Liam Shorte

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All posts tagged Tax Planning

Have you contributed over your Superannuation limit? Here is what happens next

So you or your employer have mistimed contributions or doubled up on a payment to you super. This can happen in a number of ways:

Employer paid June 2017 contribution in July last year without you knowing;
You worked out your salary sacrifice based on $25,000 less employer contributions on your salary but forgot they pay SG on bonuses too!;
Employer brought forward June 2018 contributions to ensure they got a tax deduction early;
You received a spouse contribution but did not realise this counted towards your cap;
You, your tax agent or super fund accountant has made an error in claiming tax deductions for nonconcessional contributions
Just a genuine mistake.

How do you manage the mistake?

Do nothing until the ATO issues you with a Determination that you have exceeded one of your caps. You cannot just take the funds back out of your SMSF. The ATO will issue the determination and then provide you with a Release Authority which can be processed on paper or (coming soon) via My.Gov.au/mygov

You need to approve the commutation of the excess contribution amount from your account by the ATO as soon as possible after you receive a determination. This will limit the amount of penalty interest that you will be liable to pay.

If you exceed the concessional contributions cap

If you have excess concessional contributions the ATO will issue you with an excess concessional contributions determination. The determination advises you that your excess concessional contribution amount has been included as assessable income in your tax return. It also advises what actions are required of you. The excess concessional contribution determination contains the:

amount of the excess concessional contributions
amount of the excess concessional contributions charge
period of the excess concessional contributions charge
rate of the excess concessional contributions charge.

With your determination, you will also receive an income tax return Notice of assessment/ Notice of amended assessment.

If the contribution information within the determination is incorrect, either:

contact your super fund accountant/administrator and your personal tax agent to have them re-report any incorrectly reported contributions
amend your tax return if you did not claim the correct personal super contribution deduction in your tax return, or did not claim it at the correct label.

If you exceed the non-concessional contributions cap

You now have 60 days (see details of how this has improved below) from the date of your determination, to choose one of the following options:

Option 1 – Release the excess from your super funds

You can elect to release all your excess non-concessional contributions and 85% of your associated earnings from your super funds.

The full associated earnings amount stated in your determination will be included in your assessable income and taxed at your marginal rate of tax. A non-refundable tax offset equal to 15% of your associated earnings is applied to recognise any tax paid by your super fund.

The ATO will issue a release authority to the super funds you nominate and they will pay this amount directly to the ATO.

Option 2 – Leave your excess non-concessional contributions in your super funds

If you choose not to release your excess non-concessional contributions from your super funds, you receive an excess non-concessional contributions tax assessment. The excess amount is taxed at the highest marginal tax rate. IF you have more than one account/fund then you must elect a fund to release your excess non-concessional contributions tax from.

You must select this option if your only fund is a defined benefit.

If you do nothing

The ATO will ask your super funds to release and send amounts to them. They will also amend your income tax assessment to include your associated earnings. You will pay tax on your associated earnings at your marginal tax rate. Because of the delay the tax on associated earnings will be higher.

The ATO will use the money released to pay any tax or Australian government debts and refund any remaining balance to you

If you have no money left in super for any reason, they will amend your income tax assessment to include your associated earnings amount. You will pay tax on your associated earnings at your marginal tax rate.

If your only super interest is held in a defined benefit fund or a non-commutable super income stream and the fund cannot or will not voluntarily release The ATO will send you an excess non-concessional contributions tax assessment

STOP! my head is hurting!

Finally some simplification! From 1 July 2018 the release authority process for excess contributions and Division 293 liabilities will be consistent and streamlined. The changes will apply to the following release authorities:

excess concessional contributions
excess non-concessional contributions
excess non-concessional contributions tax
division 293 due and payable
division 293 deferred debt.

The changes include:

•Standard 60 day time frame for when an individual could request to release an amount from super (previously this ranged between 21 to 60 days)

•The individual makes a request when replying to the ATO’s determination (this can be done via their myGov account), but it is the ATO that submits the release authority to the super fund. Prior to the rule change, individuals could also submit the release authority directly to the super fund

•The payment is always made to the ATO, credited to the individual’s tax liability with any residual amounts then paid to the individual

•The default election for excess non-concessional contributions is to release the contribution and 85% of the associated earnings. This prevents what is generally the more detrimental position of applying the top marginal tax rate on the excess contribution unreleased, from occurring. For example this may have occurred in the past if the individual is away on holidays when they receive the notice of determination

Temporary timeframe extension for SMSF and APRA funds to release the money.

From 1 July 2018 the Commissioner of Taxation has temporarily extended the timeframes for the return and payment of streamlined release authorities from 10 to 20 business days.

The change applies to release authorities for excess contributions and Div 293 liabilities.

This temporary extension will continue until the ATO digitises their release authority process. When they change the process from paper to being managed via SuperStream the system will return to the legislated 10 business days.

This extension was given after practitioners raised concerns over their ability to meet this legislated time frame to return their release authority statement, with a paper form being the only channel available. Yeah like we trust Australia Post to get anything back quickly!

For further information please see the following https://www.ato.gov.au/…/Release-authority-streamlining-up…/

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.

1 Comment

by SMSF Coach - Liam Shorte on August 14, 2018 • Permalink

Posted in News & Stats, Pensions, Retirement Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on August 14, 2018

https://smsfcoach.com.au/2018/08/14/have-you-contributed-over-your-superannuation-limit-here-is-what-happens-next/

Who will mind my super and take care of me? – SMSF Member Incapacity and Estate Planning Checklist

What’s your plan for future incapacity

I recently did a co-presentation with Louise Biti from Aged Care Steps for the Self Managed Superannuation Fund Association on how SMSF Trustees can plan for incapacity or just that time when they no longer wish to run their fund. The response was great and the questions from the floor really brought it home to us that people are very concerned about how they pass control of their wealth and well-being to others. A copy of the presentation slides are available here . As part of my preparation I developed a simple checklist of issues that SMSF trustees should use when they consider their options. This list is not exhaustive so please add your own tips or suggestions in the comments section below.

When planning for the management of your funds in your SMSF you must first read the Deed!

You do have an Original copy of the Deed or a Certified copy don’t you?

Who do you want to manage your fund if you die or are incapacitated?

On death for Corporate Trustees you leave the shares in the trustee company via your will to the person(s) so they have a right to be a director of the trustee company.
For incapacity you provide an Enduring Power of Attorney (EPOA) and when required you resign as a director and they are appointed in your place. If it is your spouse and they are the only other member then they become Sole Director.
On death for Individual Trustees your Executor will usually have a right to be a trustee of the fund.
For incapacity you provide an Enduring Power of Attorney and when required you resign as a trustee and they are appointed in your place. If it is your spouse and they are the only other member then they need to find a second person to act as a trustee or move to a sole director company trustee.

What to consider in the choice of an EPOA/Executor

Are they good with money and making decisions?
Will they be willing to seek advice from specialists if necessary?
Will there be conflict between beneficiaries – Sibling rivalry? Blended families?
Should you consider 2 or more EPOAs/Executors for safety or support
a power of attorney (or POA) can either become effective immediately, or upon the occurrence of a future event (such as your mental incapacity).
A power of attorney can have specific clauses with instructions for the operation of the power.
If you have a spouse or dependant you may want to include Dependants Clauses to ensure your funds can be used for their needs.
You may want to consider a Conflict of Interest clause to allow a EPOA to make decisions that may suit them as well as you but to the detriment of other possible beneficiaries.

Who do you want to receive your SMSF account balance?

For Spouse / Dependants you should consider using a Reversionary Pension election or Non-Lapsing Binding Death Benefit Nomination direct to beneficiaries or via your will using Non-lapsing Binding Death Nomination to your Legal Personal Representative with option in your will to set up a Testamentary Trust. Normal BDBNs lapse after 3 years.
For Adult children you can use Non-Lapsing Binding Death Benefit Nomination direct to beneficiary or via your will using non-lapsing binding nomination to Legal Personal Representative with option in your will to set up a Testamentary Trust
For your parents, your siblings or non-family via your will using Non-lapsing Binding Death Benefit Nomination to your Legal Personal Representative with option in your will to set up a Testamentary Trust
Do any of the beneficiaries in your Will have special needs? For disabled beneficiaries consider a Special Disability Trust. For those poor with money or in a highly litigious career or in possible bankruptcy then a Testamentary Trust should be considered.

Who do you want to manage your care options if you are incapacitated?

Ensure you have an Enduring Power of Guardianship in place so that your lifestyle and medical treatment decisions can be made by a trusted family member or friend in the event that you become mentally incapable?
Do you have an Advanced Healthcare Directive in place in the event that you become terminally ill and are unable to articulate your wishes?
Have you spoken to your chosen Enduring Guardian so they are clear on your wishes and preferences, explained why you have made those decisions so that they can discuss these with any family members who have cause to question your wishes.

