I recently did a co-presentation with Louise Biti from Aged Care Steps for the Self Managed Superannuation Fund Association on how SMSF Trustees can plan for incapacity or just that time when they no longer wish to run their fund. The response was great and the questions from the floor really brought it home to us that people are very concerned about how they pass control of their wealth and well-being to others. A copy of the presentation slides are available here . As part of my preparation I developed a simple checklist of issues that SMSF trustees should use when they consider their options. This list is not exhaustive so please add your own tips or suggestions in the comments section below.
When planning for the management of your funds in your SMSF you must first read the Deed!
You do have an Original copy of the Deed or a Certified copy don’t you?
Who do you want to manage your fund if you die or are incapacitated?
On death for Corporate Trustees you leave the shares in the trustee company via your will to the person(s) so they have a right to be a director of the trustee company.
For incapacity you provide an Enduring Power of Attorney (EPOA) and when required you resign as a director and they are appointed in your place. If it is your spouse and they are the only other member then they become Sole Director.
On death for Individual Trustees your Executor will usually have a right to be a trustee of the fund.
For incapacity you provide an Enduring Power of Attorney and when required you resign as a trustee and they are appointed in your place. If it is your spouse and they are the only other member then they need to find a second person to act as a trustee or move to a sole director company trustee.
What to consider in the choice of an EPOA/Executor
Are they good with money and making decisions?
Will they be willing to seek advice from specialists if necessary?
Will there be conflict between beneficiaries – Sibling rivalry? Blended families?
Should you consider 2 or more EPOAs/Executors for safety or support
a power of attorney (or POA) can either become effective immediately, or upon the occurrence of a future event (such as your mental incapacity).
A power of attorney can have specific clauses with instructions for the operation of the power.
If you have a spouse or dependant you may want to include Dependants Clauses to ensure your funds can be used for their needs.
You may want to consider a Conflict of Interest clause to allow a EPOA to make decisions that may suit them as well as you but to the detriment of other possible beneficiaries.
Who do you want to receive your SMSF account balance?
For Spouse / Dependants you should consider using a Reversionary Pension election or Non-Lapsing Binding Death Benefit Nomination direct to beneficiaries or via your will using Non-lapsing Binding Death Nomination to your Legal Personal Representative with option in your will to set up a Testamentary Trust. Normal BDBNs lapse after 3 years.
For Adult children you can use Non-Lapsing Binding Death Benefit Nomination direct to beneficiary or via your will using non-lapsing binding nomination to Legal Personal Representative with option in your will to set up a Testamentary Trust
For your parents, your siblings or non-family via your will using Non-lapsing Binding Death Benefit Nomination to your Legal Personal Representative with option in your will to set up a Testamentary Trust
Do any of the beneficiaries in your Will have special needs? For disabled beneficiaries consider a Special Disability Trust. For those poor with money or in a highly litigious career or in possible bankruptcy then a Testamentary Trust should be considered.
Who do you want to manage your care options if you are incapacitated?
Ensure you have an Enduring Power of Guardianship in place so that your lifestyle and medical treatment decisions can be made by a trusted family member or friend in the event that you become mentally incapable?
Do you have an Advanced Healthcare Directive in place in the event that you become terminally ill and are unable to articulate your wishes?
Have you spoken to your chosen Enduring Guardian so they are clear on your wishes and preferences, explained why you have made those decisions so that they can discuss these with any family members who have cause to question your wishes.
What to consider in the choice of an Enduring Guardian
Are they good with making personal decisions under pressure?
Will there be conflict with other family that they can handle– Sibling rivalry? Blended families?
Should you consider 2 or more EGs for safety or support
Information your Attorneys/Executors will need
Bank Accounts and Investments:
The BSB and account numbers for any accounts or credit cards you have.
The HIN, SRN of any Personal or SMSF shareholdings and
Account IDs for Share Brokers, Online Banking and Managed Fund holdings
Location of property deeds and contact details for Property manager
Insurance:
Details of policies such as the policy number and type of insurance.
Life and TPD cover, Motor vehicles, House Insurance, Private Medical Insurance and Funeral Plans
Advisers:
If you have an accountant, financial planner, lawyer or other professional advisor include their contact details.
Business Records:
If you have a business include details of where the company records are kept and the computer the ASIC Corporate Key is on.
Your secret place:
If important documents such as certificates of property title, jewellery and other valuables or personal items are being held in safe custody elsewhere or stashed in the attic then you should identify the location.
Your digital life:
Include all your email login in details and loyalty scheme account details. This includes your membership to social media and cloud data sites so your executors and family may be able to access your on-line data, including books or music files.
Appoint a Legacy Contact if you use Facebook.
Instructions on what is and isn’t to be shared with family
Direct Debits:
If you have any direct debits in place you should include details so that they can be cancelled pending a grant of probate.
Superannuation:
Do you have other superannuation accounts. Your most recent superannuation statement(s) should also be included. If it is self-managed super the financial statements should be included.
IMPORTANT POINT: Talk regularly to your Executors and Powers of Attorney and Enduring Guardian
Discuss your wishes in terms of lifestyle, healthcare and treatment options with your chosen Attorney and Guardian and if possible with the broader family and make sure that they understand your wishes. Australian’s are very reluctant to talk about illness or death but it is essential to ensure your wishes are followed and to avoid family conflict.
As I mentioned at the start this list is not exhaustive so please add your own tips or suggestions in the comments section below.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Self-funded retirees have felt like punching bags for the last few years with hit after hit chipping away at their ability to fend for themselves within the rules they had relied upon in making their savings plans over the last 30 years. Combine the changing of goal posts with low interest rates and blue-chip underperformance from the banks, telcos and utilities and they are not to be blamed for thinking a hex had been put on them.
So an SMSF friendly budget is the welcome news coming out of the 2018-19 Federal Budget. With many of us SMSF Specialists and you the SMSF members still working through the wide-reaching and complex superannuation changes which took effect from 1 July 2017, this Federal Budget will provide much needed stability while looking to reduce costs for SMSFs and prove additional flexibility.
The key changes proposed for SMSFs and superannuation are:
Three-yearly audit cycle for some self-managed superannuation funds.
The Government will change the annual SMSF audit requirement to a three yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
One concern I have is if trustees make a mistake in year 1 that is not discovered until year 3, will they face 3 years interest charges on the penalties.
Expanding the SMSF member limit from four to six
As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.
Whilst there are some concerns over making decisions I like this move where as mum and dad in their later years want to reduce their involvement but they want help rather with the fund rather than moving to separate retail funds. It may help prevent elder Financial abuse where instead of one child assuming control of the SMSF, more of the family could be involved. Temptation and inheritance impatience is always there for one person but add a few others in to the decision making and the risk of financial abuse reduces considerably.
Also 6 members of a family small business allows for later drawdown from the parents accounts and recontribution for younger family members to retain business real property in the fund after death of the older generation.
Note; you will need to ensure your trust deed allows more than 4 members and it most likely won’t so you will need to update the trust deed first before accepting new members. READ THE DEED
Over 65, 1 additional year Work test exemption
The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test.This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements.
This is good but limited in its scope as more and More people have reached the $300k level because of Super Guarantee Contributions for most since 1992 or before for some. But it is a female friendly move as they are most likely to have lower balances
Life insurance cover in super to be opt-in for individuals under 25 years of age.
The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6000 to ensure that unnecessary fees do not erode smaller balances.
Life insurance cover will also cease where no contributions have been made for a period of 13 months.
If you have kept a retail or industry fund open with small balances to retain insurances you may need to put a small annual contribution in place (I would recommend $100 per half year just in case) to ensure it does not get tagged as dormant.
Older Australian package
The Government introduced the following measures to enhance the standard of living older Australians:
• Increase to the Pension Work Bonus from $250 to $300 per fortnight.
• Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.
• Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.
