 9%
90-94 8.25% 11%
95 or more 10.5% 14%

Sacrificial Lamb

Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension”  you will have a buffer for mistakes.

12.    Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child.

You should Review your pension documentation and check if you have nominated a reversionary pension.  If not, consider your family situation and options to have a reversionary pension. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children

13.   Review Capital Gains Tax Position of each investment

Review any capital gains made during the year and over the term you have held the asset and consider disposing of investments with unrealised losses to offset the gains made. If in pension phase then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to government changes in legislation like those proposed this year.

14.   Review and Update the Investment Strategy not forgetting to include Insurance of Members

Review your investment strategy and ensure all investments have been made in accordance with it, and the funds deed.  Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do..call us.

15.    Collate and Document records of all asset movements and decisions

Ensure all the funds activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant/administrator and auditor.

16.   June Contributions Deductible this year but can be allocated across 2 years.

For those who may have a large taxable income this year and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording!

17.   Market Valuations

Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectables. Here is a good article by Liz Westover of the Institute of Chartered Accountants on the subject.

18.   In-House Assets

If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new penalty regime will make it easier for the ATO to apply fines for smaller misdemeanours.

19.   TPD Insurance (Total Permanent Disability – basically “never work again” insurance)

Have you reviewed your insurances inside and outside of super? Check your TPD policies owned by the fund for own occupation definition as the rules about deductibility for these policies have changed. Here is a link to a good article about this subject from Money Management

  • 20.   Do you need to update to a Corporate Trustee  

We recommend a corporate trustee to all clients.  To understand why please read this article on Why SMSFs should have a Corporate Trustee

21.   Check the ownership details of all SMSF Investments

Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details.  You have to ensure all SMSF assets are kept separate from your other assets.

22. Review Estate Planning and Loss of Mental Capacity Strategies.

Review any Binding Death Benefit Nominations (BDN) to ensure they are valid and still in accordance with your wishes.  Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of mental incapacity or death. Do you know what your Deed says on the subject?

23. Review any SMSF Loans

Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee. If you bought a property using borrowing , has the Holding Trust been stamped by your state’s Office of State Revenue.

Don’t leave it until June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.

As always please contact me if you want to look at your own options as we are currently taking on new clients. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of 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.

3 Comments
by SMSF Coach - Liam Shorte on April 12, 2013  •  Permalink
Posted in Audit, Checklists, Contribution Strategies, Financial Planning, SMSF, SMSF Management
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Posted by SMSF Coach - Liam Shorte on April 12, 2013

https://smsfcoach.com.au/2013/04/12/smsf-end-of-financial-year-checklist-2013/

SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.


We constantly have people contacting us with ideas of what they want to do with an investment property once they have borrowed to purchase one in their SMSF. Some are sensible but some show no grasp of the regulations at all and include moving the whole family in to save on their home mortgage or knocking it down to build a multi-storey unit development. If you run a self managed superannuation fund, you have the ability to invest in residential property or commercial property and under certain circumstances a farm. (Note: ability to do something does not mean you should).

Repairs v Improvements

Repairs v Improvements

Borrowing to purchase a property in an SMSF or in the industry jargon a “limited recourse borrowing arrangement (LRBA)” has been legal since 2007 and is becoming increasingly popular with SMSF owners seeking to leverage their funds.

In May 2012, the ATO released a ruling SMSFR 2012/1, “Self Managed Superannuation Funds: limited recourse borrowing arrangements – application of key concepts.” To clarify its understanding of the legislation.

It should be noted that the ATO focused on borrowing to invest in property as it saw this as the most likely area people would encounter problem scenarios. They key issues that the ruling addresses are:

–   defining a single acquirable asset

–   property development and off-the-plan purchases.

–   distinguishing between improvements vs repairs or maintenance.

–   improving an asset to the extent if becomes a replacement asset.

In this article I will concentrate on the latter 2 issues as it is ok to use borrowed funds for most repairs or maintenance but you can’t use borrowed money to finance improvements. You can use your other funds in your SMSF to fund improvements so it is a matter of getting the strategy right.