What to consider in the choice of an Enduring Guardian

Are they good with making personal decisions under pressure?
Will there be conflict with other family that they can handle– Sibling rivalry? Blended families?
Should you consider 2 or more EGs for safety or support

Information your Attorneys/Executors will need

Bank Accounts and Investments:

The BSB and account numbers for any accounts or credit cards you have.
The HIN, SRN of any Personal or SMSF shareholdings and
Account IDs for Share Brokers, Online Banking and Managed Fund holdings
Location of property deeds and contact details for Property manager

Insurance:

Details of policies such as the policy number and type of insurance.
Life and TPD cover, Motor vehicles, House Insurance, Private Medical Insurance and Funeral Plans

Advisers:

If you have an accountant, financial planner, lawyer or other professional advisor include their contact details.

Business Records:

If you have a business include details of where the company records are kept and the computer the ASIC Corporate Key is on.

Your secret place:
If important documents such as certificates of property title, jewellery and other valuables or personal items are being held in safe custody elsewhere or stashed in the attic then you should identify the location.

Your digital life:

Include all your email login in details and loyalty scheme account details. This includes your membership to social media and cloud data sites so your executors and family may be able to access your on-line data, including books or music files.
Appoint a Legacy Contact if you use Facebook.
Instructions on what is and isn’t to be shared with family

Direct Debits:

If you have any direct debits in place you should include details so that they can be cancelled pending a grant of probate.

Superannuation:

Do you have other superannuation accounts. Your most recent superannuation statement(s) should also be included. If it is self-managed super the financial statements should be included.

IMPORTANT POINT: Talk regularly to your Executors and Powers of Attorney and Enduring Guardian
Discuss your wishes in terms of lifestyle, healthcare and treatment options with your chosen Attorney and Guardian and if possible with the broader family and make sure that they understand your wishes. Australian’s are very reluctant to talk about illness or death but it is essential to ensure your wishes are followed and to avoid family conflict.

As I mentioned at the start this list is not exhaustive so please add your own tips or suggestions in the comments section below.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

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by SMSF Coach - Liam Shorte on May 21, 2018 • Permalink

Posted in Checklists, Enduring Power of Attorney, Estate Planning, News & Stats, Pensions, Retirement Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on May 21, 2018

https://smsfcoach.com.au/2018/05/21/who-will-mind-my-super-and-take-care-of-me-smsf-member-incapacity-and-estate-planning-checklist/

Phew! SCOMO delivers an SMSF friendly 2018-19 Federal Budget

Self-funded retirees have felt like punching bags for the last few years with hit after hit chipping away at their ability to fend for themselves within the rules they had relied upon in making their savings plans over the last 30 years. Combine the changing of goal posts with low interest rates and blue-chip underperformance from the banks, telcos and utilities and they are not to be blamed for thinking a hex had been put on them.

So an SMSF friendly budget is the welcome news coming out of the 2018-19 Federal Budget. With many of us SMSF Specialists and you the SMSF members still working through the wide-reaching and complex superannuation changes which took effect from 1 July 2017, this Federal Budget will provide much needed stability while looking to reduce costs for SMSFs and prove additional flexibility.

The key changes proposed for SMSFs and superannuation are:

Three-yearly audit cycle for some self-managed superannuation funds.

The Government will change the annual SMSF audit requirement to a three yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.

One concern I have is if trustees make a mistake in year 1 that is not discovered until year 3, will they face 3 years interest charges on the penalties.

Expanding the SMSF member limit from four to six

As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.

Whilst there are some concerns over making decisions I like this move where as mum and dad in their later years want to reduce their involvement but they want help rather with the fund rather than moving to separate retail funds. It may help prevent elder Financial abuse where instead of one child assuming control of the SMSF, more of the family could be involved. Temptation and inheritance impatience is always there for one person but add a few others in to the decision making and the risk of financial abuse reduces considerably.

Also 6 members of a family small business allows for later drawdown from the parents accounts and recontribution for younger family members to retain business real property in the fund after death of the older generation.

Note; you will need to ensure your trust deed allows more than 4 members and it most likely won’t so you will need to update the trust deed first before accepting new members. READ THE DEED

Over 65, 1 additional year Work test exemption

The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test.This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements.

This is good but limited in its scope as more and More people have reached the $300k level because of Super Guarantee Contributions for most since 1992 or before for some. But it is a female friendly move as they are most likely to have lower balances

Life insurance cover in super to be opt-in for individuals under 25 years of age.

The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6000 to ensure that unnecessary fees do not erode smaller balances.

Life insurance cover will also cease where no contributions have been made for a period of 13 months.

If you have kept a retail or industry fund open with small balances to retain insurances you may need to put a small annual contribution in place (I would recommend $100 per half year just in case) to ensure it does not get tagged as dormant.

Older Australian package

The Government introduced the following measures to enhance the standard of living older Australians:

• Increase to the Pension Work Bonus from $250 to $300 per fortnight.

• Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.

• Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.

I think this will be a major bonus for those with a lumpy asset or shareholding’s they wish to retain but need more cashflow. At a current rate of 5.25% the Pensions Loan Scheme is a very decent rate and security that you are borrowing from a bank or predatory lender based on a brokers conflicted commissions.

Personal income tax bracket changes (take most these with a pinch of salt!)

The Government has provided personal income tax relief to lower and middle income earners. A Low and Middle Income Tax Offset will now be available for individuals with incomes of up to $125,333.

The $87,000 income threshold, above which a 37 per cent tax rate applies, will increase to $90,000.

Other changes

• A surplus of $2.2 billion is expected in 2019-20, one year ahead of schedule.

• The Government’s planned increase in the Medicare levy from 2 per cent to 2.5 per cent, to fund the National Disability Insurance Scheme, will now not go ahead due to increased tax revenues.

How can we help?

Some of these measures may open up strategy options for you and your family.

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to give me a call or email to arrange a time to meet or talk by phone so that we can discuss your particular requirements in more detail.

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

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

4 Comments

by SMSF Coach - Liam Shorte on May 9, 2018 • Permalink

Posted in Contribution Strategies, Financial Planning, Retirement Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on May 9, 2018

https://smsfcoach.com.au/2018/05/09/phew-scomo-delivers-an-smsf-friendly-2018-19-federal-budget/

10 Tips for Transitioning in to Retirement in Australia

Adapted from ‘Managing Transitions’ by William Bridges.

Retirement. It’s something you’ve thought about for years but kept saying you will deal with it nearer the time. But how do you make sure you’re ready to deal with change when you do come to retire?

So this blog is not about money, it’s about managing change, anxiety and relationships during one of the biggest changes in your life. It has been adapted from an US article.

Retirement might be your time to do your own thing, to travel overseas, go bush in the outback, spend quality time with your loved ones, to return to education, start a different career, take up a volunteer activity, begin an exercise program, or pursue a hobby. There are so many things you could be doing with your newfound time. It seems as though the possibilities for life changes in retirement are endless. But many struggle in that initial period.

Even though you are excited to enter this new stage of life, the amount of change can feel overwhelming and it can intimidating to handle change in retirement. If a lifetime of work demanded much of your time and attention, you may not have had the opportunity to develop many leisure time interests. You may find yourself looking for new things to do and get involved with.

If many of your social activities have involved people from work, you may want and need to develop friendships that are based on your new interests (think about Rotary, Probus, Men’s Shed, Book Club, Classic Car Group, Yoga, Red Hat Society, Bush Walking Club etc.). If you are retiring and adjusting to an empty nest at the same time, you may feel especially challenged handling all of this change associated with retirement. Despite wanting to retire, adapting to so many changes in your life can be difficult.

How you’ve handled change during your lifetime can offer insight into how well you’ll adapt to change in retirement. Having an awareness of how to better manage change can improve your adjustment to retirement.

Here are ten questions to ask yourself about handling life changes in retirement:

1. What changes do you want to make in your life? This is a big question but you probably have some ideas of things you’d like to start doing or do more of. Exercise, travel, family time and household projects are all common starting points. Make a list and begin to identify all the ways you want to change your life in retirement. Tip for Ladies: Is your husband struggling for ideas? Try “101 Things to Do With A Retired Man: … to Get Him Out From Under Your Feet!”

2. Why do you want to make these changes? It’s not enough to say you want to improve your diet or read more books. It’s time to figure out the benefits of making these changes. What will you gain by eating differently or reading more? Recognise why you want to make the change so that you’ll be encouraged to follow through with it.

3. What change do you want to make first? If you’ve been thinking about all you could do in retirement, you may discover that it’s hard to figure out where to begin. Feeling overwhelmed by the choices may mean that you don’t select anything. Keep it simple. If you could change just one thing, what would it be?

4. What impact will your changes have on others? Often if we change something in our life, it has a domino effect. If you go back to school, you may need to use weekend time for studying. If your volunteer project involves evenings, you may need to give up some family time. Recognise that others in your life may question the changes that involve them. Talk about the upcoming changes with significant others and gain their support.

5. Are you willing to change? Are you going to be frustrated making a change in your life when it isn’t something you truly want to do? If you’re a stay-at-home person, don’t kid yourself and try to adopt a freewheeling, caravanning lifestyle just because others say you’ll love it. This is could be a change that you won’t really be willing to make long-term.

