Super changes will hit saving strategies


Please find a link below to an article on the Macro Business blog website about the expected and unexpected effects of the proposed Super changes.  No More Tax Free

http://www.macrobusiness.com.au/2013/04/super-changes-will-hit-saving-strategies/

Macro Business has an excellent engaged readership and as always the comments tend to be very valuable at exploring the details of any subject just that little bit further.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Using Beer To Explain How Tax Concessions Work


Let’s put tax concessions for superannuation in terms everyone can understand.

Suppose that every night, ten men go to their favorite bar for a few beers. The tab for all tenBeer Fund
comes to $100. If they paid their bill the way we pay our taxes, it would go something like
this:

  • The first four men (the poorest) would pay nothing.
  • The fifth would pay $1.
  • The sixth would pay $3.
  • The seventh $7.
  • The eighth $12.
  • The ninth $18.
  • The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every night and seemed quite happy with the
arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your nightly tab by $20.”

So, now drinks for the ten only cost $80. The group still wanted to pay their tab the way we pay our taxes.  So, the first four men were unaffected. They would still drink for free.

But what about the other six, the paying customers?

How could they divvy up the $20 windfall so that everyone would get his ‘fair share’?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being ‘PAID‘ to drink beer!

So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

  • The fifth man, like the first four, now paid nothing (100% savings).
  • The sixth now paid $2 instead of $3 (33% savings).
  • The seventh now paid $5 instead of $7 (28% savings).
  • The eighth now paid $9 instead of $12 (25% savings).
  • The ninth now paid $14 instead of $18 (22% savings).
  • The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once drunk and outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man “but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than me!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up at the bar, so the nine sat down and drank without him. But when it came time to pay the tab, they discovered something important. They didn’t have enough money  between all of them for even half of the tab!

And that, ladies and gentlemen, journalists and Mr Turnbull and Mr Morrison, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction or concession like the Superannuation contribution tax rate. Tax them too much, attack them for being wealthy, and they just may not show up to pick up the tab anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

This article has been adapted to Australian circumstances and is based on what is believed to have originally been a letter to the Chicago Tribune by a Mr Don Dodson in March 2001 (Source SNOPES.com )

As always please contact me if you want to look at your own particular situation as we specialise in plain English strategies. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

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ATO have released latest SMSF Statistics


The ATO have just released the SMSF Quarterly Statistical Report for December 2012. It’s good reading for those interested in SMSFs and especially for those embarking on the idea of using one as you can see that they are a well established and significant sector in the superannuation industry.

HIGHLIGHTS

As at June 2012 there were 478,579 Self-Managed Super Funds. This was a net increase of 37,174 (3,097/month) for the year. At this rate with 909K members we are looking at the 1,000,000 SMSF member around September 2013!

Total assets held as at December 2012 was $474,414,000

Assets, including net contributions, increased by $64,693,000 over the year (15.8%)

Listed share exposure increased from 29% to 31.6% over the year

Australian non-residential property dropped from 12% to 11.4% of total assets though it did increase by $5,213,000 whilst Australian residential property decreased from 3.7% to 3.5% of total assets though it did increase by $1,600,000.

Over 91% of funds contain no more than 2 members emphasising that most of the funds are mum and dad funds and people are still hesitant to bring in their children. 22.5% are single member funds.

As at June 2011

o   Average SMSF assets per fund was $963,002

o   Median assets per SMSF was $539,486

o   Average member account size was $506,499

o   Median member account size was $301,964

Ages of members at June 2012 were

o   Under 25 – 1%

o   25 to 34 – 3.4%

o   35 to 44 – 11.2%

o   45 to 54 – 22.8%

o   55 to 64 – 33.4%

o   Over 64 – 28.1%

The ATO believe that with their new data gatherign they will be able to provide additional operating expense reporting in the future. as they have made chnages to the 2012-13 SMSF Annual Return to colect more specific data.

To see the full report and browse through the tables click here

As always please contact me if you want to look at your own particular situation as we take you from novice to expert step by step over the long-term. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AdvDipFS

Financial Planner & SMSF Specialist Advisor™

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

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

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

Important information :

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

What happens if I don’t take the minimum pension?


