SMSF Jargon busting – Who are the related parties of an SMSF?


"Related Parties"

So you have a great idea to move some assets to your SMSF but you want to stay within the rules and keep your fund compliant. Then you hit the jargon associated with Superannuation rules and regulations.

You need to understand who are “related parties” of your SMSF for two reasons, to ensure compliance with the acquisition from a related party rules and to determine the in-house assets.

A related party is defined in the Superannuation Industry Supervision) Act 1993 known as the SIS Act. This is the bible when it comes to Superannuation so you should save that link above. Anyway in the SIS Act sec 10(1) a related party is defined as:

  • Fund member
  • Standard employer-sponsor of the fund or
  • Part 8 associate of a fund member or a part 8 associate of a standard employer-sponsor of the fund.

Ok the first one is easy. Any member including you yourself is a related party.

Standard Employer

A standard employer sponsor of a fund is an employer who contributes to the fund due to an agreement between the employer and the trustee of the fund. These were common in the early days of SMSFs but largely non-existent now.

Where an employer only contributes to a fund due to an agreement between the member and the employer such as under a salary sacrifice arrangement, they will not be considered a standard employer sponsor.

If an SMSF has a standard employer sponsor, which would be uncommon, the relationship will be noted either in the trust deed or in an attached schedule to the deed.

Part 8 associate

Now prepare for a headache to hit you hard after reading this one.

Part 8 associates are broken down in the legislation to Part 8 associates of individuals, companies and partnerships. However, if there is no standard employer sponsor, we only need to examine the part 8 associates of the members who will always be individuals.

The part 8 associates of a member are:

  1. a relative of the member (parent, grandparent, brother, sister, uncle, aunt, nephew, niece, linear descendant or adopted child of the member or their spouse or a spouse of the aforementioned)
  2. other members of the SMSF (and other trustees/ directors of a corporate trustee of the fund)
  3. a partner of the member (legal partnership, not ‘business partners’ i.e. company directors) and their spouses and children
  4. the trustee of a trust the member controls and
  5. a company sufficiently influenced by, or in which majority voting interest is held by the member and their Part 8 associates either individually or together.

A member of the fund will be deemed to control a trust where the member and/or their part 8 associates are:

  • entitled to a fixed entitlement of more than 50 per cent of the capital of the trust,
  • entitled to a fixed entitlement of more than 50 per cent of the income of the trust,
  • able or accustomed (formally or informally) to direct the trustees to act in accordance with their directions or
  • able to appoint or remove trustees.

A company will be deemed to be controlled by a member where the directors are accustomed or under an obligation to act under the instructions of the member and/ or their Part 8 associates or the member and/ or their part 8 associates have more than 50 per cent of the voting rights.

OK, so I warned you to beware of the headache inducing nature of dealing with “Part 8 Associates”. Was I right or was I RIGHT!

The best advice I can give you is to get advice before transferring assets and ask for the advice and get that advice in writing so all parties are sure of the scenario and no mistakes are made.

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™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

Herd Mentality and Bubbles – Be Careful When Following the Crowd


Whether you are a long-term investor or an opportunist, many investors find comfort in knowing that many others are investing the same way they are and they get caught up in the media hype on a certain sector. Think of the Dot Com craze in the late 90’s when many invested in this sector even though they did not understand it well and as prices rose even the hesitant among investors poured more money in for fear of missing out or FOMO as I prefer to term it. A good adviser should help you identify the risk of these fads and keep you well diversified.

Here is a good educational video from Franklin Templeton Investments on the subject.

I believe that you always need to do your own research on an investment and then cross check that with others. Be prepared to listen to those who may seem wacky, over optimistic or pessimistic before making your decisions. A good Self Managed Super Fund advisor should be able to get you a selection of research from different sources to stress test any investment.