I think this will be a major bonus for those with a lumpy asset or shareholding’s they wish to retain but need more cashflow. At a current rate of 5.25% the Pensions Loan Scheme is a very decent rate and security that you are borrowing from a bank or predatory lender based on a brokers conflicted commissions.
Personal income tax bracket changes (take most these with a pinch of salt!)
The Government has provided personal income tax relief to lower and middle income earners. A Low and Middle Income Tax Offset will now be available for individuals with incomes of up to $125,333.
The $87,000 income threshold, above which a 37 per cent tax rate applies, will increase to $90,000.
Other changes
• A surplus of $2.2 billion is expected in 2019-20, one year ahead of schedule.
• The Government’s planned increase in the Medicare levy from 2 per cent to 2.5 per cent, to fund the National Disability Insurance Scheme, will now not go ahead due to increased tax revenues.
How can we help?
Some of these measures may open up strategy options for you and your family.
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to give me a call or email to arrange a time to meet or talk by phone so that we can discuss your particular requirements in more detail.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Adapted from ‘Managing Transitions’ by William Bridges.
Retirement. It’s something you’ve thought about for years but kept saying you will deal with it nearer the time. But how do you make sure you’re ready to deal with change when you do come to retire?
So this blog is not about money, it’s about managing change, anxiety and relationships during one of the biggest changes in your life. It has been adapted from an US article.
Retirement might be your time to do your own thing, to travel overseas, go bush in the outback, spend quality time with your loved ones, to return to education, start a different career, take up a volunteer activity, begin an exercise program, or pursue a hobby. There are so many things you could be doing with your newfound time. It seems as though the possibilities for life changes in retirement are endless. But many struggle in that initial period.
Even though you are excited to enter this new stage of life, the amount of change can feel overwhelming and it can intimidating to handle change in retirement. If a lifetime of work demanded much of your time and attention, you may not have had the opportunity to develop many leisure time interests. You may find yourself looking for new things to do and get involved with.
If many of your social activities have involved people from work, you may want and need to develop friendships that are based on your new interests (think about Rotary, Probus, Men’s Shed, Book Club, Classic Car Group, Yoga, Red Hat Society, Bush Walking Club etc.). If you are retiring and adjusting to an empty nest at the same time, you may feel especially challenged handling all of this change associated with retirement. Despite wanting to retire, adapting to so many changes in your life can be difficult.
How you’ve handled change during your lifetime can offer insight into how well you’ll adapt to change in retirement. Having an awareness of how to better manage change can improve your adjustment to retirement.
Here are ten questions to ask yourself about handling life changes in retirement:
1.What changes do you want to make in your life? This is a big question but you probably have some ideas of things you’d like to start doing or do more of. Exercise, travel, family time and household projects are all common starting points. Make a list and begin to identify all the ways you want to change your life in retirement. Tip for Ladies: Is your husband struggling for ideas? Try “101 Things to Do With A Retired Man: … to Get Him Out From Under Your Feet!”
2. Why do you want to make these changes? It’s not enough to say you want to improve your diet or read more books. It’s time to figure out the benefits of making these changes. What will you gain by eating differently or reading more? Recognise why you want to make the change so that you’ll be encouraged to follow through with it.
3. What change do you want to make first? If you’ve been thinking about all you could do in retirement, you may discover that it’s hard to figure out where to begin. Feeling overwhelmed by the choices may mean that you don’t select anything. Keep it simple. If you could change just one thing, what would it be?
4. What impact will your changes have on others? Often if we change something in our life, it has a domino effect. If you go back to school, you may need to use weekend time for studying. If your volunteer project involves evenings, you may need to give up some family time. Recognise that others in your life may question the changes that involve them. Talk about the upcoming changes with significant others and gain their support.
5. Are you willing to change? Are you going to be frustrated making a change in your life when it isn’t something you truly want to do? If you’re a stay-at-home person, don’t kid yourself and try to adopt a freewheeling, caravanning lifestyle just because others say you’ll love it. This is could be a change that you won’t really be willing to make long-term.
6. Are you ready to change? It’s one thing to say you want to start exercising, volunteering or start learning a language. Doing it may be harder than you think. You may be someone who finds change is really difficult. If that’s you, prepare yourself mentally for more challenges right at the start.
7. Are you prepared to make the effort? Making changes in your life requires an effort. Be ready for a learning curve and some inherent frustrations. As adults, we get comfortable in our habits and routines. If you really want to begin an exercise program, you may need a significant amount of willpower to get yourself started.
8. Who can help you change? When you’re learning something new, ask for help. Join a group, connect online or ask others in your network for advice. You may have spent your whole life wanting to figure things out for yourself. Recognise that your time now is a valuable resource. Don’t waste it. Ask for help.
9. Can you check your ego at the door? The first time you try doing something new, it’s likely you won’t be great at it. New things take practice. Don’t let your fear of failure or ego get in the way of learning something new. Look at it this way—you made it this far in life, you are certainly capable of learning a yoga pose or to put up shelves.
10. Are you seeing the results you expected? Make your changes and give yourself a reasonable amount of time to get used to them. Are you seeing the benefits you expected? If not, chalk it up to good experience and move on.
Accept that retirement will bring many changes in your life. Increasing your awareness about how you adapt to change will contribute to your overall retirement happiness.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not 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 2018 the year to get organised or it will be 2028 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™
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.
I have adapted this content to Australian circumstances from an original American article on retirementstyle.com By Deborah Williams
Over this last week I have read so many politically biased responses to Bill Shorten’s proposed strategy to stop the refunds of franking credits that I despaired and I know it is going to be a political football rather than part of comprehensive tax reform. Then I came across a really well explained and positioned argument from Scott Phillips of The Motley Fool fame that takes the politics out of the analysis. I immediately reached out to Scott and asked him could I re-post it for my readers who may be finding the debate confusing or hard to explain to others. So here goes:
Why Bill Shorten is wrong — and right — on dividends
Scott Phillips
What’s that? Bill Shorten has announced a new policy on the refund of franking credits?
I hadn’t noticed.
Okay, that’s not true. I noticed. And, based on feedback on Twitter over the last week, many of you noticed, too.
If Shorten wanted to stir a hornet’s nest, he got just that. Maybe it’s clever politics. Maybe the focus groups told the pollsters this was a smart political strategy.
It sure as heck isn’t good policy, in my view.
Before you fire off an email to either abuse me or suggest I be knighted, let me explain.
I’m going to start with three premises that I think most people can agree on:
The tax system should be fair
You shouldn’t have to pay tax twice on dividend income; and
The tax system, as it stands, is broken.
That last point seems to be Shorten’s main thrust. And it’s a battle cry taken up by many partisans:
“We have a problem, and I have a solution. If you don’t like my solution, you’re saying we don’t have a problem.”
To which I reply:
“We absolutely have a problem. But your solution is a poor one. There are better ways to skin this cat.”
And before we go any further, please leave your political affiliations at the door. This week, on Twitter, I have bagged and praised Labor for different policies. I’ve done the same in the past to the Libs. If you can’t put aside your team jersey and engage in a discussion of ideas, then there’s not much for you in what follows.
But if you’re interested in good policy, read on.
Bill Shorten’s policy, as announced, goes something like this:
“We’re happy for you to reduce your tax using franking credits, but we’re not going to give you a refund.”
There are a few problems with that approach:
First, it implies that if you pay tax, you’re welcome to use the credits to reduce your tax burden to zero.
Second, those credits somehow magically are worthless once you hit zero, meaning that to me they’re worth something, but to a retiree in a 0% tax bracket, they’re worth nothing.
How can franking credits be worth different amounts to different people in different circumstances? Search me… I’m buggered if I know.
And third, and this is what’s stirred up most heat among those who have gone into bat for the policy:
“I pay tax and my taxes shouldn’t go to give a refund/handout to people who already have a lot of money.”
Now, don’t get me wrong. I think the current situation — regarding the ability to pay exactly zero tax on certain income in retirement that might be up to $80,000 — is crackers.