The ATO has given specific meanings to the following words:

‘Maintaining’ an asset typically involves work done to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense). For example, repainting a timber house to prevent deterioration is typically maintenance

‘Repair’ ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property.  A repair replaces a part of something or corrects something that is already there and that is damaged, has become worn out or dilapidated or has deteriorated. Repair may be necessitated through ordinary wear and tear, accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) during the passage of time.

‘Improvement’ the guidance is that they mean work that:

  • provides something new
  • generally furthers the income-producing ability or expected life of the property
  • generally changes the character of the item you have improved
  • goes beyond just restoring the efficient functioning of the property

So what can you do and what can’t you do?

The following scenarios outline when an existing LRBA will continue to apply to an asset, based on the ATO’s SMSF ruling.

1. Using Borrowed Money : Repairs and Maintenance (Yes You Can) v Improvement (No You Can’t)

Work to be carried out Repair or maintenance (Yes you Can under an LRBA) Improvement (No you Can’t under an LRBA)
Residential property
A fire damages part of the kitchen (cooktop, benches, walls and ceiling). Restoring the damaged part of kitchen, including addition of a dishwasher, even if there wasn’t one there before (considered minor). Yes you can If as well as restoring the damaged part of the internal kitchen (a repair) a new external kitchen was added to the entertainment area of the house the external kitchen would be an improvement. No you can’t
Replace guttering Yes you can
Replace fence Yes you can
Replace house destroyed by fire Rebuild comparable house. Yes you can Rebuild house not comparable (although if built from insurance proceeds does not affect LRBA) No you can’t
A pergola is built to create an outdoor entertaining area. No you can’t
The addition of a swimming pool or a garage. No you can’t
A house extension to add another bathroom. No you can’t
Cyclone damage to a roof Replace roof: Yes you can Add a second storey at the same time as replacing roof.  No you can’t

Source: ATO SMSFR 2012/1

 

2. Development while under a LRBA: Retains Same Attributes (Yes You Can) v Creates a different asset (No You Can’t)

Asset and Action Result
1.  Vacant block of land on single title. A vacant block of land is subsequently subdivided resulting in multiple titles. One asset has been replaced by several different assets as a result of the subdivision.  Different asset created No You Can’t
2. Vacant block of land on single title. A residential house is built on vacant land which is on a single title. The character of the asset has fundamentally changed from vacant land to residential premises. This is a different asset. Different asset created No You Can’t
3. Residential house and land. A house is demolished following a fire and is replaced by three strata titled units. The character of the asset has fundamentally changed along with the underlying proprietary rights. This has created three different assets. Different asset created No You Can’t
4. Residential house and land. A residential house is converted into a restaurant by renovations which include fitting out a fully functioning commercial kitchen. As a result of the renovation the character of the asset has fundamentally changed from residential premises to restaurant premises. This is a different asset. Different asset created No You Can’t
5. Residential house and land. One bedroom of a residential house is converted to a home office. This would not ordinarily result in a change in the overall character of the asset as a residential house. The conversion of the bedroom into an office does not result in a different asset.  Same asset – Yes You Can
6. Residential house and land. A fire destroys a four bedroom house and a new superior residential house is constructed on that land using both insurance proceeds and additional SMSF funds. Rebuilding another residential house (whether of the same size or larger) does not fundamentally change the character of the asset held under the LRBA. The addition of a garage, for example, would also not change the character of the asset. Same asset – Yes You Can
7. Residential house and land. While each of the following changes would be improvements each (or all) of the changes would not result in a different asset:

  • · an extension to add two bedrooms;
  • · the addition of a swimming pool;
  • · an extension consisting of an outdoor entertainment area;
  • · the addition of a garage shed and driveway;
  • · the addition of a garden shed.
 Same asset – Yes You Can
8. Residential house and land. To allow a road to be widened, a local government authority undertakes the compulsory resumption of a minor portion of the frontage of a property which has a residence on it. While the resumption results in the existing property title being replaced, the minor extent of the resumption is such that the fundamental character of the asset, taking account of not only the proprietary rights but also the object of those proprietary rights, remains that of being the residential property. Same asset – Yes You Can
9. Residential house and land. A ‘granny flat’ is to be constructed in the backyard of a property which already has a four bedroom residence established on it. The granny flat will have two bedrooms, a family room, a kitchen and a bathroom and will be connected to utilities such as electricity, water and sewage. The character of the asset would remain residential premises and thus the construction of the granny flat would not result in there being a different asset. Same asset – Yes You Can

Source: ATO SMSFR 2012/1

Conclusion

There is no doubt that this ATO ruling and the examples given are good news, and much appreciated by the SMSF industry who have to deal with enquiries every day. It provides a substantial amount of clarity around many issues that had previously been quite unclear. The common sense and commercial approach by the ATO has also been welcomed and was somewhat unexpected.

I always suggest that SMSF Trustees keep sufficient cash flow in the SMSF to finance repairs and maintenance or any expected improvements rather than using borrowed funds and risk running foul of the rules.

You should however carefully consider any strategy in the light of these rules and make sure you get a second opinion as often if you are too close to a project you can be blinded to its faults. That’s where a good team of advisors comes to the fore.

Checkout : Can I borrow to buy a house and land package off the plan in my SMSF?

As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of 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.

5 Comments
by SMSF Coach - Liam Shorte on April 11, 2013  •  Permalink
Posted in Borrowing, Loans, LRBA, Property, SMSF
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Posted by SMSF Coach - Liam Shorte on April 11, 2013

https://smsfcoach.com.au/2013/04/11/smsf-borrowing-what-can-i-do-with-an-investment-property-within-the-rules/

Why Self Managed Super Funds Should Have A Corporate Trustee


Why I believe it is essential to have a company as trustee and the options to have individual trustees is short-sighted  Time to Decide

The over-riding benefits of having a corporate trustee, rather than individual trustees, are summarised in the following comparison table:

Corporate Trustee

Individual Trustees

Time to Grieve or Adapt

The one main reason from 10 years experience with   SMSF’s for having a Corporate Trustee is respect for your spouse or family’s   needs in times of grief. Do you really want to leave them an onerous awkward   and expensive set of tasks to carry out just because it saved you $700

Paperwork at the worst time

Welcome to a nightmare. You have just passed away   and your spouse has barely had time to start grieving but they need to manage   the SMSF to administer pensions, investments and deeds. Minutes to record   death of Trustee, Deed update to add a new Trustee or move to a Corporate   Trustee, Off market transfer forms and identity forms and probate forms to   put every investment in correct name(s). Worse still, deal with the Land   & Property Management agency or Office of State Revenue and their endless   forms!

Continuous succession

A company has an indefinite life   span; in other words, it does not die. Therefore, a corporate trustee can   ensure control of an SMSF is more certain in the circumstances of the death   or mental or physical incapacity of a member.

Problems upon death

If the SMSF has individual trustees, e.g. a   husband and wife SMSF, then timely action must be taken on the death of a   member to ensure the trustee/member rules are adhered to properly. (SMSF   rules do not allow a sole individual trustee/member SMSF.)

Administrative efficiency

When members are admitted to, or cease,   membership of the SMSF, all that is required is that the person becomes, or   ceases to be, a director of the corporate trustee. The corporate trustee does   not change as a result. Therefore, title to all the assets of the SMSF   remains in the name of the corporate trustee. Especially useful when dealing   with property in an SMSF.

Extra and costly paperwork

To bring in a new member to an SMSF   with individual trustees requires that person to become a trustee. As trust   assets must be held in the names of the trustees, this will require the title   to all assets to be transferred to the new trustees when a member is admitted   to or exits the fund.

Sole member SMSF

You can have an SMSF where one individual is both   the sole member and the sole director. Likewise if you are mentally   incapacitated then your spouse can act as director under an enduring Power of   Attorney to run the fund on their own without the need for interference by   others.

