⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
SuperStream Contributions v3.0 is a major upgrade to how superannuation data and money move across Australia. Starting 1 July 2026, these changes are mandatory to support Payday Super, where employers must pay super on the same day they pay your salary, rather than every three months.
Key Changes: What’s New?
The upgrade focuses on speed and accuracy to ensure your super reaches your fund within 7 business days of your payday.
Near-Instant Payments: All SMSFs must be able to receive contributions via the New Payments Platform (NPP). This is the same system that powers “Osko” or “Fast Payments” in your personal banking.
The 24-Hour “Check”: A new service called the Member Verification Request (MVR) allows employers to check if your fund is “ready” before they send money. Your SMSF system must respond to these within 24 hours.
Stricter Error Handling: If any data (like a TFN or ABN) is slightly wrong, the system will reject the payment immediately with a specific error message so it can be fixed fast.
Step-by-Step Preparation Guide
If you receive super from an employer who is not a related party (e.g., your own family business), follow these steps:
Check Your Bank Account: Contact your bank and ask: “Is my SMSF account NPP-enabled to receive fast payments?” If it isn’t, you may need to open a modern business account that supports it.
Verify Your Digital Address (ESA): Your Electronic Service Address (ESA) is like a digital mailbox for your fund. Contact your SMSF administrator (like BGL, Class, or Heffron) to ensure your ESA is updated to v3.0 standards.
Audit Member Details: Ensure the name, Tax File Number (TFN), and date of birth held by the ATO match exactly what your employer has in their payroll system.
Confirm “Complying” Status: Check Super Fund Lookup. If your fund’s status is “Tax office has not been able to provide a regulation status,” employers cannot pay you. This usually happens if you are behind on your annual tax returns.
Update Your Employer: Once your NPP account and ESA are confirmed, provide the updated details to your employer’s payroll department immediately.
Potential Hurdles & Solutions
Hurdle
Solution
Old Bank Accounts: Many older SMSF accounts don’t support the NPP/Osko “fast” transfers.
Switch to a modern bank account. Most major Australian banks now offer NPP-ready accounts for SMSFs.
Outdated ESA: Some free or older ESA providers may not upgrade to v3.0.
If your provider isn’t ready, switch to a modern SMSF software provider that handles MVRs and SuperStream v3.0 automatically.
Late Tax Returns: If your SMSF return is late, the ATO may strip your “Complying” status.
Lodge any overdue annual returns immediately to stay on the Super Fund Lookup “green list.”
The 24-Hour Rule: Trustees can’t personally monitor 24/7 for MVR requests.
Ensure you use an automated administration service or software that responds to these requests on your behalf.
Are you currently using an administration platform like Class or BGL, or do you manage the fund’s paperwork yourself?
Note: If you only receive contributions from a related party employer (e.g., you are the director of the company paying your super), you are generally exempt from SuperStream rules, but keeping your systems modern is still highly recommended.
Thinking About an SMSF or have one but feel lost — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Need Help Getting Started?
I did some checking for you too on the most frequently used SMSF Bank Accounts (see below) and NPP enabling:
Macquarie CMA As most are using Macquarie CMA I asked!! and “Yes, the Macquarie Cash Management Account (CMA) is NPP-enabled, allowing users to send and receive real-time payments. Clients can make near-instant transfers to other NPP-enabled institutions and receive funds instantly using their BSB and account number.
ANZ V2 Plus – Good as well!! Yes, the ANZ V2 Plus account is capable of receiving near real-time payments, as it supports inbound New Payments Platform (NPP) receipts. Key details regarding V2 Plus and NPP functionality:
Inbound Payments: The account can accept real-time payments, allowing faster access to funds.
PayTo Compatibility: ANZ V2+ Broking accounts allow PayTo payment agreements to replace existing direct debits, utilizing the NPP for processing. Transactional Capability: The account is designed to allow customers to make and receive payments on demand, supporting the settlement of trades.
Yes, NAB SMSF accounts, specifically the NAB Cash Manager, are New Payments Platform (NPP) enabled.
Here are the key details regarding NPP capabilities for NAB SMSF accounts:
Faster Payments: The NAB Cash Manager account supports NPP, allowing for near-instant receipt and transfer of funds, 24/7. Osko and PayID: The account allows you to use Osko for fast payments and set up a PayID to receive funds almost instantly.
Existing vs. New Accounts: While newer NAB Cash Manager accounts are NPP enabled, it is important to ensure your account is specifically set up for these features.
Yes, CommBank (CBA) SMSF accounts, specifically the CDIA (Cash Deposit Investment Account) used for SMSFs, are NPP enabled.
Key details regarding CBA SMSF accounts and the NPP:
Real-time Capabilities: The NPP allows for near real-time payments, including Osko and PayID functionality.
SuperStream Compliance: While CBA provides the bank account, you must ensure you have an Electronic Service Address (ESA) for your SMSF to receive contributions data, as the bank itself does not act as the SMSF messaging service provider.
Westpac Cash Accounts Yes, Westpac SMSF cash accounts (often referred to as Westpac DIY Super Accounts) are generally NPP (New Payments Platform) enabled.
Key NPP Features for Westpac SMSF Accounts: Osko® Payments: Allows for faster, near real-time payments to other participating financial institutions. PayID: You can set up a PayID (like an ABN or email) to receive real-time payments to your SMSF account.