But, Shorten’s policy doesn’t fix that problem. Here’s why:
Consider three people, all of whom have SMSFs in pension phase, and who — according to the current tax rules — pay 0% tax: Banking Betty, Rental Richard and Dividend Davina.
Banking Betty deposits $100,000, and earns $2,000 each year in interest. Betty doesn’t pay any tax.
Rental Richard has a $100,000 property that pays him $2,000 each year in rent. Richard doesn’t pay any tax.
Dividend Davina buys $100,000 worth of shares that earned a profit of $2,000. The company paid tax of $600, so Davina gets $1,400. Davina doesn’t pay any tax.
See the difference here? Because Davina’s investment is in the form of shares in a company, she gets less than the other two. Even though she’s not supposed to pay any tax, the company paid tax, so she gets less.
Under current rules, she’d get the $600 back, delivering on the current government policy of a 0% tax rate, and equalising the return for each of those investors.
Bill Shorten, in effect, is penalising people for owning shares.
Now, let’s address the elephant in the room. Yes, because the company has already paid tax on that $2,000, Davina does officially get a refund. And the optics of that are bad: it looks like somehow the taxpayer is subsidising Davina.
But it’s all a question of cash flows and timing. The ATO just gives Davina back the money the company paid in tax.
And remember, a company is just a legal structure to organise your ownership interest in an asset. Shares in a company aren’t all that different in effect to accounts at a bank. Your bank account is evidence that you have a claim to a share of that bank’s assets, even if you don’t know specifically which notes you deposited.
Imagine a scenario under which Banking Betty’s bank withholds 30% of her interest and sends it to the government as tax. And where Rental Richard’s property manager is obligated to send 30% of his rental income to the ATO.
Both of these investors would have to fill out a tax return and the ATO would send them a refund — because tax was paid on their income, even though the tax rate should have been 0%.
Would Bill Shorten stop Betty and Richard getting their money back?
I doubt it.
But somehow, because Labor has (unfortunately, disingenuously) used extreme examples to make their point, and because they’ve dressed it up as a handout, they’ve mischaracterised the situation.
Somehow Dividend Davina is a fatcat living high on the hog, while Betty and Richard are perfectly entitled to pay no tax.
Essentially, because of the asset class they decide to invest in, our three protagonists are being treated differently.
Sound fair to you?
No, me neither.
Yes, the idea of a ‘refund’ for someone who has paid no tax feels, somehow, deeply wrong. But it’s because tax was paid by the company, on behalf of a shareholder who shouldn’t be paying tax, so the ATO is essentially just righting that wrong.
Still with me? Excellent!
Still fuming that well-off people pay no tax? Me too.
What? Didn’t I just spend 984 words (don’t waste time counting them. I checked) defending those people?
Well, yes. And no.
Here’s where both parties are engaging in a phony war of words. And we’re poorer for it.
Having an essentially uncapped income at a 0% tax rate is madness.
Yes, yes, it’s not technically uncapped, for a host of reasons. So let’s say $80,000 among friends.
You and I pay a decent slug of tax on an $80,000 income. And there’s no reason that a well-off retiree should be able to draw a completely untaxed income of a similar amount, when they likely have a very decent asset base — say a home and a seven-figure superannuation balance.
It’s simply not sustainable, especially as more boomers retire, to have that slice of the economic income pie remain completely untaxed.
But — and this is important — that doesn’t mean we should simply ban franking credit refunds and assume that fixes the problem.
Let’s go back to our alliterative actors, Betty, Richard and Davina.
If Betty was earning $80,000 in interest, should that be untaxed? Should Richard’s $80,000 in rent be untouched by the taxman? Should Davina’s $80,000 in dividends remain completely unscathed?
I don’t think so. But again, it’s not a question of the source of the income; it’s the size.
Under Bill Shorten’s plan, Davina would be worse off, but Betty and Richard laugh all the way to the bank. Does anyone, seriously, think that’s a good basis for a tax plan?
I didn’t think so.
Here’s what I’d do: I’d have a generous tax-free threshold for income from superannuation, maybe $10,000 or so above the pension level. It’s not unreasonable that you’re allowed a little extra, given the sacrifice you made to save for your retirement.
But above that level, I’d implement a progressive tax scale not unlike the one that applies to regular income: The more you earn, the higher your marginal tax rate.
Simple, no?
Fair, yes?
That way, the tax code doesn’t discriminate on the basis of the asset class. There are no free lunches. And the unsustainable tax situation that currently applies to Super is fixed.
So Bill Shorten, and Chris Bowen, it’s time to admit defeat and go back to the drawing board. Feel free to use my template, above.
And Scott Morrison and Malcolm Turnbull, please stop with the emotive and negative language and grandstanding.
Politics should be a battle of ideas, not soundbites The best idea, well explained, should win, regardless of political party or ideological affiliation.
And, ladies and gentlemen of the Parliament, the Australian people will give you bonus points for explaining it clearly and for anything that reduces the complexity of our tax affairs, while ensuring fairness.
Indeed, Turnbull and Morrison’s political forebear, John Howard spoke to the National Press Club in 2014 when he shared the stage with former Labor PM, Bob Hawke. At that event, according to the Sydney Morning Herald , Howard said
“We have sometimes lost the capacity to respect the ability of the Australian people to absorb a detailed argument. They will respond to an argument for change and reform [but] they want two requirements. They want to be satisfied it’s in the national interest, because they have a deep sense of nationalism and patriotism. They also want to be satisfied it’s fundamentally fair.”
I’d like to think that’s still true.
I agree with Bill Shorten’s characterisation of the problem. I disagree completely with his solution.
I imagine I lost the most partisan readers — of both stripes — a few minutes ago. If you’re still reading, thank you for engaging in a discussion of ideas.
I hope I’ve convinced some of you. Of those I haven’t convinced, I hope I’ve at least done a decent job of addressing the issue, without bias, grandstanding or misdirection. Thanks for reading.
At the very least, I hope I’ve productively added to the conversation. It’s the least each of us can do.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Here are some of the key issues we will discuss with you to get a better understanding on whether an SMSF is suitable to meet your objectives and circumstances. They have been developed to address concerns about people being pushed or rushing in to a SMSF. We want to protect access to the SMSF option for the long-term.
What do you or your family want to achieve by establishing an SMSF . This explores your reasons for investigating this strategy and if it aligns with your short, medium and long-term goals or is it something you have just felt was right for you. We will have no hesitation in suggesting you consider alternatives that may meet your true objectives. We don’t believe an SMSF is right for everyone.
Is contributing more to superannuation the right option for you at your age when we take in to account your financial commitments now and in the future as this money will be locked away until you meet a condition of release most likely in your 60’s. It may be more appropriate for your to concentrate on using excess funds for debt reduction, medium term investing in your name or an insurance bond for tax minimisation while retaining access to the capital. We develop our strategies to suit you!
Is running a strategy via an SMSF suitable for you in terms of your experience, knowledge and available time. There are many busy executives, truck drivers and small business owners that I have had to talk out of running and SMSF when they can’t even find 1 hour in their week to schedule a meeting or even engage via Skype to understand their trustee obligations.Yet they thought they run a $800,000 investment portfolio! I hesitate to mention the one who said he could do his research while driving to work on his mobile! Or the couple who felt they were “property experts” because they had 4 Queensland regional properties, having never once visited any of them or done more than a cursory Google search using the highest valuations found and ignoring recent listings. By the time we analysed the portfolio they were going nowhere, low-income and negative capital growth. On asking for Property Inspection reports we found they were also up for tens of thousands in repairs and maintenance over the coming years. It was agreed that their super was safer in their well diversified existing strategy than another “punt” on property in an SMSF until learned more about property investing from a Buyer’s Agent.
What funds do have to rollover from an existing fund(s). Are you able to move those funds? Some people are in government, military or state funds that cannot be accessed before a certain age like MSBS or Local Govt Super or maybe a Defined Benefit Scheme that’s too sweet to leave! Are you able to redirect future Super Guarantee contributions from your employer as some have a mandated fund under enterprise bargaining agreements etc. Are there high exit fees or underlying investments that are not liquid? Is it the right move for you?