Bubble’s go back a long time, even centuries and while we are weary of each investment that crashes we rarely learn enough to avoid the next one. From my personal collection is one of my favourite prints called Gekko’s Tulip Mania which you may have seen in the movie Wall Street 2. I have it hanging on my office wall as a constant reminder! You can read more on this bubble at Wikipedia – Tulip Mania

 “This is the greatest bubble story of all time… they call it the Tulip Mania.” - Gordon Gekko

“This is the greatest bubble story of all time… they call it the Tulip Mania.”
– Gordon Gekko

For those looking for a truly Australian history of bubbles I would recommend reading a 2003 paper by the John Simon and published by the RBA available free online called Three Australian Asset-price Bubbles

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™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

 

Medibank Private Allocations at a Glance – How Much Do I Get?


Medibankl

The full pricing and allocation details for Australian public applicants has been indicated in a Government Press Release.  Applicants will be able to get confirmation of their individual allocation from Tuesday, 25 November 2014 by visiting medibankprivateshareoffer.com.au  or calling 1800 998 778.  Applicants will need to have their Application Reference Number available.

Transaction confirmation statements will be sent to successful applicants from Thursday, 4 December 2014.

The Government has also exercised its right to claw back a further 20 per cent of the shares previously allocated to the Broker Firm Offer which will no doubt annoy the Broking community even further after a huge scale back in their offer.  I cannot help feel there will be a huge amount of shareholders with mediocre holdings and headaches for their accountants and advisers trying to track  applications, allocations, scale backs and refunds of excess funds.

Medibank Private will list on the ASX at 12.00pm AEDT on Tuesday, 25 November 2014.  Its ASX code will be MPL.

Final price per share paid by institutional investors $2.15
Discount per share on final insto price for retail investors 15 cents or 7%
Final price per share paid by retail investors1 $2.00
Proceeds
Total proceeds returned to Commonwealth $5.679B
Allocation of shares as a % of total shares
Retail allocation 60.0%
Total institutional allocation 40.0%
Domestic institutional allocation 22.9%
Offshore institutional allocation 17.1%
Details of Retail Offer
Total number of individual Applications Approx. 440,000
Dollar amount allocated to Retail Offer $3.311 billion
Average shareholding for Retail Offer Approx. $5,850
Policyholder Applicants’ allocation2 33.2%
General Public Applicants’ allocation2 66.7%

 

Medibank Private Share Offer – How Much Will You Get

General Public Offer

Applicants who applied under the General Public Offer have received allocations as follows:

General Public Offer Applicants who did not pre-register who applied for Receive*
$2,000 The full amount you have applied for
$2,001 to $7,000 $2,000 + 75.00% of your Application within this band
$7,001 to $14,000 $5,750 + 20.00% of your Application within this band
Over $14,000 $7,150 + 5.00% of your Application within this band

 

General Public Offer Applicants who pre-registered who applied for Receive*
$2,000 to $2,300 The full amount you have applied for
$2,301 to $7,000 $2,300 + 86.25% of your Application within this band
$7,001 to $14,000 $6,353.75 + 23.00% of your Application within this band
Over $14,000 $7,963.75 + 5.75% of your Application within this band

Policyholder Offer

Applicants who applied under the Policyholder Offer have received allocations as follows:

Policyholder Offer Applicants who did not pre-register who applied for Receive*
$2,000 to $2,300 The full amount you have applied for
$2,301 to $7,000 $2,300 + 86.25% of your Application within this band
$7,001 to $14,000 $6,353.75  + 23.00% of your Application within this band
Over $14,000 $7,963.75 + 5.75% of your Application within this band

 

Policyholder Offer Applicants who pre-registered who applied for Receive*
$2,000 to $2,600 The full amount you have applied for
$2,601 to $7,000 $2,600 + 97.50% of your Application within this band
$7,001 to $14,000 $6,890 + 26.00% of your Application within this band
Over $14,000 $8,710 + 6.50% of your Application within this band

For example, a General Public Offer Applicant who did not pre-register who applied for $10,000 will receive:

Application band Receive*
$2,000 $2,000 (100% of $2,000)
$2,001 to $7,000 $3,750 (75% of $5,000)
$7,001 to $14,000 $600 (20% of $3,000)
Over $14,000 n/a
Total $6,350

* The final allocation of Shares will be subject to rounding and application of the Final Price to any allocation above $250,000.