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
Important information
This article is general information only and does not constitute personal financial, legal, or taxation advice. The rules governing self-managed superannuation funds are complex and fact-specific. Individual circumstances vary significantly, and the application of the rules described in this guide depends on facts that can only be properly assessed by a qualified professional. Before establishing or participating in a structure of this type, seek advice from a licensed SMSF adviser and an experienced tax lawyer. Past tax outcomes are not a guide to future tax treatment.
⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Here is a little-known strategy where an SMSF can be involved in owning a business or property through an unrelated unit trust or company structure. This is often ideal for an early-stage business expected to grow rapidly over time where income and growth can be captured tax effectively in the SMSF. Most suited to those who do not need access to the capital and profits until retirement or where you want some in the SMSF and some personally but your shared ownership, between your related parties, does not exceed 50%.
When two unrelated SMSFs co-invest in a trading company, the result can be a genuinely tax-efficient, asset-protected business structure — but it comes with a set of compliance obligations that every trustee needs to understand before proceeding. This guide explains how the structure works, the critical questions to ask, and the key risks to manage. In many cases three unrelated parties can make it a lot less risky in terms of potential SIS law breaches.
The critical first question: is the company a “related party”?
This is the most important compliance question in the entire structure, and the answer determines almost everything else.
Under the SIS Act, a “related party” of your SMSF includes the fund’s members, their relatives, their business partners, and companies or trusts they control. Control means holding the ability to determine more than 50% of the voting rights, or being entitled to more than 50% of dividends or capital. I have a complete article on Related Parties here
With a genuine 50/50 split between two unrelated SMSFs, neither fund’s members control the company outright. Neither party can determine outcomes alone. Accordingly, the company is generally not a related party of either SMSF — and this single fact unlocks the structure. So you can see that 3 unrelated entities will roughly even ownership would make this safer as less chance of one exceeding 50%.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
In-house assets — does the 5% rule apply?
SMSF trustees are familiar with the rule that no more than 5% of a fund’s total assets can be “in-house assets” — generally, investments in or loans to related parties. Because the trading company is not a related party (as established above), the shares your SMSF holds do not count as in-house assets based on the ownership relationship alone.
One important note: Regulation 13.22C provides a separate exclusion from the in-house asset definition for investments in certain closely held entities — but that exclusion is only available if the entity does not conduct a business. Since we are dealing with an actively trading company, Reg 13.22C is irrelevant here. The correct answer is that the company is simply not a related party, so the in-house asset classification does not arise in the first place. Here is a great white paper from Leigh Mansell of Heffron’s on In-house Assets
Tax treatment — where the real advantage lives
This structure can be exceptionally tax-efficient, particularly for SMSF members approaching or in retirement phase.
At the company level: A small trading company with turnover below $50 million will typically qualify as a base rate entity and pay company tax at 25%. This tax gives rise to franking credits attached to any dividends paid to shareholders.
At the SMSF level — accumulation phase: Your fund’s effective tax rate on investment income is 15%. When the company pays a franked dividend, the SMSF includes the grossed-up dividend in its assessable income, pays 15% tax, and offsets that liability with the franking credit. Because the company already paid 25% tax, the franking credit typically exceeds the SMSF’s liability — producing a refund.
At the SMSF level — pension phase: If your SMSF is paying pensions and the income qualifies as exempt current pension income, the effective tax rate is 0%. The full franking credit is refunded in cash, making this one of the most tax-efficient investment structures available in Australia.
NALI and arm’s length dealings
Non-arm’s length income (NALI) is taxed in your SMSF at a flat 45%, regardless of whether you are in accumulation or pension phase. Private company dividends are a known NALI risk area, and the ATO scrutinises them carefully.
All dividends must be paid on the same terms to both SMSFs, proportionate to their respective shareholdings, with no preferential treatment flowing to one fund over the other. Arm’s length requirements also apply to any other dealings between your SMSF and the company — including director salaries, lease arrangements, and any services the company provides.
Annual valuation — a compliance obligation you cannot defer
Your SMSF’s financial statements must record all assets at their true market value as at 30 June each year. Shares in a private unlisted trading company must be independently valued by a suitably qualified person using a recognised methodology — typically earnings-based, net tangible assets, or a combination of both. This is not optional; your auditor will require appropriate evidence.
Valuation complexity increases over time, particularly if the company retains significant profits, acquires assets, or if the trading environment changes materially. Factor in the annual cost of a formal valuation — and the management time required to facilitate it — when assessing the overall economics of the structure. My guide to SMSF asset valuations is available here
Before you proceed — a practical checklist
Confirm each of the following before shares are acquired:
Both SMSFs are genuinely unrelated — members are not relatives, business partners, or Part 8 associates of each other in any way
A properly drafted shareholders agreement is executed before shares are acquired
The SMSF investment strategy is updated to specifically contemplate and justify an investment of this type, size, and risk profile
The share acquisition occurs at market value from day one — a below-market acquisition creates permanent NALI taint on all future income from those shares
Dividends will be declared on identical terms for both SMSFs from the outset
An annual independent valuation process is established and budgeted for
The company has a separate ABN, ACN, and bank account entirely independent of any member’s personal finances
Any member who is also a director or employee of the company is remunerated at genuine market rates
Legal advice has been obtained on both the company establishment and the SMSF’s acquisition of shares
Your SMSF auditor has been informed of the investment and understands the basis on which it is not classified as an in-house asset
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
Important information
This article is general information only and does not constitute personal financial, legal, or taxation advice. The rules governing self-managed superannuation funds are complex and fact-specific. Individual circumstances vary significantly, and the application of the rules described in this guide depends on facts that can only be properly assessed by a qualified professional. Before establishing or participating in a structure of this type, seek advice from a licensed SMSF adviser and an experienced tax lawyer. Past tax outcomes are not a guide to future tax treatment.
⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. We often see people, who jumped in to an SMSF before really understanding how it works and it can be a time consuming and an expensive mistake to unwind.
Introduction
An SMSF can be one of the most powerful retirement structures available to Australians — but it is not the right choice for everyone. With over 661,000 SMSFs now operating across Australia and record numbers being established each quarter, I want to make sure that enthusiasm doesn’t outpace understanding.
Before we help anyone establish a fund at Sonas Wealth, we work through a rigorous set of questions together. Some people come in certain an SMSF is what they need. Some leave the conversation feeling the same way. Others discover a better path. Either outcome is a good one — because the goal is never to set up a fund. The goal is to protect and grow your retirement.
This is always the first question. Setting up an SMSF because you’ve heard it’s a good idea, or because a colleague mentioned it over coffee, is not a strategy. I want to understand your short, medium and long-term goals — and whether an SMSF is genuinely the best vehicle to get you there.
Sometimes the answer is clearly yes. Often it opens a broader conversation about alternatives that may serve your true objectives just as well, or better. I’ll never hesitate to point you toward a different path. An SMSF is not the right answer for everyone, and I don’t believe in setting one up just because we can.
2. Is Locking Money Away the Right Move Right Now?
Superannuation is long-term money. For most people, it cannot be accessed until their preservation age — typically 60 — when they meet a condition of release. Before directing more wealth into super, we need to look honestly at your current financial commitments and what flexibility you might need in the next decade.
In many cases, redirecting surplus funds into debt reduction, a personal investment portfolio, or an insurance bond for tax-effective investing can deliver better outcomes while preserving access to capital. Super is a powerful tool — but it needs to be the right tool for the right job at the right time in your life.
💡 Worth Knowing: Carry-Forward Contributions
If your total super balance (TSB) is below $500,000, you may be eligible to use carry-forward concessional contributions — sweeping up unused cap room from the previous five financial years into a single large pre-tax contribution. This can be a powerful complement to an SMSF strategy, particularly when triggered by a significant asset sale or inheritance. Ask your adviser whether this applies to you before deciding how much to contribute and when.
3. Do You Have the Time, Knowledge and Discipline to Run a Fund?
This is the question that surprises people most. Running an SMSF is not passive. It requires you to understand your trustee obligations, review your investment strategy regularly, stay across legislative changes, and commit genuine time to governance — every year, not just at setup.
📖 From the Coaching Files
I’ve had to talk a number of busy executives and business owners out of SMSFs when they couldn’t find a single hour in their week for a meeting — yet expected to manage an $800,000 investment portfolio. I’ve also worked with a couple who considered themselves property experts because they owned four regional Queensland properties, none of which they had ever visited. When we analysed the numbers, the yields were poor, capital growth was flat, and deferred maintenance costs were substantial. Their existing diversified super fund was objectively the safer option until they genuinely developed their property knowledge.
4. What Do You Have to Roll Over — and Can You Actually Move It?
Not all superannuation balances can be rolled into an SMSF without careful consideration. Before making any decision, we need to confirm:
Access restrictions — Some government, military or defined benefit funds (MSBS, Local Government Super) cannot be accessed before a specific age or in certain circumstances.
Defined benefit value — In some cases, the guaranteed benefit from a defined benefit scheme is simply too valuable to walk away from. The certainty of income in retirement may outweigh the flexibility of an SMSF.
Exit costs and liquidity — High exit fees or illiquid underlying investments can make an immediate rollover costly.
Employer mandated funds — Some enterprise bargaining agreements require contributions to flow to a specific fund, which may limit your ability to redirect future Super Guarantee payments. Also some employers offer 1%+ extra to employees using their default fund…don’t lose out!
We work through exactly what you hold, what’s moveable, and what the true cost of moving is — before any action is taken.
5. Have Your Insurance Needs Been Properly Addressed?
Insurance inside superannuation is one of the most commonly overlooked elements of an SMSF transition. When you leave an APRA-regulated industry or retail fund, you typically lose group insurance cover — often cover that would be difficult or impossible to replace on the open market due to health changes since you first obtained it.
⚠️ Critical: Insurance Lost on Rollover Cannot Always Be Reinstated
Once you roll out of an industry or retail fund, group life, TPD and income protection cover is typically cancelled and cannot be reinstated. If your health has changed since that cover was granted, you may find individual cover is either unavailable or prohibitively expensive. Get a full needs analysis before you move a single dollar. Your SMSF trust deed must also document that insurance needs have been considered — it is a compliance requirement, not optional.
6. Are You Genuinely Clear on Your Trustee Responsibilities?
When you sign the Trustee Declaration, you are making a legal commitment that you understand the obligations of a trustee under superannuation law. Saying you didn’t understand those obligations after a compliance breach is not a defence.
As a trustee you are personally responsible for every compliance decision, every investment decision, all record-keeping obligations, and every reporting requirement the fund faces — even if you outsource administration to a professional. We will make sure you have a solid knowledge base before you commit. Your urgency to establish a fund doesn’t override our duty of care to you.
