In a rare attempt to guide SMSF Trustees in how they should or shouldn’t invest the ATO has issued a news release about their intention to approach trustees who they believe have not got sufficient diversification in their SMSF portfolio. So it is time to review your strategy if biased to one asset class.
Does your SMSF investment strategy meet diversification requirements?
At the end of August 2019 the ATO intend to contact about 17,700 self-managed super fund (SMSF) trustees and their auditors where their records indicate the SMSF may be holding 90% or more of its funds in one asset or a single asset class.
They are concerned some trustees haven’t given due consideration to diversifying their fund’s investments; this can put the fund’s assets at risk.
They say further in the release that “Lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.
We’ll ask trustees to review their investment strategy and clearly document the reasons behind the investment decisions.
We’ll also ask trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements.”
So what can you do:
It’s a time to be pro-active and not wait for the contact. Review your investment strategy and reasoning now and make sure it will stand up to scrutiny
Ideas on diversification that may help you understand why you need to diversify or to back your personal reasons for limiting your exposure to specific classes:
How can you add diversification simply and cost effectively:
This is not a recommendation as you need to understand your own needs and that of your SMSF and to do your own research or get advice. this is just one example of how to access a broad diversification in a easy and cost effective manner.
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
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.
Even the most seasoned SMSF Trustees and members realise that they need to be on top of their game over the coming 12 months. If you are running your own SMSF or your better half is doing so, then drag yourself and them along to the SMSF Association’s SMSF & Investor Event. Let the experts guide you.
Full disclosure, I am a board member of the SMSF Association and I do want as many people as possible to come along and boost their knowledge and be prepared for what the budget and possible new future government will throw at us. I have also bargained for a deal for you and if you use the coupon code “SMSFCoach” when registering you will be able to attend for FREE
So what is on the agenda:
Following the Federal Budget and leading up to the end of the financial year, hear from key SMSF and investment experts on crucial factors you as a trustee or your clients if you’re a n SMSF professional,, should be thinking about in regards to your fund/your clients’ funds. The program will feature:
A Special Address on the impact of the removal of franking credit refunds on SMSFs
Your SMSF Update – what’s new in self managed super
End of Financial Year – review your investment portfolio in light of political and investment markets
Peter Hogan our SMSF Education expert will discuss Everything you need to know about starting and receiving pensions – whether you are starting to think about moving into retirement or already earning a pension this session will cover everything you need to know especially as it relates to the Transfer Balance Cap.
And more to be announced soon…
WHERE & WHEN
Date: Tuesday 9 April 2019
Time: 8:15am – 3:30pm (including lunch and morning tea)
Register here using the coupon code ‘SMSFCoach’ for Free
(I confirm that I receive no commissions, fees or incentives for promoting this event and will not receive any of your private information)
SHOUT OUT TO SMSF PROFESSIONALS
If you are a SMSF Accountant, Auditor or Financial Planner then please pass on this opportunity to your clients as we need SMSF Trustees to be more knowledgeable than ever. Understand that ASIC now expects you to be providing education to your clients and you must find cost effective ways of doing this. Why not leverage of your association membership and provide your clients with access to this event or maybe even come along with a group of them.
If you are in Victoria don’t feel left out we will be coming to Melbourne too in June!
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.
The ATO has recently redesigned the Division 293 notice to provide information clearly and concisely. This includes providing the full assessment calculation to make it easier for people to understand how their tax has been calculated. This will also make it easier to identify any erroneous assessments due to incorrect reporting of information
Julie Steed, Senior Technical Services Manager of Australian Executor Trustees Part of the IOOF group, has kindly provided a refresher on the Division 293 tax and a review of the newly redesigned ATO notice that can be seen here: Div 293 notice of assessment
Division 293 tax
From 1 July 2017, the income threshold above which individuals pay an additional 15% tax on certain superannuation contributions reduced from $300,000 to $250,000. In December 2018 the ATO began issuing over 90,000 Division 293 notices for the 2017/18 income year. It is estimated that approximately 125,000 individuals will receive a Division 293 notice in the 2025FY.
Importantly, there are no strategies that can be used to reduce an individual’s liability for Division 293 tax. However, understanding the options that are available and how the Division 293 notice process works will assist individuals who receive a notice.
Overview
People with Division 293 income greater than $250,000 will pay 15 per cent additional tax on certain superannuation contributions. The tax is a personal tax rather than a tax deducted from super contributions by a fund. However, individuals may elect to release funds from super to pay the tax (see the Choices section below).
Division 293 income
Division 293 income includes:
taxable income
reportable fringe benefits
total net investment losses.
Ad-hoc income
Individuals who are not generally high income earners may still be liable for Division 293 tax if they receive certain one-off payments during a year. Such payments include eligible termination payments, the taxable component of a superannuation death benefit and capital gains.
However, the taxable component of a super lump sum benefit (other than a death benefit) is not included where:
it is received by individuals from preservation age to age 59
it is up to the current low rate cap of $205,000.
Division 293 contributions
Division 293 contributions include:
employer contributions
personal deductible contributions
contributions for a defined benefit interest (valued by an actuary)
employer contributions (including salary sacrifice) to a constitutionally protected fund.
The additional tax does not apply to:
excess concessional contributions
non-concessional contributions
contributions to certain Government funds for senior personnel, unless they are salary sacrifice contributions
contributions for certain Judges to defined benefit funds.