The Australian Tax Office (ATO) in January 2013 released guidance on the consequences of trustees not paying minimum amounts from account based pensions, including the loss of tax exempt status. It has issued two documents on starting and stopping a superannuation income stream (pensions) for self-managed superannuation funds. Tax Free

 (more…)

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


Buy Sell PropertyFollowing on from our previous 2 articles on SMSF and Property, the next logical step is to show where others have commonly made mistakes and how to avoid these errors. I have looked at the errors as they would be experienced in the pre-planning phase, during the borrowing process and once the loan is in place to make it easier to follow and to refer to later. In my opinion, these errors are the most common cause of investor angst and additional costs. They can lead to extremely negative experiences when borrowing to buy property inside a SMSF and are best avoided!

Before the purchase:

Error #1 – Believing purchasing an SMSF property purchase is a standard process

The superannuation system was set up as a concessionally taxed system with one sole purpose and that is to provide for retirement income. The regulators therefore are determined to preserve the integrity of this aim and you should keep this in mind when dealing with any issue related to superannuation and your self-managed super fund in particular.

There are numerous compliance obligations that you must consider that would not be of concern to you if buying a property in your own name or that of a family trust.

Those jumping in and expecting to be able to fix mistakes should be aware that the system leaves little room for error or mitigation of mistakes.

Error #2 – Not seeking pre-approval of a loan and knowing the lender’s requirements before incurring costs

I recommend you use a broker to find out exactly what the lender will require for a loan and check if you would qualify in financial terms before incurring any of the costs in the process. You should expect closer scrutiny of the fund’s deed and financials, your own position and the advice you have received than with ordinary property loans because the lender is offering you a limited recourse product.

Error #3 – Using out of date SMSF trust deeds

Limited recourse borrowing arrangements for superannuation funds is still relatively new and was introduced in September 2007 with a major update to the law in July 2010. Further clarifications were made only last year and they may be needed to implement your chosen strategy. Any trust deed set up before July 2007 is unlikely to have the relevant powers required to borrow, grant a charge over an asset, or use a holding trust. As such, I would always recommend a deed upgrade before commencing the process.

And as the lender’s solicitors will review your deed before authorising the loan, any omissions in the deed will only result in delays, costs to rectify the deed and possibly additional fees to the lenders solicitors to approve such subsequent changes. You may miss your settlement date and breach your contract as a result.

Error #4 – Not having a consistent record of contributions or ability to forecast future contributions

Another reason for planning in advance for this strategy is to be able to display a history of making regular contributions to the fund to satisfy bank requirements. They will question the lack of contributions as an indication of financial hardship or lack of commitment to building liquidity in the fund. Likewise, you need to be able to show capacity to make future contributions. Already, the lowering of the concessional contributions cap to $25,000 has put some single member funds in trouble.

During the contract process:

Error #5 – Not making one person responsible for management and control of the process

The process, as outlined in last week’s article, involves the lender, the vendor and your own legal advisers, your tax advisor/accountant, possibly a legal document company and a mortgage broker. You can see that a delay in any part of the process can be a nightmare to sort out. You can see the benefit of having someone on your side who does know what they’re talking about when it comes to SMSF property investment. Ideally that person should be prepared to overview the deal and be the central point of contact for the others involved who may have issues. Having been brought in to handle problems I can tell you that it can be a mess to untangle.

Error #6- Buying a property before the SMSF is properly set up or the holding trustee registered

There is no room for “buy now – think later” moves on a weekend buying spree when dealing with an SMSF. If the SMSF has not been setup then a trust does not exist. If you sign a contract or place a deposit for a property without having the name holding Trustee Company established then you face double stamp duty and capital gains tax issues.

Error #7 – Not setting up the SMSF and holding trust correctly

Using individual trustees for either the SMSF or the holding trustee may lead to finance being delayed or refused. It may also lead to potential exposure to litigation, putting personal assets at risk. For example, should a trades person be injured while working on the property and sue all parties for negligence, an individual trustee will be directly exposed. Using a trading company as trustee for either position is also a mistake, likely to compromise the “bare” trust arrangement.

Error #8 – Not properly implementing rules concerning ‘single acquirable assets’

In simple terms, the rules state that trusts should purchase a single asset on one title. The recent ATO ruling SMSFR 2012/1: application of key concepts with LRBAs, provides a degree of clarity by explaining under what circumstances an asset could be viewed as a single asset, which predominantly revolves around whether it cannot be dealt with separately (even if multiple titles are involved). The ATO gives 15 examples as a guide.