Fixed costs don’t scale down with a smaller balance. The maths needs to work in your favour before an SMSF makes financial sense compared to the APRA-regulated fund you’re currently in.
Cost Component
Typical Range (2025–26)
Setup costs (establishment + trust deed)
$1,500 – $3,000
Annual running costs
$2,000 – $5,000+ (You can find lower at a trade off)
Annual independent audit
$400 – $800
ATO supervisory levy
$259 per year
ASIC annual review fee – sole purpose trustee co.
$67 (look at paying 10 years upfront)
Fund Balance
Annual Cost ($3,500)
Effective Fee Rate
$150,000
$3,500
2.3% — hard to overcome
$200,000
$3,500
1.75% — borderline
$300,000
$3,500
1.1% — becoming viable
$500,000+
$3,500
0.7% or less — cost effective
You can run your SMSF for lower with some online providers but beware of limitations or deals with related parties where they get a cut of brokerage or mortgage commission or straight our referral fees that you ultimately pay.
$200,000–$250,000 in combined member balances is the minimum we normally use.
8. Do You Understand the Risks — Not Just the Benefits?
SMSFs offer genuine advantages: investment control, tax flexibility, estate planning sophistication, and the ability to hold assets such as direct property and business real property. These are real, and for the right person at the right balance, they are compelling.
✅ Potential Benefits
⚠️ Key Risks to Manage
Engagement: we find people who take an active interest in their super are more likely to contribute more, invest consistently and therefore benefit from compound growth
Not understanding how the SMSF works or losing interest.
Full control over investment decisions
Personal trustee liability for all compliance failures. Could mean you can no longer be a director of your own business!
Access to direct property, unlisted assets and collectibles
Concentration risk — especially in property-heavy funds
Economies of scale investing as a couple or family and one SMSF set of fees rather than paying for multiple accounts.
Disagreements on how fund should be managed like different risk tolerances or something more serious like divorce
Tax planning flexibility (timing of contributions and capital gains). Not having to move accounts when changing from accumulation to pension.
Liquidity problems in retirement if assets are illiquid
Superior estate planning via binding death benefit nominations
ATO audit risk if governance is poor
Business real property can be held and leased to related parties
Poor diversification if trustees lack investment expertise
Tax-free income in pension phase on eligible assets
Fines up to $18,000 per trustee for serious breaches
Agility and Transparency: Members have full transparency over their investments, fees, and tax positions. The fund can also react quickly to market changes or legislative updates.
Indecision – being reluctant or afraid to press “Buy” or more often reluctance to admit a wrong call and “Sell”
We’ll give you a balanced view, not a sales pitch in either direction. No reasonable investment reliably produces excessive returns over the long term — and any adviser suggesting otherwise should be a red flag.
9. Have You Thought Carefully About Your Investment Strategy?
Your investment strategy is not a formality — it is a legally required, living document that must genuinely reflect your objectives, risk tolerance, diversification approach, liquidity needs, and the insurance requirements of all members. The ATO expects it to guide every investment decision and to be reviewed regularly, particularly when member circumstances change.
A strategy that says “we will invest in whatever we feel like” is not compliant. We help you build something grounded in realistic expectations and genuine retirement planning — not just a document to tick a box.
10. If Borrowing Is Part of the Plan, Is It Genuinely Affordable?
Limited Recourse Borrowing Arrangements (LRBAs) can be a legitimate strategy inside an SMSF, particularly for acquiring commercial or business real property. But they add significant complexity, increase risk, and must be structured correctly from day one — a defect in the LRBA structure can invalidate the arrangement and create a compliance breach.
Before proceeding with any gearing strategy, we assess:
Whether borrowing is genuinely appropriate for your circumstances and risk profile
Whether the loan is serviceable from the fund’s income and contributions, without relying on member contributions to cover shortfalls indefinitely
Whether the long-term retirement outcome is improved — not just the short-term tax position
Whether the trust deed and LRBA documentation are correctly structured
We’ll walk you through the rules, the process, and the most common mistakes to avoid before you commit to anything.
In fact we have an Education section just on Property in an SMSF with over 17 articles to guide you on every aspect of the strategy. WE DO NOT SELL PROPERTY BUT WE DO CATER FOR YOUR INVESTMENT PREFERENCES
11. What Happens If Circumstances Change?
Life doesn’t stay still. Divorce, death, disability, loss of income, or a decision to move overseas can all complicate an SMSF significantly — and if you haven’t planned for these contingencies from the beginning, unravelling them can be expensive and stressful.
Death benefit nominations — Binding nominations direct the trustee how to distribute your super on death. Not all trust deeds allow binding nominations; check yours. Non-lapsing nominations provide greater certainty.
Incapacity — If a trustee loses capacity, the fund may be unable to operate without an enduring power of attorney in place. This is a commonly overlooked risk.
Relationship breakdown — Super splitting orders following a divorce can create significant complexity in an SMSF, particularly where illiquid assets are involved.
Moving overseas permanently — If all members relocate offshore, the fund may fail the Australian residency test and lose its concessional tax status. Seek advice well before any long-term departure.
Winding up — Once a fund is wound up, it cannot be reactivated. Ensure you have a clear exit strategy and understand the process before you need it. We have you covered How to Wind Up Your SMSF
My View as The SMSF Coach
I’ve spent my career helping trustees get more from their SMSF — but I’ve also spent a lot of time talking people out of one when the timing, balance, or circumstances weren’t right. Both conversations matter equally.