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

 SMSF Specialist Advisor™ & Financial Planner

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

Verante Financial Planning

Tel: 02 8853 6833,  Mobile: 0413 936 299

liam@verante.com.au

PO Box 6002 BHBC, Baulkham Hills NSW 2153

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

Important information :

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

Using superannuation contribution splitting in a SMSF


One of the clear benefits of having a SMSF is the ability to implement strategies across member accounts without affecting current investments or dealing with multiple super fund administrators and their cumbersome paperwork.Super Splitting Super Splitting is also another way that an SMSF Specialist Advisor™ can show clients the advantage of using a professional for advice.

Superannuation splitting is an opportunity to look forward and plan for the future and have you family superannuation next egg prepared for legislative or tax changes while also taking advantage of any age differences to maximise Centrelink support and/or minimise tax legally. Each government attempts to address the matter of funding future retirement costs and to date they have predominantly sought to make enhancements via the superannuation system and these have involved making the superannuation system more flexible, adaptable and appealing to the population as a whole (although the GFC has seen them pull back on contribution limits and co-contribution support)

One of the most significant changes to the system was the introduction of superannuation contributions splitting from 1 January 2006, which allows superannuation contributions to be split or shared with a spouse. This does assist couples to maximise the benefits available in super and provide an avenue for spouses to share in super benefits or equalise balances. It is of most benefit to low-income or non-working spouses by allowing them to control their own super and have their own income in retirement.

Accessing higher lump sums if retiring early: If you’re both planning to retire under the age of 60 and take all or part of the super benefit as a lump sum, then each spouse can access their own tax-free threshold for lump sums (relating to the taxable component) of $185,000 (for the 2014/2015).

Paying insurance premiums for a non-contributing spouse You can use contribution splitting to help pay your spouse’s personal life, TPD and Income Protection insurance premiums through super, so both you and your partner may be able to afford the right level of cover. Especially useful is one spouse self-employed and still getting a business of the ground so cannot afford to contribute to continue cover.

However it is also a great tool for those couples that have an age difference and can benefit in 2 ways:

Increasing your age pension entitlements An older spouse may qualify for a higher age pension by splitting super to a younger spouse to exempt assets from Assets Testing. This means you may qualify for a higher age pension entitlement until the younger spouse attains pension age. Assets held in superannuation accumulation phase by pensioners and those on other allowances who are between 55 and age pension age are exempt under both the Income and Assets Test.

Access tax free income from age 60, sooner A  couple with a spouse who is aged 60 or over may access tax free payments earlier to fund earlier retirement. Improve after tax income and/or reduce debt earlier. In the case of a couple with one partner aged 60 or more, splitting contributions to the older spouse may enable earlier access to tax free income. This is because effective from 1 July 2007 super benefits have been paid tax free after a person attains the age of 60 and retires. (They can also take up to 10% of their balance while remaining at work via a Transition to Retirement Pension) This strategy can help increase the total income a couple is living off simply through splitting their contributions to the older spouse. The younger spouse splits their contributions with their older partner who once attaining the age of 60 is able to access these additional contributions earlier and tax free. This may benefit the couple by effectively reducing their overall assessable income. This is something to be thinking about now even if you are in your 30’s and 40’s as think of the tax and interest saved on being able to access tax free income or pay down a lump sum off your mortgage a few or more years earlier.

FUTURE PROOFING – Protect against legislative change: I believe that the concession for tax free pensions after age 60 will become too costly to maintain long-term and that some government in the future (they will have to be brave as soon 25% of the population will be over 60) will have to introduce tax on new pensions or limit the tax free lump sums available to pensioners. So whether you get funds into pension phase before changes or you have funds evenly spread across both spouse accounts to allow for both members to access any imposed limit to the max, it costs very little to put these strategies in place and they do not affect your investment mix. Implementation: The following types of contributions can be split:

  • Superannuation guarantee (SG)
  • Salary sacrifice
  • Deductible personal contributions (Self Employed & Self Funded Investors)
  • Voluntary employer contributions.

Generally, you can split contributions with your partner if:

  • you are married, or
  • in a de facto relationship – including same-sex couples, or
  • registered under a state or territory law, and
  • your partner is under their preservation age, or
  • if they are between their preservation age and age 65, have not retired under superannuation law.

