Liam Shorte

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All posts tagged SMSF

12 Triggers to Review your Legal Documents or Estate Planning Arrangements

OK I am going to be a bit morbid today but based on the lack of preparation by many new clients I think we need to talk death, mental incapacity and other things legal. Why me? Because for some reason many seem scared of lawyers so I want to give you good reasons to overcome that fear!

When did you last review your will, your enduring power of attorney (“EPOA”) and your appointment of enduring guardian (“EG”) documents and of course your SMSF Trust Deed.

As a financial planner we recommend you personally review these documents every 3 years and have a solicitor review them every 5 years. Just take them out (if you haven’t forgotten the “safe place” you put them!) and have a look through them after considering changes to you family circumstances including the following triggers.

So here is a list of the changes to your circumstances that should prompt you to review these documents as soon as possible and which may even require you to create new documents or update existing ones.

These changes include:

1. Setting up an SMSF or making a large or non-standard investment via your SMSF

Ok as a SMSF blog you know I had to deal with this first. When you first set up an SMSF you may have been told to read the deed but did anyone tell you it’s essential to appoint your Enduring Power of Attorney to ensure the SMSF can continue to run smoothly if your health deteriorates.
If you decide to make an unusual investment or loan or arrangement in your fund the you must first know that your SMSF Deed and Investment Strategy allows such a move. So read the SMSF deed and have a written SMSF investment strategy.

2. Marriage automatically revokes a will, unless the will was made in contemplation of marriage. After you marry, you should make a new will.

Your Power Of Attorney is not revoked by marriage. If your EPOA was signed before your marriage it is still effective. However, if, for example, your EPOA appointed your former spouse, you may wish to formally revoke the EPOA and make a new EPOA appointing another person as your attorney.
Your appointment of an Enduring Guardian is revoked on marriage even if you appointed your current spouse as your EG. After marriage, you need to sign a new appointment of EG document.
If you wish to bring your new spouse into your SMSF then you need to follow the rules of appointing a new trustee or director and accepting a new member. Read the deed and the company trustee constitution. Don’t forget to notify ASIC.
Check your Binding Death Nomination and any reversionary pensions.

3. Separation

Unlike marriage, separation does not affect the validity of your will. As a result, there have been several cases where a couple have separated, one spouse has died after separation but before the divorce and their former spouse has been entitled to the whole of their estate either due to their failure to update their will after separating or by not having any will in place at all and the rules of intestacy applying in favour of their former spouse.
Similarly, your EPOA and EG documents will not be affected by separation. You should consider whether you need to revoke the existing appointments and make a new EPOA and appoint a new EG after separating
There maybe some allowances for the transfer of SMSF assets in the event of a finalised property settlement and again you need to understand the exceptions that apply once the financial/property settlement has been agreed and signed off and read the deed before assuming you can move or split assets.
Check your Binding Death Nomination, insurance nominations and any reversionary pensions

4. Divorce

I know I am repeating myself but Check your Binding Death Nomination , insurance nominations and any reversionary pensions.
There are specific rules allowing the transfer of SMSF assets in the event of divorce without triggering CGT or Stamp Duties and again you need to understand the exceptions, the process and read the deed before assuming you can move or split assets.
Divorce does not revoke your EPOA or EG documents appointing your former spouse. In order to cancel these appointments, you need to sign a revocation and serve it on your former spouse.
Divorce only revokes or cancels any gift made in your will to your former spouse. It also cancels your spouse’s appointment as executor, trustee or guardian in your will. It does not cancel the appointment of your former spouse as trustee of property left on trust for beneficiaries that include the children of you and your former spouse. However this will not apply if the Court is satisfied you did not intend to revoke the gift or the appointment by the divorce. Instead of leaving these matters to the Court, if you have not made a new will after separating, it is imperative that you make a new will as soon as possible after your divorce.

5. Birth of an additional beneficiary.

This is likely to necessitate a change to an existing will unless your solicitor has catered for future arrivals. This is another care where being too specific can require frequent updates and legal fees.

6. Death of a spouse, an existing beneficiary, your executor, your attorney or your EG.

Review your will, Enduring Powers of Attorney and Enduring Guardianship, Binding Death Nomination, insurance nominations and any reversionary pensions.
Do you need to appoint a new individual SMSF trustee or director to keep your SMSF compliant?

7. A change to the needs of your children or grandchildren

Review your will and look at Testamentary Trusts or Special Disability Trusts. Last thing you want is for your beneficiary to lose their Disability Pension because of an inheritance.

8. A material change in your financial circumstances.

Have you sold or transferred assets that would have formed part of your estate? Make sure you have not mistakenly left someone with nothing.
If you have been bankrupted or considering filing for bankruptcy then you will not be able to continue as a member of your SMSF. You need to look at rolling to a Small APRA fund or a retail fund.
You also need to have your own parents if still with us to reconsider any direct inheritances to you as your creditors may grab them.

9. A breakdown in a relationship with relatives or friends who you may have appointed as:

the executors of your estate;
beneficiaries under your will;
guardians of your minor children; and/or
your attorney or your EG

10. The decline in health or some other change of circumstances

For example bankruptcy of a child (let’s face it, everyone under 30 thinks they are an entrepreneur and that’s going to lead to trouble!) so that, for example, a beneficiary under your will may no longer be able to manage their own finances,
The person you appointed as your executor, your attorney or your EG may no longer be suitable or capable of administering your estate or managing your affairs or making personal decisions for you.
If it is you or your spouse who have been diagnosed with onset of dementia or Alzheimer’s for example then you need to decide if you should have your EPOA step in now rather than later to help manage your self managed superannuation fund.

11. Retirement

Retirement often results in people restructuring their affairs. This is an ideal time to be proactive in your estate planning and possibly consider setting up tax effective arrangements through your will that you have not done previously.
Have you started a pension in your SMSF? Have you documented it properly including a reversionary pension election or Binding death nomination?
Have you sold assets like a business premises or investment property previously allotted to someone specific in your will? Are they losing that benefit!