Calculation of Division 293 tax
Division 293 tax is 15% of the lesser of:
the amount of the Division 293 contributions
the amount of Division 293 income and Division 293 contributions above the $250,000 threshold.
Case study
Ryan has the following Division 293 details:
Division 293 income
$240,000
Division 293 contributions
$20,000
Total
$260,000
Division 293 tax is payable on $10,000, being the lesser of:
$20,000
$260,000 – $250,000 = $10,000
The Division 293 tax amount is 15% x $10,000 = $1,500
Division 293 notice
The ATO issues an Additional tax on concessional contributions (Division 293) notice to individuals which specifies the additional amount of tax that is payable and the due date for payment.
The ATO has recently redesigned the Division 293 notice to provide information clearly and concisely. This includes providing the full assessment calculation to make it easier for people to understand how their tax has been calculated. This will also make it easier to identify any erroneous assessments due to incorrect reporting of information.
The notice will also explain how to avoid interest charges, view statements of accounts online and the process for disagreeing with the assessment.
Choices
When an individual receives a Division 293 assessment they can choose to pay the tax from their personal resources. Alternatively, they can elect to have the amount released from their super fund to pay the tax. The time frame for making the election is 60 days. However, this may be a greater time frame than the date upon which payment of the tax is due.
The election can be made to release the tax amount from any super fund (other than some defined benefit funds). There is no requirement for the release to be made from the fund that received the contributions.
Release authority
If an election to have the amount released from super is made, the ATO will send the super fund a release authority and the fund will make the payment to the ATO. Funds are required to make the payment within 10 business days from the date the release authority is issued by the ATO.
Importantly a fund must not release an amount until they have received the ATO release authority. This requirement is sometimes misunderstood by SMSF trustees.
Conclusion
Understanding the choices available and the process involved in paying Division 293 tax can assist in ensuring that any tax payable is completed in a manner most appropriate to an individual’s circumstances.
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.
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Throughout the last year as I have gone through the 30 June 2018 SMSF financials with clients and pointed out to them the amount of franking credits they had earned in their fund and the value of them to their retirement income, many have been alarmed to hear of Labor’s proposal to deny them the refund of any excess franking credits.
There has been a lot written in the press about this matter and much of it amounts to bashing self-funded retirees for carefully using the system to develop portfolios that would deliver the best return for their capital in a way that suited their risk tolerance and bias towards Australian assets.
Well the Labor proposal now puts much of that hard work at risk and while we do not really know if their will be consequences for the economy of companies in which we invest, what we do know is that it will affect SMSFs that do not have at least one member who is currently receiving an age pension. This is very inequitable that one sector of society should be targeted by these measures
Time to Step Up and have your Say
The House of Representatives Standing Committee on Economics will hold public hearings in numerous locations in New South Wales and Queensland for its inquiry into the implications of removing refundable franking credits. I strongly urge you to consider going along to one of the hearings and voicing your opinion or support others who are going to speak but need some back-up.
From the Media Release:
The Chair of the committee, Mr Tim Wilson MP, said ‘the committee is examining how the removal of refundable franking credits would affect investors, in particular older Australians who have planned for their retirement under the existing rules and whose financial security could be compromised.’
Mr Wilson said ‘the committee has received well over 1000 submissions, including many from retires who are concerned they will be forced on to the aged pension if the ability to claim a refund on their franking credits is removed.’ ‘These hearings will provide an opportunity for Australians impacted by a change to refundable franking credits to address the committee directly with a three-minute statement, and we welcome their contributions and participation’. Mr Wilson said.
Public hearing details:
NSW
Merimbula, 9.00am to 10.30am, Monday, 4 February 2019, Merimbula RSL, 52-54 Main St, Merimbula, NSW
Chatswood, 9.00am to 10.30am, Friday, 8 February 2019, The Chatswood Club, Level One, G11 Help Street, Chatswood, NSW
Bondi Junction, 2.00pm to 3.30pm, Friday, 8 February 2019, Bondi Junction RSL, 1/9 Gray St, Bondi Junction, NSW
Queensland
Townsville, 2.00pm to 3.30pm, Tuesday, 29 January 2019, Pandora Room, Hotel Grand Chancellor, 334 Flinders St, Townsville City, Queensland
Alexandra Headland, 9.00am to 10.30am, Wednesday, 30 January 2019, The Bluff Function Room, Alexandra Headland Surf Life Saving Club, 167 Alexandra Parade, Alexandra Headland, Queensland
Paddington, 2.30pm to 4.00pm, Wednesday, 30 January 2019, Presentation Room, The Lavalla Centre, 58 Fernberg Rd, Paddington, Queensland
Eight Mile Plains, 9.00am to 10.30am, Thursday, 31 January 2019, Central Auditorium, Brisbane Technology Park Conference Centre, 1 Clunies Ross Ct, Eight
Mile Plains, Queensland
Upper Coomera, 2.00pm to 3.30pm, Thursday, 31 January 2019, Upper Coomera Centre, 90 Reserve Rd, Upper Coomera, Queensland
Further public hearings will be announced as the inquiry progresses. The hearings will be webcast live (audio only). A number of submissions have been received and are available on the committee’s webpage at: http://www.aph.gov.au/economics.
A number of submissions are currently being processed and will be published over the coming months. Submissions can be made online or by emailing economics.reps@aph.gov.au.