6. Are you ready to change? It’s one thing to say you want to start exercising, volunteering or start learning a language. Doing it may be harder than you think. You may be someone who finds change is really difficult. If that’s you, prepare yourself mentally for more challenges right at the start.

7. Are you prepared to make the effort? Making changes in your life requires an effort. Be ready for a learning curve and some inherent frustrations. As adults, we get comfortable in our habits and routines. If you really want to begin an exercise program, you may need a significant amount of willpower to get yourself started.

8. Who can help you change? When you’re learning something new, ask for help. Join a group, connect online or ask others in your network for advice. You may have spent your whole life wanting to figure things out for yourself. Recognise that your time now is a valuable resource. Don’t waste it. Ask for help.

9. Can you check your ego at the door? The first time you try doing something new, it’s likely you won’t be great at it. New things take practice. Don’t let your fear of failure or ego get in the way of learning something new. Look at it this way—you made it this far in life, you are certainly capable of learning a yoga pose or to put up shelves.

10. Are you seeing the results you expected? Make your changes and give yourself a reasonable amount of time to get used to them. Are you seeing the benefits you expected? If not, chalk it up to good experience and move on.

Accept that retirement will bring many changes in your life. Increasing your awareness about how you adapt to change will contribute to your overall retirement happiness.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2018 the year to get organised or it will be 2028 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

I have adapted this content to Australian circumstances from an original American article on retirementstyle.com By Deborah Williams

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by SMSF Coach - Liam Shorte on April 10, 2018 • Permalink

Posted in Lifestyle, Retirement Planning

Posted by SMSF Coach - Liam Shorte on April 10, 2018

https://smsfcoach.com.au/2018/04/10/10-tips-for-transitioning-in-to-retirement-in-australia/

Best Apolitical Analysis of Franking Credit Refund Removal Debate

Over this last week I have read so many politically biased responses to Bill Shorten’s proposed strategy to stop the refunds of franking credits that I despaired and I know it is going to be a political football rather than part of comprehensive tax reform. Then I came across a really well explained and positioned argument from Scott Phillips of The Motley Fool fame that takes the politics out of the analysis. I immediately reached out to Scott and asked him could I re-post it for my readers who may be finding the debate confusing or hard to explain to others. So here goes:

Why Bill Shorten is wrong — and right — on dividends

Scott Phillips

What’s that? Bill Shorten has announced a new policy on the refund of franking credits?

I hadn’t noticed.

Okay, that’s not true. I noticed. And, based on feedback on Twitter over the last week, many of you noticed, too.

If Shorten wanted to stir a hornet’s nest, he got just that. Maybe it’s clever politics. Maybe the focus groups told the pollsters this was a smart political strategy.

It sure as heck isn’t good policy, in my view.

Before you fire off an email to either abuse me or suggest I be knighted, let me explain.

I’m going to start with three premises that I think most people can agree on:

The tax system should be fair
You shouldn’t have to pay tax twice on dividend income; and
The tax system, as it stands, is broken.

That last point seems to be Shorten’s main thrust. And it’s a battle cry taken up by many partisans:

“We have a problem, and I have a solution. If you don’t like my solution, you’re saying we don’t have a problem.”

To which I reply:

“We absolutely have a problem. But your solution is a poor one. There are better ways to skin this cat.”

And before we go any further, please leave your political affiliations at the door. This week, on Twitter, I have bagged and praised Labor for different policies. I’ve done the same in the past to the Libs. If you can’t put aside your team jersey and engage in a discussion of ideas, then there’s not much for you in what follows.

But if you’re interested in good policy, read on.

Bill Shorten’s policy, as announced, goes something like this:

“We’re happy for you to reduce your tax using franking credits, but we’re not going to give you a refund.”

There are a few problems with that approach:

First, it implies that if you pay tax, you’re welcome to use the credits to reduce your tax burden to zero.

Second, those credits somehow magically are worthless once you hit zero, meaning that to me they’re worth something, but to a retiree in a 0% tax bracket, they’re worth nothing.

How can franking credits be worth different amounts to different people in different circumstances? Search me… I’m buggered if I know.

And third, and this is what’s stirred up most heat among those who have gone into bat for the policy:

“I pay tax and my taxes shouldn’t go to give a refund/handout to people who already have a lot of money.”

Now, don’t get me wrong. I think the current situation — regarding the ability to pay exactly zero tax on certain income in retirement that might be up to $80,000 — is crackers.

But, Shorten’s policy doesn’t fix that problem. Here’s why:

Consider three people, all of whom have SMSFs in pension phase, and who — according to the current tax rules — pay 0% tax: Banking Betty, Rental Richard and Dividend Davina.

Banking Betty deposits $100,000, and earns $2,000 each year in interest. Betty doesn’t pay any tax.
Rental Richard has a $100,000 property that pays him $2,000 each year in rent. Richard doesn’t pay any tax.
Dividend Davina buys $100,000 worth of shares that earned a profit of $2,000. The company paid tax of $600, so Davina gets $1,400. Davina doesn’t pay any tax.

See the difference here? Because Davina’s investment is in the form of shares in a company, she gets less than the other two. Even though she’s not supposed to pay any tax, the company paid tax, so she gets less.

Under current rules, she’d get the $600 back, delivering on the current government policy of a 0% tax rate, and equalising the return for each of those investors.

Bill Shorten, in effect, is penalising people for owning shares.

Now, let’s address the elephant in the room. Yes, because the company has already paid tax on that $2,000, Davina does officially get a refund. And the optics of that are bad: it looks like somehow the taxpayer is subsidising Davina.

But it’s all a question of cash flows and timing. The ATO just gives Davina back the money the company paid in tax.

And remember, a company is just a legal structure to organise your ownership interest in an asset. Shares in a company aren’t all that different in effect to accounts at a bank. Your bank account is evidence that you have a claim to a share of that bank’s assets, even if you don’t know specifically which notes you deposited.

Imagine a scenario under which Banking Betty’s bank withholds 30% of her interest and sends it to the government as tax. And where Rental Richard’s property manager is obligated to send 30% of his rental income to the ATO.

Both of these investors would have to fill out a tax return and the ATO would send them a refund — because tax was paid on their income, even though the tax rate should have been 0%.

Would Bill Shorten stop Betty and Richard getting their money back?

I doubt it.

But somehow, because Labor has (unfortunately, disingenuously) used extreme examples to make their point, and because they’ve dressed it up as a handout, they’ve mischaracterised the situation.

Somehow Dividend Davina is a fatcat living high on the hog, while Betty and Richard are perfectly entitled to pay no tax.

Essentially, because of the asset class they decide to invest in, our three protagonists are being treated differently.

Sound fair to you?

No, me neither.

Yes, the idea of a ‘refund’ for someone who has paid no tax feels, somehow, deeply wrong. But it’s because tax was paid by the company, on behalf of a shareholder who shouldn’t be paying tax, so the ATO is essentially just righting that wrong.

Still with me? Excellent!

Still fuming that well-off people pay no tax? Me too.

What? Didn’t I just spend 984 words (don’t waste time counting them. I checked) defending those people?

Well, yes. And no.

Here’s where both parties are engaging in a phony war of words. And we’re poorer for it.

Having an essentially uncapped income at a 0% tax rate is madness.

Yes, yes, it’s not technically uncapped, for a host of reasons. So let’s say $80,000 among friends.

You and I pay a decent slug of tax on an $80,000 income. And there’s no reason that a well-off retiree should be able to draw a completely untaxed income of a similar amount, when they likely have a very decent asset base — say a home and a seven-figure superannuation balance.

It’s simply not sustainable, especially as more boomers retire, to have that slice of the economic income pie remain completely untaxed.

But — and this is important — that doesn’t mean we should simply ban franking credit refunds and assume that fixes the problem.

Let’s go back to our alliterative actors, Betty, Richard and Davina.

If Betty was earning $80,000 in interest, should that be untaxed? Should Richard’s $80,000 in rent be untouched by the taxman? Should Davina’s $80,000 in dividends remain completely unscathed?

I don’t think so. But again, it’s not a question of the source of the income; it’s the size.

Under Bill Shorten’s plan, Davina would be worse off, but Betty and Richard laugh all the way to the bank. Does anyone, seriously, think that’s a good basis for a tax plan?

I didn’t think so.

Here’s what I’d do: I’d have a generous tax-free threshold for income from superannuation, maybe $10,000 or so above the pension level. It’s not unreasonable that you’re allowed a little extra, given the sacrifice you made to save for your retirement.

But above that level, I’d implement a progressive tax scale not unlike the one that applies to regular income: The more you earn, the higher your marginal tax rate.

Simple, no?

Fair, yes?

That way, the tax code doesn’t discriminate on the basis of the asset class. There are no free lunches. And the unsustainable tax situation that currently applies to Super is fixed.

So Bill Shorten, and Chris Bowen, it’s time to admit defeat and go back to the drawing board. Feel free to use my template, above.

And Scott Morrison and Malcolm Turnbull, please stop with the emotive and negative language and grandstanding.