When any of these events occur, you should review your SMSF and estate planning documents and, if necessary, create new documents taking into account the relevant change of circumstances. Don’t be afraid to ask advice but make sure you are dealing with a specialist in each area.

If you have been paying attention you will notice I said “12 Triggers”. Well I’ll leave the 12^th for you to add in the comments section below. Come on I must have missed a few and I know some really sharp minds read this blog so help us out! I will add the best one to this list after a month or add my own, so why not subscribe to the blog in the “Free email updates” section on the left hand-side of the page.

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 an original article “Time for an estate planning “check-up” by BWS Lawyers

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on March 2, 2016 • Permalink

Posted in Checklists, Estate Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on March 2, 2016

https://smsfcoach.com.au/2016/03/02/12-triggers-to-review-your-legal-documents-or-estate-planning-arrangements/

SMSF Member Guide to Salary Sacrifice and Superannuation

This guide has been requested by a number of our younger clients under 50 who are now taking an interest in retirement savings and tax planning but applies to all working SMSF members especially those who can combine Salary Sacrifice with a Transition to Retirement Pension. Please view this short ATO video on super contributions first and then we will go in to detail:

So what is salary sacrifice?

Salary sacrifice is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.

Contributions made through a Salary Sacrifice Arrangement (SSA) into super are made with pre-tax dollars, meaning they are not taxed at the member’s marginal tax rate.

They are treated as Concessional Contributions (CCs) and tax of up to 15% will usually be payable, so long as the member does not exceed their CC cap. Higher income earners may have CCs within the cap taxed at 30% (refer to our article Will you be paying the new top up tax on your SMSF contributions? )

The difference between your marginal tax rate and the tax rate on contributions is what makes up the benefit of salary sacrifice for the member of your fund. This has nothing to do with investments, it is just income planning and using the tax system legally to your advantage.

Unlike Superannuation Guarantee (SG) or other employer contributions required under an award or workplace agreement, there is no legislative time-frame specifying when salary sacrifice contributions must be made to superannuation. It’s recommended that a time-frame be specified in the SSA. This could be, for example:

at the same time as SG is paid, or
within three business days of being withheld from salary.

An SSA is only valid until the person turns age 75. Salary sacrifice contributions generally cannot be accepted by a super fund after 28 days from the end of the month in which the member turns 75. Only mandated employer contributions can be made for an employee age 75 or older (SIS Reg 7.04).

What makes a Salary Sacrifice Arrangement (SSA) valid?

There is no legal obligation for employers to offer salary sacrifice to employees. To be effective, only prospective earnings can be sacrificed. This means an SSA will only be valid if there is a prospective agreement in place before the employee has earned the entitlement to receive the relevant amount as salary and wages.

Remember, there is no requirement for an SSA to be in writing, nor is there a standard SSA. It is strongly recommended that a written agreement be in place which states the terms and conditions of that agreement. The ATO provides a detailed explanation in tax ruling TR 2001/10.

What forms of income can be salary sacrificed?

Salary or wages are the most common types of payments that are sacrificed into super. As only future entitlements can be sacrificed, an effective arrangement can’t be made for salary or wages that have already been earned.

This means payments to which an employee is already entitled to (such as earned salary and wages, accrued leave and bonuses or commissions already earned), cannot be salary sacrificed into super unless an effective arrangement was in place prior to the employee becoming entitled to that remuneration. For example, annual and long service leave paid on termination of employment can’t be sacrificed.

If an employee has entered into an SSA and takes leave during employment, the SSA is still effective and salary sacrifice amounts can still be directed to superannuation.

What are the tax implications?

Amounts salary sacrificed into super under an effective SSA are not ‘salary and wages’ in the hands of the employee. Accordingly, employers have no PAYG withholding liabilities in relation to the payment.

Although the super contributions are a benefit derived due to employment, it is specifically exempt from Fringe Benefits Tax (FBT). However, this doesn’t extend to salary sacrifice amounts into another person’s super account (eg a spouse).

Super contributions made under an effective SSA are considered employer contributions for the purposes of the Income Tax Assessment Act 1997 and are deductible to the employer.

Usually, an SSA favours taxpayers subject to the higher marginal tax rates, as they pay just 15% contributions tax on the amount sacrificed into super (or 30% for high income earners). See this ATO video below for a short explanation of the Division 293 Tax

However, for taxpayers with incomes under the 19%( + 2% Medicare) tax rate threshold (currently $37,000), the marginal rate is not markedly different to the 15% tax payable on contributions by the receiving super fund for the sacrificed contribution.

A minor saving can still be made of almost 6% as Medicare Levy (of up to 2%) is not payable on the amount sacrificed to super.

An alternative strategy for lower-income earners is to make personal after-tax contributions to obtain a Government co-contribution of up to $500. Note: Salary sacrificed employer contributions do not qualify for the Government’s co-contribution.

What are the Centrelink implications?

An amount of salary voluntarily sacrificed into super is still counted as income for Centrelink / social security purposes. Contributions are assessed as income where a person voluntarily sacrifices income into super and has the capacity to influence the size of the amount contributed or the way in which the contribution is made reduces their assessable income.

Super contributions that an employer is required to make under the SG Act, an award, a collective workplace agreement or the super fund’s rules are not assessed as income for the member.

What issues should be considered?

Employer or other limitations

It is not compulsory for an employer to allow salary sacrificing, including amounts to superannuation. The first step is for the member to know is if their employer permits salary sacrificing.

Also, even where allowed, the arrangement under which the person is employed may impose limitations. This could be terms in a workplace agreement or award.

For example, some awards specify that a certain level of an employee’s package must be paid as salary. This would effectively place a limit on the amount that could be sacrificed to superannuation

Super Guarantee payments

Salary sacrifice amounts are treated as employer contributions. An employer may decrease an employee’s SG contributions when taxable income is reduced through salary sacrifice.