Have insurance needs been adequately identified and addressed for your future protection? We have to look at the current insurances in place and do a needs analysis to see if they should be maintained, altered, replaced or cancelled.
We need to know if you are aware of and clear about trustee responsibility? This blog and other material we point you to will give you the knowledge base you require to run a fund. We may suggest you do this education before committing to setting up the SMSF. Your urgency to set up a fund does not let us abrogate our duties.
We will walk you through the costs of setting up and administering the SMSF annually as well as costs related to specific strategies you want to undertake? This includes fees associated with all related aspects of SMSFs including advice, investments, establishment, legal and administration?
We will help you with the development and management of the SMSF investment strategy and ensure it is compliant and will help achieve your objectives. We will ground you in reality (no reasonable investment will provide excessive returns long-term so we might burst a few myths.
If the SMSF is to engage in borrowing or gearing? We will guide you around what is a reasonable level of gearing in your circumstances and to achieve your retirement plans and analyse the affordability of the gearing strategy. We will provide you with a full 3 step guide on the rules, the process and the mistakes to avoid during implementation.
One last warning :
We want you to use the right strategy at the right time for your future financial security.
This may explain why from 2017 to 2025 we have been one of the most recognised among the best of the best SMSF Advisers in a number of professional awards.
For the last decade every time I saw the SMSF statistical results issued by the ATO I was dismayed by the number of new SMSF funds being set up with Individual Trustees, often well over 80% each year. I assumed this was people setting up self managed superannuation funds without good advice or reasonable research.
So I was delighted to see the latest stats provided by the ATO for 2015-16 but including some 2016-17 data which has seen a complete turnaround with over 80% of new SMSFs being set up with Corporate Trustees and the overall numbers on existing funds turning in favour of using a company.
SMSF trustee structure
At 30 June 2017, 57% of all SMSFs had a corporate trustee rather than individual trustees.
Of newly registered SMSFs in 2015 to 2017, on average 81% were established with a corporate trustee.
A few times over the last 5 years I have run polls asking professionals in the SMSF industry whether they would recommend individual or corporate trustees. Every time the overwhelming result is in favour of Corporate Trustees.
So over 90% of professionals who deal day in day out with SMSF issues and like myself deal with some of the fallout when approached by grieving widows(ers), recommend a Corporate trustee for an SMSF.
Costs
Costs should not be a deterrent as a sole Purpose Trustee company only costs about $600-$880 to set up and the ASIC review fee is only $48 per year and you can lock that in and get a discount for up to 10 years. See here for more detail on that discount.
I have set out my arguments for a Corporate Trustee in this previous article Why Self Managed Super Funds Should Have A Corporate Trustee. If you are considering an SMSF the I would encourage you to read through that article and feel free to pass it on to your friends, family or advisors.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
It contains a huge library of articles, life events, videos, quiz’s and calculators, so that you can learn about managing money while having a bit of fun at the same time.
The best part of all is that you work at your own pace and we offer a free trial to one and all but it will always be free to our clients as part of our advice service.
Watch this short video which explains what is available in this vast knowledge base.
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.
Ok this may seem like a boring question but have you actually checked if you have a copy of your latest SMSF deed on file or that your accountant and financial adviser have one of file? Has it been dated properly and signed and witnessed properly by all parties.
In this era of everyone rushing around and having busy lives, it’s the little things that get missed and that can cause a huge problem later. An unsigned or undated deed may result in your fund being found non-compliant and unable to function or leave major headaches for your beneficiaries. If you are a professional adviser then those disgruntled parties will be looking for someone still alive to blame and pick up the costs.
An SMSF trust deed is a legal document that sets out the rules for establishing and operating your fund. It includes such things as the fund’s objectives, what the fund can invest in, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.
The trust deed must be:
prepared by someone qualified to do so – it’s a legal document
signed and dated by all trustees
properly executed according to state or territory laws
regularly reviewed, and updated as necessary.
I take over management of a lot of funds and we are seeing many cases where the original trust deed was signed correctly and dated but a subsequent update or deed of amendment is sitting on the file unsigned or undated.
It is illegal to sign and backdate documents. As the Trustee of your fund it is your responsibility to ensure that deeds are legally compliant, signed and up to date.
If you are an Accountant, Administrator, Financial Planner or Auditor then you may share in the responsibility to ensure that deeds are compliant and properly completed. Your client may love you but their beneficiaries may come looking for someone to blame if an unsigned deed means a compliance breach with heavy tax or administrative penalties.
So what should you do.
See if you have a SMSF deed in your files and check if it is properly signed, witnessed and dated.
If you don’t have a copy then email your accountant and financial adviser and ask then to confirm if they have a signed and dated original copy on file. If they do then ask for a Certified Copy.
If it has been updated with a Deed of Amendment, has that been signed and dated? Get a copy of all Deeds of Amendment for your records so you can show the full history of your fund. Keep a copy yourself in case you fall out with your professional advisers.
Don’t be the one who leaves a mess behind!
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
When I talk to self-directed SMSF trustees their excuse for not diversifying more from Aussie Shares and Term Deposits was that it was difficult to understand some sectors and to get a decent diversification without building a huge portfolio of stocks, unlisted managed funds, bonds, hybrids etc. They hated application forms especially for SMSF investments but they have been reluctant to use a platform despite my argument that often a platform was a useful vehicle. Most just are not interested in another layer of fees for their SMSF. Each to their own so I left the argument there. However now the mountain is coming to them!
The following is general information and not a recommendation, you still need to do your own research or get advice for your personal circumstances.
In November 2017 Vanguard Australia finally launched a suite of four exchange traded funds (ETFs) that provide greater access to their leading diversified portfolio strategies. This will make SMSF and personal investing a far more accessible and transparent option for many and ultimately help them achieve their financial goals at a lower cost, easier reporting and with less paperwork than currently. They offer a great opportunity to develop a well simple, market leading diversified core to your portfolio.
The four Vanguard Diversified Index ETFs build on their extensive suite of ETFs and unlisted Managed Funds, and are one of the first ETFs allowing investors to gain diversification across and within all major asset classes, while making a clear choice about how much risk they take on. I would argue that AMP’s DMKT and Schroder’s GROW do this to some extent but not at this low a cost as they are actively managed an many might think they are a good blend with Vanguard’s new range.
The conservative (VDCO), balanced (VDBA), growth (VDGR) and high growth (VDHG) ETFs offer investors simple, single trade access to Vanguard’s global expertise in portfolio management and asset allocation, with annual investment costs at just 0.27 per cent. Yes that’s only $2.70 management fee for every $1000 invested in a diversified portfolio, wipe the floor of many industry and retail super funds.
Each Diversified Index ETF is a share class of an existing Vanguard Diversified Index Fund, meaning ETF investors can tap into the benefits of an established asset pool, collectively worth more than $7 billion, through Vanguard’s existing range of non-listed multi-asset funds. Vanguard’s Diversified Index Funds consistently rank in the top quartile of performance with their peers over three, five and 10 year periods, according to Morningstar.
Yes you are giving up some transparency and control but I believe you can rely on Vanguard’s investment experts to continuously assess their portfolio’s exposure and periodically rebalance it back to its intended level of risk.”
Each Vanguard Diversified Index ETF provides investors with extensive global exposure to around 6500 individual companies and more than 5000 fixed income securities.
Just in case you have not heard of Vanguard, here is a little detail to help build a picture of their strength and reach:
The Vanguard Group, Inc.: Key facts and figures*
Founded
1975
Total assets under management
AUD $5.9 trillion
Funds offered
180 in the US, and 190 funds in markets outside the US
Ownership
The Vanguard Group, Inc. is owned by its US-domiciled funds,
which are owned by their shareholders.