Politics should be a battle of ideas, not soundbites The best idea, well explained, should win, regardless of political party or ideological affiliation.

And, ladies and gentlemen of the Parliament, the Australian people will give you bonus points for explaining it clearly and for anything that reduces the complexity of our tax affairs, while ensuring fairness.

Indeed, Turnbull and Morrison’s political forebear, John Howard spoke to the National Press Club in 2014 when he shared the stage with former Labor PM, Bob Hawke. At that event, according to the Sydney Morning Herald , Howard said

“We have sometimes lost the capacity to respect the ability of the Australian people to absorb a detailed argument. They will respond to an argument for change and reform [but] they want two requirements. They want to be satisfied it’s in the national interest, because they have a deep sense of nationalism and patriotism. They also want to be satisfied it’s fundamentally fair.”

I’d like to think that’s still true.

I agree with Bill Shorten’s characterisation of the problem. I disagree completely with his solution.

I imagine I lost the most partisan readers — of both stripes — a few minutes ago. If you’re still reading, thank you for engaging in a discussion of ideas.

I hope I’ve convinced some of you. Of those I haven’t convinced, I hope I’ve at least done a decent job of addressing the issue, without bias, grandstanding or misdirection. Thanks for reading.

At the very least, I hope I’ve productively added to the conversation. It’s the least each of us can do.

Fool on! Scott is @TMFScottP on Twitter and can be found here on The Motley Fool

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

5 Comments

by SMSF Coach - Liam Shorte on March 18, 2018 • Permalink

Posted in Franking Credits, Investor Education, Pensions, Tax Planning

Posted by SMSF Coach - Liam Shorte on March 18, 2018

https://smsfcoach.com.au/2018/03/18/best-apolitical-analysis-of-franking-credit-refund-removal-debate/

Issues we cover before helping you set up an SMSF

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 explain the pros and cons risks v benefits of establishing an SMSF? We will not necessarily encourage or discourage you but we will ensure you are fully informed and provide support coaching.
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.

(more…)

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by SMSF Coach - Liam Shorte on January 30, 2018 • Permalink

Posted in education, SMSF, SMSF alternatives, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on January 30, 2018

https://smsfcoach.com.au/2018/01/30/issues-we-cover-before-helping-you-set-up-an-smsf/

Introducing our new Financial Knowledge Centre – for DIY Research

At SMSF Coach and our Financial Planning arm Verante, we believe in your financial wellbeing and improving your understanding of financial concepts.

We understand that the financial industry is full of jargon and concepts that can be difficult for people to get their head around or remember.

So to learn more about money and finance, our Financial Knowledge Centre is a great place to start.

It contains a huge library of articles, life events, videos, quiz’s and calculators, so that you can learn about managing money while having a bit of fun at the same time.

The best part of all is that you work at your own pace and we offer a free trial to one and all but it will always be free to our clients as part of our advice service.

Watch this short video which explains what is available in this vast knowledge base.

Visit The Financial Knowledge Centre and try it out FREE for a month

No Credit Card required.

It includes a whole module on SMSF education and

Self-Managed Super Funds section includes:

–	SMSF Overview
	What is an SMSF?
+	The Decision Making Process
+	The Costs of running an SMSF
+	Setting up an SMSF
+	Appointing trustees
+	Individual Trustee vs. Corporate Trustee
+	Ongoing Administration
+	Accepting Rollovers and Contributions
+	Investment decisions and rules
+	Insurance Considerations
+	Tax Considerations for SMSFs
+	Paying Benefits from an SMSF
+	Death of an SMSF member
+	Estate Planning
+	Getting more help
+	Closing a SMSF
+	Federal Budget 2017/18 Proposals
+	SMSF Summary

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Leave a comment

by SMSF Coach - Liam Shorte on January 18, 2018 • Permalink

Posted in education, Financial Planning, Insurance Strategies, News & Stats, Retirement Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on January 18, 2018

https://smsfcoach.com.au/2018/01/18/introducing-our-new-financial-knowledge-centre-for-diy-research/

Do you have an SMSF Trust Deed that is Signed and Dated

Ok this may seem like a boring question but have you actually checked if you have a copy of your latest SMSF deed on file or that your accountant and financial adviser have one of file? Has it been dated properly and signed and witnessed properly by all parties.

In this era of everyone rushing around and having busy lives, it’s the little things that get missed and that can cause a huge problem later. An unsigned or undated deed may result in your fund being found non-compliant and unable to function or leave major headaches for your beneficiaries. If you are a professional adviser then those disgruntled parties will be looking for someone still alive to blame and pick up the costs.

An SMSF trust deed is a legal document that sets out the rules for establishing and operating your fund. It includes such things as the fund’s objectives, what the fund can invest in, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.

The trust deed must be:

prepared by someone qualified to do so – it’s a legal document
signed and dated by all trustees
properly executed according to state or territory laws
regularly reviewed, and updated as necessary.

I take over management of a lot of funds and we are seeing many cases where the original trust deed was signed correctly and dated but a subsequent update or deed of amendment is sitting on the file unsigned or undated.

It is illegal to sign and backdate documents. As the Trustee of your fund it is your responsibility to ensure that deeds are legally compliant, signed and up to date.

If you are an Accountant, Administrator, Financial Planner or Auditor then you may share in the responsibility to ensure that deeds are compliant and properly completed. Your client may love you but their beneficiaries may come looking for someone to blame if an unsigned deed means a compliance breach with heavy tax or administrative penalties.

So what should you do.

See if you have a SMSF deed in your files and check if it is properly signed, witnessed and dated.
If you don’t have a copy then email your accountant and financial adviser and ask then to confirm if they have a signed and dated original copy on file. If they do then ask for a Certified Copy.
If in checking you see that the deed is dated pre-2012 then ask your Administrator or Accountant if it has been updated and read my previous blog 15 Reasons to update your SMSF Deed for new strategies in 2017
If it has been updated with a Deed of Amendment, has that been signed and dated? Get a copy of all Deeds of Amendment for your records so you can show the full history of your fund. Keep a copy yourself in case you fall out with your professional advisers.

Don’t be the one who leaves a mess behind!

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

2 Comments

by SMSF Coach - Liam Shorte on December 7, 2017 • Permalink

Posted in Audit, Deeds, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on December 7, 2017

https://smsfcoach.com.au/2017/12/07/do-you-have-an-smsf-trust-deed-that-is-signed-and-dated/

Vanguard Diversified ETFs – A Game Changer for SMSF Portfolio Design

When I talk to self-directed SMSF trustees their excuse for not diversifying more from Aussie Shares and Term Deposits was that it was difficult to understand some sectors and to get a decent diversification without building a huge portfolio of stocks, unlisted managed funds, bonds, hybrids etc. They hated application forms especially for SMSF investments but they have been reluctant to use a platform despite my argument that often a platform was a useful vehicle. Most just are not interested in another layer of fees for their SMSF. Each to their own so I left the argument there. However now the mountain is coming to them!

The following is general information and not a recommendation, you still need to do your own research or get advice for your personal circumstances.

In November 2017 Vanguard Australia finally launched a suite of four exchange traded funds (ETFs) that provide greater access to their leading diversified portfolio strategies. This will make SMSF and personal investing a far more accessible and transparent option for many and ultimately help them achieve their financial goals at a lower cost, easier reporting and with less paperwork than currently. They offer a great opportunity to develop a well simple, market leading diversified core to your portfolio.

The four Vanguard Diversified Index ETFs build on their extensive suite of ETFs and unlisted Managed Funds, and are one of the first ETFs allowing investors to gain diversification across and within all major asset classes, while making a clear choice about how much risk they take on. I would argue that AMP’s DMKT and Schroder’s GROW do this to some extent but not at this low a cost as they are actively managed an many might think they are a good blend with Vanguard’s new range.

The conservative (VDCO), balanced (VDBA), growth (VDGR) and high growth (VDHG) ETFs offer investors simple, single trade access to Vanguard’s global expertise in portfolio management and asset allocation, with annual investment costs at just 0.27 per cent. Yes that’s only $2.70 management fee for every $1000 invested in a diversified portfolio, wipe the floor of many industry and retail super funds.

Each Diversified Index ETF is a share class of an existing Vanguard Diversified Index Fund, meaning ETF investors can tap into the benefits of an established asset pool, collectively worth more than $7 billion, through Vanguard’s existing range of non-listed multi-asset funds. Vanguard’s Diversified Index Funds consistently rank in the top quartile of performance with their peers over three, five and 10 year periods, according to Morningstar.

Yes you are giving up some transparency and control but I believe you can rely on Vanguard’s investment experts to continuously assess their portfolio’s exposure and periodically rebalance it back to its intended level of risk.”

Each Vanguard Diversified Index ETF provides investors with extensive global exposure to around 6500 individual companies and more than 5000 fixed income securities.