This is because the minimum amount of SG an employer is required to pay is based on the employee’s Ordinary Time Earnings (OTE). As entering into an SSA reduces an employee’s OTE, it will reduce the amount of SG that an employer is required to pay.

It is also the case that a salary sacrificed amount, being an employer contribution, could meet some or all of employers SG obligations. SMSF members should negotiate with their employer that SG payments are maintained at pre-salary sacrifice levels and include this in the SSA.

Example

Malcolm’s salary and OTE is $105,000 pa. He enters into an effective SSA to forego $20,000 of his salary for additional employer super contributions. Malcolm’s salary/OTE reduces to $85,000 for SG purposes and his employer is only legally required to pay 9.5% on this amount.

Malcolm should have negotiated with his employer to maintain the SG based on his original salary and the salary sacrifice amounts are made in addition.

Entitlements upon ceasing employment

As outlined above, an SSA reduces the salary component of a person’s package. This may also reduce other entitlements when ceasing employment (through resignation or redundancy) such as:

 leave loading

 calculation of leave entitlements, and

 calculation of redundancy payments.

Members of your SMSF should ensure that they understand the impact of entering into an SSA. Where possible, the agreement should ensure no reduction in benefits. However confirmation from the employer is necessary.

Timing of employer contributions

There are clear rules governing an employers’ legal obligation to pay its contributions to a complying super fund either monthly or quarterly.

There are no such rules governing an employer to make a pre-tax voluntary contribution/salary sacrifice contribution into an employee’s super fund when the employee requests it. This means an employer can pay this contribution whenever they want.

SMSF members should include in the SSA the frequency of salary sacrifice contributions to super (eg the same frequency as salary payments).

Reportable employer contributions

Reportable employer super contributions (RESC) including salary sacrifice, are counted as ‘income’ for many Government benefits and concessions, such as:

 Government co-contributions

 Senior Australians tax offset

 Spouse contribution tax offset

 10% rule for making personal deductible super contributions

 Medicare Levy Surcharge

 Family assistance benefits, and

 Centrelink and DVA income tests.

RESCs are not added back when calculating the low-income tax offset and Medicare levy.

Termination payments

Long service leave and annual leave paid on termination cannot be salary sacrificed, unless an effective SSA was put in place prior to the leave being accrued.

If termination payments are based on a definition of salary that excludes employer superannuation contributions, the employer can effectively exclude the salary sacrifice amount from the total salary on which these entitlements would be calculated.

As a result, the employee’s termination package would be reduced. SMSF members should ensure that the SSA does not impact on other benefits and entitlements.

Contribution caps

An employer is eligible for a tax deduction for super contributions made on behalf of employees, regardless of the amount.

There is also no limit on the amount that an employee can sacrifice into super. However, salary sacrifice amounts are counted towards the employee’s CC cap. Excess CCs are taxed at the person’s marginal tax rate plus a charge. See the ATO video below for more details

This effectively limits the tax-effectiveness of salary sacrifice to superannuation to the employee’s annual CC cap.

At the beginning of the financial year, it’s critical to review your SMSF member’s existing SSA to ensure they won’t exceed their CC cap.

For example, if a member has received a pay rise, they may now be getting higher SG contributions from their employer. They may therefore need to reduce their salary sacrifice contributions to ensure they don’t breach their CC cap.

Ongoing reviews may also be necessary as the member may receive a pay rise during the financial year or elect to salary sacrifice a bonus which impacts on the total CCs. As well as if the concessional contribution cap increases in future years or the client becomes eligible to use the transitional higher CC cap. We recommend a April or May review of contributions to make sure your SMSF members are under their caps and will stay so up to June 30^th.

Checklist

While salary sacrifice can be a tax-effective way for people to save for retirement, there are a number of steps that should be taken to ensure it is properly implemented. The following checklist could be used to help ensure all the key issues are addressed.

1.	Check that the employer permits salary sacrifice
2.	Check on limitations placed on an agreement by employment conditions (eg award, workplace agreement, etc)
3.	Ensure agreement is for future earnings and valid
4.	Ensure other employment entitlements are not impacted by agreement (eg SG,
5.	Check available concessional contribution cap and ensure client will not exceed the cap
6.	Establish the agreement in writing (including timing of contributions)
7.	Review agreement and level of contributions at least on an annual basis (around

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 on the Schedule now link to see some 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

Information sourced and valid as of February 2015 from ATO, BT, MLC, Challenger, SIS Act.

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by SMSF Coach - Liam Shorte on February 25, 2016 • Permalink

Posted in Contribution Strategies, Salary Sacrifice, Tax Planning

Posted by SMSF Coach - Liam Shorte on February 25, 2016

https://smsfcoach.com.au/2016/02/25/smsf-member-guide-to-salary-sacrifice-and-superannuation/

When Should I apply for SMSF Specific Advice or a Private Ruling?

What if you are not sure a proposed investment ticks all the boxes?

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

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

In this case, as trustee, you could either decide not to proceed with the acquisition or else they could seek further guidance. you should initially seek guidance from your fund Auditor and other adviser but you may often get a grey answer. While trustees always have the option of seeking legal advice, they also have the ability to go straight to the ATO to seek their opinion before entering the transaction.

Self-Managed Superannuation fund Specific Advice

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

The ATO can provide SMSF specific advice about the following topics:

investment rules including
- an investment by an SMSF in a company or unit trust
- acquisition of assets from related parties
- borrowing and charges
- in-house assets
- business real property
in specie contributions/payments
payment of benefits under a condition of release.

You should use this service if you want specific advice about how the super law applies to a particular transaction or arrangement for a self-managed superannuation fund, but you cannot use this service for tax related questions so that is when you need to look for a Private Ruling.