Error #9 – Using the lender as holding trustee in a related party loan (where you lend to your fund)

The presence of any conflict, like in a case where the holding trustee is also the lender to the fund, may weaken the “absolute entitlement‟ of the SMSF to the asset. This could have capital gains and land tax consequences for the fund. An example would be the loan coming from your family trust and having the trustee of that family trust also act as the trustee of the holding trust.

Error #10 – Signing up the holding trustee as the borrower instead of the SMSF trustee

Again, I would emphasise that the holding trustee simply holds the title and nothing else. The SMSF trustee is the beneficial owner and must be the borrower on all documentation. If the holding trustee is the borrower, then full stamp duty will be payable on any transfer of title from the holding trustee to the SMSF Trustee when the loan is paid up. Sometimes the holding trustee will have to sign documentation in order for the documentation to be effective. Where this is the case, it should be recorded that the trustee is acting on the instructions of the beneficial owner (i.e. the SMSF trustee).

Error #11– Paying holding fee, deposit, settlement payment or any costs from any source other than from the SMSF

All payments in respect of the transaction must come from the SMSF bank account or the loan facility. In order to facilitate the property transfer on completion of the loan, a documentary evidence showing the trail of payments will be need to be submitted with the request. This is another reason for getting the holding trust deed stamped as recommended later in order to pick up on errors early and seek remedies before financials are completed. This is far better than trying to find solutions years later.

After the settlement:

Error #12 – Breaking the “arm’s length” and “sole purpose” rules when dealing with related parties

If you have any interaction with the SMSF directly yourself, or through a company or trust entity controlled by you or a related party, you must be very careful to do so as if dealing with a third-party. Here are a few examples of what this means:

  • putting a proper lease in place for business real property;
  • paying rent on time;
  • making loan repayments on time or charging penalty rates as per the loan agreement;
  • not making personal use of an SMSF residential property even if you agree to pay rent; and
  • not letting your child or sibling move in to a residential property while they get through a rough time.

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

Error #13 – Leaving the stamping of the holding trust deed to be completed too late

The holding trust deed must be stamped to ensure that the final transfer from the holding trustee to the SMSF trustee attracts only nominal stamp duty. Best practice, and in some states the rules dictate it, is to have the final transfer stamped generally within 30-90 days after it has been activated. As mentioned previously, it makes common sense to gather all the supporting documents stamped while available, and the process confirmed before doing the funds financials for the year.

Imagine if your spouse had passed away, or you lost some of the bank’s statements/documentation when trying to do it later, and found double stamp duty being applied by the regulators in your state. Better safe than sorry.

Error #14 – Holding Trustee doing anything other than holding legal title

The holding trustee only exists to hold legal title to the property while there is a loan outstanding. It may also grant security via a mortgage to the lender and enter into leases of the property on behalf of, and as instructed by, the SMSF trustee. A common mistake is for the holding trustee to have its own Australian business number (ABN), tax file number (TFN), or bank account, which should all be avoided.

If the holding trustee performs any other active duties and does not act solely at the direction of the SMSF trustee, then the holding trust may be found to be a separate entity for the purposes of reporting GST. It would then need to prepare and lodge tax returns and the look-through approach to the holding trust may not apply for income, land tax and CGT purposes, which of course means outside of the concessional superannuation environment.

Beware of any lender that requests additional duties on the holding trustee and have your solicitor seek to remove these clauses.

Error #15 – Not considering the liquidity needs of the SMSF during retirement phase

If you plan to put your fund into pension phase while still holding the property then you need to ensure the fund has enough liquidity to pay the minimum pensions, expected lumps sums and maintenance costs of the fund, such as accounting and advice fees. If unable to do so you may exacerbate the position by having to return to accumulation phase and pay tax on the rental income.

Error #16 – Not considering the liquidity needs of the SMSF during periods the property is unoccupied

Property occupancy is rarely continuous and you need to ensure you have the liquidity to make loan repayments and property expenses during periods without tenants. This is why we warn about setting up funds with small balances or using a high proportion of the fund balance for a single asset purchase.

Error #17 – Not considering insurance for the property, the SMSF members’ lives, or your contribution capacity

You need to make sure the property is insured in the name of the SMSF trustee so a loan can be paid out in the event of fire or destruction. You should also ensure that unless you have other funds available within the fund, or can contribute enough to repay the loan on death of a member, that you have life and disability cover up to at least the value of the loan on each member. If you are negatively gearing, and will rely on your contributions to the cover loan repayment shortfall, then you should additionally consider income protection insurance.