The SMSF sector is growing rapidly — over 661,000 funds, more than 1.2 million members, and record establishment numbers in recent quarters. Some of that growth reflects genuinely well-considered decisions by people who understand what they’re taking on. Some of it reflects enthusiasm running ahead of understanding.
An SMSF done well can be one of the most effective long-term wealth structures available to an Australian. An SMSF done poorly — or set up for the wrong reasons at the wrong time — can quietly erode the retirement security it was meant to protect. My job is to make sure you know which one you’re looking at before you commit.
If you’ve read this and still think an SMSF might be right for you, let’s have that conversation properly.
Pre-Decision Checklist
Before committing to establishing an SMSF, work through each of the following with your adviser:
#
Checklist Item
✅
1
Your goals and objectives genuinely align with what an SMSF can deliver
☐
2
Locking money in super is the right move given your current financial position and commitments
☐
3
You have the time, knowledge and discipline to fulfil trustee obligations year-on-year
☐
4
Your current fund balances can be rolled over — access restrictions and exit costs confirmed
☐
5
Your current fund balances can be rolled over — access restrictions and exit costs confirmed
☐
6
A full insurance needs analysis has been completed before any rollover
☐
7
You have read the Trustee Declaration and understand your legal obligations
☐
8
The cost-benefit analysis confirms an SMSF is cost-effective compared to your current fund
☐
9
You understand both the benefits AND the risks, including compliance penalties
☐
10
A compliant, meaningful investment strategy has been drafted and reviewed
☐
11
If borrowing is planned — LRBA affordability, structure and documentation confirmed
☐
12
Death benefit nominations, power of attorney and exit strategy have been considered
☐
13
Corporate trustee vs individual trustee decision made and reasons documented
☐
📌 Key Takeaways
✅ An SMSF can be a powerful retirement structure — but only when established for the right reasons, at the right balance, and by trustees who understand the obligations.
💰 The cost-effectiveness threshold is around $200,000–$250,000 in combined member balances. Below that, fixed running costs represent a significant fee drag on returns. The true cost depends on the mix of investments and services you engage.
⚠️ Insurance cover held inside an industry or retail fund is typically lost on rollover and may not be replaceable. Get a needs analysis before moving any funds.
📋 Signing the Trustee Declaration is a legal commitment. Not understanding your obligations is not a defence if something goes wrong.
🚫 ATO penalties for serious trustee breaches can reach $18,000 per trustee — and non-compliance can result in the fund being taxed at 45%.
🔑 Your investment strategy is a legal document, not a formality. It must genuinely reflect your objectives, diversification approach, liquidity needs and member insurance requirements.
💡 Always obtain personal advice from a licensed SMSF specialist before establishing a fund or making any rollover decision.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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.
⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.
Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. Every week I speak to people who’ve been approached about setting up a Self-Managed Super Fund (SMSF). Some of those approaches are genuine but many are not.
Too often, what looks like helpful advice is really a cleverly disguised sales pitch — designed to get you to move your super so the promoter can sell you their product, charge high fees, or worse, put your retirement savings at risk. The ATO is watching this space more closely than ever, and the consequences for getting it wrong as a trustee are serious and personal.
This is your no-nonsense guide before you sign anything.
1. How Are You Being Approached? Sales Pitch or Genuine Advice?
Legitimate SMSF advice starts with your situation — not the adviser’s product. A proper adviser asks about your retirement goals, risk tolerance, existing super balance, insurance needs, available time, and whether an SMSF even makes sense for your circumstances. Only then do they make a recommendation.
The product-led approach works the other way around. The SMSF is not the goal — it is the vehicle. Someone wants to sell you a property, a managed fund, an unlisted investment, or a crypto platform. The SMSF is simply how they access your superannuation balance.
Warning Signs in How You Were Approached
Unsolicited contact — cold calls, emails, social media ads, or “free seminars” promising to “unlock the power of your super”.
Pressure to act fast — “limited time offer”, “EOFY special”, or “get your money out before the rules change”.
Promises that sound too good to be true — guaranteed returns, easy access to your super before retirement, or “we’ll handle everything so you don’t have to lift a finger”.
Focus on a single product — a specific property deal, crypto scheme, or investment the promoter (or their related parties) controls.
A referral chain where the adviser, accountant, mortgage broker and property manager all recommend each other — and all earn from the same transaction.
If the conversation quickly moves to rolling your super into a new SMSF so they can “invest it for you” or “help you buy that investment property” — stop. That is usually the gateway to selling their product, not acting in your best interest.
💡 From The SMSF Coach Ask yourself one question before you go any further: is this person excited about my retirement goals, or excited about my super balance?
🚩 Red Flag 1: The Approach Starts With a Product, Not Your Situation You were contacted unsolicited — by phone, email, social media or a seminar. The pitch centres on a specific investment or property rather than a review of your financial situation. You feel pressured, rushed, or told there is a deadline you must meet. The adviser cannot clearly explain what they earn if you proceed — or refuses to tell you.
Quick Licence Check — Do This Before Anything Else
Anyone who recommends you set up an SMSF must hold an Australian Financial Services (AFS) licence, or be an authorised representative of a licensee. This is not optional — it is the law. Check them on:
The ASIC Financial Advisers Register (search at moneysmart.gov.au)
The Tax Practitioners Board register (if they are advising on tax matters)
No licence? Walk away immediately and consider reporting them to ASIC.