Private Ruling for Tax Related Scenarios

As an SMSF Trustee, if you have a concern that your circumstances or those of the fund may put you in an unusual tax position, or that a particular financial arrangement doesn’t fit any known approach for tax purposes, or you simply wants to minimise the risk of an unanticipated tax outcome, you can apply for a ‘private ruling’ from the Tax Office.

A private ruling may deal with anything involved in the application of a relevant provision of the law, including issues relating to liability, administration and ultimate conclusions of fact (such as residency status).When you apply for a private ruling about an arrangement, you can also ask the ATO to consider whether Part IVA (general anti-avoidance rule) applies to the arrangement.

In fact a lot of the proposed SMSF projects or strategies we are asked to advise on do not have a clear definable answer. Specific advice is often required on unusual scenarios for contributions involving residency or the work test or benefit payments for those under age 65. Asking for a private ruling can be a good way to ‘test-drive’ a tax arrangement you may be considering, especially where the already existing information from the Tax Office doesn’t seem to adequately cover all the bases and you are concerned about the level of tax or penalties if you get it wrong.

You can apply for a private ruling on behalf of your SMSF yourself but I would recommend using your tax agent or tax law specialist (click here for access to the private ruling instructions, plus additional ATO guidance).

Each ruling is specific to the entity that applied for it, and only to the specific facts and situation considered by the ruling, and can’t be picked up as a standard by any other taxpayer. These are one-off decisions, made only about a certain set of circumstances, and they set out how the Tax Office views that situation.

Binding
If you get a private ruling, and base your SMSF tax affairs on that advice, the Tax Office is bound to administer the tax law as set out in that ruling. But, if later, the ATO issues a public ruling and the tax outcome conflicts with the one in your private ruling, you generally have the choice of which one to apply.

A ruling made in respect of a particular tax law will be changed if that law is altered by legislation or by the result of a court decision. But it’s worthwhile remembering that if you follow a ruling’s advice, and that ruling is later found to have not applied the law correctly, that you’re protected from having to repay any tax that would have otherwise been owed, as well as interest and penalties.

If a private ruling affects one of your earlier tax assessments, the Tax Office will not automatically amend it unless you make a point of submitting a written request for an amendment.

But just because you apply for a private ruling doesn’t mean you are going to get one. The Tax Office can refuse if it thinks a ruling would prejudice or restrict the law, if you are being audited over the same issue, or if it deems your application to be ‘frivolous’ or ‘vexatious’.

Are you looking for an advisor 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.

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

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by SMSF Coach - Liam Shorte on February 24, 2016 • Permalink

Posted in Contribution Strategies, SMSF Management, Tax Planning

Posted by SMSF Coach - Liam Shorte on February 24, 2016

https://smsfcoach.com.au/2016/02/24/when-should-i-apply-for-smsf-specific-advice-or-a-private-ruling/

What makes a good life? Lessons from a 75 year study on happiness

I deal everyday with people’s money and more importantly their dreams. Often we have to question clients about what they really want out of life and yes we encourage responsible saving but also a balanced lifestyle to ensure they are healthy enough to enjoy retirement and wise enough to keep relationships strong to share that retirement with loved ones and friends. This is an excellent video that shows money and fame are not the be all and end all of achieving happiness in life.

What keeps us happy and healthy as we go through life? If you think it’s fame and money, you’re not alone – but, according to psychiatrist Robert Waldinger, you’re mistaken. As the director of a 75-year-old study on adult development, Waldinger has unprecedented access to data on true happiness and satisfaction. In this talk, he shares three important lessons learned from the study as well as some practical, old-as-the-hills wisdom on how to build a fulfilling, long life.

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

Leave a comment

by SMSF Coach - Liam Shorte on February 20, 2016 • Permalink

Posted in Pension Strategies, Retirement Planning

Posted by SMSF Coach - Liam Shorte on February 20, 2016

https://smsfcoach.com.au/2016/02/20/what-makes-a-good-life-lessons-from-a-75-year-study-on-happiness/

5 Strategies for Women to Maintain Momentum in Super While Out of the Workforce

There has been a huge increase in Self Managed Super Funds being set up by people in their 30’s and 40’s according to ATO statistics, with 42.7% of new trustees under the age of 45. So I am going to address an issue that until now has rarely been mentioned with SMSFs strategies, as previously they were seen as the territory of crusty old men.

Maintaining momentum with your super during times out of the workforce

There finally seems to be a push on at the moment to improve the superannuation of all women in Australia. They have been lagging behind when it comes to their superannuation due to breaks in their careers as mothers or carers or because they have chosen professions that are crucial to the economy but underpaid. Statistics repeatedly show, women will retire with a super balance that’s almost half that of men. The problem of this lower level of retirement savings is compounded when you understand that women live longer and therefore need more not less super that their male cohorts.

Taking time to raise a family as a stay-at-home-mum or having part-time employment to allow for caring for a sick family member leads to loss of contributions in those critical early and later years of superannuation savings. Money that could have been invested in their 20’s or 30’s that would have compounded year on year up to retirement has been foregone. The women who also take on the burden of carer for their parents or ill spouse in later years can miss the boost in savings capacity when the mortgage has been paid off.

But what can you do for your super while we wait for politicians, business and unions to come up with a long-term solution. If you are in the position of having to take a break in your career here are five strategies for continuing to build your super during those years where employer contributions are not available.

Personal contribution to access the Government Co-Contribution

Pregnancy and illness rarely fall in line with financial years so as long as you have worked any period during a tax year you can contribute up to $1,000 of your own savings to super and also be eligible to receive a government superannuation co-contribution of up to $0.50 for every $1 of non-concessional (after-tax) contributions you make to your super account.