Error #18 – Not understanding the rules regulating the use of borrowed funds for repairs and maintenance, rather than improvements

You can harness the DIY renovator within you but the property developer may need to be shackled when it comes to SMSF property under a limited recourse borrowing arrangement.

Again, I refer to SMSFR 2012/1 for an explanation of the differences between these very similar terms. In basic terms, you can repair and maintain with the borrowed funds but can only improve the property to a certain extent with other funds of the SMSF. Your SMSF’s auditor and the ATO will keep a close eye on any such expenses and the source of funding. Read here for more detail SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.

Error #19 – Going a step too far and creating a ‘replacement asset’

Remembering this is not a business venture, it is an investment within a heavily legislated structure that has a primary focus of providing for your retirement, you need to be wary of any form of ‘development’.

If you proceed to make improvements so extensive that the result is an asset that is substantially different from the original then you may have in effect created a ‘replacement asset’ in the eyes of the regulator: the ATO.

Some examples of ‘replacement assets’ provided by the ATO include:

  • the subdivision of a single plot of land on a single title into smaller plots with individual titles;
  • the building of a house on a vacant plot of land;
  • the demolition of an existing house and its replacement with three strata title units; and
  • the re-zoning of the land upon which an existing house stands and its transformation into commercial premises.

If the ATO considers that the character of the asset has been changed to such a degree, as outlined in the examples above, it now constitutes a replacement asset that they will deem falls outside the guidelines and may make the SMSF non-compliant.

Error #20 – Not registering for GST in the name of the SMSF trustee only

Thanks to recognition of the strategy by the tax office, where the property is commercial and the GST turnover is greater than $75,000, you do not need to register the holding trust for GST, only the SMSF needs to be registered.

This also means if the property is transferred to the SMSF trustee, this doesn’t constitute a taxable supply and thus does not give rise to a GST liability.

The bottom line: This is a comprehensive, but probably not exhaustive list of the errors that SMSF trustees can make in the process of managing a loan to purchase a property in their super. It is essential that you plan the purchase of a property well and do not act in haste or take advice from someone well-intentioned but without a clear understanding of the laws. Experience in dealing with the transaction from start to finish is essential to avoid repeating other peoples’ mistakes.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

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


Follow the Process on SMSF BorrowingThis is Part 2 of a 3 part series. In the first article, we looked at the background to the limited recourse borrowing arrangements that can be used by SMSFs to invest in an asset, specifically a residential or commercial property. Now we look at the actual process (using NSW as our base as different states have slightly different rules).

  • Real estate investing and self-managed superannuation can be combined activities, but there are rules to be aware of.
  • Borrowing is one of the more complex areas in this process, but it can still be broken down into relatively simple steps.
  • It’s certainly not child’s play, but this week we show how limited recourse borrowing arrangements can work.

As we detailed last week in the first of this series, placing real estate investments into self-managed superannuation funds (SMSFs) needn’t been a Herculean task, but it does require careful planning. Most of all, however, you or your advisors need to be fully conversant with the current borrowing exception that is detailed in section 67A of the Superannuation Industry Supervision (SIS) Act. SMSF borrowing is more correctly termed as a limited recourse borrowing arrangement (LRBA). This week we take a closer look at LRBAs and show you the typical steps involved.  (more…)

Questions to Ask Yourself Before Considering an SMSF Property Investment


I have had a lot of enquiries lately for advice on SMSF loans for property investment and we have run regular educational seminars on the issue for clients and the public. My main observation from the enquiries I have received is that people are jumping on the band wagon without checking if they really need to take on the additional risk and costs involved. Here are some simple questions to consider before starting the process.

  1. Are you ready to seek advice, take advice and follow that advice? This is not an area to mess around with and the penalties of getting it wrong are expensive and time-consuming so unless you are willing to learn the rules, follow the rules and do the necessary paperwork as well as pay the initial set up costs then STOP NOW! Look elsewhere for a get rich quick scheme.
  2. Are you only considering this option because you have run out of equity to fund property purchases in your own name or are you genuinely interested in using property as a part of a diversified strategy to meet your retirement income needs. Using superannuation funds means the focus has to be on providing for your retirement and you need to ensure that is the primary intent of the investment.