2. Do They Provide Genuine Education — or Just Hype?
Real SMSF education explains the responsibilities, not just the glamour. Any adviser worth trusting will make sure you understand what you are signing up for before you commit to anything.
What Proper Education Must Cover
The sole purpose test — your SMSF must exist solely to provide retirement benefits to members. No personal benefit, no holidays, no business bailouts.
Arm’s length rules — every transaction must be done on commercial terms, as if with an unrelated third party.
Your annual audit obligation — an independent approved auditor must review your fund every single year.
Investment strategy requirements — you must have a written, current strategy that actually reflects how your fund is invested.
Record-keeping and valuation duties — all assets must be valued at market value at 30 June each year, with supporting evidence.
Your personal liability as trustee — you are personally responsible for compliance. Administrative penalties cannot be paid from fund assets.
Red flag material is all glossy brochures and “success stories” with no mention of the paperwork, record-keeping, or what happens if you get it wrong. If they say “we’ll do it all for you” and gloss over your ongoing trustee duties, they are not educating you — they are disarming you.
💡 From The SMSF Coach An SMSF puts you in the driver’s seat, but you still have to steer. If the promoter doesn’t equip you to understand the road rules, they’re not coaching — they’re selling.
🚩 Red Flag 2: No Meaningful Education Is Being Provided The conversation focuses on the benefits of an SMSF but skips the responsibilities, compliance obligations and time commitment.You have not been told that as trustee you are personally responsible for every investment decision, every lodgement, and every breach — even accidental ones.There is no discussion of your existing insurance or how it may be affected when you roll your balance into a new fund.There is no Statement of Advice (SOA) documenting why an SMSF is specifically recommended for your situation.
3. The True Costs of Running an SMSF
Here is the reality the glossy flyers rarely show. The cost of running an SMSF is one of the most consistently misrepresented aspects of the whole conversation — and for many people at lower balances, it is the deciding factor.
What You Should Expect to Pay
Setup costs: Expect $1,400–$2,000 for a proper trust deed, corporate trustee structure, ATO registration, and an initial investment strategy. Cheap setups often cut corners on documentation you will regret later.
Ongoing costs: Based on the latest ATO statistical data, median annual operating expenses run to approximately $4,139–$4,628 per year. This includes auditor fees, accounting, administration, and the supervisory levy.
Many people are shocked to learn the real annual cost often lands between $3,500 and $6,000 once everything is factored in — before investment fees, platform costs, or adviser fees.
Cost Item
Typical Range
Notes
Trust deed & company setup
$500 – $1,500
Higher for corporate trustee structure
Accounting & tax return
$1,200 – $3,000+
Increases with complexity
Independent audit
$300 – $900
Mandatory every year
ATO supervisory levy
$259
Netted in annual return
Financial advice fees
$2,000 – $5,000+
If you engage an adviser
ASIC company annual fee
$67 / year
Corporate trustee only
LRBA / bare trust setup
$1,500 – $3,000+
Required if borrowing for property
Actuarial certificate
$300 – $600
If fund has pension-phase members
Investment & platform costs
Varies widely
Brokerage, managed fund fees, platform access
Insurance review
Varies
Critical — existing cover is often lost on rollover
The old ASIC figure of $13,900 per year was significantly overstated, but the ATO’s median numbers are the ones you should use as your benchmark. If your balance is under $500,000–$750,000, those fixed costs can seriously erode your returns when expressed as a percentage of your balance.
🔑 Before You Proceed: Demand Written Fee Disclosure Total fees expressed in dollars AND as a percentage of your fund balanceA side-by-side comparison between the SMSF and your current super fund, after all fees and taxFull disclosure of any referral fees, commissions or benefits the adviser or their network receivesConfirmation that ATO administrative penalties are your personal liability — not payable from fund assets
🚩 Red Flag 3: Costs Have Not Been Fully and Transparently Disclosed You have only been quoted setup costs, not ongoing annual running costs.No comparison has been provided between the SMSF and your current fund as a percentage of your balance.No one has mentioned that ATO administrative penalties are personally payable by trustees — not from the fund.Insurance implications of rolling out of your current fund have not been raised.
4. The Most Common Mistakes — and What the ATO Does About Them
The ATO regulates more than 630,000 SMSFs and its compliance data makes uncomfortable reading: contraventions increased by 10% in the 2024 income year, and by a further 13% in the first half of the following year. Here are the traps that catch trustees out most often.
Mistakes I See Every Year
🚨 Illegal early access — setting up an SMSF specifically to withdraw funds before you meet a condition of release (generally age 60 with retirement, or age 65 regardless). This is the ATO’s single biggest compliance focus.
Lending to yourself or related parties — or using SMSF assets to support a struggling business. The ATO’s estimate of prohibited loans this year is $231.7 million.
In-house asset breaches — investing more than 5% of the fund’s assets in related-party assets or loans.
Poor record-keeping and valuations — no market-value asset valuations at 30 June, missing trustee minutes, or unsigned trustee declarations.
No investment strategy — or a strategy that does not match your actual investments.
Mixing personal and fund money — paying private bills from the SMSF bank account, or depositing SMSF income into a personal account.
Contribution cap breaches and NALI — non-arm’s length transactions that trigger punitive tax at the highest marginal rate.