You will be eligible for the super co-contribution if you can answer yes to all of the following:

you made one or more eligible personal super contributions to your super account during the financial year
you pass the two income tests
- your total income for the financial year is less than the higher income threshold($53,564 for 2019-20)
- 10% or more of your total income comes from eligible employment-related activities or carrying on a business, or a combination of both
you were less than 71 years old at the end of the financial year
you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
you lodged your tax return for the relevant financial year.
have a total superannuation balance less than the transfer balance cap ($1.6 million for the 2019–20 financial year) at the end of 30 June of the previous financial year
not have contributed more than your non-concessional contributions cap.

Spouse contributions with tax offset

A spouse contribution is an after-tax super contribution made by your partner directly into your superannuation account. This is a good for both parties as you get a boost to your super and your partner gets a tax offset to lower their taxable income.

Your partner may be able to claim an 18% tax offset (maximum $540) on spouse contributions of up to $3,000 if:

the sum of your spouse’s assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $37,000 from 1 July 2019
the contributions were not deductible to you
the contributions were made to a super fund that was a complying super fund for the income year in which you made the contribution
both you and your spouse were Australian residents when the contributions were made
when making the contributions you and your spouse were not living separately and apart on a permanent basis.
As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.

For SMSF Trustees, make sure you clearly nominate in the reference or accompanying minute that this is a spouse contribution so the administrators can allocate it correctly.

Superannuation contributions splitting

This is a great way for partner to show commitment to maintaining your financial equality and showing taking care of family is a team effort. Contribution splitting which is fully explained in the linked article involves your partner directing a portion of their concessional superannuation contributions into your super account. The split occurs as a lump sum rollover and must be made in the financial year immediately after the one in which the contributions were made.

In any financial year, it is possible to split the lesser of:

85% of the partner’s concessional contributions (employer and salary sacrifice contributions)
the concessional contributions cap of $25,000.

Contribution splitting can be a highly effective way to build your super while you take a career break and can work even if you had done some work before the pregnancy in the tax year or if you worked part-time afterwards.

Within an SMSF you should just minute the request to split the contributions and confirm the receiving member’s eligibility and then pass that minute to the administrators or accountant. They may have template minutes available to make this easier.

Choose the right long-term investment strategy

If you are in your 20’s to early 40’s then you should not just accept the standard “core” or “balanced” asset allocation in your Superannuation fund. You have the right to choose your profile and especially as an SMSF trustee. With the preservation age of 60 and likely to rise towards 65 or 70, you should be choosing an investment asset allocation that is growth or high growth orientated to make the most of compounding returns on growth assets like shares and property during those earlier years.

Of course if you personally cannot take on that much risk without worrying then you may need to be more conservative but with some guidance and education on long-term returns and investing I believe you can step up to the higher allocations to shares and property confidently.

Personal Non-concessional contributions

Now this one may be a stretch as when you have had a baby or are caring for a sick family member, you may not be flush with savings or may be focusing on paying off the mortgage. However ,if you do have a surplus, then boosting your retirement savings with personal contributions is a good move.

Non-concessional super contributions are made by you out of your take-home (after-tax) pay, savings or for example an inheritance. You can add as little as you wish and whenever you wish subject to a maximum of $100,000 in any one year from 1 July 2017 or $300,000 if you are so lucky! using the 3 year bring forward rule.

The first $1,000 may be assessed for the government co-contributions as mentioned above, further boosting your savings.

So if you are one of the new breed of younger SMSF trustees who has to take time out for family or health reasons, you are not alone. You can maintain momentum with your super and use some or all of the above strategies to ensure your Superannuation powers ahead during time out of the workforce.

Budget 2016 had some positives for those with broken careers and one will be that you will be able to use unused contributions over a rolling 5 year period to play catch up on concessional (SG and salary sacrifice) contributions from 1 July 2018.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on January 27, 2016 • Permalink

Posted in Contribution Strategies, Financial Planning, Pension Strategies

Posted by SMSF Coach - Liam Shorte on January 27, 2016

https://smsfcoach.com.au/2016/01/27/5-strategies-for-women-to-maintain-momentum-in-super-while-out-of-the-workforce/

Seven Deadly Sins of Investing Videos

SevenDeadlySins

I know plenty of people prefer video content when learning so when colleagues at Eviser.com.au (free trial still running) sent me a short video link on “sloth” as an “Investment sin” I did a bit of searching and came across the whole series of these short videos below from Aberdeen Asset Management’s “Thinking Aloud” website I thought they were excellent and worth sharing to Self-Managed Super Fund Trustees. Their preface to the video series says “Don’t be led astray or make decisions for the wrong reasons.” So I encourage new and experienced SMSF Trustees to watch Aberdeen Asset Management’s guide to the seven deadly sins of multi-asset investing narrated by Joanna Lumley below

Multi-Asset Investing – Sin 1: Lust

Tip: Seeking immediate satisfaction can encourage impatient and shortsighted behavior. While a short-term view has its place, an overall less lusty approach, weathering up’s and down’s, can prove to be more fruitful in the long term.

Multi-Asset Investing – Sin 2: Gluttony

Tip: When it comes to information, less is very often more. Having the discipline to screen out market noise is likely to be key to rich investment pickings.

Multi-Asset Investing – Sin 3: Greed

Tip: Whether its equities, bonds or property, if everyone is rushing to invest, it’s probably best you don’t. The greed of the herd should always be treated with caution, take a breath, be patient. It may take a while for others to come round to your point of view, so wherever you invest, invest for the right reasons.

Multi-Asset Investing – Sin 4: Sloth

In investment, there are few shortcuts. Understanding what you’re investing in means doing the hard work, even though it’s rarely the quickest way. Only once due diligence has been done, can you truly rest comfortably.

Multi-Asset Investing – Sin 5: Wrath

Tip: When markets are plummeting and everyone is selling, it’s easy to panic, but if your portfolio is properly diversified, you can afford to be an oasis of calm. Keep a portfolio of varied assets, and you’ll be able to withstand the wrath and unpredictably of the markets.

Multi-Asset Investing – Sin 6: Envy

Tip: Imitating the index is the poorest form of flattery. Benchmark hugging is driven largely by fear. Instead of investing in assets which have just done well in the past, you should invest in those that offer the best potential for future returns.