Headquarters
Valley Forge, Pennsylvania, USA
Chairman and CEO
F. William McNabb III
Number of employees
About 15,000 worldwide
Vanguard’s Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the diversified funds as part of a robust framework used by Vanguard globally. This framework includes analysis of concentration risk and currency exposure, and incorporates comprehensive modelling generated by Vanguard’s proprietary forecasting engine, the Vanguard Capital Markets Model.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not 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 2018 the year to get organised or it will be 2028 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™
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.
I am being inundated by queries from young men aged 20-40 looking to learn more about Bitcoin and then a cohort of traditional SMSF trustees aged 40-70 who have an interest in alternative investments and especially Gold who now want to at least know more about Bitcoin and cryptocurrencies in general. so when I came across this latest paper dealing with both subjects from my good mate Jordan Eliseo, Chief Economist at ABC Bullion I twisted his arm to let me share it to my readers.
The key finding of his paper are:
KEY FINDINGS
Blockchain technology has serious real world applications – it is here to stay
Given valuations in broader financial markets, it can make sense to speculate in the cryptocurrency market with a small portion of one’s wealth
Cryptocurrencies like Bitcoin are money today, but whether that status will endure remains to be seen
Physical gold remains the simplest and most effective hedge against the monetary, market, and macroeconomic risks that investors confront today
I recommend that you read Jordan’s full report here:
Now, if you are determined to go ahead and invest in Bitcoin or other cryptocurrencies then you need to do some serious groundwork.
NOTE: I DO NOT RECOMMEND CRYPTO CURRENCIES AS A SUITABLE INVESTMENT FOR AN SMSF, I AM JUST MAKING SURE THAT THOSE WHO DO INVEST DO IT COMPLIANTLY
How the SMSF regulations affect investing in Bitcoin, Ethereum or other cryptocurrencies
SMSF Professionals and Trustees should be well aware of the restrictions placed on the investment choices of SMSFs by the Superannuation Industry (Supervision) Act 1993 and supporting regulations. The Australian Taxation Office (ATO) is in charge of the administration of these rules and they have issued this guidance on their website:
Although there are not yet any formal rulings from the ATO clarifying how the rules apply to Bitcoin, there are a number of Tax Determinations that help guide any SMSF Trustees considering investing in bitcoins.
TD 2014/25 Income tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)
TD 2014/26 Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
TD 2014/27 Income tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
GSTR 2014/3 Goods and services tax: the GST implications of transactions involving bitcoin.
Considerations before investing in Bitcoin:
Is it right for your needs and objectives? Consider if an investment in Bitcoin would satisfy the ‘sole purpose test’? – Are you honestly investing in it for your retirement?
In your circumstances does Bitcoin investing suit your risk tolerance (and the other member’s of your SMSF) and have you done enough research to validate your investment decision,
Does you Trust Deed allow for investing in bitcoins or cryptocurrencies. Read your deed and maybe ask the trust deed provider.
Talk to your fund’s auditor before proceeding as they have to sign off on the investment’s validity annually so better to run the strategy by them upfront.
They may ask you to verify the following:
If you wish to proceed with a purchase then have you amended your SMSF’s investment strategy to cater for this investment? Click the link for more details.
Trap: Make sure you know who is in ‘control’ the bitcoins? All assets must be clearly in the name/control of the trustees of the fund
How would the SMSF acquire the bitcoins? Do not acquire them from yourself or a “related party”
How secure is the exchange/wallet you are storing your cryptocurrencies in. Some have been hacked and coins lost.
No matter what it is essential to do you research and not take a gamble with your retirement nest egg unless you have covered all your bases.
Audit Tip:
Auditors and trustees can have access to the single public ledger that records Bitcoin. Websites such as Blockchain, BlockExplorer and Blockonomics allow input of a transaction ID to get detailed data of that Bitcoin transaction. Third party verification for auditors is therefore also possible. You can obtain a transaction list from the SMSF wallet provider and verify each holding. I am sure further tools will become available.
Here is another article worth reading as part of your research:
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™
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.
It always amazes me that very often when I take an SMSF under my advice that I find that the estate planning and use of Binding Death Benefit Nominations has been haphazard, lacking in essential detail, ignorant of the SMSF deed requirements or just missing. People spend their lives amazing a nestegg only to be lax in ensuring it goes to who they want when they die.
A recent decision has clarified three issues regarding the validity of binding death benefit nominations. I have relied on the following summary from Townsend Law’s Michael Hallinan for interpretation of the decision.
A recent decision of the South Australian Court of Appeal (Cantor Management Services Pty Ltd v Booth [2017]) has passed important comment on no less than three different issues regarding the validity of a binding death benefit nomination (BDBN).
The critical issue was whether a BDBN was valid. If valid, then the death benefit was payable to the estate of the deceased member. If invalid, then the trustee would decide the allocation of the benefit.
The validity turned upon the issue of whether the BDBN had been served on the corporate trustee. The BDBN had been signed by the member and then left in the possession of the accountants of the SMSF at their office which was also the registered office of the corporate trustee.
Issue No 1
The sole director of the corporate trustee had argued that as the BDBN had not been provided to the director nor had the accountants been expressly authorised to accept and hold the BDBN on behalf of the corporate trustee, then the BDBN had not been properly served on the corporate trustee.
The Court did not accept the argument put by the corporate trustee. The Chief Justice held that it was sufficient to constitute service on the corporate trustee for the BDBN to be held by the accountants of the SMSF at the registered office of the corporate trustee. The other justices agreed with the Chief Justice.
Issue No 2
The second issue was that the Court opined that the accountants had a duty to keep the BDBN safe and also had a duty to bring to the attention of the trustee of the SMSF that they held the BDBN. If the Court had held that service had not been properly effected, the defendant may have been able to sue the accountants for their negligence in failing to advise the trustee that they were holding the BDBN. Luckily for them the Court said that service was good anyway.
Issue No 3
The third issue was that Court agreed with the decision of Munro v Munro, which held that SIS regulation 6.17A does not apply to SMSFs (unless the trust deed of the SMSF explicitly or implicitly incorporates the regulation). It is surprising that a few industry die-hards still argue that reg 6.17A might still apply to SMSFs despite the number of times the courts have said otherwise.
The original article by Michael Hallinan of Townsends Business & Corporate Lawyers can be found here and you can contact them on (02) 8296 6222. I highly recommend signing up for their newsletter.
Make sure to check your with your own current death benefit arrangements or contact us for a review.
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™
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.
Your superannuation trust deed along with the superannuation laws form the governing rules that self managed super funds (SMSFs) needs to operate by. The introduction of the $1.6 million transfer balance cap (TBC) and new transition to retirement income stream (TRIS) rules are a ‘game changer’ for SMSFs when discussing benefit payments and estate planning. With the new super rules in effect as of 1 July 2017, now is the right time to review if your trust deed needs to be enhanced or amended to deal with the new approaches and strategies you may need to implement.
Read the deed
The first step in reviewing your superannuation trust deed will be to read it. Trust deeds are legal documents which can be complex to read, so you may want help from an advisor with this.
It is likely that most deeds will not result in a breach of any superannuation laws and would provide the trustee with powers to comply with relevant tax and superannuation laws as they change over time.
The next step would be to review the deed in consideration with your own circumstances.
For example, a common scenario may be a restrictive deed that only provides the trustee with a discretion to pay death benefits. Therefore, if a member of that SMSF wanted to create a binding death benefit nomination, it would be irrelevant due to the deed’s governing rules.
In any event, deeds which are clearly out of date will need to be amended as soon as possible.
Deeds post 1 July 2017
Post 1 July 2017, there are many approaches and strategies that will differ from the past and it is essential to ensure that your SMSF deed does not restrict you in anyway. We note the following areas should be considered:
Paying death benefits
The $1.6 million TBC now restricts the amount of money that can be kept in super on the death of a member. This is crucially important as when a member dies, their TBC dies with them. SMSF members should review their estate planning and further review their trust deed for the following:
Does it allow for binding death benefit nominations (BDBN)?