Just in case you have not heard of Vanguard, here is a little detail to help build a picture of their strength and reach:

The Vanguard Group, Inc.: Key facts and figures*

Founded	1975
Total assets under management	AUD $5.9 trillion
Funds offered	180 in the US, and 190 funds in markets outside the US
Ownership	The Vanguard Group, Inc. is owned by its US-domiciled funds, which are owned by their shareholders.
Headquarters	Valley Forge, Pennsylvania, USA
Chairman and CEO	F. William McNabb III
Number of employees	About 15,000 worldwide

Vanguard’s Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the diversified funds as part of a robust framework used by Vanguard globally. This framework includes analysis of concentration risk and currency exposure, and incorporates comprehensive modelling generated by Vanguard’s proprietary forecasting engine, the Vanguard Capital Markets Model.

Full details about Vanguard’s new Diversified Index ETFs can be found at www.vanguard.com.au/diversifiedETFs.

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

3 Comments

by SMSF Coach - Liam Shorte on November 24, 2017 • Permalink

Posted in Asset Allocation, International Investing, Investment Strategies, Investor Education, SMSF

Posted by SMSF Coach - Liam Shorte on November 24, 2017

https://smsfcoach.com.au/2017/11/24/vanguard-diversified-etfs-a-game-changer-for-smsf-portfolio-design/

Guide to Transfer Balance Account Reporting (TBAR) for SMSF Trustees – Updated for $1m carve out

UPDATE

ATO approve $1 million threshold carve out
SMSFs that have no members with a total superannuation balance (TSB) of $1 million or more will be able to report TBC transactions annually in line with current processes. This is a permanent carve-out for all SMSFs which meet this condition. The ATO have agreed with our position that individuals who are no risk of breaching the $1.6 million TBC should not be forced into a regular reporting framework. See here for more detail from ATO

I am getting many questions about the workings of the Transfer Balance Account Report (TBAR), Transfer Balance Cap (TBC) and Total Super Balance (TSB). So, in this 3-part series I will explain each one for you starting with your Transfer Balance Account Report. Most of this material is sourced from various ATO webpages and collated here for your guidance with my commentary.

So what is in your transfer balance account (TBA)?

There has always been a problem with the data available to the ATO in terms of how much people have in different phases of superannuation throughout the year with the ATO often having to wait until a few months after the end of the year for APRA fund reporting and nearly 11 months for SMSF data to flow through.

The transfer balance account is a new method designed by the ATO of tracking transactions and amounts in retirement phase. The balance of your transfer balance account determines whether you have space under your cap or if you have exceeded your transfer balance cap at the end of any given day. The transfer balance cap is a limit on the amount you can hold in retirement phase ($1.6 million in 2017–18).

You will start to have a transfer balance account on:

1 July 2017, if you are already receiving a retirement phase income stream at the end of 30 June 2017, or
the day you first commence receiving a retirement phase income stream.

It is important to understand that this TBA includes information from all your superannuation pension accounts via SMSF, Retail, Employer, Industry funds, annuity providers and other funds. It is on a consolidated basis and not per account.

All super providers, including self-managed super funds (SMSFs) and life insurance companies, with members in retirement phase will be required to complete and lodge this report to the ATO. The ATO will collate the data under your TFN and make available your consolidated Transfer Balance Account to you and your advisers.

Your transfer balance account measures your transfer balance, which is the sum of credits less the sum of debits posted to the account.

Now if you are like me then you tend to get totally confused when it comes to what is a debit and what is a credit so let’s take a refresher

My short code is “C+ and D-“ Credit = an addition to your total balance and Debit = a lowering of your total balance

It might be good to clear up some confusion by stating upfront that these events are not reportable.

Events that do not need to be reported include:

pension payments
investment earnings and losses
when an income stream is closed because the interest has been exhausted.

These are Credits to your account

Credits to your transfer balance account increase your transfer balance and reduce your available cap space. The most common transfer balance credit arises when you begin receiving a super income stream (pension) that is in the retirement phase.

The following amounts are credits to your account:

the total value of any super interests that support retirement phase income streams you are receiving on 30 June 2017
the value of new retirement phase income streams, including super death benefit income streams and deferred super income streams, that you begin to receive on or after 1 July 2017
the value of reversionary super income streams at the time you become entitled to them (although the timing of the credit may differ in certain circumstances)
the excess transfer balance earnings that accrue on any excess transfer balance amount you have.

For a capped defined benefit income stream, the credits above are calculated on the special value of the income stream.

The Treasury Laws Amendment (2017 Measures No.2) Bill 2017 provides for an additional credit where a super fund makes a payment towards a limited recourse borrowing arrangement. This payment increases the value of retirement phase interests.

The value of your super interests will be calculated by your super fund(s) accountant or administrator and notified to the ATO.

These are Debits to your account

Debits to your transfer balance account may:

reduce your excess transfer balance, and/or
increase your available cap space.

Events that cause your account to be debited include commutations, structured settlement contributions, and certain other events that cause a change in the value of your retirement phase interests.

Commutations

When a super income stream is fully or partially commuted, your transfer balance account is debited by the value commuted. The debit arises when you receive the lump sum, and applies whether you choose to transfer the lump sum to an accumulation account or withdraw it from super.

You must commute an income stream before you can roll it over to another fund.

Pension payments from your retirement phase account(s) are not commutations and are not debited from your transfer balance account.

Structured settlement contributions

A debit arises for a structured settlement that you receive (as payment for a personal injury you have suffered) and contribute towards your accumulation or retirement phase super interests.

Events resulting in a reduction of your super interest

You may be entitled to a debit in your transfer balance account if you lose some or all of the value of your super interests through events such as fraud, dishonesty, or void transactions under the Bankruptcy Act 1966.

Commutation authorities

The ATO may issue a commutation authority to super providers where a member has exceeded their transfer balance cap. A commutation authority will detail the amount that must be commuted for that member.

Payment split upon divorce or relationship breakdown

Super interests may be split as part of the division of property following a divorce or relationship breakdown. One party (the member spouse) will be required to provide a proportion of their retirement phase super interest(s) to the other party (the non-member spouse).

For either spouse, the debit arises either when the payment split becomes operative (under the Family Law Act 1975) or when they start to have a transfer balance account (whichever is later).

Failure to comply with pension or annuity standards

If your super fund fails to comply with the rules or standards for your income stream, that income stream may cease to meet the definition of a ‘superannuation income stream’. This means it will no longer be eligible for the earnings tax exemption.

The most common situation is where the super fund fails to pay the minimum pension amount required for a financial year under the regulatory rules. If this occurs, for transfer balance cap purposes, the income stream is taken to have stopped meeting the definition at the end of that financial year.

The debit equals the value of your income stream just before it stops meeting the definition. The debit arises in your transfer balance account when the income stream stops meeting the definition. This debit means you will be able to fully commute the income stream, and start a new one that complies with the pension or annuity standards, without breaching your transfer balance cap.

Self-managed super fund (SMSF) reporting

The ATO recognises that this is a major change for SMSFs so as a transitional concession, SMSFs will generally not need to commence reporting using the TBAR until 1 July 2018. The ATO is still currently consulting with industry on the model of event based reporting to apply from 1 July 2018.

TBAR lodgment is available from 1 October 2017 and submitted forms will be accepted from that time onwards if the choice is made to lodge earlier.

You should be talking to your Advisers, Accountants or Administrators to see how they plan to manage your reporting. If you have only been seeing them once a year then you may need to work out a solution for a quarterly update if you are in or near pension phase. You will need your various advisers to work as a team going forward to avoid late reporting. See Are your accountant, lawyer and financial planner working as a team for your benefit?

Although SMSFs with a member balance of over $1,000,000 will not generally need to commence TBAR reporting until 1 July 2018, SMSFs will need to ensure they have appropriately documented income stream valuations and decisions for the 2017-18 year. Until reporting begins, SMSF members must monitor the value of retirement income streams they receive to ensure they will not be in excess of the transfer balance cap from 1 July 2017 onwards.

The general exception to starting to report on 1 July 2018 does not apply:

if the ATO have issued an Excess Transfer Balance (ETB) Determination to a member because they have exceeded their cap and they choose to commute an income stream in their SMSF. Where this applies, the SMSF must report the commutation within 10 business days after the end of the month in which it occurred to avoid a commutation authority being issued. If the member chooses to commute an income stream the SMSF has not yet reported it to the ATO, the SMSF will also need to report the commencement date and value of the relevant income stream at the same time as a separate event
when a commutation authority is issued to an SMSF. The SMSF must abide by legislated reporting requirements. Refer to commutation authorities for more information.

To avoid the incorrect issue of an ETB Determination to a member, you are encouraged to report the following events as soon as possible if they occur before 1 July 2018:

any debit where an SMSF member is commuting an income stream because they have become aware they have exceeded their transfer balance cap
any debit that occurs prior to a member rolling over some or all of their retirement phase income stream out of their SMSF and starting a new retirement phase pension or annuity with another provider
any structured settlement contributions made to the fund on or after 1 July 2017.

Consequences of late reporting

Once your reporting has commenced, lodge the TBAR with the ATO as soon as practicable after the event has occurred to ensure your member’s transfer balance account is updated.