Multi-Asset Investing – Sin 7: Pride

Tip: As we know, pride can become before a fall. Overconfidence and ignoring the warning signs can be fatal. Investors often make the same mistakes over and over again.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of BearMan Cartoons at Beartoons.com

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by SMSF Coach - Liam Shorte on December 29, 2015 • Permalink

Posted in Investment Strategies, SMSF Management

Posted by SMSF Coach - Liam Shorte on December 29, 2015

https://smsfcoach.com.au/2015/12/29/seven-deadly-sins-of-investing-videos/

Self-managed super funds: An infographic of top SMSF statistics from ATO

Click on the graphic to open larger size.

If you want to add the ultimate in flexibility then look a the use of a Self Managed Superannuation Fund ( SMSF ) to allow access to a greater range of investment options for your pension, with the flexibility you need and the control you want!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of the ATO

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by SMSF Coach - Liam Shorte on December 18, 2015 • Permalink

Posted in News & Stats, SMSF

Posted by SMSF Coach - Liam Shorte on December 18, 2015

https://smsfcoach.com.au/2015/12/18/self-managed-super-funds-an-infographic-of-top-smsf-statistics-from-ato/

Explaining our SMSF Coaching service in a short video

Stepping out of my comfort zone and doing some video as I am told that is what people are looking for now. I am fine when I do TV, Seminars or meetings as they are live and not scripted.

I have always been more comfortable with just speaking my mind than trying to follow my own scripted content or reciting. Takes me back to my childhood Religion class in the Christian Brothers School in Ireland when I struggled to stand up and recite the Hail Mary (a prayer we said many times each day but when I had to stand up an recite on my own I would blank and be chastised by the Brother Kenny for my lack of religious conviction). I know now that I am a story-teller and a good listener but not good at recitation!

Dave Power and his team from Power Creative let me have a delicate balance by guiding the conversation but letting me ad-lib. Hopefully the message gets through that we love helping clients achieve their goals and dreams.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of digitalart at FreeDigitalPhotos.net

2 Comments

by SMSF Coach - Liam Shorte on December 15, 2015 • Permalink

Posted in Retirement Planning, SMSF

Posted by SMSF Coach - Liam Shorte on December 15, 2015

https://smsfcoach.com.au/2015/12/15/explaining-our-smsf-coaching-service-in-a-short-video/

Tightening Super and Age Pension Rules Could Backfire

With all the talk of the government bringing out rules to tax superannuation or limit balances, I have been having some very interesting conversations with colleagues and clients, especially those whose retirement savings are expected to be in the $600,000 $900,000 level.

Many are conservative investors and would hold 30-40% of these funds in Cash and Term Deposits normally, which at current levels would earn them 2.0-3.1% at best.

They are concerned that they may not qualify for the Age Pension when the Asset Test limits apply in 2017 or lose a substantial portion of what they currently receive. Further they don’t trust that the rules for the Commonwealth Seniors Health Care card won’t tighten further so that offers no solace. Now with the added worry that the government may tax or tighten superannuation pension rules and affect them, they are looking for some alternatives that offer more security.

So I did the figures on one option I had discussed with my colleague Richard Livingston at Eviser.com.au (our online General Advice service). I looked at a couple who are currently retired and have $850,000 in assets that for example purposes are all deemed and of which $400,000 is in Term Deposits.

They currently receive $6,104 each of Age Pension per year which has helped them as the rates on their Term Deposits have dropped significantly in the preceding 5 years. The problem is that with the new asset test in 2017 they will lose that Age Pension completely or $12,208 as a couple per year.

The table below summarises these changes and the likely impacts for a home owning couple:

Table 1: Age Pension Asset test changes and impact on our clients

Asset test threshold

Couples -Home Owners

Impact on combined pensioners increase (decrease)

Announced lower threshold

(current threshold)

$375,000

($286,500)

$49 pf or $1275 p.a. extra

Announced Cut-off threshold

(current cut-off threshold)

$823,000

($1,151,500)

($510) pf or ($13,260) pa

Calculations are based on pension rates as at 20 September 2015.

Strategy to both secure some Age Pension and provide a better return that Term Deposits.

Note: this is not a recommendation to implement this strategy and you should seek personal advice before doing anything like this with your savings.

So what if instead of keeping $400,000 of their funds in Term Deposits as they currently do, they put that $200,000 in to a value adding extension to their current home (say a kitchen or extra bathroom and bedroom extension). To be clear, THEY DO NOT NEED THE EXTRA ROOM!.

Well even at the best current Term Deposit Rates, say 3%, they would lose $6,000 per year in investment income. However as their assets for Centrelink Age Pension purposes have now dropped from $850,000 to $650,000 their Age Pension would increase to $10,004 each per year until January 2017 and they would receive $6,747 each or $13,554 as a couple from 2017 onward based on current rates.

Can you see the perverse nature of using this strategy. They reduce their assessable assets by $200,000 and probably add significant value to their home if a smart extension is done while at the same time getting over $13,554 from the Age Pension as opposed to only foregoing $6,000 of investment income.

So instead of the 3% return on that Term Deposit they are getting a 6.78% per year return plus potential for increased value in their property going forward.

Is this really what we want to see? Clients refusing to downsize or actually pumping more of their savings in to their family home which is exactly what the country does not need in terms of housing affordability issues.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on December 7, 2015 • Permalink

Posted in Age Pension, Centrelink, Contribution Strategies

Posted by SMSF Coach - Liam Shorte on December 7, 2015

https://smsfcoach.com.au/2015/12/07/tightening-super-and-age-pension-rules-could-backfire/

SMSF Twitter Poll Results – Individual or Corporate Trustee

Every time I see the SMSF statistical results issued by the ATO I am dismayed by the number of new SMSF funds being set up with Individual Trustees. I can only assume this is people setting up self managed superannuation funds without good advice or reasonable research.