Media enquiries: Mr Tim Wilson MP—Electorate: 03 9557 4644; Parliament: 02 6277 2392
For background information:
House of Representatives Standing Committee on Economics Phone: 02 6277 4587;
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
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 kittijaroon at FreeDigitalPhotos.net
ASIC and the ATO have on numerous occasions highlighted the dangers of buying property through one organisation that organises all steps in the process. they call them “one-stop-shops”. This is where you get all or most of the following services for a new SMSF from one associated group:
Real Estate recommendation for a specific property and/or manage the property rental
Property Adviser who does initial training or introduction to property investing, then pointing you to associated service providers
Accounting and Audit to set up and do the admin for your new SMSF
Financial Planner to prepare a Statement of Advice on the suitability, risks, costs, benefits of and SMSF and benefits lost in moving to an SMSF
Conveyancer to process the property transaction
Mortgage Broker to sort out the finance
One of the issues is that they may not be very transparent about how they’re interconnected. Always ask each party what their fees are and do they pay any form of remuneration, fees, referral commission charges etc to any other party.
397 – “The use of property one-stop shops is an area of significant concern. These models tend to promote the purchase of geared residential property through an SMSF, arranged by groups of related real estate agents, developers, mortgage brokers, accountants and financial advisers.
398 – The one-stop shop model creates inherent conflicts of interest that may affect the advice given to a client to set up an SMSF, make subsequent investments, or use specific services. These conflicts can arise from direct or indirect commissions, referral payment arrangements, representative remuneration structures or even management pressures.
399 – We have previously achieved enforcement outcomes against operators of property one-stop shops involving SMSFs—such as Park Trent Properties Group Limited and Anne Street Partners. In light of the findings from this project, we will continue to conduct surveillance on these property one-stop shop operators and take enforcement action where appropriate.
400 – We will also work with other regulators, including the ATO and APRA, to develop a holistic approach to addressing problems that we are seeing with property one-stop shops.”
Despite these warnings ASIC’s further research has shown that people still value the idea of a One-stop-shop for their advice needs when buying property. I assume this is because people just like simplicity and want someone to manage the process for them. Well you can have that simplicity without the inherent dangers involved by choosing to work with professionals who charge a fee for service for their advice and do not accept commission or any remuneration from other parties or fully disclosed like such as with a Mortgage Broker who is remunerated by the lender.
So when thinking about a property for your Self Managed Superannuation Fund or any asset really, you should always ensure that at least some of the providers of services are working in your Best Interests. Financial Planners are obligated by law to act in their Client’s Best Interest but we all know that money , fees or commissions may blur the lines. So don’t be afraid to ask questions about:
who is providing you the advice
how are they being paid,
Are they receiving any other form of remuneration
how are they connected to the other service providers
It is important for your professional service providers to work on strategies on your behalf but that does not mean they need to be paying fees to each other which ultimately increases your costs. Let me explain how I work with other professional service providers for example:
I do not provide specific advice on “the property” for you and stick to my area of expertise; whether an SMSF is right for you and how you can use it to achieve your goals. I charge you a specific fee for this advice which is outlined in a Letter of Engagement before you commit to my service. If you want ongoing advice, again I explain it up front in an Ongoing Service Agreement.
I provide you with a range of SMSF Admin and Audit solutions from other providers that will suit your needs. I have 4-5 options to ensure you can choose what suits you with our guidance and often that may be to use your current Accountant. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients
If people want help choosing a property, again I have a number of trusted Buyer’s Agents throughout the country that are on hand to provide advice. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.
If you need assistance in getting finance arranged then I refer you to a number of brokers who have experience and expert knowledge in SMSF Lending. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.
Legal Advice/Conveyancing – If you do not have a current lawyer or they do not have SMSF experience then I refer clients to a number of lawyers / conveyancers with specific experience and expertise in the rules around SMSFs for property transactions, powers of attorney and estate planning.
I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.
Can you say the same about your service providers?
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 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
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.
Sometimes you can’t sit back and accept policy changes by governments. You have to step up to stop bad policy regardless of your political persuasion.
I see that Geoff Wilson from Wilson Asset Management is leading a charge against the Labor proposed policy to deny a refund of excess franking credits. You can read more about his efforts in this article here and sign his petition here
The problem is that many people don’t understand the imputation system so when I sit with clients and we talk about what it means for them we have to put it in terms they understand. For many of my self funded retirees it will mean $5000 to $20,000 loss in income per year going forward if past in to legislation. So they may still be able to meet their basic living expenses but it is the little extras that they worked hard to save for that they will lose and it feels like they are been punished for trying to fund their retirement.
It means cutting out the holiday, the presents for the grandkids, the renos on the bathroom or any other little things they had saved hard to be able to afford. So once alerted to the potential loss of income most are angry but too few have been made aware of it by their tax agents and advisors.
I have included below a link to their latest version of the fact sheet and would encourage you to visit their website, share with clients, friends and colleagues and sign up to their newsletters here.
Lets get the word out there so people understand what they will be losing
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
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.
One of my most popular long term blogs is Why Self Managed Super Funds Should Have A Corporate Trustee and thankfully most new SMSFs are finally being set up with a corporate trustee from the outset. But that leaves many existing SMSFs with Individual Trustees and I get numerous questions about the cost of the transfer process. 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.