If you do not lodge the report by the required date your member’s transfer balance account will be adversely affected and they may be penalised. You may also be subject to compliance action and penalties.

Source: See more detail and some examples at https://www.ato.gov.au/Individuals/Super/Super-changes/New-transfer-balance-cap-for-retirement-phase-accounts/New-transfer-balance-account—credits-and-debits/

And here

https://www.ato.gov.au/Super/Self-managed-super-funds/Administering-and-reporting/Superannuation-Transfer-Balance-Account-Report/

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

3 Comments

by SMSF Coach - Liam Shorte on November 1, 2017 • Permalink

Posted in Pension Strategies, Pensions, Retirement Planning, SMSF Management, TBAR reporting

Posted by SMSF Coach - Liam Shorte on November 1, 2017

https://smsfcoach.com.au/2017/11/01/guide-to-transfer-balance-account-reporting-tbar-for-smsf-trustees/

Trust deeds in the new SMSF world – Benefit payments and estate planning

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.

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

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by SMSF Coach - Liam Shorte on September 29, 2017 • Permalink

Posted in Estate Planning, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on September 29, 2017

https://smsfcoach.com.au/2017/09/29/trust-deeds-in-the-new-smsf-world-benefit-payments-and-estate-planning/

How the Centrelink Gifting rules work

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 have relied 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.

What is considered a gift for Centrelink purposes?

For deprivation provisions to apply, it must be shown that a person has destroyed or diminished the value of an asset, 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 diminishes the value of their assets or income, and
− do not receive adequate financial consideration in exchange for the asset or income.

Adequate financial consideration can be accepted when the amount received reasonably equates to the market value of the asset. It may be necessary to obtain an independent market valuation to support your estimated value or transferred value or Centrelink may use their own resources to do so..

Deprivation also applies where the asset gifted does not actually count under the assets test. For example, unless the ‘granny flat’ provisions apply, deprivation is assessed if a person does not receive adequate financial consideration when they:

− transfer the legal title of their principal home to another person, or
− buy a new principal home in another person’s name.

What are the gifting limits?

The gifting rules do not prevent a person from making a gift to another person. Rather, they cap the amount by which a gift will reduce a person’s assessable income and assets, thereby increasing social security entitlements.

There are two gifting limits.

A person or a couple can dispose of assets of up to $10 000 each financial year. This $10, 000 limit applies to a single person or to the combined amounts gifted by a couple, and
An additional disposal limit of $30 000 over a five financial years rolling period.

The $10,000 and $30,000 limits apply together. That is, although people can continue to gift assets of up to $10 000 per financial year without penalty, they need to take care not to exceed the gifting free limit of $30 000 in a rolling five-year period.

What happens if the gifting limits are exceeded?
If the gifting limits are breached, the amount in excess of the gifting limit is considered to be a deprived asset of the person and/or their spouse.

The deprived amount is then assessed as an asset for 5 anniversary years from the date of gift. It is assessed as an asset for asset test purposes and subject to deeming under the income test.
After the expiration 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 impacted by deprivation rules

Sally, a single pensioner, has financial assets valued at $275,000. She has decided to gift some money to her son to improve his financial situation. Her plan for gifting is as follows:

Financial year	2017/18	2018/19	2019/20	2020/21	2021/22	2022/23
Amount gifted	$6,000	$6,000	$6,000	$6,000	$6,000	$6,000

With this gifting plan, Sally is not affected by either gifting rule. This is because she has kept under the $10,000 in a single year rule and also within the $30,000 per rolling five-year period.

Example 2: Single pension – Gifts impacted by both gifting rules

Peter is eligible for the Age Pension. He has given away the following amounts:

Financial year	Amount gifted	Deprived asset assessed using the $10,000 in a financial year free area rule	Deprived asset assessed using the $30,000 five-year free area rule
2017/18	$33,000	$23,000	$0
2018/19	$2,000	$0	$0

In this case, $23,000 of the $33,000 given away in 2017/18 exceeds the gifting limit (the first limit of $10,000) for that financial year, so it will continue to be treated as an asset and subject to deeming for five years.
In 2018/19, while gifts 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 impacted by both gifting rules

Ted and Alice are eligible for the Age Pension. They give away the following amounts:

Financial year	Amount gifted	Deprived asset assessed using the $10,000 in a financial year free area rule	Deprived asset assessed using the $30,000 five-year free area rule
2017/18	$10,000	$0	$0
2018/19	$13,000	$3,000	$0
2019/20	$10,000	$0	$0
2020/21	$10,000	$0	$10,000
2021/22		Any gifts in 2014/15 will be assessed as deprived assets under the five-year rule

In this case, $3,000 of the $13,000 given away in 2018/19 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 2020/21 exceeds the $30,000 limit for the five-year period commencing on 1 July 2017, 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.

Gifting and deceased estates

The gifting rules apply to a person’s interest in a deceased estate if the person does any of the following:

− Gives away their right to their interest in a deceased estate for no/inadequate consideration,
− Directs the executor to distribute their interest in a deceased estate for no/inadequate consideration, or
− After the estate has been finalised, gives away their interest in a deceased estate to a third-party for no/inadequate consideration.
The above rules apply even if the deceased died without a will.

Gifting and death of a partner
In some circumstances, couples in receipt of a social security benefit may give away assets prior to death of one of them. Prior to death, any deprived assets would have been assessed against the pensioner couple for five years from the date of the disposal. Now that a member of the couple has passed away, how will the deprived assets be assessed for the surviving partner?
The amount of deprivation that continues to be held against a surviving partner depends on who legally owned the assets prior to death.

Table 1: Gifting and death of a partner

Legal owner of the deprived asset	Assessment of deprived assets
jointly,	does not change.
by the deceased partner,	is reduced to zero.
by the surviving partner,	increases by the amount held against the deceased partner by the outstanding balance held against the deceased partner.

Example 4: Death of a partner

Daryl (age 84) and Gail (age 78) gifted an apartment worth $260,000 to their son Ethan on 1 July 2019. At the time the gift was made, Centrelink assessed $250,000 as a deprived asset. Daryl passed away on 1 July 2020.
The treatment of the deprived assets for Gail will depend on who legally owned the assets prior to Daryl’s death. The impact of different ownership options is shown below:

Legal owner of the deprived asset	Assessment of deprived assets
jointly,	Half of the asset value of the deprived asset will be assessed against the surviving spouse. As the amount of the deprived asset is $250,000, only $125,000 will be assessed against Gail
by the deceased partner,	No amount will be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail is $0.
by the surviving partner,	The full amount will continue to be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail remains at $250,000.

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 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

31 Comments

by SMSF Coach - Liam Shorte on September 6, 2017 • Permalink

Posted in Age Pension, Centrelink, Financial Planning, Pension Strategies

Posted by SMSF Coach - Liam Shorte on September 6, 2017

https://smsfcoach.com.au/2017/09/06/how-the-centrelink-gifting-rules-work/

Tips and Traps of Leaving Insurance in your Old Superannuation Account

For many people setting up an SMSF, insurance is an afterthought but the law says that SMSF trustees must formulate, review regularly and give effect to an investment strategy that includes consideration of whether to hold insurance cover for one or more members of the fund. So that is why we usually have to do a needs analysis and work out where to place cover if required.

After we have assessed a new member’s insurance needs we look at what you have in place already and replacement options. But often we need to work with what you have due to changes in health or disparity in premiums when comparing group and individual rates. The basic facts on health are that most of us have some sort of issue by age 45 that triggers further investigation and loadings or exclusions by insurers before they offer cover. The latter issue of premiums is rapidly changing as retail and industry super funds hike insurance premiums and move more towards individual underwriting.

Our preference is to tidy up people’s affairs rather than complicate them and we do prefer to replace insurances where possible and use a combination of policies held inside and outside of your SMSF to maximise the breath and quality of cover while managing the premiums tax effectively. However where new cover cannot be obtained without loadings or exclusions we look at strategies for keeping existing cover in place. THIS IS WHY YOU NEVER ROLLOVER EXISTING POLICIES WITHOUT REVIEWING INSURANCES FIRST.

One of the strategies we use is that when you start your SMSF we leave a portion of your superannuation balance in the large fund to retain the current covers. This is often because it can be cost effective retain life, total and permanent disability (“TPD”) and income protection insurance cover in a large fund.

One of the advantages in keeping a balance within an existing retail/employer or industry superannuation fund is access to sometimes lower cost group insurance that has been arranged on a Group Insurance basis by the superannuation fund. Often, no medical examinations are necessary to have access to reasonably high levels of cover.

Despite any advantages, there can be terms in these insurance arrangements that cause cover to cease. This could be unexpected and usually as a result of clauses found in a 40-50 page product disclosure document that you may never have read. Some of the common cancellation triggers we have found are are outlined below.

No employer contributions

Under Protecting Your Super legislation your account will be considered inactive and transferred to the Australian Taxation Office (ATO) if your account balance is below $6,000 and within the last 16 months:

we haven’t received a contribution to your account; and
you haven’t changed your insurance cover, switched your investments, made or amended a binding beneficiary nomination on your account or told us in writing that you don’t want to be transferred.