Ignoring ATO authority notices — including excess contribution determinations and commutation authorities. Not responding does not make them disappear.
Non-lodgement of annual returns — approximately 85,000 SMSFs had not lodged their 2023 return as at early 2025. Non-lodgement removes your complying status from Super Fund Lookup, cutting off employer contributions and rollovers.
🚩 The Cost of Getting It Wrong Administrative penalties can reach 60 penalty units — currently around $18,780 per breach, per trustee. Loss of complying fund status means the fund’s income is taxed at 45% instead of 15%. Trustee disqualification goes on the public record and applies to all future SMSF roles. These penalties are paid personally by trustees — not from the fund.
Real ATO Cases That Should Make You Think Twice
The ATO does not just issue warnings — it acts. The following court and tribunal decisions illustrate what happens when things go wrong.
📋 ATO Case: NSW Promoter — Federal Court PenaltyOne of the most striking enforcement actions involved a NSW promoter who set up (or attempted to set up) 35 SMSFs for 68 individuals. She charged fees to help people who were not eligible to access their super to roll it into a new SMSF and withdraw it immediately — often the same day — for home renovations, stamp duty and personal expenses.The Federal Court imposed a $220,000 penalty and banned her from setting up SMSFs for seven years. The individuals involved were also exposed to back-taxes, penalties and trustee disqualification.
📋 ATO Case: Ryan v Deputy Commissioner of Taxation [2015] FCA 1037The Ryans withdrew nearly $210,000 from their SMSF in 68 transactions over three years, leaving a minimal balance. Withdrawals were treated as loans but were completely undocumented, unsecured, interest-free and had no repayment date.The Federal Court found breaches of the sole purpose test, the prohibition on member loans, and the arm’s length requirement. Each trustee was fined $20,000 ($40,000 combined), disqualified as trustees, and had their remaining benefits rolled into a public fund. They were ordered to pay the ATO’s costs.
📋 ATO Case: Fitzmaurice and Commissioner of Taxation [2019] AATA 2217The Administrative Appeals Tribunal upheld the disqualification of a trustee following cumulative breaches: lending to a member, sole purpose test violation, illegal early release, missing annual returns, investments not at arm’s length, failure to maintain current asset valuations, and record-keeping failures.Critically, the Tribunal held that vague verbal advice from the fund’s accountant was not a valid defence. Primary responsibility for compliance rests with the trustee — not the adviser.
Other Schemes the ATO Has Shut Down
Property “rebate” arrangements where part of the purchase price is secretly returned to the member personally.
Contrived property development joint ventures that use related parties to divert profits into the SMSF at non-commercial rates, triggering non-arm’s length income (NALI) rules.
High-return crypto or offshore investment apps pushed after an SMSF is established, using the fund balance as the entry ticket.
📊 ATO Enforcement in Numbers — 2024-25 Over 660 SMSF trustees disqualified in 2023-24, largely due to illegal early accessMore than $7 million in administrative penalties and $16 million in additional tax raised$481.8 million estimated in illegal early access and prohibited loans in the most recent year10% increase in contraventions in 2024 income year, with a further 13% rise in early 2025Most common contraventions: member loans (19%), in-house assets (16%), asset separation (13%)
5. My Final Coaching Advice
An SMSF is a genuinely powerful tool — I’ve helped hundreds of families use them successfully for direct property, shares, and real retirement control. But only when it is the right fit and set up properly. The key question is always: who is this arrangement actually serving?
✅ Before You Say Yes: Your Pre-Commitment Checklist Ask yourself honestly: is this person acting in my best interest, or theirs?Demand clear, written disclosure of all fees and ongoing costs — in dollars, not just percentages.Insist on a Statement of Advice (SOA) that documents why an SMSF is recommended for your specific situation.Insist on proper education about your trustee responsibilities before you sign anything.Check every licence on the ASIC Financial Advisers Register and the Tax Practitioners Board.Get a second opinion from an independent SMSF Specialist Adviser who has no connection to the product being recommended.Confirm your existing insurance coverage position before rolling out of your current fund.If anyone promises access to your super now for a non-retirement purpose — stop. That is illegal, and the ATO will find you.
💡 From The SMSF Coach An SMSF done right is one of the best structures available for building retirement wealth. An SMSF done wrong — for the wrong reasons, promoted by the wrong people — can cost you your retirement savings, your trustee status, and years of financial recovery.
📌 Key Takeaways ✅ An SMSF is right for the right person — but the approach, the advice, and the cost disclosure must all check out first.🚨 If someone approached you unsolicited and led with a product, the starting position is one of conflict of interest.💰 Understand the full annual cost (typically $3,500–$6,000+) and compare it to your current fund before deciding.⚠️ The most common contraventions are member loans, in-house asset breaches and non-lodgement — all carry personal penalties.🔑 Always verify licences, demand a written SOA, and get an independent second opinion.📋 The ATO will find non-compliance. Trustees cannot hide behind their accountant or adviser.
Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au
Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account your objectives, financial situation, or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I openly admit that I am not an expert in choosing properties (indeed my own personal history with property investing is dismal to say the least but improving!). I work on the structure and strategy with my clients and recommend they do their own in-depth property research or lately I have been recommending people use a Buyer’s Agent if they are inexperienced or lack confidence, time or want help and advice but need to know that person is working 100% on their behalf.