  3. Would the prospective property investment stand up on its own to a proper assessment of its potential without the tax benefits allowable in this superannuation strategy. If an investment does not stack up under normal circumstances then do you really want to rely on future governments keeping their fingers out of the Superannuation pie to meet your retirement needs!

  4. If you have attended a seminar where you were actually offered a property and if so do you know what commission/fee/marketing allowance the promoter is getting as part of the deal? If you pay $6-$10K to set up the SMSF structure, $10-$20K Stamp Duty and the promoter gets say$17,500 which is 5% on a $350K property then you will need the property to grow by at least 10%-15% before you break even. Currently ANZ in its July Australian Property Housing Chartbook compiled by economists David Cannington, Paul Braddick and Ivan Colhoun.  indicate a 4-5% growth rate would be the most expected over the coming few years.

  5. Are you prepared to do the hard slog yourself and research a decent deal in an area you understand and to ensure you are paying a fair price for a property with rental and growth potential over the longer term.

Property is a great part of a long-term savings portfolio but like every investment you have to do the ground work and the current hype in this area has attracted the spruikers who promise much but deliver little long-term. Seek out the professionals who have an established reputation in the property sector and always do simple things like doing a Google search on  the person or business and the word “scam” or “complaint”.

I hope these thoughts  have been helpful and please take the time to comment if you know of others questions investors should ask as I know this is not an exhaustive list.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Think twice before cancelling insurances as you get older.


Do you know that the average person cancels their personal insurance about 1-2 years before an claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)

As mentioned in a previous blog the SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . TheRisk Management following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.

I see many clients in our Castle Hill and Windsor offices in their late 50’s who have cancelled their life and income protection insurances before they have come to see me. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.

Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.

While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.

With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.

You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.

To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?

  • Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
  • Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
  • What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
  • What if you were actually permanently disabled and they had all the costs of rearranging the home, medical care and transport options for you.

In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.

So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.

If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:

  • Financial Planning,
  • Tax Planning,
  • Debt Consolidation,
  • Investment Portfolios,
  • Estate Planning,
  • SMSF Trustee queries.

Have you found this blog helpful? Pass it on. Social media buttons beneath the article.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Self Managed Super Funds must include an Insurance Needs Analysis as part of the fund’s SMSF Investment Strategy.


Amendments to the SIS Regulations in place from August 2012 require trustees of SMSFs by law:

  1.  to consider whether insurance cover should be held by the fund on the lives of the members;
  2. to review that decision as SMSF trustees regularly as part of the review the investment strategy of the fund.

The obligation (which is set out in SIS Reg 4.09(2)(e)) requires the trustees to apply their minds to whether  “for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.”

This is a major step up in terms of duties from the old regulations and I believe has been prompted by the June 2010 Super System Review Panel report noting that less than 13% of SMSFs have insurance. Now in reality the major factor to consider is probably that this low figure is a result of most SMSF members being over 55 with higher super balances and low personal debt so the need for any insurance may be negligible.

Insurance protection

Image courtesy of iosphere at FreeDigitalPhotos.net

So what insurance covers are we talking about?  Well it is not simply life insurance, and could include total permanent disability cover and income protection cover that insurers make available via superannuation.

This is not an obligation on the fund to take out each of these insurance covers – the trustees must merely consider the issue.

To prove for the purpose of the annual audit that the trustees have considered the issue, the trustees will have to prepare minutes/resolutions which:

  • acknowledges that the trustees are aware of the obligation to consider insurance cover;
  • shows that the trustees have considered the need for insurance cover for each of the members of the fund;
  • documents that they have implemented cover where possible to meet those needs of the individual members and of the fund itself (in the case of LRBA) or
  • acknowledges that the trustees have determined that insurance is or is not required for a particular member(s)

As is the case with many clients that I take care of the trustees may conclude that no insurance cover is required in respect of a particular member for a variety of reasons such as:

  • when the member has indicated that they have no need for cover as their debts are low and needs are fully funded;
  • the member has sufficient insurance cover in other super funds (we often keep employer or industry funds open to avail of lower group rates);
  • the member has other insurance arrangements outside of the super;
  • that due to illness or injury the cost of premium is too high for the cover provided;
  • when the member has actually been declined for cover due to occupation or pre-existing conditions;
  • that the member does not believe in insurance or is unwilling to pay the cost of the premium.