A number of large super funds also have a clause that states, if employer contributions cease for six/12/13 months, a member automatically loses income protection cover. We understand that this is a policy for certain large funds that offer members automatic income protection insurance. Usually one month before the cover expires the fund notifies the member that cover is about to cease.

Leaving an employer in an employer sponsored plan

When it comes to employer sponsored funds we are aware of funds that require that a particular employer makes contributions to the member account or the insurance stops. TPD and income protection cover cease without notice if the member is no longer working for that employer after 60/71/90 days and their account balance is less than typically $3,000 or $6,000 under the Protecting Your Super legislation. Another fund cancels the Income Protection cover immediately on leaving the employer and no continuation option is offered whereas they do offer to continue the Life and TPD automatically when the member rolls over to a personal plan.

Minimum balance requirements

To retain cover at many industry and retail funds, the funds usually require that the member maintains a minimum balance in your account $6,000 under the Protecting Your Super legislation and have a contribution in the last 16 months. The cut off point or trigger can be as low as $1,000 or as high as $10,000. While most large funds let members retain cover as long as premiums can be automatically deducted from their account, we are aware of a fund that will cease insurance cover for all insurances when the account balance falls below $3,000 and no employer contributions are made after 13 months.

No longer working in the public sector

Some large government funds cease insurance cover if the member no longer works within the public sector. We are aware of some public sector funds where income protection cover ceases on the day the member officially ceases employment with the relevant public sector and no continuation option is provided. There is also another public sector fund that will cease all cover after 60 days from the last employer contribution or when the member stops working in the relevant public sector. Often these public sector funds do not accept further contributions from third party employers or rollovers from other funds.

Terminal illness payouts based on TPD not Life sums insured

We are also aware of a funds whereby on terminal illness, the insurance can pay out at the TPD level, which is often lower than the amount of life cover especially for higher risk occupations. The payment reduces any remaining life cover paid on death. This can mean less funds are available to cover medical or palliative care costs while the insured is alive. Thankfully the standard method of terminal illness cover is to pay out 100% of life cover upon confirmation of a terminal illness with less than 12 months life expectancy.

The kick in the teeth with this restricted payout is that it can also give rise to more tax because the non-dependent beneficiaries will receive the death benefits, as opposed to the member receiving benefits tax free before they die.

Read the Policy and Product disclosure Statement and review it annually

Before relying on existing cover to continue ensure you read the product disclosure statement and policy document particular to your type of policy. do not rely on the latest PDS on the website as this may be for a newer plan and yours maybe an older plan closed to new members so the PDS may not be on the website. email for the exact the PDS you need to rely on so you have a record of the request. Likewise any questions should be directed to the super fund via email for clarification on exactly how insurance cover applies as we know you can get many different answers to the same question over the phone!

Many funds see the employer as their client and may not give adequate warning when insurance cover is about to cease. Therefore it is important to monitor accounts and your contact details periodically especially where you may have elected for email correspondence. Many a cancellation warning has been sent to old email or previous home addresses.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

5 Comments

by SMSF Coach - Liam Shorte on August 29, 2017 • Permalink

Posted in Income Protection, Insurance Strategies, Life Insurance, Total & Permanent Disability

Posted by SMSF Coach - Liam Shorte on August 29, 2017

https://smsfcoach.com.au/2017/08/29/tips-and-traps-of-leaving-insurance-in-your-old-superannuation-account/

Do you need a review of your Superannuation? Current volatility suggests you should

There are many reasons to get a superannuation review especially if you are within 15 years of using your super funds more tax effectively (hint over age 45). A lot can be done to dramatically improve your retirement prospects given time. However if you leave it too late, the chances of making significant improvements are limited. Getting good financial advice can make all the difference to the quality of your retirement. You may not want a full advice service but you can just have a Superannuation and Insurance review. So here are a few reasons why a review could be one of the best decisions you make.

You’ve being putting money in to Super for over 20 years and not sure what it’s doing for you. You have more than one superannuation account and cannot keep a track of how them or how they are performing. Consolidating your accounts together could make keeping track of your savings much easier and moving house less of a hassle!
You may be considering adding funds or your tax agent may have recommended some salary sacrifice and you are suddenly more interested in getting value for money.
You may be interested and want to explore the use of a Self Managed Superannuation Fund known as a SMSF (it’s only one of the options available but we can help you assess if it is right for you).
You may not be satisfied with the level of service and advice you are receiving from your superannuation company and/or your adviser if you are getting any at all. Many people receive no service at all but continue paying fees year after year. Is it time for you to step-up and demand advice, we invite clients for a review at least twice per year.
You are concerned that your super or multiple accounts may not be performing very well. Sadly, most people in superannuation schemes have little or no idea how their funds are invested or performing from one year to the next. Reports get thrown in a drawer because the jargon is mind bending!
You may be unsure how much risk you are taking with your superannuation investments. It is undeniable that in order to increase your nest egg value, some risk will need to be taken. However the risk you are taking may not be suitable for you and categories like “Balanced or Core” don’t actually mean what they suggest!.
And how about just getting general health check on your super and how it is performing.
Like many people you have accumulated lots of accounts over the years from various jobs ( I recently consolidated 12 accounts for a couple). It may be beneficial to consolidate them all together in one account (wait don’t rush in, review insurance and fees first).
Identify poor performing superannuation funds and move them to investments that have greater potential for growth or a more consistent return.
You may have an SMSF or Superannuation account sitting in cash and just don’t know what to do as you have lost confidence.
You may have multiple/duplicate insurance arrangements across many funds and be paying premiums for cover that may never pay out.

How a superannuation review works

You are likely to have one or more personal accounts and they could be an industry fund, an employer group plan, a personal retail account, or even a transition to retirement pension .

A relationship with your advisor should last for many years. At Verante and the SMSF Coach, we take the time in our first meeting to understand you, explain how we operate, and what you should expect.
- You decide whether you feel comfortable with us.
- We determine how we can add value to your set of circumstances.
- Together we discover what challenges and opportunities lay ahead.
The second step is our Discovery meeting as we spend a great deal of time gathering the necessary information to build a clearer picture of you. We discover you and your current circumstances – such as family, financials and aspirations. We also help you complete a Risk Profiling Questionnaire; this is designed to help identify what your attitude to risk is and your comfort with different classes of investment.
The third step is to obtain full details of all of your current superannuation, investment, debt and insurance arrangements. We ask superannuation companies more than 20 questions, so that we get a full and complete picture of your current situation.
The fourth step is where we complete a full and comprehensive analysis of your current arrangements, to identify if your super accounts are delivering on expectations, that insurance cover is valid and will protect you and your family and fees are under control.
Step five is to recommend a suitable strategies to move your Superannuation balance forward, should the review reveal that your existing accounts are not working as well as they should be.
Step six is to implement the recommendations, which may mean re-organising and consolidating your accounts into one super or even a pension fund.
And finally step seven is to keep your arrangements under regular review to ensure that it continues to perform and meet your objectives.

Please consider passing on this article to family or friends. Pay it forward!

Also delighted to be named in the 50 most influential investors and win the top awards in the 2017 and 2018 SMSF and Accounting Awards.

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

1 Comment

by SMSF Coach - Liam Shorte on August 22, 2017 • Permalink

Posted in Financial Planning, Insurance Strategies, Superannuation

Tagged Account Based Pension, Asset Allocation, Baulkham Hills, Castle Hill, consolidate super, DIY Super, Dural, Hawkesbury, Investing, Investment, pension phase, private company valuations, Self MAnaged Super, Self Managed Superannuation Fund, superannuation account, superannuation review, Tax Planning, TTRAP, Windsor

Posted by SMSF Coach - Liam Shorte on August 22, 2017

https://smsfcoach.com.au/2017/08/22/do-you-need-a-review-of-your-superannuation-current-volatility-suggests-you-should-2/

The importance of the Retirement Condition of Release after age 60

Most people who have not sat with a planner or read in detail the newsletters from their superannuation funds would believe that they can only access their superannuation when they actually retire and stop working. But there are so many other circumstances that could trigger an all-important “Condition of Release” and make your retirement funds available to you. In this guide for SMSF trustees I will concentrate on meeting the Retirement Condition of Release but you can find out about the other conditions of release here (click it later).

What is the Retirement condition of release

The retirement condition of release is often subject to complexity and doubt. However, understanding the rules became even more important after 1 July 2017 resulting from the 2016 Budget measures. The tax exemption on investment earnings supporting a Transition to Retirement Income Stream- Accumulation Phase (TRIS – Accumulation) is no longer available. However, a TRIS will regain its tax exempt status once the ‘retirement’ condition of release is satisfied and it becomes a Transition to Retirement Income Stream- Retirement Phase (TRIS – Retirement Phase). Therefore, understanding what constitutes ‘retirement’ for an SMSF member in a TRIS is critical, to achieve that holy grail of a tax-free retirement pension.