Do BDBNs lapse every 3 years in accordance with the trust deed when the legislation does not prescribe it?
Does it consider the appropriate solution when there is a conflict between a reversionary pension and a BDBN and which will take precedence?
Reversionary pensions
Reversionary pensions are pensions which continue being paid to a dependant after your death. Under the TBC, reversionary pensions will not count towards a member’s TBC until 12 months after the date of the original recipient’s death. Importantly, the transfer of the pension from the deceased to the new recipient will count towards the TBC. The value of the credit to the TBC will be the value of the pension at the date of death, not the value after 12 months. This increases the complexity of reversionary pensions prompting a review of trust deeds to consider:
Does it allow for a reversionary pension to be added to an existing pension or are there restrictions?
Should it automatically ensure that a pension is reversionary so that it is paid to a surviving spouse?
Pensions
The TBC also has implications for strategies in commencing pensions and making benefit payments. Trust deeds may need to be reviewed for:
Ensuring that commutations are able to be moved into accumulation phase rather than being forced as lump sums out of superannuation.
Are there any specific provisions relating to the TBC? There may be value in ensuring that the deed restricts pensions from being commenced with a value greater than the TBC.
Are there provisions which detail where commutations must be sourced from first?
Are there restrictive pension provisions that the trustees must comply with?
Transition to retirement income streams
Tax concessions for TRISs where the recipient does not have unrestricted access to their superannuation savings (known as meeting a condition of release with a nil chasing restriction) have also been removed. Trust deeds may need to be reviewed for:
Does the deed allow for the 10% maximum benefit payment to fall away once a nil condition of release is met?
Does the deed deal with a TRIS’s character when a nil condition of release? (Does it convert into an account based pension?)
How can we help?
SMSF Specialist Advisors can help you understand how the new laws may impact you and partner with a lawyer/Deed provider to review and amend your trust deed as required. Please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements, especially in regards to issues that may arise out of the latest super laws, in more detail.
For further educational information please subscribe to this blog and also visit the SMSF Association’s Trustee Knowledge Centre (http://trustees.smsfassociation.com/) to keep on top of the latest changes and information to reach your retirement goals and get the most out of your self managed super fund.
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 this the year to get organised or it will be 2028 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™
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.
I love working on strategies for clients but sometimes you just need a true expert or excellent software to crunch the numbers. I was looking for some ideas on downsizing as it had become clear to me that is was not the panacea to retirement funding that client’s often believe it would be. So I was looking for an in-depth article working through the numbers and Rob van Dalen of Optimo Financial has kindly stepped up to provide the required analysis in our latest guest blog. Rob’s main warning is to do your sums on your own particular situation before leaping in to a downsizing strategy.
Optimo Financial
Suite 204, 10-12 Clarke Street, Crows Nest NSW 2065
PO Box 931, Crows Nest NSW 1585
Do Your Sums Before Downsizing
A popular subject often talked about at family barbecues is; “should mum and dad downsize when they get older?” Often it’s assumed that downsizing is the best option moving forward. To test and possibly challenge this we decided to run a few scenarios through our Pathfinder Financial Optimisation Platform to find out. Read our findings below;
1.1 The Clients
In this example, we look at the case of David and Alice who have recently retired and who will soon both be eligible for the age pension. David was born on 11 April 1953 while Alice was born on 15 November 1952. They have a modest $400,000 in super. Their other assets are the family home valued at $900,000 and personal assets valued at $40,000. They have no debt. They would like to have $50,000pa (increasing at CPI) for living expenses. They are worried that their super is not sufficient to maintain their desired income. Consequently, they have contemplated selling the family home and moving to a cheaper area where they could buy a new home for $500,000. Will downsizing leave them better off?
1.2 Assumptions
We have assumed in the analysis:
· Pension fund returns 5.7%pa;
· House selling costs 2.5%;
· House purchase costs 6% (including stamp duty);
· House prices in the long term increase at 3%pa;
· CPI 2.5%p.a.
1.3 Scenario 1: Retain Current Home
We first examine the scenario where David and Alice retain their current home. In this case, they will receive income from the government pension as well as drawing a pension from their own super. Figure 1 shows the sources of their income over a 20 year period.
David and Alice receive approximately 64% of their income from the age pension and associated benefits (see also Figure 6 below). The remainder is withdrawn from their pension account through withdrawing the minimum amount each year (plus some extra for the first few years until they become eligible for the age pension).
Their age pensions are limited approximately equally by the income and assets tests. After 20 years, David and Alice have a combined wealth of $1,960,000 most of which is from the family home.
1.4 Scenario 2: Downsizing Family Home in 2016/17
The next scenario sees David and Alice downsizing their family home from $900,000 to $500,000 in 2016/17. Their ages enable them to deposit the excess funds generated from the house sale into super as non-concessional contributions. However, a Pathfinder® analysis shows that increasing their superannuation balance reduces their age pension because, unlike the family home, super counts towards the age pension assets test and is deemed for the income test. Figure 2 shows the results of the age pension assets and income tests for David and Alice and we can see that their pension is now limited by the assets test. For a home owning couple, the age pension reduces at a rate of $3 per fortnight for each $1,000 of assets in excess of $575,000. This taper rate was doubled from 1 January 2017, so now has a much larger impact on the pension received.
So in 2019/20, for example, their age pension reduces from $36,337 to $9,004 and they must draw more from their pension account to make up the difference. Their wealth after 20 years is now projected at $1,581,000 or about $379,000 less than in the first scenario.
1.5 Scenario 3: Downsizing Family Home in 2027/28
In the third scenario, we examine the possibility that David and Alice defer the downsizing for ten years, say in 2027/28. Their age pension is initially unaffected until they downsize the family home, but after that time their age pension payments are severely curtailed. Their projected wealth after 20 years is now $1,714,000. This is a better outcome than in the second scenario but is still $246,000 less than if they keep their existing home.
1.6 Comparing the Scenarios
Figure 3 gives a comparison of the annual age pension received in the three scenarios. You can see that the scenario where they retain their current home, yields a higher pension and that their pension drops sharply after the sale of their house in the other two scenarios.
Figure 4 shows the total age pension payments over the 20 years. You can see that by keeping their original family home, their total pension entitlement is significantly higher than either of the downsizing options we analysed.
Figure 5 shows the total wealth over the 20 year period analysed.
The first point to note is the importance of the age pension towards retirement income, depending, of course, on the particular circumstances. Figure 6 shows the composition of retirement income over the 20 years analysed for Scenario 1.
1.7 Conclusions
In this example, the age pension plus estimated concession card benefits contribute about 64% to income while the account based pensions contribute about 36%. The second point is that downsizing the family home may not result in improving the overall situation as an increase in payments from a private pension may be more or less offset by a decrease in the age pension.
1.8 Pathfinder Learnings
In our Pathfinder® analysis, we find, perhaps surprisingly, that a couple could be considerably worse off by downsizing the family home. Any funds added to super by the income generated from downsizing could be dissipated by a reduction in the age pension. In addition, the costs of sale and repurchase of a family home are significant.
The age pension can provide a buffer between retirement savings and lifestyle expenses.
For persons eligible for the age pension, downsizing the family home may leave you worse off financially because of the impact of the age pension income and assets test.
Thank you Robby
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
With all the talk about Total Super Balance caps and where people will invest money going forward if they can’t get it in to superannuation, the spotlight is being shone on “trusts” at present. This has also brought with it the claims of tax avoidance or tax minimisation, so what exactly are trusts and are there differences between Family Trusts, Units Trusts, Discretionary Trusts and Testamentary Trusts to name a few.
Trusts are a common strategy and this article aims to aid a better understanding of how a trust works, the role and obligations of a trustee, the accounting and income tax implications and some of the advantages and pitfalls. Of course, there is no substitute for specialist legal, tax and accounting advice when a specific trust issue arises and the general information in this article needs to be understood within that context.