The basic costs depend on your current legal document deed provider or the new provider chosen to implement the changes. But here is a guideline
Cost of Sole Purpose Corporate Trustee would usually be around $660-$880 of which $506 is the ASIC registration fee
Trust Deed Amendment to Retire the current Individual trustees and Appoint the new Corporate Trustee is about $200-$375
Then all assets need to be moved in to new Accounts in the name of the new Trustee company.
Shares/ETFs/Hybrids usually cost $55 per share (you can bargain a discount with your broker) but a new Account application is also required
Wrap Platforms – depends on the provider but usually you will have to set up a new Account and they will in-specie transfer them across.
Managed funds may have stamp duty costs depending on the state. A new application for is required before the transfer
Bank account providers just usually require a request in writing, copy of the Company Certificate of Registration and copy of the signed Trust Deed Amendment
Property will depend on the State but some have an exemption or concessional stamp duty and only a small fee for changing the trustee on the title. See more detail here Stamp Duty Requirements on Change of SMSF Trustees – I will try to get this update shortly.
Bullion/Coins – just usually require a request in writing, copy of the Company Certificate of Registration and copy of the Trust Deed Amendment
Ongoing Costs
Costs should not be a deterrent as a sole Purpose Trustee company ASIC review fee is only $55 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.
Don’t feel like trying to do all this yourself? How much do we charge for guiding you through the process
If you require assistance and advice on making the changes our advice fee starts from $4,400 as it is a time consuming process. This includes:
Review of your current circumstances and portfolio to see what needs to be done
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
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 recently took part in a panel discussion on Peter Switzer’s Money Talks program on Sky Business around end of year tax planning. you can view the 20 minute show below for for some tips from all the panel. What was clear from the audience questions after the show is that many people just don’t know the strategies available to them.
But its now 5 days before the end of the financial year and many people may think it is too late! But there are still strategies you can still out in place.
1.Think first. First tip is to think carefully on each strategy before implementing any of them. review the eligibility criteria and your own personal circumstances.
2. Review Your Concessional Contributions – $25K this year if under 65 and then work test applies for 65+.
Maximise contributions up to concessional contribution cap but do not exceed your Concession Limit. The sting has been taken out of Excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit. This year for the first time for employed people, you can still top up directly to your Superfund or SMSF without having to go through your employer and salary sacrifice. Work out you available cap and make a Personal contribution now!
3. Review your Non-Concessional Contributions
Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name. Maybe you have proceeds from and inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control your tax bill. Are you nearing 65? then consider your contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to the $300,000.
4. Co-Contribution
Check your eligibility for the co-contribution and if you are eligible take advantage. You can get up to $500 co-contribution from the government so it is not as attractive as previously but it is free money – grab it if you are eligible. Check here for details
To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.
5. Spouse Contribution
People are eligible to claim the maximum tax offset for the 2017-18 $540 if:
you contribute to the eligible super fund of your spouse, whether married or de-facto, and
your spouse’s income is $37,000 or less.
The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.
6. Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)
You should review your ability to make contributions as if you if you have reached age 65 you must pass the work test of 40 hours in any 30 day period during the financial year, in order to continue to make contributions to super. Check out ATO superannuation contribution guidance
7. Check any payments you may have made on behalf of the fund.
It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.
8. Notice of intent to claim a deduction for contributions
If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim or vary a deduction’ (NAT 71121). If you intend to start a pension this notice must be made before you commence the pension. Many like to start pension in June and avoid having to take a minimum pension but make sure you have claimed your tax deduction first.
9. Contributions Splitting
Consider splitting contributions with your spouse, especially if:
• your family has one main income earner with a substantially higher balance or
• if there is a n age difference where you can get funds into pension phase earlier or
• If you can improve your eligibility for concession cards or pension by retaining funds in superannuation in younger spouse’s name.
This is a simple no-cost strategy I recommend everyone look at especially with the Government moving on limiting the tax free balance on accounts. See my blog about this strategy here.
10. Off Market Share Transfers (selling shares from your own name to your fund)
If you want to move any personal shareholdings into super you should act early. The contract is valid once the broker receives a fully valid transfer form not before. It takes about 4 days to implement this from the brokers end so Tuesday 26th would be the cut off day for the forms to be received by your broker. YOU CAN DO IT!
11. Pension Payments
If you are in pension phase, ensure the minimum pension has been taken. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
The following table shows the minimum percentage factor (indicative only) for each age group.
Age Minimum % withdrawal (in all other cases)
Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95 or more 14%
Sacrificial Lamb
Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension” you will have a buffer for mistakes.
Before reading the following:Be careful not to reset a pension that has been grandfathered under the new deeming of pension rules that came in on Jan 1st 2015 without getting advice.
12. Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child.
You should review your pension documentation and check if you have nominated a reversionary pension. If not, consider your family situation and options to have a reversionary pension. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children. the reversionary pension may become more important with the application of the proposed budget measure on $1.6m Transfer limit to pension phase. If funds already in pension and reverting to another person then the beneficiary has 12 months to implement strategies to maximise how much they can retain in the superannuation system.
13. Review Capital Gains Tax Position of each investment
If you have been affected by the changes in the rules on taxation of TTR Pensions and the implementation of the $1.6m Transfer Balance Cap then you should be considering the CGT relief that may be available to your fund.
In accumulation phase review any capital gains made during the year and over the term you have held the asset and consider disposing of investments with unrealised losses to offset the gains made.