Conditions of release – overview

Death is the only condition of release that requires compulsory cashing of benefits. There is no requirement under any other condition of release to either cash out a benefit or commence an income stream from your SMSF, and member accounts can remain in accumulation phase indefinitely.

If you do leave your member account in accumulation phase, it will be subject to an income tax rate of up to 15% instead of a 0% tax rate for investments backing a pension income stream. There is also now a $1.9m limit on how much can be transferred into an income stream with people who already had some money in pension phase having as pro-rata limit of between $1.6m and $1.9m. You can Check on MyGov.> ATO service> Super Tab> Information to see your limit.

The most common conditions of release to access your account are:

Reaching preservation age of 60 and retiring.
Transitioning to retirement (after attaining preservation age): SMSF members who are under 65 and have reached preservation age, but remain gainfully employed on a full-time or part-time basis, may access their benefits as a non-commutable income stream called a Transition to Retirement Income Stream- Accumulation Phase (TRIS – Accumulation Phase) . However from 1 July 2017 that income stream will not be tax exempt until you meet a further Retirement Condition of Release.
Reaching age 65: a Member who is 65 years old may access their benefits anytime without restrictions.

Retirement condition of release

For superannuation purposes, a member’s retirement depends on their age and future employment intentions. A person cannot access superannuation benefits under the retirement condition of release until they reach preservation age. Once you reach your preservation age, the definition of retirement depends on whether the person has reached age 60.

If a person has never been gainfully employed in their life, they cannot use the retirement condition of release to access their Preserved Benefits. Such a person would need to satisfy another condition of release to access their benefits (eg reaching age 65, invalidity, terminal illness, severe financial hardship).

Age 60 but less than 65

When a person has reached age 60, retirement occurs when an arrangement under which the person was gainfully employed has ceased on or after the person reached age 60. It does not matter that the person may intend to return to the workforce. This condition presents an opportunity for many people to move a taxed pension to tax exempt phase earlier.

Example: Reaching age 60

Michelle has worked as a nurse for many years. She resigns from this employment on her 61st birthday. Three months later, Michelle takes up a 3 day position as a grief counsellor. Because Michelle has ceased employment as a nurse after her 60th birthday, she can access all her superannuation accumulated up until that point.

Situations sometimes arise where a person, aged 60 or over, is in two or more employment arrangements at the same time. According to APRA Prudential Practice Guide SPG 280, the cessation of one of the employment arrangements is the condition of release in respect of all preserved benefits accumulated up until that time. The occurrence of the ‘retirement’ condition of release in these circumstances will not enable the cashing of any benefits which accrue after the condition of release has occurred. A person will not be able to cash those benefits until another condition of release occurs (eg,s he also leaves her second employer).

Example: Two employment arrangements

Frank (age 63) works part-time as a school janitor. During the school holidays, he had a short-term six-week contract to work as a Census form collector. The contract finished in September 2021.

Because Frank has ceased one of his employment arrangements, he can access all his superannuation up until that point. However, any later contributions made (employer and personal contributions) and earnings will be preserved.

Director and Employee of own company

Sometimes a person is both an employee and director of their own company. They may wish to cease their employment duties with the company, but retain their directorship. The question arises as to whether such a person (age 60 – 64) can access their preserved superannuation benefits.

If a person is engaged in more than one arrangement of employment, the person can cease any arrangement of employment to meet the ‘age 60’ definition of retirement.

Therefore, as long as a person’s two roles are separate and they terminate in their capacity as an employee of the company, then even though they are still employed in the capacity as director, that person can access their preserved superannuation entitlements.

Note that there must be a distinct termination, ie cessation of all duties as an employee, and the person should now only operate in the capacity as a director for the company.

We see this lot where often a spouse had helped out for years but as the children join the business or the business matures, the requirement for the spouse to continue turning up day-to-day reduces. They can step away from the duties as an employee but they may still handle the liaison with the tax agent on the financials, ASIC re company registration and the ATO to pay tax instalments, which are more akin to Directors Duties.

When is a person gainfully employed?

Someone is said to be ‘gainfully employed’, for superannuation purposes, where they are employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation, or employment.

Gainful employment can either be on a part-time or full time basis.

Part-time means at least 10 hours per week and less than 30 hours per week.
Full time means at least 30 hours per week.

The definition of gainful employment involves two clear components:

Employment or self-employment, and
Gain or reward.

The term employee is not specifically defined in the SIS Act for this purpose; its common law meaning must be considered. One definition of employee is ‘a person in a service of

another under any contract of hire (whether the contract was expressed or implied, oral or written), where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed’.

In contrast, self-employed people work for themselves instead of an employer, drawing an income from a trade, profession, or business that they operate personally. It would be expected that someone who claims to be self-employed would be running their own business (e.g. have a business plan, financial records, an ABN, a regular and frequent level of activity in the business, advertising etc).

The superannuation legislation provides no guidance as to what ‘running a business’ is. However, taxation law does. In particular, paragraph 13 of Tax ruling 97/11 outlines relevant indicators of running a business:

whether the activity has a significant commercial purpose or character;
whether the taxpayer has more than just an intention to engage in business;
whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;
whether there is repetition and regularity of the activity;
whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
whether the activity is planned, organised and carried on in a business-like manner such that it is directed at making a profit;
the size, scale and permanency of the activity; and
whether the activity is better described as a hobby, a form of recreation, or a sporting activity.

Gain or reward is not defined in the superannuation legislation and therefore takes its ordinary meaning. The Macquarie Dictionary defines gain as ‘to get an increase, addition or profit’. Reward is defined as ‘something given or received in return for service, merit, hardship, etc’.

In the context of satisfying the gainful employment definition, it follows that the service, merit, or hardship must be completed with some expectation of an increase, addition, or profit. That is, there must be a direct link (or nexus) between the activity undertaken and the reward provided for the activity. The actual level or amount of gain or reward does not necessarily have to be commensurate with the level of effort or activity undertaken. So, the level of reward could be relatively small yet still suffice – as long as there is a direct link to the activity being performed. Further, the reward doesn’t necessarily have to be received as cash, but could be received as services, fringe benefits, or other valuable consideration.

The gain or reward element is typically difficult to satisfy in the case of charity or volunteer work. Non-paid work for a charity, for example, would clearly not qualify as gainful employment. Mere reimbursement of expenses would not seem to constitute gain or reward.

Also, as discussed earlier, gainful employment for superannuation purposes requires an individual to be either employed or self-employed. Most charities or volunteer organisations will not consider their charity or volunteer workers to be employees.

Transition to retirement pensions – impacts of meeting retirement condition of release

Transition to Retirement Income Stream (TRIS) condition of release allows a member to access their superannuation as a non-commutable income stream once they have reached preservation age called a Transition to Retirement Income Stream- Accumulation Phase (TRIS – Accumulation Phase) . A non-commutable income stream for TRIS purposes is subject to a maximum annual draw down of 10% per annum. Preserved Benefits cannot be accessed through a TRIS as a lump sum until it meets the new “Pension phase” position.

From 1 July 2017 the tax exemption on investment earnings supporting a TRIS – Accumulation Phase is no longer available. The actual income stream (pension payments) will still be tax free after 60. However, a TRIS will regain its tax exempt status once the ‘retirement’ condition of release is subsequently satisfied, for example, where the individual terminates employment at any stage on or after age 60. Its a fairly simple process to confirm to your Pension provider that you have met that further condition of release and they may authomatically move you to Transition to Retirement Income Stream- Retirement Phase (TRIS – Retirement Phase) at 65 anyway, but its worth confirming with them in writing.

It will be vital for SMSF trustees to immediately contact their Accountant/Administrator should the member retire permanently from the workforce, or terminate employment on or after age 60. When the administrator is notified that a no cashing restriction condition of release occurs (eg retirement), the balance of the TRIS account (at that stage) will be converted to a Retirement phase account-based pension (ABP), and the tax exemption on earnings will apply. However, it will then also count towards the individual’s $1.6 – $1.9m million pension transfer balance cap and needs to be reported to the ATO within the new reporting guidelines

Reaching age 65 will automatically result in a TRIS pension becoming a Transition to Retirement Income Stream- Retirement Phase (TRIS – Retirement Phase) and obtaining tax exemption on earnings, if within the individual’s $1.6-$1.9 million pension transfer balance cap.

Evidencing cessation of gainful employment

The cessation must be genuine. Genuine terminations of employment will typically involve the payment of accrued benefits, such as annual and long service leave. SMSF trustees should retain written evidence of the member’s cessation of gainful employment on file and copy to the administrator so the fund auditor has access.

Penalties apply to members, trustees and those who promote ‘illegal early access schemes’ to improperly access superannuation prior to meeting a condition of release.

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 Teams or Zoom. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153

40/8 Victoria Ave, Castle Hill NSW 2154

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

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by SMSF Coach - Liam Shorte on August 5, 2017 • Permalink

Posted in Checklists, Investment Strategies, SMSF Management

Posted by SMSF Coach - Liam Shorte on August 5, 2017

https://smsfcoach.com.au/2017/08/05/the-importance-of-the-retirement-condition-of-release-post-1-july-2017/

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