So how far do you go as a Trustee in documenting your reasons for their decision? Is a full-blown explanation required or a simple statement that they have considered the issue and have come to a set conclusion either way for each member?

Whilst going into detail may sound the correct option to show the trustees have fully discharged their duty, those reasons set down in writing could be questioned later and the process found negligent which may expose the trustees to claims that they have breached their duties.  You may think that an SMSF most often consisting of mum and dad and maybe a few children in a family group like this may be unlikely to end in conflict but potential Beneficiaries of Estates, with the advantage of perfect hindsight, may seek redress to put pressure on trustees to consider their claims.

A possible solution may be for the trustees to discharge their duty by requesting from each member to indicate whether the member wishes to have cover for any or all risks identified in the fund.  If a member said that they do not wish to have or do not need, and will not submit to any underwriting requirements, then the trustees would be in a position to claim that they either have discharged their duty to the member.

As the new requirement has been attached to the investment strategy operating standard of SIS Reg 4.09, it seems that the trustees will also have to reconsider the issue of insurance each time the investment strategy is reviewed and on the occurrence of any significant change to the circumstances of a member or the fund such as a large contribution or withdrawal.

It is time to decide how you will comply with the new rules so please contact us if you need assistance or want to explore your options. Our risk specialists can review existing insurances and provide quotes on a range of covers from suitable insurance companies.

Want to do some preliminary investigations yourself? Why not try this decent Insurance Needs Calculator by clicking here, and then make an appointment to discuss the results with us.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc to make sure Trustees are aware of the changes.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Seeking advice makes people proactive on super – SMSF clients even more so.


According to new research released by Mercer, superannuation fund members who obtain advice are twice as likely to make additional contributions,.

The research – released in August 2012 – said those receiving advice were also twice as likely to make a beneficiary update and five times more likely to make an insurance underwriting enquiry. (source: Money Management article on Mercer study 07/08/2012)

I will go a step further and say that of all superannuation sectors it is SMSF members and trustees who take the bull by the horns and make the most of the strategies available to them after receiving competent advice from a SMSF Specialist Advisor™. they start an SMSF to have control and flexibility but after taking advice :

  1. They are more likely to use a Transition to retirement strategy earlier after getting advice
  2. They consider retaining insurance in a separate fund to save fees or transfer the cover rather than simply letting it lapse on rollover.
  3. They are more proactive about seeking out lost super funds
  4. They are more likely to have multiple pensions segregating tax free amounts for estate planning.
  5. They are focused on maximising the potential of the concessionally tax structure by investing in high yield and highly franked investments.
  6. They are more likely to adjust their portfolios tactically to take advantage of the change in market cycles.
  7. They are more focused on getting the best rate for their cash and fixed interest investments rather than accepting the offer from the current provider.
  8. More likely to use Super Splitting to even up accoutn balances and protect against future legislative change
  9. They can learn the benefits of recontribution strategies for Estate Planning.

So if you have an SMSF or indeed a retail or industry superannuation fund go and take some advice as it opens your eyes to the potential strategies available to you no matter your age, assets or experience.

For those who have benefited from advice or are advisors, I challenge you to add other benefits to this list (leave a comment) so others can learn.

Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc to make sure we get the news out there to seek advice.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

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

Verante Financial Planning

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

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

Important information :

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

Tips to protect your SMSF against fraud


I know there has been a bit in the news of late about SMSF being targeted by fraudsters but what should you look out for and how can you research and report suspect approaches, sites or promotional material.

In 2012 Christine St Anne from Morningstar wrote an excellent piece called 6 tips to protect your SMSF against fraud

I would urge all SMSF Trustees to read this article and yes that means even YOU! The usual victim is not the usual victim! These scammers are targeting well-educated, internet savvy, experienced investors who they expect to do some checks and have built their systems to convince those initially skeptical people.

In the last 6 months I have seen beautiful glossy brochures offering guaranteed 52% returns using systems for trading shares and another on horse racing. I spent a good few hours researching the numbers and i could not fault the numbers. It is only when you go deeper in to the working that you realise that it is nigh on impossible to replicate what they have done without the benefit of hindsight and that the parameters they claim to control just are too vast and complex for a current system to overcome. IF IT WERE THAT GOOD THEY WOULD NOT BE SELLING IT AND WOULD BE EXPLOITING IT THEMSELVES!