If in pension phase then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to government changes in legislation like those imposed in 2017/18
14. Review and Update the Investment Strategy not forgetting to include Insurance of Members
Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do…..call us.
15. Collate and Document records of all asset movements and decisions
Ensure all the funds activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant/administrator and auditor.
16. Double Dipping! June Contributions Deductible this year but can be allocated across 2 years.
For those who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording! Just call is an Allocated Contributions Holding Account.
17. Market Valuations – Now required annually
Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectibles. Here is my article on valuations of SMSF investments in Private Trusts and Private Companies. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
18. In-House Assets
If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanors ranging from $820 to $10,200 per breach.
21. Check the ownership details of all SMSF Investments
Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.
22. Review Estate Planning and Loss of Mental Capacity Strategies.
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid (check the wording matches that required by the Trust Deed) and still in accordance with your wishes. Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of illness, mental incapacity or death. Do you know what your Deed says on the subject? Did you know you cannot leave money to Step-Children via a BDBN if their birth-parent has pre-deceased you?
23. Review any SMSF Loans
Have you provided special terms (low or no interest rates , capitalisation of interest etc.) on a related party loan? Then you need to review your loan agreement and get advice to see if you need to amend your loan. Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee? If you bought a property using borrowing, has the Holding Trust been stamped by your state’s Office of State Revenue. Please review my blog on the ATO’s Safe Harbour rules for Related Party Loans here
24. Valuations for EVERYTHING
Not just for property, any unlisted investment needs to have a market valuation for 30 June. If you need assistance on how to value unlisted or unusual assets, including what evidence you’re going to need to keep the SMSF auditors happy, then contact us.
25. Collectibles
Play by the new rules that come into place on the 1st of July 2016 or get them out of your SMSF. More on these rules and what you must do in a good blog from SuperFund Partners here.
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.
I wrote an article a few years ago for MYOB’s small business blog called How much do I need to retire at 60? that certainly caused some heated debate and has been viewed over 425,000 times. The comments we got on that article were amazing and eye-opening to see how people’s vision of a “budget” and “comfortable lifestyle” is so different depending on their personal circumstances.
Some of the figures used for sample retirement budgets have been updated so I thought I would provide those figures as guidance for people facing the retirement funding conundrum and not sure where to start. I have also included figures more specific to the average SMSF member and those who want to have a much more than just “comfortable” lifestyle
The latest figures released by the Association of Superannuation Funds of Australia ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living in retirement.
Budgets for various households and living standards for those aged around 65
(March quarter 2018, national)
Modest lifestyle
Comfortable lifestyle
Single
Couple
Single
Couple
Total per year
$27,368
$39,353
$42,764
$60,264
Budgets for various households and living standards for those aged around 85
(March quarter 2018, national)
Modest lifestyle
Comfortable lifestyle
Single
Couple
Single
Couple
Total per year
$25,841
$36,897
$40,636
$56,295
Source ASFA Retirement Standard. The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
As you can see from the figures if you are looking at a ‘comfortable’ retirement at age 65-67 you need to consider a budget of $60,264 for a couple or $42,764 for a single person household.
In my previous article I talked about retiring at age 60 but as most people will be looking more likely at 65 as their target, I wanted to clarify what I believe you need to fund such a retirement. In my opinion a couple would need a combined superannuation and non-super investment assets balance of around $760,000 minimum and a single individual would need a balance of around $560,000. This at odds with ASFA who have increased their requirement by a whopping $130,000 but still have lower figures than mine as they believe you only need $640,000 for a couple or $545,000 as a single person.
My figures are based on No Centrelink Support. I am happy to accept ASFA are correct if you take into account some age pension but I find that many clients do not qualify for this because of non-income producing assets like holiday homes, caravans boats etc reducing their pension entitlements. Also there is an inherent risk that the now reduced Asset and Income Test limits may be reduced further in the search for more Government Budget Savings.
SMSF Members save more for a better lifestyle
So let’s get take it for granted that an SMSF member wants a bit better than just a Comfortable lifestyle. My friends at Accurium who I use to do Retirement Healthchecks for my clients came up with these figures for those looking for a better lifestyle and having at least 50% chance of sustaining it for their life expectancy. This assumes all you capital will be used in your lifetime. If you want more detail and options on having capital to pass on to your children then visit Accurium’s website to access their full report.
Spend
Level of savings needed
ASFA Comfortable ($60,000 p.a.)
$580,000
SMSF typical spend ($80,000 p.a.)
$1,100,000
SMSF aspirational spend ($100,000 p.a.)
$1,600,000
Source: Accurium – Retirement Insights Vol 7
So have a look below at what the ASFA Retirement Standard includes and then add in your own preferences to find out your ideal budget and capital requirement.
The Standard includes the cost of things such as health, communication, clothing, travel and household goods.