You can split-off up to 85% of your concessional contributions to your spouse, which includes your SG and salary sacrifice contributions and up to the concessional contributions cap. You have until 30 June of each year to split contributions for the previous financial year. This means you have until 30 June 2015 to choose to split a contribution made in the 2013/14 financial year. You can also split contributions for the present financial year even if your entire benefit is to be rolled over, transferred or withdrawn.

If you are making a personal deductible contribution then make sure you have submitted the notice to claim a deduction before the Super Splitting request. A Superannuation Splitting request can be made to an SMSF by simply submitting a letter to the Trustee in writing stating the amount you wish to split to your spouse’s account. I recommend the Trustees minute the request and approve it with advice to the administrators to implement the split when completing the financials.

It is recommended that you seek expert advice from your financial adviser (SMSF Specialist Advisor™) before deciding if this strategy is right for you. As always I welcome and yes crave feedback! Also appreciate those who re-tweet educational material for the benefit of all in the sector. We have offices in Windsor and Castle Hill and are always happy to meet new clients for a one on one chat either face to face, by phone or on Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser Follow SMSFCoach on Twitter Liam Shorte on Linkedin SMSFCoach on Facebook Google+

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

Trading Company as SMSF Trustee or Sole Purpose SMSF Trustee Company?


 Traditionally the majority of SMSFs steered away from using a company trustee due to the costs associated with it. This has been changing in the last decade as Trustees see the difficulty of adding or removing members or trustees from a fund. The process of replacing a director on the other hand is relatively simple.

The cost to establish a company to act as Trustee for a fund varies from $660 – $1600, depending on who you engage to organise it for you. A SMSF with a corporate trustee can usually be set up within a few days with the ABN and TFN taking up to a month to organise with the ATO and get listed on the Super fund Lookup site http://superfundlookup.gov.au/

The Company is required to prepare and lodge an Annual Review with ASIC each year at a cost of approximately $318 per annum, and pay an ASIC lodgement fee of $214. (The lodgement fee is reduced from $256 to $46 for companies who are used solely as SMSF Trustee companies commonly now known as a Sole Purpose SMSF Trustee Company).

The problem is people still look to save on costs so occasionally clients ask if they can utilise an existing trading company to act as the SMSF Trustee, to save on “cost”.

The strict answer is yes but just because you can do something, doesn’t mean you should. Using a company for multiple purposes is fraught with risk. You would have to be meticulous about keeping transactions and record keeping of the 2 functions absolutely accurate.

I really recommend against this for a number of reasons:

  • the accounts and bookkeeping for the trustee company inevitably become much more complex, having to account for its trading activities separately from its activities as a trustee. This in turn results in higher accounting fees and risk of mistakes;
  •  SMSF auditors are very delicate individuals who follow rules to the nth degree. There can’t be any overlap between SMSF funds and other company funds. We often get clients calling and advising us that they accidentally used the wrong cheque book or transferred funds by Bpay to or from the wrong account. (This is also a reason I suggest clients use a different bank for the SMSF )Yes it was accident, but the SIS Act and Regulations say this is totally illegal. You can never guarantee that you will never make mistakes. Avoid this hassle and set up a separate sole purpose corporate trustee;
  •  if the company gets into financial difficulty and a receiver or liquidator is appointed – the SMSF fund assets could be at risk. This is because using a trading company may result in you losing control over your SMSF if the company entered some form of administration due to trading difficulties. Even if you have kept clear records the liquidator or receiver may look to freeze those assets while you prove the true ownership which could take months or years if record keeping not perfect;
  • there are potential issues associated with identifying the true owner of the assets. If all of the company/SMSF assets are held in the same company name, how does one distinguish between assets held in capacity of trustee compared with those held beneficially for the company? For example in most States the Land Titles Office will only record the Trustee name not the “ATF XYZ Super Fund”;
  • Introduce some Business Real Property, say a warehouse, leased back to the business and it gets even messier. The company as trustee for the SMSF leases the business premises back to itself in its capacity as the trading company. Now if the trading company gets in difficulty and can’t make lease payments then the same company has an obligation in its capacity as Trustee of the SMSF to chase itself for recovery of the lease payments!;
  • then to the subject of liability. Trustees of funds are generally prohibited from borrowing but nevertheless liabilities can still arise.  For example, a plumbing contractor engaged to repair a residential investment property might suffer an injury and can sue the trustee for damages.  This could mean that if the SMSF does not have the funds to meet any damages, the assets of the business may now become a target for the lawyers of the victim. Again in time this could be sorted and true ownership proved but could you or your business afford the time arguing the case or funding the defence.