Sole Member SMSF

A sole member SMSF must have two individual   trustees. Does your spouse need to rely on your children, possibly from your   first marriage! That’s really not going to work as we know what a problem   blended families are when it comes to Estate Planning.

Meets Lenders Requirements

If you want to borrow to buy a property via your   SMSF then most lenders will require a Corporate Trustee of the SMSF as that   is easier for them to deal with.

Restricts Pool of Lenders

If you do not have a corporate trustee the you   are limiting the number of lenders that will consider your SMSF for a loan

Higher LVRs accepted

With a Corporate Trustee many lenders will go to   80% on Residential loans and 70% on Commercial Real Estate

Lower LVRs commonplace

Due to legal concerns many lenders restrict the   maximum borrowing , if any, of a SMSF with Individual Trustees to 705 for Residential   Properties and 55-60% for Commercial Real Estate

Greater asset protection

As companies are subject to limited liability, a   corporate trustee will provide improved protection for the directors where a   party sues the trustee for damages. I use an electrician as an example here   when I cover this with clients. If he is comes on your property and is electrocuted because of the owners (SMSF) negligence then the SMSF may be   sued but your own personal liability is limited to your shareholding and member   balance rather than your entire wealth.

Less asset protection

If an individual trustee suffers any   liability, the trustee’s personal assets may be exposed. Be careful of hiring   a tradesman to work on a SMSF property as if they get injured they may sue   you in your capacity as Trustee of the fund as well as the SMSF itself.   Without the protection of Limited Liability provided by a Trustee Company   your other assets may be at risk.

What the ATO and ASIC think?

ASIC and the ATO prefer Corporate Trustees too. Last year, ASIC released a number of documents which outlined the advantages of having an SMSF corporate trustee.
More recently, the ATO have released a website and the following video that objectively outlined the pros and cons for corporate and individual trustees.

If the ATO’s comments are analysed in more detail, it is clear that there is an endorsement for SMSFs to have a corporate trustee.

The easiest way to comply with the ownership rules is for your fund to have a company set up solely for the purpose of being the corporate trustee of the fund.

If there is a change in directors of the company, you don’t have to change the name on the ownership documents for each fund asset as the trustee of the fund has not changed. Having a separate corporate trustee also reduces the chance of personal assets becoming intermingled with fund assets

Do you need more? Additional Advantages of a Corporate Trustee

  1. With a bit of preparation and planning combining use of your Will and Enduring Powers of Attorney, minuted resolutions and if needed clauses written into the deed a person (usually the “Executor” or “Legal Personal Representative”) can be immediately appointed as director so that the Fund can continue to operate in the event of death regardless of whether a death certificate or probate have been granted.
  2. Likewise when a person loses mental capacity (as with Alzheimer’s) that person will need to be replaced as the trustee of the fund if they were individuals but with a company the Constitution can immediately have a mechanism which allows the person holding the Enduring Power of Attorney to be appointed as a replacement director, resigning the incapacitated director at the same time.
  3. If under the new Administrative penalties rules a fine/penalty is made in relation to self managed superannuation fund that has individual trustees then each of them will be fined in their personal capacity while if it is a Corporate Trustee then only the one fine amount is payable. This means that if you have 2 individual trustee then you may pay double the fine of a fund with a corporate trustee and remember the fine is personally payable and not allowed to be reimbursed by the fund.
  4. Guaranteed compliance with SIS regulation 4.09A(2)(a)? It provides:A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively: … (a) that are held by the trustee personally …As you will appreciate, it is easy for this regulation to be contravened where an SMSF has individual trustees (eg, if an individual trustee mixes their own assets with those of the SMSF). If however, you have taken our advice and the SMSF has a corporate trustee where the corporate trustee’s sole function is to act as trustee of the SMSF, then regulation 4.09A(2)(a) becomes almost impossible to contravene! This is because the trustee is unable to mix fund assets with its personal assets as it’s unlikely to have any personal assets.