I have seen websites that look and perform better than many Australian ASX 200 corporate websites with links to portfolio platforms, links to testimonials on other (also fake websites) backing up the service or system. They also cater for the skeptical with links to US or International fraud investigation sites that verify that the fraudsters website is genuine (again they have replicated a real agency’s site with only a slight change to the domain address. These sites can be designed an up and running in days using cheap programmers in India, china and the Philippines so never , never rely on a website as verification something is genuine.

In Australia:

  1. Look for the Australian Financial Service licence and check it against the register here
  2. Ask for prior years annual reports and a full Product Disclosure Statement

  3. Ask a financial advisor/Accountant/SMSF Specialist Advisor™/Lawyer to check out the PDS, offer or website for you. (We love weeding out the bad apples!)

  4. Ask who are the owners and who are the directors and Google them. If they are not prominent then the offer is likely dubious or at best speculative.

  5. Have someone drop by the office on the brochure or website and check it is real and not just a phantom or serviced. I know this sounds ridiculous but Suite 5X4 , lvl 3, XXX Kent St, Sydney may be a broom cupboard!

  6. Check http://www.scamwatch.gov.au ,  https://www.moneysmart.gov.au “Superannuation Scams Page” or at www.asic.gov.au but just because a scam is not listed does not mean its genuine so beware.

  7. If it is being pushed by someone claiming to be a Financial Planner or Adviser then check them out on ASIC’s Financial Adviser Register here and also on Adviser Ratings site here to see what people say about them.

Please add other tips via comments as we don’t want the SMSF sector targeted or the Government having to restrict our freedoms to protect against fraudsters.

Here is the link to the recent SMSF Adviser article :

SMSFs attractive for ‘fraudulent exploitation’, says ACC (Australian Crime Commission)

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc to make sure we get the news out there to do plenty of research first and only trust those that have earned our trust.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Merging of Pensioner Tax Offset and Senior Australians Tax Offset to new Seniors and Pensioners Tax Offset (SAPTO)


Don’t you just love another acronym to learn!

The seniors and pensioners tax offset (SAPTO) replaced the senior Australians tax offset (SATO) and the pensioner tax offset from 1 July 2012. This means older Australians who were previously eligible for either SATO or the pensioner tax offset may now be eligible for the SAPTO.

The rebate amount and thresholds are illustrated below:

Seniors and pensioners tax offset (SAPTO)
Family status Maximum tax offset Shade-out threshold Cut-out threshold
Single $2,230 $32,279 $50,119
Couple (each)33 $1,602 $28,974 $41,790
Couple (separated due to illness)33 $2,040 $31,279 $47,599
  1. The shade-out threshold is the maximum rebate income at which individuals will be entitled to the maximum tax offset. The tax offset reduces by 12.5 cents for each dollar of rebate income in excess of the shade-out threshold.
  2. The cut-out threshold is the level of rebate income at which the offset reduces to nil. At or above this level of rebate income, there is no entitlement to the tax offset.
  3. Any unused portion of the tax offset may be transferable to the partner under TR 93/31.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

Property through super in a SMSF – Part 1: Background


PropertyFrom the media hype you should already know that self-managed superannuation funds (SMSFs) can borrow funds to purchase assets, provided the borrowing satisfies certain requirements outlined in the Superannuation Industry (Supervision) Act 1993. This can be a very attractive option for SMSF trustees for a number of reasons.

This is Part 1 of a 3 part series. In this first article, we will look at the background to the limited recourse borrowing arrangements that can be used by SMSFs to invest in an asset, specifically a residential or commercial property.

Limited recourse borrowing arrangements

While the Superannuation Industry (Supervision) Act contains a general prohibition against borrowing, SMSF trustees have been able to borrow to acquire assets since September 2007. The Act was further amended in July 2010 with the introduction of new legislation that clarified the intended operation of the borrowing exemption. The rules around the use of borrowed funds for repair and improvement and what is an acquirable asset were further clarified in 2012.

SMSFs may borrow funds to acquire an asset provided the following conditions are satisfied:

1) Single acquirable asset: The borrowed funds must be used to acquire a single asset or a collection of identical assets that have the same market value (which are together treated as a single asset), which the fund would otherwise be permitted to acquire. A single asset could be a parcel of, for example, 1000 ANZ Bank shares, but a parcel of 500 ANZ Bank shares and 500 Woolworth’s shares would not meet the definition of a single asset.