Introduction
Trusts are a fundamental element in the planning of business, investment and family financial affairs. There are many examples of how trusts figure in everyday transactions:
Cash management trusts and property trusts are used by many people for investment purposes
Joint ventures are frequently conducted via unit trusts
Money held in accounts for children may involve trust arrangements
Superannuation funds are trusts
Many businesses are operated through a trust structure
Executors of deceased estates act as trustees
There are charitable trusts, research trusts and trusts for animal welfare
Solicitors, real estate agents and accountants operate trust accounts
There are trustees in bankruptcy and trustees for debenture holders
Trusts are frequently used in family situations to protect assets and assist in tax planning.
Although trusts are common, they are often poorly understood.
What is a trust?
A frequently held, but erroneous view, is that a trust is a legal entity or person, like a company or an individual. But this is not true and is possibly the most misunderstood aspect of trusts.
A trust is not a separate legal entity. It is essentially a relationship that is recognised and enforced by the courts in the context of their “equitable” jurisdiction. Not all countries recognise the concept of a trust, which is an English invention. While the trust concept can trace its roots back centuries in England, many European countries have no natural concept of a trust, however, as a result of trade with countries which do recognise trusts their legal systems have had to devise ways of recognising them.
The nature of the relationship is critical to an understanding of the trust concept. In English law the common law courts recognised only the legal owner and their property, however, the equity courts were willing to recognise the rights of persons for whose benefit the legal holder may be holding the property.
Put simply, then, a trust is a relationship which exists where A holds property for the benefit of B. A is known as the trustee and is the legal owner of the property which is held on trust for the beneficiary B. The trustee can be an individual, group of individuals or a company. There can be more than one trustee and there can be more than one beneficiary. Where there is only one beneficiary the trustee and beneficiary must be different if the trust is to be valid.
The courts will very strictly enforce the nature of the trustee’s obligations to the beneficiaries so that, while the trustee is the legal owner of the relevant property, the property must be used only for the benefit of the beneficiaries. Trustees have what is known as a fiduciary duty towards beneficiaries and the courts will always enforce this duty rigorously.
The nature of the trustee’s duty is often misunderstood in the context of family trusts where the trustees and beneficiaries are not at arm’s length. For instance, one or more of the parents may be trustees and the children beneficiaries. The children have rights under the trust which can be enforced at law, although it is rare for this to occur.
Types of trusts
In general terms the following types of trusts are most frequently encountered in asset protection and investment contexts:
Fixed trusts
Unit trusts
Discretionary trusts – Family Trusts
Bare trusts
Hybrid trusts
Testamentary trusts
Superannuation trusts
Special Disability Trusts
Charitable Trusts
Trusts for Accommodation – Life Interests and Rights of Residence
A common issue with all trusts is access to income and capital. Depending on the type of trust that is used, a beneficiary may have different rights to income and capital. In a discretionary trust the rights to income and capital are usually completely at the discretion of the trustee who may decide to give one beneficiary capital and another income. This means that the beneficiary of such a trust cannot simply demand payment of income or capital. In a fixed trust the beneficiary may have fixed rights to income, capital or both.
Fixed trusts
In essence these are trusts where the trustee holds the trust assets for the benefit of specific beneficiaries in certain fixed proportions. In such a case the trustee does not have to exercise a discretion since each beneficiary is automatically entitled to his or her fixed share of the capital and income of the trust.
Unit trusts
These are generally fixed trusts where the beneficiaries and their respective interests are identified by their holding “units” much in the same way as shares are issued to shareholders of a company.
The beneficiaries are usually called unitholders. It is common for property, investment trusts (eg managed funds) and joint ventures to be structured as unit trusts. Beneficiaries can transfer their interests in the trust by transferring their units to a buyer.
There are no limits in terms of trust law on the number of units/unitholders, however, for tax purposes the tax treatment can vary depending on the size and activities of the trust.
Discretionary trusts – Family Trusts
These are often called “family trusts” because they are usually associated with tax planning and asset protection for a family group. In a discretionary trust the beneficiaries do not have any fixed interests in the trust income or its property but the trustee has a discretion to decide whether anyone will receive income and/or capital and, if so, how much.
For the purposes of trust law, a trustee of a discretionary trust could theoretically decide not to distribute any income or capital to a beneficiary, however, there are tax reasons why this course of action is usually not taken.
The attraction of a discretionary trust is that the trustee has greater control and flexibility over the disposition of assets and income since the nature of a beneficiary’s interest is that they only have a right to be considered by the trustee in the exercise of his or her discretion.
Bare trusts
A bare trust exists when there is only one trustee, one legally competent beneficiary, no specified obligations and the beneficiary has complete control of the trustee (or “nominee”). A common example of a bare trust is used within a self-managed fund to hold assets under a limited recourse borrowing arrangement.
Hybrid trusts
These are trusts which have both discretionary and fixed characteristics. The fixed entitlements to capital or income are dealt with via “special units” which the trustee has power to issue.
Testamentary trusts
As the name implies, these are trusts which only take effect upon the death of the testator. Normally, the terms of the trust are set out in the testator’s will and are often used when the testator wishes to provide for their children who have yet to reach adulthood or are handicapped.
Superannuation trusts
All superannuation funds in Australia operate as trusts. This includes self-managed superannuation funds.
The deed (or in some cases, specific acts of Parliament) establishes the basis of calculating each member’s entitlement, while the trustee will usually retain discretion concerning such matters as the fund’s investments and the selection of a death benefit beneficiary.
The Federal Government has legislated to establish certain standards that all complying superannuation funds must meet. For instance, the “preservation” conditions, under which a member’s benefit cannot be paid until a certain qualification has been reached (such as reaching age 65), are a notable example.
Special Disability Trusts
Special Disability Trusts allow a person to plan for the future care and accommodation needs of a loved one with a severe disability. Find out more in this Q & A about Special Disability Trusts.
Charitable Trusts
You may wish to provide long term income benefit to a charity by providing tax free income from your estate, rather than giving an immediate gift. This type of trust is effective if large amounts of money are involved and the purpose of the gift suits a long term benefit e.g. scholarships or medical research.
Trusts for Accommodation – Life Interests and Right of Residence
A Life Interest or Right of Residence can be set up to provide for accommodation for your beneficiary. They are often used so that a family member can have the right to live in the family home for as long as they wish. These trusts can be restrictive so it is particularly important to get professional advice in deciding whether such a trust is right for your situation.
Establishing a trust
Although a trust can be established without a written document, it is preferable to have a formal deed known as a declaration of trust or a deed of settlement. The declaration of trust involves an owner of property declaring themselves as trustee of that property for the benefit of the beneficiaries. The deed of settlement involves an owner of property transferring that property to a third person on condition that they hold the property on trust for the beneficiaries.
The person who transfers the property in a settlement is said to “settle” the property on the trustee and is called the “settlor”.
In practical terms, the original amount used to establish the trust is relatively small, often only $10 or so. More substantial assets or amounts of money are transferred or loaned to the trust after it has been established. The reason for this is to minimise stamp duty which is usually payable on the value of the property initially affected by the establishing deed.
The identity of the settlor is critical from a tax point of view and it should not generally be a person who is able to benefit under the trust, nor be a parent of a young beneficiary. Special rules in the tax law can affect such situations.
Also critical to the efficient operation of a trust is the role of the “appointor”. This role allows the named person or entity to appoint (and usually remove) the trustee, and for that reason, they are seen as the real controller of the trust. This role is generally unnecessary for small superannuation funds (those with fewer than five members) since legislation generally ensures that all members have to be trustees.
The trust fund
In principle, the trust fund can include any property at all – from cash to a huge factory, from shares to one contract, from operating a business to a single debt. Trust deeds usually have wide powers of investment, however, some deeds may prohibit certain forms of investment.
The critical point is that whatever the nature of the underlying assets, the trustee must deal with the assets having regard to the best interests of the beneficiaries. Failure to act in the best interests of the beneficiaries would result in a breach of trust which can give rise to an award of damages against the trustee.