For those who do have a Trading Company as Trustee, then if the company or business is in trading difficulty your first step is go to the ASIC advice for small company directors at http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Directors%20and%20insolvency

I would also suggest a quick visit to your Adviser to put in place a new Trustee Company in charge of your fund or if you really feel you are going to be in trouble you might opt to become a Small APRA regulated fund where you hand over the running of the fund to an Approved Trustee but you may struggle to find one willing to take over in such circumstances.

What are your thoughts? I would be interested in feedback from lawyers, accountants and advisers and of course auditors on this issue!

Liam Shorte B.Bus SSA™ AFP

Wealth Advisor & SMSF Specialist Advisor™

 SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

Last minute planning checklists for everyone from Small Business Owners to SMSF Trustees as well as Personal planning.


Have you left your financial planning until the last minute?  Go over this checklist with your accountant or financial planner as soon as possible.  Some of these strategies apply every year, while others are specific to this year because of the changes in the tax rate, the end to the flood levy, and some changes to small business write offs in the next year.

Checklists for:

Personal / Family

Small Business Owner:

SMSF Trustee

Investment Property Landlord

See full article: http://myob.com.au/blog/end-of-financial-year-planning-checklists/#ixzz1ysA6ExvQ

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated.

Liam Shorte B.Bus SSA™ AdvDipFS AMC

Financial Planner & SMSF Specialist Advisor™

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

Verante Financial Planning

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

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

Important information

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

How is your SMSF protected in the event of bankruptcy?


If you or your business is experiencing financial difficulty and bankruptcy is the likely outcome, you should consider carefully what impact this may have on your self-managed super fund and superannuation accounts before accessing them under any condition fo release.

How does bankruptcy affect your SMSF?

Should you become an insolvent under administration, such as an undischarged bankrupt or have entered a personal insolvency agreement with your creditors, the super laws consider you to be a ‘disqualified person’. This has ramifications for your self managed super fund because a disqualified person can’t act as, or become, a trustee of an SMSF or a director of an SMSF’s corporate trustee.

Steps to take before entering bankruptcy:

We know in circumstances like this you may be under a weight of paperwork and pressure but you should take action to preserve what you can.

  1. If you’re an existing trustee/director of an SMSF, the best option would be to resign from this role before becoming a “disqualified person”. If you don’t, and continue to act in this role, you and your SMSF may be liable for penalties or  your SMSF could lose its complying status which would  result in lost tax concessions and a harsh tax bill for your fund. You may also be liable for a fine and up to two years’ imprisonment.
  1. You must take action to ensure your SMSF continues to meet the basic condition that all fund members are also trustees/directors. You have a grace period of six months to consider your options, which include :
  • rolling your benefits to a retail or industry super fund or
  • converting your SMSF to a small APRA fund whereby an “approved trustee” takes over the running of the fund.

The best option for you will depend on your particular circumstances such as the investment mix within your fund, the liquidity of the assets in that portfolio as well as the potential capital gains tax payable on realising assets and the wishes of other fund members such as your spouse.

Are your SMSF assets protected?

A bankrupt’s entire interest in a regulated super fund is potentially protected from creditors.

This protection has a couple of important limitations. Bankruptcy legislation states that a contribution made after 27 July 2006 to a super fund can be ‘clawed back’ if the main purpose was either to prevent the transferred property being available to creditors or to hinder or delay the process of making property available for division among creditors.

Under the rules, a transaction is assumed to be made for this purpose if at the time of the transfer, you were, or were about to become, insolvent. It is therefore critical that you make, and keep, records to prove that you’re solvent at the time of making a contribution to prevent your contributions being clawed back.