2) Restriction on improvements: The borrowed funds are not to be used to improve the acquirable asset. The ATO recently confirmed its position in relation to repairs vs. improvements of an asset acquired through a limited recourse borrowing arrangement in Self Managed Superannuation Funds Ruling SMSFR 2012/1. For example, if a fire damages part of a kitchen (e.g. the cooktop, benches, walls and the ceiling), the SMSF trustee could use the borrowed funds to restore or replace the damaged part of the kitchen with modern equivalent materials or appliances, but it could not use the borrowed funds to extend the size of the kitchen (as this would be considered an improvement).

3) Beneficial ownership: The acquired asset must be held on a trust where the super fund holds the beneficial interest in the acquired asset. This requires what is known commonly as a ‘bare trust’ or a ‘custodian trust’ to be registered as on the title as the legal owner. This is one of the reasons why the process can get complicated and is the main mistake made in implementing this strategy without doing the groundwork first.

4) Legal ownership: the documentation makes it very clear that the actual beneficial owner is the trustee of the self-managed super fund. After acquiring this beneficial interest, the SMSF has the right to acquire the legal ownership of the asset once it has repaid in full the lending for the property purchase.

5) Limited recourse rights of lender on default: If the fund defaults on the borrowing, the rights of the lender under the arrangement are limited to rights relating to the acquired asset. In other words, the lender’s rights are limited to repossessing and disposing of the asset to recover funds. The lender cannot recover funds from the superannuation fund’s other assets or undertakings. However it can become common practice for the lenders to seek personal guarantees from the trustees in their private capacity to add a layer of protection for the lender

6) Restriction on replacement assets: The acquired asset can be replaced by another acquirable asset (but only in very limited circumstances). For example, the proceeds of a claim after a fire destroys a four-bedroom home could be used to rebuild a four-bedroom home in a newer style but you could not build three town-houses on the same site using the funds.

Types of property that can be acquired

An SMSF can only borrow money to acquire an asset if it would not be prohibited from investing in that asset directly under the Act. This includes residential units, houses, commercial property like office units, industrial warehouses and a current flavour of the day: 7/11 stores! A SMSF is prohibited from intentionally acquiring an asset from a related party of the fund.

The exception, business real property, must be acquired for market value but there are Stamp duty exemptions in some States liked Section 62A of the NSW Stamp Duties act. Business real property is an interest in real property where the property is used wholly and exclusively in one or more businesses. It does not have to be in your own business but it can be and this is why the strategy has been so popular with business people.

The borrowing structure

This diagram shows a typical limited recourse borrowing structure:

Borrowing through SMSF

Funding Options

There are two main funding options available:

1) Related party lending: There is no restriction on you, your family, a related trust, or similar entity lending the money to the SMSF. The benefits of this are that you can avoid costly bank legal adviser fees and other incidental costs of borrowing from a bank. You must follow the suggested ‘Safe Harbour Provisions’ outlined in ATO guidance on related party SMSF loans (LRBAs) . You cannot put in place a loan that is worse in commercial terms for the SMSF.

In any self -funding scenario you have to expect greater scrutiny by the auditor and regulators so as to avoid any compliance issues, SMSF members choosing self-funding should ensure their loan to the fund is properly documented and meets the requirements of the SIS Act. For example, the trustee of the SMSF must ensure that all investments are conducted on an arm’s length basis. This means that a proper lease agreement must be in place, repayments must be scheduled and met and as mentioned above the terms of the loan cannot disadvantage the SMSF in comparison to what’s available in the market.

2) Third party lending: Nearly all the major banks, and some specialised non-bank lenders, have developed SMSF loan packages specifically tailored to meet the requirements of the Act. I really do recommend that you seek advice from a broker who has experience in this area as the terms and conditions offered by the various lenders differ dramatically as some deal with them through their residential lending division and others through their commercial divisions.

The bottom line:  Placing real estate assets into your self-managed superannuation fund can be both straightforward and financially sensible, but there are certain rules you need to follow carefully, In the next instalment of our SMSF session we will guide you through the steps involved in the process from start to finish. Please seek independent professional advice to ensure that any proposed strategy complies with the law, because there are severe penalties that can apply if the trustee gets it wrong.

NEXT STEP : THE PROCESS OF BUYING PROPERTY IN AN SMSF (all states are slightly different but follow these steps to ensure you don’t fall foul of the rules)

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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

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