Comfortable lifestyle
Modest lifestyle
Age Pension
Single
$42,764 a year
$27,368 a year
$21,222 a year *
Couple
$60,254 a year
$39,353 a year
$31,995 a year *
Replace kitchen and bathroom over 20 years
No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom
No budget to fix home problems like a leaky roof
Better quality and larger number of household items and appliances and higher cost hairdressing
Limited number of household items and appliances and budget haircuts
Less frequent hair cuts or getting a friend to cut your hair
Can run air conditioning
Need to watch utility costs
Less heating in winter
Restaurant dining, good range & quality of food
Take out and occasional cheap restaurants
Only club special meals or inexpensive takeaway
Fast internet connection, big data allowance and large talk and text allowance
Limited talk and text, modest internet data allowance
Very basic phone and internet package
Good clothes
Reasonable clothes
Basic clothes
Domestic and occasional overseas holidays
One holiday in Australia or a few short breaks
Even shorter breaks or day trips in your own city
Top level private health insurance
Basic private health insurance, limited gap payments
No private health insurance
Owning a reasonable car
Owning a cheaper more basic car
No car or, if you have a car, it will be a struggle to afford repairs
Take part in a range of regular leisure activities
One leisure activity infrequently, some trips to the cinema or the like
Only taking part in no cost or very low cost leisure activities. Rare trips to the cinema
Figures from March Quarter 2018.
Most people I see in my day-to-day work advising on retirement planning have a “sugar coated view” of how they want to spend their time in retirement. Many have hobbies or interests that cost very little but others who like international travel or partaking in expensive social lifestyles of hobbies often under-estimate the costs.
Another worrying trend is people borrowing in their 50’s to fund lifestyle for fear of missing out or to keep up with the Jones! Others are helping children with home deposits and losing the vital compounding interest on their savings. Many tell me they believe they can live on the Government Age Pension in retirement. Well if you can’t manage on your current wage now without borrowing then you are in for a big shock if you plan to rely on the meagre Age Pension.
I see one industry commentator saying that the savings required to live a modest lifestyle in retirement only requires a small amount of retirement savings in addition to the age pension, however that sort of budget leaves you very vulnerable to food and utility price inflation as people will have seen with rising vegetable and electricity pricing in the last few years.
When you look at these estimates of the amount capital or assets you need to achieve the lifestyle you want in retirement, it’s still important to remember that most of these work on the average life expectancy. If your family has a history of longevity or early death, then you need to make allowances accordingly.
The bottom line: It’s never too early and hopeful not too late to start planning. So if you want to see where you stand at present based on your current savings and contributions to super, then use the Retirement Planner on the ASIC’s free Money Smart website.
Once you work out you target you should consider seeing a Financial Planner to see what strategies are available to you to boost your savings such as using a Transition to Retirement Pension and Salary Sacrifice strategy to save on personal and superannuation tax and build your nest egg.
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.
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.
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
There are many rumours and well-intentioned but wrong advice out here on the internet about how to maximise Centrelink or DVA pension by “gifting assets” before applying. I want to clear up some of those misunderstandings
The gifting and deprivation rules prevent you from giving away assets or income over a certain level in order to increase age pension and allowance entitlements. For Centrelink and Department of Veteran’s Affairs (DVA) purposes, gifts made in excess of certain amounts are treated as an asset and subject to the deeming provisions for a period of 5 years from disposal.
Acknowledgement: I relied originally in 2017 on the excellent guidance of the AMP TAPin team for the majority of the content in this article. They write great technical articles for advisors and I try and make them SMSF trustee friendly. I have now updated the article and take responsibility for all data in this latest version.
What is considered a gift for Centrelink purposes?
For the deprivation provisions to apply, it must be shown that a person has destroyed or reduced the value of an asset, their income or a source of income.
A person disposes of an asset or income when they:
engage in a course of conduct that destroys, disposes of or reduces the value of their assets or income, and
do not receive adequate financial consideration in exchange.
Adequate financial consideration is accepted when the amount received is reasonably close to the market value of the asset. You may need an independent market valuation to support the value you have used, or Services Australia may use its own resources to value the asset.
Deprivation also applies when the gifted asset doesn’t count under the assets test at all. For example, unless the granny flat provisions apply, deprivation is assessed if a person does not receive adequate financial consideration when they:
buy a new principal home in another person’s name.
transfer the legal title of their principal home to another person, or
What are the gifting limits?
The gifting rules don’t stop you from giving anything to anyone. What they do is cap how much a gift can reduce your assessable assets and income, and so how much it can increase your social security entitlements.
There are two gifting limits, and they apply together:
$10,000 per financial year. This is the limit for a single person, or the combined limit for a couple. It is not $10,000 each.
$30,000 over a rolling five financial year period.
So you can keep gifting up to $10,000 a year without penalty, but you also need to stay under the $30,000 limit across any rolling five-year window. Neither limit is indexed. They have not changed in more than 20 years and still apply in 2026/27.
What happens if the gifting limits are exceeded?
If you go over either limit, the excess is treated as a “deprived asset” of you and/or your partner.
The deprived amount is then assessed for five years from the date of the gift. It counts under the assets test, and it is deemed to earn income under the income test. The dollar figure stays the same for the whole five years. It doesn’t grow or shrink with the value of whatever you gave away. Once the five years are up, it is no longer counted as your asset and is no longer deemed.
What it costs you in 2026/27. From 20 September 2026, deeming rates are 1.75% on financial assets up to $66,800 for singles ($110,600 combined for pensioner couples) and 3.75% on anything above that. Under the assets test, every $1,000 of assets above the full pension threshold reduces your pension by $78 a year. A $20,000 deprived asset could therefore cost a pensioner on the assets test about $1,560 a year in pension, every year for five years, for money they no longer have.n of the 5 year period, the deprived amount is neither considered to be a person’s asset nor deemed.