Any transactions that are ‘out of character’ may also be seen to be made for the main purpose of defeating creditors. For example, if you salary sacrificed $1,000 per month for the past 5 years, it would be unlikely that the $1,000 contributed in each of the final months before becoming bankrupt would be considered out of character and clawed back. In contrast, if you made a once-off contribution of $100,000 in the week before declaring bankruptcy, it’s likely you would have to prove why this amount should not be made available to creditors.

Case Law Example:

Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty (an SMSF fund)

In the Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty Ltd (2001) 114 FCR 160; [2001] FCA 1267, Madgwick J determined that the potential for a payment to a superannuation fund to be caught by the relation back or avoidance provisions of the Act was not excluded by the protection provided to the bankrupt’s interest in a superannuation fund even though such a payment might give rise to an interest in the fund.

It could be said that the protection operates in favour of any lawful interest in a regulated superannuation fund.

In this case one payment was made by the debtor after the deemed commencement of his bankruptcy and as such was recoverable. This is because the money had already vested in the hands of the bankruptcy trustee and accordingly the debtor did not have the authority to deal with it. The SMSF trustee (keeping in mind it was an SMSF and the bankrupt was a director of the SMSF trustee) was taken to be aware of that lack of authority and therefore did not derive title to the moneys paid.

Two earlier payments prior to the commencement of bankruptcy were voidable by reason of the operation of section 121 (transfers to defeat creditors). It assisted this recovery that at the time of both earlier transfers the debtor was or was about to become insolvent, and the superannuation fund trustee (the bankrupt being a director of the SMSF trustee) was also aware of this.

In summary an SMSF trustee is unlikely not to know the purposes or intent of the member (or third party) making the contributions. In addition the SMSF trustee is likely to know the solvency or otherwise of the relevant member.

Recovery of void contributions

A bankruptcy trustee is able to make an application to the Court directly under section 128B or 128C of the Bankruptcy Legislation Amendment (Superannuation Contributions) Act 2007 to recover a void superannuation contribution. In addition, a bankruptcy trustee can request the Official Receiver to issue a notice under section 139ZQ for the recovery of a void contribution on the same basis as these notices are available to recover other void transfers of property.

The Act also includes provisions enabling some tracing, by the Court, of superannuation contributions through the superannuation system. This is important particularly where the contribution may have been rolled-over and is no longer in the plan which originally received it.

Can you access your Superannuation early because you are a bankrupt?

Funds held in and payments made from your superannuation are protected from your creditors under the Bankruptcy Act. In certain limited circumstances you may be able to access your superannuation early, such as severe financial hardship.

However, the fact you are bankrupt does not mean that you will automatically be entitled to get early access to your superannuation. Bankruptcy is not on its own a ground for the early release of your super. It is up to your superannuation provider or APRA to decide whether to grant early access to your super and they should be consulted if you believe you have grounds for early release of your funds.

If you are granted early access to your super the lump sum payments from your superannuation fund made on or after the date of bankruptcy will be protected from your creditors.

What about pension payments? Are they protected?

If your total annual income exceeds a certain amount, half the excess will typically becomes available to pay your creditors. The relevant income thresholds are shown in the table below:

Actual Income Threshold Amount (AITA) With dependants Used when calculating a bankrupt’s income contributions which vary according to the number of dependants
Number of Dependents

 Income Limit

0

$47 693.10

1

$56 277.86

2

 $60 570.24

 3

 $62 954.89

 4

 $63 908.75

 Over 4

$64 862.62

Limits updated twice a year: 20 March and 20 September

Source: Insolvency & Trustee Service Australia. INDEXED AMOUNTS as of 24/04/2012

Income counted towards these thresholds includes salary and wages, salary sacrifice, fringe benefits from your employer and income which you earn which is paid to someone else. Pension income from a superannuation fund is also counted as income. In contrast, lump sum payments mentioned earlier from your superannuation fund are not counted as income and are protected even if you’re bankrupt.