A trustee must keep trust assets separate from the trustee’s own assets.
The trustee’s liabilities
A trustee is personally liable for the debts of the trust as the trust assets and liabilities are legally those of the trustee. For this reason if there are significant liabilities that could arise a limited liability (private) company is often used as trustee.
However, the trustee is entitled to use the trust assets to satisfy those liabilities as the trustee has a right of indemnity and a lien over them for this purpose.
This explains why the balance sheet of a corporate trustee will show the trust liabilities on the credit side and the right of indemnity as a company asset on the debit side. In the case of a discretionary trust it is usually thought that the trust liabilities cannot generally be pursued against the beneficiaries’ personal assets, but this may not be the case with a fixed or unit trust.
Powers and duties of a trustee
A trustee must act in the best interests of beneficiaries and must avoid conflicts of interest. The trustee deed will set out in detail what the trustee can invest in, the businesses the trustee can carry on and so on. The trustee must exercise powers in accordance with the deed and this is why deeds tend to be lengthy and complex so that the trustee has maximum flexibility.
Who can be a trustee?
Any legally competent person, including a company, can act as a trustee. Two or more entities can be trustees of the same trust.
A company can act as trustee (provided that its constitution allows it) and can therefore assist with limited liability, perpetual succession (the company does not “die”) and other advantages. The company’s directors control the activities of the trust. Trustees’ decisions should be the subject of formal minutes, especially in the case of important matters such as beneficiaries’ entitlements under a discretionary trust.
Trust legislation
All states and territories of Australia have their own legislation which provides for the basic powers and responsibilities of trustees. This legislation does not apply to complying superannuation funds (since the Federal legislation overrides state legislation in that area), nor will it apply to any other trust to the extent the trust deed is intended to exclude the operation of that legislation. It will usually apply to bare trusts, for example, since there is no trust deed, and it will apply where a trust deed is silent on specific matters which are relevant to the trust – for example, the legislation will prescribe certain investment powers and limits for the trustee if the deed does not exclude them.
Income tax and capital gains tax issues
Because a trust is not a person, its income is not taxed like that of an individual or company unless it is a corporate, public or trading trusts as defined in the Income Tax Assessment Act 1936. In essence the tax treatment of the trust income depends on who is and is not entitled to the income as at midnight on 30 June each year.
If all or part of the trust’s net income for tax purposes is paid or belongs to an ordinary beneficiary, it will be taxed in their hands like any other income. If a beneficiary who is entitled to the net income is under a “legal disability” (such as an infant), the income will be taxed to the trustee at the relevant individual rates.
Income to which no beneficiary is “presently entitled” will generally be taxed at highest marginal tax rate and for this reason it is important to ensure that the relevant decisions are made as soon as possible after 30 June each year and certainly within 2 months of the end of the year. The two month “period of grace” is particularly relevant for trusts which operate businesses as they will not have finalised their accounts by 30 June. In the case of discretionary trusts, if this is done the overall amount of tax can be minimised by allocating income to beneficiaries who pay a relatively low rate of tax.
The concept of “present entitlement” involves the idea that the beneficiary could demand immediate payment of their entitlement.
It is important to note that a company which is a trustee of a trust is not subject to company tax on the trust income it has responsibility for administering.
In relation to capital gains tax (CGT), a trust which holds an asset for at least 12 months is generally eligible for the 50% capital gains tax concession on capital gains that are made. This discount effectively “flows” through to beneficiaries who are individuals. A corporate beneficiary does not get the benefit of the 50% discount. Trusts that are used in a business rather than an investment context may also be entitled to additional tax concessions under the small business CGT concessions.
Since the late 1990s discretionary trusts and small unit trusts have been affected by a number of highly technical measures which affect the treatment of franking credits and tax losses. This is an area where specialist tax advice is essential.
Why a trust and which kind?
Apart from any tax benefits that might be associated with a trust, there are also benefits that can arise from the flexibility that a trust affords in responding to changed circumstances.
A trust can give some protection from creditors and is able to accommodate an employer/employee relationship. In family matters, the flexibility, control and limited liability aspects combined with potential tax savings, make discretionary trusts very popular.
In arm’s length commercial ventures, however, the parties prefer fixed proportions to flexibility and generally opt for a unit trust structure, but the possible loss of limited liability through this structure commonly warrants the use of a corporate entity as unitholder ie a company or a corporate trustee of a discretionary trust.
There are strengths and weaknesses associated with trusts and it is important for clients to understand what they are and how the trust will evolve with changed circumstances.
Trusts which incur losses
One of the most fundamental things to understand about trusts is that losses are “trapped” in the trust. This means that the trust cannot distribute the loss to a beneficiary to use at a personal level. This is an important issue for businesses operated through discretionary or unit trusts.
Establishment procedures
The following procedures apply to a trust established by settlement (the most common form of trust):
Decide on Appointors and back-up Appointors as they are the ultimate controllers of the trust. They appoint and change Trustees.
Settlor determined to establish a trust (should never be anyone who could become a beneficiary)
Select the trustee. If the trustee is a company, form the company.
Settlor makes a gift of money or other property to the trustee and executes the trust deed. (Pin $10 to the front of the register is the most common way of doing this)
Apply for ABN and TFN to allow you open a trust bank account
Establish books of account and statutory records and comply with relevant stamp duty requirements (Hint: Get your Accountant to do this)
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
There are all sorts of unexpected consequences coming out of the changes to the superannuation rules. As a result of moving funds over $1.6m back to accumulation to meet the Transfer Balance Cap (TBC), you may in fact now qualify for the Commonwealth Seniors Health Care card.
How?
There may be a silver lining to the new $1.6 million transfer balance cap (TBC) for some SMSF members. Having less money in an account based pension and more money in accumulation or other assets may result in some SMSF members being entitled to receive the Commonwealth Seniors Health Card (CSHC). This is because amounts held in accumulation phase are not deemed for the CSHC and are not included in a member’s personal taxable income.
Now if the excess over the $1.6m is/was withdrawn out of superannuation, whether it will count as income for the CHSC will depend on how the client invests it. for example financial investments such as shares, rented investment property and interest will be deemed but a Holiday home not rented out will not be deemed towards the CSHC income test.
Older pensions may be even more forgiving!
Income from an account based pension is deemed under the usual Centrelink deeming rates unless the account based pension commenced before 1 January 2015, and the client was entitled to the card before 1 January 2015 and continues to hold the card. This is known as the grandfathering rules.
For SMSF members who are not eligible for the grandfathering rules, holding a significant amount of money in an account based pension means that they have a lower likelihood of being eligible for a CSHC. Prior to 1 July 2017, for most SMSF members it was more beneficial to hold as much as possible in an account based pension for tax purposes even if this meant they were ineligible for the CSHC. The tax savings on the excess would have outstripped the CSHC benefit.
However, from 1 July 2017, SMSF members can only hold up to $1.6 million in an account based pension and if they are also receiving defined benefit pension income the amount which can be held in account based pensions will be lower. Depending on other income the member receives, this may result in them now being entitled to the CSHC.
You don’t believe me? The following example explains how this works in a simple scenario:
Example – single person
James is single and is age 67. In the 2016 -2017 financial year, he had $2 million in his account based pension, and no other income.
The deemed income from his account based pension is calculated as $64,247 based on deeming rates and thresholds as at 1 July 2017. His deemed income exceeds the income threshold of $52,796 for the CSHC and therefore he is not entitled to a CSHC.
On 30 June 2017, he rolls $400,000 back to accumulation leaving $1.6million in his account based pension.
The deemed income on $1.6 million is $51,247 and is under the income threshold of $52,796 (20 March 2017) meaning that James is entitled to a CSHC after rolling back money from his account based pension to accumulation.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
So in 2019/20, for example, their age pension reduces from $36,337 to $9,004 and they must draw more from their pension account to make up the difference. Their wealth after 20 years is now projected at $1,581,000 or about $379,000 less than in the first scenario.
The SMSF Coach 