Example 1: Single pensioner, gifts not affected by the deprivation rules
Sally is a single pensioner with financial assets of $275,000. She wants to gift some money to her son to help him get ahead. Her gifting plan is:
Financial year
2026/27
2027/28
2028/29
2029/30
2030/31
2031/32
Amount gifted
$6,000
$6,000
$6,000
$6,000
$6,000
$6,000
Neither gifting rule affects Sally. She stays under $10,000 in every financial year, and any rolling five-year window adds up to exactly $30,000 ($6,000 × 5), which is within the limit. No deprived asset is assessed.ear period.
Example 2: Single pensioner, gifts affected by both rules
Peter receives the Age Pension. He gives away the following amounts:
Financial year
Amount gifted
Deprived asset under the $10,000 annual rule
Deprived asset under the $30,000 five-year rule
2026/27
$33,000
$23,000
$0
2027/28
$2,000
$0
$0
In 2026/27, $23,000 of the $33,000 is over the $10,000 annual limit. That $23,000 is treated as Peter’s asset and deemed for five years from the date of the gift.
In 2027/28, Peter has given away $35,000 in total. However, amounts already assessed under the annual rule are taken out before the five-year rule is applied:
$33,000 + $2,000 − $23,000 = $12,000
That’s well under $30,000, so no extra deprived asset is assessed under the five-year rule.
On the cost: if Peter is assessed under the assets test, the $23,000 deprived asset could reduce his pension by about $1,794 a year ($23 × $78) until the five years are up.s totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, ie $33,000 + $2,000 – $23,000 = $12,000, which is less than the relevant limit of $30,000.
Example 3: Couple affected by both rules
Ted and Alice receive the Age Pension. They give away the following amounts:
Financial year
Amount gifted
Deprived asset under the $10,000 annual rule
Deprived asset under the $30,000 five-year rule
2023/24
$10,000
$0
$0
2024/25
$13,000
$3,000
$0
2025/26
$10,000
$0
$0
2026/27
$10,000
$0
$10,000
2027/28
Any gift in 2027/28 is assessed in full as a deprived asset under the five-year rule
Working through it year by year:
2024/25: $3,000 of the $13,000 is over the $10,000 annual limit, so it is a deprived asset for five years.
2025/26: Gifts counted against the five-year limit are $10,000 + $13,000 + $10,000 − $3,000 = $30,000. That reaches the limit but doesn’t exceed it, so nothing extra is assessed.
2026/27: The count is now $10,000 + $13,000 + $10,000 + $10,000 − $3,000 = $40,000, which is $10,000 over the $30,000 limit for the five-year period starting 1 July 2023. Although the 2026/27 gift is within the annual limit, all of it is a deprived asset for five years.
2027/28: The five-year window (2023/24 to 2027/28) has no free area left, so any gift this year is assessed in full.
From 1 July 2028, 2023/24 falls out of the window and Ted and Alice will have up to $10,000 of free area available again.ven away in 2021/22 exceeds the gifting limit for that year, so it will continue to be treated as an asset and subject to deeming for five years. The $10,000 given away in 2022/23 exceeds the $30,000 limit for the five-year period commencing on 1 July 2020, so it will also continue to be treated as an asset and subject to deeming for five years.
Are some gifts exempt from the rules?
Certain gifts can be made without triggering the gifting provisions. Broadly speaking, these include: − Assets transferred between the members of a couple. A common example is where a person who has reached Age Pension age withdraws money from their superannuation and contributes it to a superannuation account in the name of the spouse who has not yet reached age pension age. − Certain gifts made by a family member or a certain close relative to a Special Disability Trust. For more information on Special Disability Trusts, refer to Department of Human Services – Special Disability Trusts. − Assets given or construction costs paid for a ‘granny flat’ interest. See Department of Human Services – Granny Flat Interest for further detail.
Trying to be too smart – Gifting prior to claim
Contrary to what many read on the internet any amounts gifted in the five years prior to accessing the Age Pension or other allowance are subject to the gifting rules
Deprivation provisions do not apply when a person has disposed of an asset within the five years prior to accessing the Age Pension or other allowance but could not reasonably have expected to become qualified for payment. For example, a person qualifies for a social security entitlement after unexpected death of a partner or job loss.
Trying to be too smart – Gifting to a Family Trust
Gifting money or assets into a family trust does not generally bypass Centrelink gifting rules. Centrelink has specific “deprivation rules” designed to prevent individuals from reducing their assets to increase their age pension or social security entitlements.
If you transfer money or assets into a family trust, it is treated as a gift and will be assessed under the same rules as giving money directly to a person, unless you do not control the trust.
Trying to be too smart: gifting to a family trust
Putting money or assets into a family trust does not get you around the gifting rules.
If you don’t control the trust, the transfer is treated as a gift, the same as giving money directly to a person. The $10,000 and $30,000 limits apply, and any excess is a deprived asset assessed and deemed for five years.
If you do control the trust, the outcome is usually worse. Under the private trust rules, Services Australia can treat you as an “attributable stakeholder” if you or your partner (or your associates) control the trust, for example as trustee, director of the trustee company or appointor, or if you transferred assets into it. The trust’s assets and income are then attributed back to you, often in full, and counted as yours under both tests. This attribution doesn’t end after five years. It continues for as long as you have that control or link.