STRATEGY TIP:

Given this protection in respect to lump sums, it may often be more beneficial to keep your super balance in the “accumulation phase” during the bankruptcy period and only make lump sum withdrawals if additional cash is required.

So as you can see while In cases where bankruptcy is unavoidable, most of your assets will be divisible among your creditors, fortunately, your superannuation balance and lump sum withdrawals are generally protected. Taking pre-emptive action and seeking expert advice if you’re facing financial troubles may help protect your Self Managed Super Fund and preserve some of your wealth for retirement.

Me on My High Horse! This protection should also act as a solid reason for all business owners to regularly contribute to superannuation throughout their working lives as circumstances can change rapidly. While your business may in your mind be your idea of your retirement savings, it may offer no protection in difficult times so put money away outside of your business structure to protect you and your family.

What about circumstances where the asset of the SMSF is in the wrong name because we made an error when setting up an account or used a Trading company as the Trustee of our SMSF (Idiot, kick yourself in the ass first):

See my blog on Trading Company as SMSF Trustee or Sole Purpose SMSF Trustee Company? To see why you never should use a Trading company.

Now back to the issue. Let’s consider the situations where a business has become bankrupt (wound up?) and the court tries to link assets held in the name of the business entity in its/their capacity as Trustee of the SMSF to the bankruptcy action?

Example:  Property is purchased by the SMSF but for whatever reason is held in the name of the trading company or individual trustees; or

Possible solution in most cases: A Declaration of Trust outlining beneficial ownership should be prepared contemporaneously with the purchase of the property or asset. You must seek legal advice on how to word this document but it should include:

Declaration as to who is the beneficial owner

Who provided the funds for the investment.

That the beneficial owner is entitled to any benefits and always has been

The Beneficial owner has the right to transfer ownership to any other entity

All actions are taken on the instructions of the SMSF

As I said above seek legal advice on how to word this and do not attempt any half baked efforts from Googling!

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

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

Consider prepaying next years Private Health Insurance before June 30th – EOFY Money Saving TIP #1


As a result of the introduction of mean testing of the Private Health Insurance Premium Rebate wewant to alert you to a one-off savings possibility in relation to the private health insurance rebate.

If you pre-pay your 2012/13 private health insurance premium before 30 June 2012, you may still be able to access the Government rebate.

As you may be aware, the Government currently provides a non-means tested rebate for private health insurance premiums. The rebate can be claimed directly from the insurer, or as a tax offset when you lodge your income tax return. the majority of clients claim it upfront and if you don’t then you may need to consider doing so this year.

The rebate is currently 30% for those under 65 and rising  from 35% to 40% of the premium depending on the age of the policy holder.

The Government has now passed the required legislation that will apply an income test to the availability of the rebate to any premiums paid on or after 1 July 2012. The more income you earn, the lower the rebate as follows:

Private Health Insurance Incentive Tiers (2011-2012) with effect 1 July 2012

Singles

<$84,000 

$84,001-97,000

$97,001-130,000

>$130,001

Families

<$168,000

$168,001-194,000

$194,001-260,000

>$260,001

Rebate
< age 65 30% 20% 10% 0%
Age 65-69 35% 25% 15% 0%
Age 70+ 40% 30% 20% 0%
Medicare Levy Surcharge
All ages 0.0% 1.0% 1.25% 1.5%

Note: The thresholds increase annually, based on growth in Average Weekly Ordinary Time Earnings (AWOTE). Single parents and couples (including de facto couples) are subject to the family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.

Singles earning $84,000 or less and families earning $168,000 or less will continue to receive the existing 30, 35 and 40 per cent rebate, depending on their age.

Once your ‘adjusted’ income is greater than $130,000 (or $260,000 as a family), no rebate will be available.

For a family with gross premiums of say $2,500, this will result in an increase to the out of pocket premium costs of $750.00

The current rebate applies to a premium ‘paid’ during the income year. Accordingly, it follows that if you prepay your 2012-13 premium on or before 30 June 2012, the current rules should apply and the rebate should be available.

If you are interested in this one-off savings opportunity, we suggest you contact your private health insurer to discuss the possibility of pre-paying next year’s premium and ensure that their is no penalty for prepayment and that their system can cope with the prepayment.