Therefore an SMSF that has a sole purpose corporate trustee  is almost always guaranteed to comply with these rules

For further information on the issues raised in this blog please contact us at our Castle Hill or Windsor office or send an email.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc. to make sure we get the news out there to those setting up new funds.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

19 Comments
by SMSF Coach - Liam Shorte on December 19, 2012  •  Permalink
Posted in SMSF, SMSF Management, Trustee
Tagged , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on December 19, 2012

https://smsfcoach.com.au/2012/12/19/why-self-managed-super-funds-should-have-a-corporate-trustee/

What information do I need to provide for my SMSF Audit


At the end of each financial year your Self-Managed Super Fund will need to be audited by an independent third-party SMSF auditor. 

Having your SMSF audited isn’t exactly exciting, but it is an essential part of the compliance process. Looking to save money on the audit by going for a cheap service may come back to bite so I always recommend paying a decent fee to an experienced auditor is worthwhile. If they are not doing at least 25 audits a year then don’t use them as experience is crucial and it is necessary to have knowledge of what to look for and how to guide you the ultimate client.

The SMSF audit involves a review of your fund and the strategies and transactions during the year to ensure it remains a ‘complying fund’ in line with the ATO’s definition.

Who can audit my SMSF?

Your SMSF can only be audited by an approved SMSF auditor.  SMSF auditors are most commonly qualified accountants; however there are some additional requirements.

Members of the following organisations are qualified SMSF auditors:

  • SMSF Specialist Auditors, accredited by the SMSF Professionals’ Association of Australia (My personal preference)
  • CPA Australia
  • The Institute of Chartered Accountants Australia
  • National Institute of Accountants
  • Association of Taxation and Management Accountants
  • Fellows of the National Tax and Accountants Association Ltd

SMSF Specialist Auditors, as appointed by the SMSF Professionals’ Association of Australia, are also qualified to complete this important SMSF function.

SMSF Audit Check-list

The person performing the SMSF audit will require a number of documents and may seek these from your Administrator, accountant or directly from you the Trustees.  The auditor will generally have a standard SMSF audit check-list, however the following will give you some guidance on what you are generally asked to provide:

  • Financial statements of the fund.
  • Cash Management and Bank statements for all fund accounts including Cheque, Savings and Term Deposits.
  • Managed fund /Wrap annual transaction and income report.
  • Share Broker’s statement showing all transactions.
  • Holding statements for all shares held during the year and the end of year balance.
  • Buy & sell contracts for all shares held during the year including Off Market Transfers and any corporate actions.
  • Statements showing clearly the ownership of all fixed interest securities like bonds, hybrids and notes.
  • Contracts for any property purchased or sold
  • Copy of the Title deed showing evidence of ownership for any property in the correct name.
  • Property valuations and updated if starting a new pension.
  • Building & Liability insurance certificates of currency
  • Lease agreements and rental income statements
  • Documentation for any art or collectables including evidence of Insurance in the name of the SMSF.
  • Details of any debts owed by the SMSF including loan statements showing repayments
  • Documentation of any related party loans or investments
  • Confirmation of any contributions or withdrawals
  • Confirmation that the member is eligible for contributions or meets a condition of release for withdrawals
  • Pension or lump sum benefits payment details including copies of Pension Agreements and minutes.
  • Information on any  other investments not mentioned.
  • Completed SMSF Investment Strategy in writing including consideration of members’ insurance needs.

This is not an exhaustive list and your SMSF auditor may require additional documentation.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office. While we are not auditors we can point you in the right direction of people you can trust.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

 

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

Tel: 02　9899 3693, Mobile: 0413 936 299

PO Box 6002, Norwest NSW 2153

40/8 Victoria Ave, Castle Hill NSW 2154

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

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.

3 Comments
by SMSF Coach - Liam Shorte on October 30, 2012  •  Permalink
Posted in Audit, Checklists, SMSF, SMSF Management, Trustee
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Posted by SMSF Coach - Liam Shorte on October 30, 2012

https://smsfcoach.com.au/2012/10/30/what-information-do-i-need-to-provide-for-my-smsf-audit/

Superannuation — tax certainty for deceased estates – Government MYEFO announcement good for SMSFs


The release of draft taxation ruling TR 2011/D3 in July last year caused much concern when it suggested that the pension exemption ceases automatically upon death (unless a reversionary pension was in place).