Gifting and deceased estates
The gifting rules apply to your interest in a deceased estate if you:
give away your right to your interest in the estate for no or inadequate consideration,
direct the executor to distribute your interest to someone else for no or inadequate consideration, or
give your interest to someone else, for no or inadequate consideration, after the estate has been finalised.
These rules apply even if the deceased died without a will.
Gifting and death of a partner
Sometimes a pensioner couple gives away assets and then one of them dies. While both were alive, the deprived assets were assessed against the couple for five years from the date of the gift. So what happens to the surviving partner?
It depends on who legally owned the asset before it was gifted.
Table 1: Gifting and death of a partner
Legal owner of the gifted asset
Deprived asset assessed against the surviving partner
Jointly
Doesn’t change. The survivor keeps their own share, and the deceased partner’s share is not transferred to them.
The deceased partner
Reduces to zero.
The surviving partner
Increases to include the share previously assessed against the deceased partner, so the full outstanding amount is now assessed against the survivor.
Example 4: Death of a partner
Daryl (84) and Gail (78) gifted an apartment worth $260,000 to their son Ethan on 1 July 2025. They had made no other gifts in the previous five years, so after the $10,000 free area Centrelink assessed $250,000 as a deprived asset. As a couple, half of that ($125,000) was held against each of them. Daryl passed away on 1 July 2026, with the deprivation period still running until 1 July 2030.
How Gail is assessed depends on who legally owned the apartment:
Legal owner of the gifted asset
Deprived asset assessed against Gail
Jointly
Gail’s share of $125,000 doesn’t change. Daryl’s $125,000 share isn’t transferred to her, so $125,000 is assessed against Gail.
Daryl
Nothing carries over. The amount assessed against Gail is $0.
Gail
Gail is assessed on the full $250,000, her own $125,000 plus Daryl’s $125,000.
Remember that Gail is now assessed as a single person. That means lower assets test thresholds and a lower deeming threshold ($66,800), so the same deprived amount can have a bigger effect on her pension than it did when she was part of a couple.
A practical tip: keep a gifting log
If you’re a pensioner, or expect to claim within five years, keep a simple record of every gift: the date, the amount, who received it and, for assets, how you valued them. Services Australia asks about gifts in the past five years when you claim, and pensioners must report changes in their circumstances within 14 days. If you lend money to family instead of giving it, put the loan in writing. A documented loan is still your asset (and is deemed), but forgiving it later counts as a gift.
Want a Centrelink 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 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 this the year to get organised or it will be 2030 before you know it.
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Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98993893, Mobile: 0413 936 299
PO Box 6002 Norwest NSW 2153
40/8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
GENERAL ADVICE WARNING
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.
The changes to the superannuation system, announced by the Australian Government in the 2016–17 Budget, have now received royal assent and the finer details of how to implement them have been released. While the government claim these changes were designed to improve the sustainability, flexibility and integrity of Australia’s superannuation system, they did not work with industry or the ATO before announcing them and as such it has been a nightmare to try to get your head around what the actual changes are and how strategies need to be implemented to manage them.
As a result we are getting last-minute guidance from the ATO and software providers as well as SMSF, Industry and Retail Super providers. The government have back-flipped on some measures, amended others because of collateral damage and tightened other measures for obscure reasons. With most of these changes commencing from 1 July 2017 I have tried to put some useful links together.
A short video overview of the changes is provided below. I have provided more detailed information links and will update these as they are progressively published to help you understand the changes, how they may affect you, and what you may need to know and do now, or in the future as a trustee of a self-managed super fund (SMSF). Even more detailed information is available to help you understand the changes, including for some topics, law companion guidelines (see below) to provide certainty about how the changes will be administered.
For those who wish to dive in to the detail please view the Law Companion Guides below. A law companion guideline is a type of public ruling. It gives the ATO view on how recently enacted law applies. It is usually developed at the same time as the drafting of the Bill.
The ATO normally release a law companion guideline in draft form for comment when the Bill is introduced into Parliament. It is finalised after the Bill receives Royal Assent. It provides early certainty in the application of the new law. Please make sure to look for updates before relying on this information.
The ATO have also released access to answers to some frequently asked questions and they can be found in this document Super Changes Q & As
Example: Q. How are my pensions and annuities valued for transfer balance cap purposes?
ANSWER : You need to contact your fund about the value of your pensions and annuities.
The value of your pension or annuity will generally be the value of your pension account for an account-based pension.
Special rules apply to calculate the value of: • lifetime pensions • lifetime annuities that existed on 30 June 2017, and • life expectancy and market linked pensions and annuities where the income stream existed on 30 June 2017
Lifetime pension and annuities These are valued by multiplying the annual entitlement by a factor of 16.This provides a simple valuation rule based on general actuarial considerations. Your annual entitlement to a superannuation income stream is worked out by reference to the first payment entitlement for the year. The first payment is annualised based on the number of days in the period to which the payment refers. (I.e. the first payment divided by the number of days the payment relates to multiplied by 365).
This means that a lifetime pension that pays $100,000 per annum will have a special value of $1.6 million which counts towards your transfer balance cap in the 2017-18 financial year.
For a lifetime pension or annuity already being paid on 1 July 2017, the special value will be based on annualising the first payment in the 2017-18 financial year. This may include indexation, so may be slightly higher than your current annual lifetime pension payments.
Life expectancy and market linked pensions and annuities being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by the number of years remaining on the term of the product (rounded up to the nearest year).
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.
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.