Increase to Medicare Surcharge levy for High Income Earners

For those without Private Health Cover be aware that  the Medicare levy surcharge for people without private health insurance will lift to 1.5 per cent of taxable income for those top earners without private health insurance cover. (see table above)

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated.

Liam Shorte B.Bus SSA™ AdvDipFS AMC

Financial Planner & SMSF Specialist Advisor™

      

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

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

Important information

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

The added value of franking credits in a SMSF Portfolio


 One of the least understood and core benefits of SMSFs are the value of franking credits attached to many blue chip share dividends.  You can tilt your portfolio to enhance the taxation benefits to your fund.

Targeting of imputation credits received predominantly from direct share investment in Australian, and to a lesser extent through managed funds is not that difficult. Franking credits (properly known as Imputation credits) can also be used to offset the tax payable on the taxable income of the fund if still in accumulation stage or refunds can be received from the ATO if in pension phase (don’t you just love receiving money from the ATO!)

The key point to understand around franking credits is the fact that the income tax rate for super funds is only 15% in Accumulation phase and 0% in Pension phase, while imputation credits from fully franked dividends can be as high as 30% of the gross dividend of an Australian share. This means that the franking credit covers the tax payable on the dividend received, and leaves a significant excess to be used to reduce the other tax payable by the fund or to be claimed as a refund

So how does it work in reality ?

So company Widget Ltd makes $1.00 profit and therefore is required to pay company tax at the rate of 30% on this $1 profit. Consequently the taxed $0.30 (30% of $1) will be paid in cash to the tax office and the company then records this $0.30 into their franking account. The franking account is only a record of what was paid and does not contain actual money. The company’s ability to frank its dividend will depend on the balance of this franking account. If the franking credit contains a surplus, the company may declare a fully franked (100% franked) dividend. If the franking account isn’t large enough, perhaps because it pays tax overseas, then the company may declare a partially franked dividend. That is, the dividend received by the SMSF is “grossed up” by the amount of the imputation credit to achieve a grossed up dividend. It is on this amount that tax is then assessed at 15% or 05 depending on the phase of your SMSF. The fund is then entitled to a tax offset for the franking credit.

Example: a worked example below of a SMSF that only holds Telstra shares and ANZ shares:

Dividend Franking Credits Taxable Income Accumulation Phase Taxable Income Accumulation Phase
TLS Shares $1260 $540 $1,800 $1,800
ANZ Shares $840 $360 $1,200 $1,200
Total $2100 $900 $3,000 $3,000
Tax @ 15% $450
Tax @ 0% $0
Less: Franking credits $900 $900
Excess Franking credits $450 $900

In this example, not only will the fund pay no tax on the dividend income of these two shareholdings, but it will have:

  • Accumulation Phase $450 of excess franking credits
  • Pension Phase $900 of excess franking credits ;

Which the SMSF Trustees can use to offset against other tax liabilities of the fund (such as other income, capital gains, and taxable contributions) or if  none exists, then the SMSF fund can receive a refund of this amount. (Love it!)

The 45 day rule

As the examples have shown fully franked dividends and franking credits make investing in Australian shares a very tax effective strategy. However, the ATO realises this and to prevent investors from abusing the system (called dividend stripping) they introduced the 45 day rule. The 45 day rule states that shareholder must hold shares for 45 days (not counting days of purchase or sale) for any franking credits over $5,000.

Beware of blind dividend chasing , you can hit a wall!

A word of warning before you decide to put your life savings into chasing shares with the highest dividends. While some high yielding dividend stocks may look enticing it would be useless if those shares drop in value (falling capital value). Always research the company and look for strong fundamentals, for example what does the company’s dividend history look like? Are the dividends growing year on year in line with the earnings per share? Is there long term potential for this company? Will earnings rise in the near term and are they sustainable.

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

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

Superannuation Guarantee Age Limit to be Abolished in 2013


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

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

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

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

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

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

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

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

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

Feedback always appreciated.

Liam Shorte B.Bus SSA™ AdvDipFS AMC

Financial Planner & SMSF Specialist Advisor™

       

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

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

Important information

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

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