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.

SMSF Individual v Corporate Trustee

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.

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.

Finally if you are considering trying to save some costs by using the same company as your Business or Family Discretionary Trust then I would recommend you read this article first: Trading Company as SMSF Trustee or Sole Purpose SMSF Trustee Company?

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

2 Comments

by SMSF Coach - Liam Shorte on November 18, 2015 • Permalink

Posted in SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on November 18, 2015

https://smsfcoach.com.au/2015/11/18/smsf-twitter-poll-results-individual-or-corporate-trustee/

Do you want your own Cayman Island type account for your Superannuation ?

OK I realise I might have to shout a little to get people’s attention when it comes to tax and investing but while watching the recent media hype and political spat about Malcolm Turnbull investing in the Cayman Islands I did have to laugh to myself. Most Australians do not need to go that far to secure a good deal when it comes to their tax affairs.

Do you understand that someone over the age of 60 here in Australia can have an account with the following characteristics most sought after in tax havens?

Tax free income from investments
Non-reportable Income – no need to inform the tax man of your income
No Capital Gains Tax on sale of assets

I can see your eyes light up! So where can you go to organise these facilities?

YOUR SUPERANNUATION ACCOUNT CAN BECOME A TAX FREE HAVEN!

Why am I shouting? Because so many people are not making use of the tax and superannuation strategies that could put them in the exact same tax-advantaged position that a multi-millionaire has to use islands in the Pacific Ocean or Caribbean sea to achieve.

After age 56 you can start a Transition to Retirement Pension and the earnings in your fund can be tax free. From 56-59 you may some tax on the income (4%) you have to drawdown from the pension but from 60 onwards it is tax free and you don’t even have to report it on your tax return.

Don’t think it’s all too hard or it’s a scam or it seems to hard or only available to SMSF members . It is really easy and as long as you are over 56 you are 95% likely to benefit from this strategy. give me or your own adviser 5 minutes to run your figures and your will see the worthwhile savings.

I believe for most people they can save enough for 2-4 overseas holidays extra in retirement and often much more.

To learn more about superannuation Pensions here are some of my previous articles:

Understanding transition to retirement pensions

Making the most of the Transition to Retirement Pension over age 59

Aged 59 – 64 and not on a Transition to Retirement Pension – SHAME ON YOU!

How do I start a Pension in a SMSF

55 No Longer Target Age for Transition to Retirement Pension Strategy

Don’t think your balance is too low or too high. I have clients with $50,000 to $2,500,000 in this strategy that is 100% legal. even the ATO have a video on pensions

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of digitalart at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on October 23, 2015 • Permalink

Posted in Pension Strategies, Retirement Planning

Posted by SMSF Coach - Liam Shorte on October 23, 2015

https://smsfcoach.com.au/2015/10/23/do-you-want-your-own-cayman-island-type-account-for-your-superannuation/

Don’t need to be afraid of Malcolm Turnbull reviewing Superannuation

The Prime Minister, Malcolm Turnbull has indicated that superannuation is back on the table in terms of tax reform and that the government will look at Labor’s proposals and consider them. I have had a few calls from people reacting to this announcement in panic and considering their use of the superannuation system.

No one , especially me as an SMSF advisor , likes to see governments tinkering with the Superannuation rules and I normally see it as akin to “dipping in to a honey pot” by desperate treasurers. However the switch to completely tax-free pensions for over 60’s in the 2006 Budget was a step to far by Peter Costello.

At the time Peter Costello trumpeted them as “the most significant change to Australia’s superannuation system in decades” but what Costello and his treasury advisers did not mention or properly cost out was their long-term cost to the budget with an ageing population and economy that goes through mining and property booms and busts. I and indeed many of my clients in conversation realised that this was overly generous and we have always expected that the largesse would be rained in at some time in the future. Yes, I am prepared to resist any changes but more so to ensure the government of the day does not over step the mark and hurt the confidence in the system but I and others realise that the 2o06/7 move to tax exempt pensions for those over 60 was a too far a leap for our economy.

So what are Labor’s recommendations?

Now let’s look at the Labor proposals which are not overly draconian and will affect few people, mostly the “one percenters”. Lets look at them carefully.

Labour promised in April that if it won the election, it would impose a 15 per cent tax on the super income of retirees on all earnings of more than $75,000. Well this is per person so a pensioner couple could earn $150,000 in their SMSF or Superannuation before they have to pay any tax on earnings above this amount. The “above” is important as lets say a SMSF had $200,000 had net earnings to apportion to members for a year; well the tax would be only on the last $50,000 (assuming even balances) and would amount to $7,500 less some of the funds expenses which would become tax-deductible. Assuming a return of 6% per annum net for a super fund, the fund would have to be valued at over $2,500,000 before attracting any tax on earnings above the $75,000 per member.

Labor have also proposed a 30 per cent tax rate on contributions would apply to those on incomes from $250,000 and more, down from the current threshold of $300,000. Again this means that salary sacrifice by some earning more than $250,000 would still save them 19% per dollar as opposed to taking the money after tax at their marginal tax rates of 49% (including Medicare and Levies). so the benefit of making contribution still outweighs not saving the funds.

The old argument that these people would stop saving for retirement, spend the money and rely on government support in retirement via the age pension is just rubbish. The people affected (earning personal income over $250,000 per annum or super balances over $2,500,000) are smart enough to realise they need to take care of their own retirement and that access to the full couples pension of $33,717 is just not going to meet their needs. they will continue to use the tax, property and superannuation systems to maximise their returns using the most tax efficient options available to them.

The real danger in any change to the rules would be if a government were to change the superannuation rules to affect middle-income earners or if the media drummed up enough fear that confidence in the superannuation system was severely reduced. That is why even Labor has been careful to only target the fringes of the population or the 1% high income earners and we can also expect some degree of “Grandfathering” of any changes where anyone already committed to pension may not be affected by the changes.