Under those proposed rules if an SMSF member died with assets carrying unrealised Capital Gains, even if the deceased were receiving a pension, upon death the pension would cease (unless the pension qualified as an auto-reversionary pension). If SMSF assets were then sold/transferred, the SMSF would have CGT implications.  (more…)

2 Comments
by SMSF Coach - Liam Shorte on October 22, 2012  •  Permalink
Posted in Binding Death Nominations, Estate Planning, News & Stats, Pensions, Reversionary Pension, SMSF
Tagged , , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on October 22, 2012

https://smsfcoach.com.au/2012/10/22/superannuation-tax-certainty-for-deceased-estates-government-myefo-announcement-good-for-smsfs/

Is your SMSF lending money to someone?


Is that loan in your SMSF’s best interest?

The Tax Office issued an information sheet on their website last November warning trustees about the perils of lending an SMSF’s funds to the wrong person. This includes your own business, someone who advises you or a family member or friend.

An all too common occurrence is the practice adopted by some people of withdrawing funds from their SMSF to “temporarily” help keep their business afloat when cash flow is tight.

Has your SMSF loaned money? If so, you need to make sure the loan terms comply with the law and are in the best interests of your funds sole purpose test which is to provide for your retirement.

The boys and girls at the ATO are rightly concerned some trustees are lending money from their fund to people who provide advice or assist in the running of the fund. This may not be in the best interest of your SMSF, and may place your retirement savings at risk. If someone is recommending you set up a SMSF and then to lend them or a related party money for a development, you have to ask yourself in who’s best interest are they working? Might be time to scrutinise the minute details of this “too good to be true one time only opportunity”.

So when would a loan agreement not be seen to be in the best interest of your SMSF ? Basically, when you have given discount loan rates or favourable terms – this could have serious consequences. Here is one example they give:

 when you have given discount loan rates or favourable terms – this could have serious consequences. In addition to putting your member’s benefits at risk, your SMSF could be found to be non-complying and would, therefore, not qualify for concessional tax rates.

They advise that before lending any money, you should consider your fund’s investment strategy and determine whether the investment is appropriate and, in particular, whether lending money to people providing you with services or advice is in the best long-term interests of your SMSF.

If you are not sure about making these types of investments choices, they recommend that you seek advice before entering into such arrangements.

If you still decide to go ahead and lend money from your SMSF, the ATO advise that “you should:

  • write an appropriate loan agreement and have it signed by all the parties involved
  • ensure the loan agreement specifies all the terms of the loan, such as:
    • what the security for the loan
    • what is the repayment period
    • when repayments will be paid
    • the amount of the repayments
    • the interest rate
  • ensure the interest and repayments are received by the fund according to the loan agreement
  • take appropriate action to protect the fund’s investment if the loan agreement is not followed
  • ensure the loan is sensible and does not put the members’ benefits at risk
  • ensure that the conditions of the loan agreement do not provide the borrower with favourable terms.

Remember that you are the one ultimately responsible for running your SMSF, and you must make sure you understand your duties, responsibilities and obligations.”

With regards to taking funds out to help your business, you need to firstly know that should the business go under that your Superannuation is in most cases protected in bankruptcy from creditors so you should be careful about accessing this protected asset.

Regardless of how much you trust a person even if they are your accountant, lawyer, financial planner, mortgage broker or best mate, you need to get independent third-party advice. Don’t be embarrassed about not completely trusting the promoters scheme as it is often too late later to get your funds back and hindsight is a cruel tormentor when facing loved ones having lost your retirement nest egg.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of 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.

18 Comments
by SMSF Coach - Liam Shorte on October 18, 2012  •  Permalink
Posted in Audit, Checklists, Loans, SMSF, SMSF Management, Trustee
Tagged , , , , , , , , , , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on October 18, 2012

https://smsfcoach.com.au/2012/10/18/is-your-smsf-lending-money-to-someone/

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