The other danger is that once your start taxing pensions and increasing tax on contributions at certain limits, the temptation is always there to move the goal posts further and reduce those limits like the suggested move from additional 15% tax on contributions for earners over $300,000 to applying that additional tax to those on over $250,000 as Labor proposes. Once they start the precedence is set and future governments will find reasons to dip in deeper to our savings.

Strategies:

If you are near the edge of the limits mentioned what can you do:

Review any salary packaging options
If self-employed look to restructure your business to allow division of income across entities and family members
Make sure to even up balances using targeted withdrawals from the larger balance holder and re contributions to a lower balance spouse or partner’s account
Use Super Splitting from your 40’s onwards to ensure contributions are moved to a lower earning spouses account consistently over time to even up balances. Click here to read more on how super splitting works.
If entitled to start a Transition to Retirement pension (TTR) do so now rather than waiting and losing the benefits of any grandfathering of changes to legislation. Click the link to read more on TTRs

In summary, I believe any changes will be targeted and that the coalition under Malcolm Turnbull will be more conservative in their changes than Labor proposes. You should however do all you can to protect your own position and use strategies available to you. It also does not harm to argue the changes and force the government to justify clearly any changes to be made to ensure they understand our displeasure at tinkering with our retirement nest eggs.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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by SMSF Coach - Liam Shorte on October 14, 2015 • Permalink

Posted in Contribution Strategies, Pension Strategies, Superannuation Splitting, Tax Planning

Posted by SMSF Coach - Liam Shorte on October 14, 2015

https://smsfcoach.com.au/2015/10/14/dont-need-to-be-afraid-of-malcolm-turnbull-reviewing-superannuation/

In-specie contributions to and from an SMSF

In Specie transfer in to an SMSF

I get enquiries from so many people now with holdings from an employee share scheme or listings such as IAG (the old NRMA) , CBA, Telstra and now Medibank Private who wish to simplify the shares held in their own personal names as they approach 67 so they don’t have to do a tax return for themselves in retirement. One option often considered is making an in specie transfer to your SMSF.

In specie is the process of transferring shares, business real property or managed funds without selling the underlying investment.

An in-specie contribution occurs when a member transfers ownership of an asset they own to the SMSF. In this case, the capital value of the fund has increased and the increase in value is considered a contribution for the member whose member balance has grown.

While most superannuation funds can accept in-specie contributions, it occurs far more commonly with SMSFs than with industry or retail superannuation funds.

An in-specie contribution is considered an acquisition from a related party and such acquisitions are generally prohibited. Listed shares, managed funds and business real property are exceptions to the general prohibition for in-specie contributions.

The transfer of the asset will be deemed to be a disposal for the member and any gain realised by the member may be subject to CGT, though there may be some concessions, particularly where the property was used in their own business or that of an associate. If self-employed or able to claim a tax deduction for contributions then some of the transfer can be considered as a Concessional Contribution. you should run the strategy past your adviser before implementing it to work out the CGT and the best way to minimise it.

In addition, it is not necessary that the entire value of an asset transferred to an SMSF be considered a contribution and this is particularly beneficial where the value of the asset is greater than the contribution caps available to the contributors.

For example, if a commercial property, lets say a shop, valued at $1,200,000 was to be transferred to an SMSF by a husband and wife and its entire value was considered a contribution, it could result in an excess non-concessional contribution of $540,000. To avoid this outcome, we could treat 2 x $330,000 of the transfer as Non-Concessional contributions for the husband and wife using the full NCC cap of the 3-year Bring Forward Rule and the remainder as a sale. The SMSF would have to transfer $540,000 of cash or other assets to effect the purchase on that portion of the property or arrange borrowing and use an LRBA structure.

For shares most SMSF investors have a CHESS sponsored account so you should ask your broker for their Standard Transfer Form for Off Market Transactions.

Here is the link for the CommSec version of the form

In Specie transfer out of the Fund

In addition, assets can also be transferred out of the fund as in-specie payments though importantly, only lump sum payments can be made in-specie. Pension payments have to be made in cash. The rules on acquisitions from related parties do not apply to these transactions as the SMSF is disposing of the asset, not acquiring it.

Some clients buy a coastal house or city apartment in their SMSF as an investment while they are working but with a possible option to move in to it when they retire. To do so they must take it out of the fund on retirement. Often they will use the funds from the sale of their home on retirement to buy the property from the fund but the option is there to take the property out as a lump sum in specie transfer if timing makes a purchase strategy unsuitable.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

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

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

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

33 Comments

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

Posted in Contribution Strategies, In Specie transfers

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

https://smsfcoach.com.au/2015/09/24/in-specie-contributions-to-and-from-an-smsf/

SMSF Investment Decision Checklist

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

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

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

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

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

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

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

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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

Posted in Checklists, SMSF Management

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

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

Is your SMSF leasing commercial property: Tips and traps

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

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

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

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

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

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

Research your tenant

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

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

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

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

This article might be helpful with the above searches.

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

Is this a retail or commercial lease?

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

State the parties correctly on the lease

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

List any outgoings, costs or charges in the lease

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

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

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

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

Guarantors

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

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

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

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

Security deposit or bank guarantee

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

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

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

Permitted use

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

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

Increasing the rent over time

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

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

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

Insurance cover

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

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

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

Retail premises lease: give the appropriate documentation to the tenant

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

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

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

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

Monitor the tenant’s performance of lease obligations

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

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

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

Monitor:-

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

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

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

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

Keep up to date with repairs and maintenance

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

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

Make sure your lease has an appropriate exit clause

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

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

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

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

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

Use the appropriate termination procedure to end the lease early

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

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

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

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

Finalise lease documentation before giving the tenant possession of your premises

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

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

Conclusion

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

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

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

Thank you Ian

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

3 Comments

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

Posted in Property, SMSF Management

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

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

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