That brings me to the title of this blog and I asked a local Buyer’s Agent here in the Hills District of Sydney who operates countrywide to explain the role and benefits of a Buyer’s Agent. So here is our first Guest Post from Jay Anderson of Jay Anderson – Property Strategist | Buyers Agent | Property Advisor
“Empowering clients to make the right choices!” –
Searching for a home to live in or investing in property, could at best be an intimidating experience. You wouldn’t invest half a million dollars in a business without a strategy or without a business plan, so why would you invest that, or even more, into a property without a plan or strategy? With a process of consultation we determine what clients really need to reach their own personal property goals. Through step by step professional guidance we determine a strategy suitable to our clients needs and finally implement that strategy, finding the home or investment property that credibly suits the designed and agreed personal property strategy.
Why use us as your Property Investment Advisor and Buyers Agent:
We work exclusively for the Property Investor/Home Buyer. We have no alliances with any real estate agencies, selling agents or property developers and we fight for our buyers! There’s a clear distinction between our services and those of selling agents. We don’t sell property, have no ‘stock lists’ and as exclusive buyer’s agent, we only act for the buyer not the seller.
We give our clients guidance throughout the entire purchasing process. We provide insight on the market conditions and the best areas to buy/invest in based on their individual needs and property ambitions, empowering our clients to make the right choice and purchase their ideal property at the right price.
You don’t have to rich and famous to use our services. We can assist you whatever your budget is. We will save you money (we use great negotiation techniques), time (we do the running around for you, we source properties on and off market, attend inspections, provide photos/videos and will advise you what to offer) and alleviate the stress that often accompaniesa property purchase.
We save our clients heartache. No more the need to try to figure out if my friends ‘advice’ at the BBQ to invest in that ‘hot’ area is credible or not! Believe it or not, but 80% of mistakes that’s made in investing in real estate are made at the buying stage. “You don’t know what you don’t know” and whilst you “can” do it yourself, there is so much at stake.
We are a fee for service organisation and do not accept any sales commission or incentives from vendors, builders, developers or third parties. We are truly independent and represent the buyer only.
We will only refer our clients to service providers that have their best interest at heart. We have created a safe environment for property buyers with like-minded people all focused on: ‘What’s in the best interest of my client’.
We carry appropriate and adequate Professional Indemnity insurance for the services we provide and are a proud member of the Property Investment Professionals of Australia (PIPA), Property Investors Council Australia (PICA), a Qualified Property Investment Advisor (QPIA) and a licensed Real Estate Agent (LREA)
Why not build your property portfolio on good foundations? Make your next property acquisition an informed one.
The SMSF Coach or Verante Financial Planning do not request or receive any commissions or referral fees from recommending services like Jay’s, we just want the best professional advice for our clients.
For more detail on Investing in Property through an SMSF check out our previous articles
Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments in the section below.
Bye for now.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 Norwest NSW 2153
40/8 Victoria Ave. Castle Hill NSW 2154
Suite 4, 1 Dight St, Windsor NSw 2756
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I was on the hunt for some interesting insights in to the current market and using momentum or contrarian strategies for clients . Lawrence Lam of Lumenary Investment Management writes in this guest blog that it not always a case of either or but a combination.
At a recent lunch with another fund manager I found myself engaged in a discussion about the state of the current market.
‘From your perspective, are you seeing many good opportunities?’ I asked.
‘I’m seeing good companies, but prices are toppy,’ he said, wincing before continuing. ‘More than I’d like to pay. But we’ve recently deployed more anyway.’ He shrugged his shoulders, ‘Momentum in the market is strong – the fed is decreasing rates. Despite the high prices, we wouldn’t want to miss this momentum.’
I nodded as we both acknowledged this unique investment environment. Decreasing rates, high stock valuations, yet stock prices that have continued to climb steadily.
Walking back to my office I reflected. ‘Is now a good time to be a momentum investor? Or is it time to go against the herd?’
Harness the power of momentum or be a contrarian?
It’s a dichotomy faced by all investors, but it isn’t a binary decision. Your portfolio can be made up of both momentum and contrarian investments. So the question becomes: how can we determine the optimal proportion of holdings between momentum and contrarian?
Are you seeing the full picture?
Momentum investors have much to gain if the wave of popularity is caught early. However, be the last one to the party and you will be left with all the cleaning up. The real question is: how much more of the wave is left to catch? The solution to this contradiction can be found by understanding the long-term context.
The ratio of a company’s stock price-to-intrinsic value tells us how much the market is willing to pay for the company. It’s a useful measurement of sentiment at one point in time. There’s a clear link between sentiment (the stock price) versus fundamental value (intrinsic value).
But it doesn’t give us the full picture. To understand this contradiction, we need to see how sentiment for the stock has changed over a significant period of time – over entire market cycles. Extend the ratio of stock price-to-intrinsic value over a 15 year horizon and you’ll now gain a multi-dimensional view of just how manic-depressive Mr Market is.
As an example, here is the change in sentiment for the founder-led aerospace electronics company HEICO Corporation.
During the GFC, Mr Market was very pessimistic. He was only willing to pay 1.8x the intrinsic value of HEICO. But alas Mr Market is as fickle as they come. More recently, he has been very bullish. He’s willing to pay 4.8x intrinsic value. A large proportion of the returns have been driven solely by the company’s increasing popularity with investors.
Now we have a better view of the context. Understanding the stock price and intrinsic value over a long time period equips us to answer the following question…
Is the party getting started or is it about to end?
There’s an interesting observation about parties. When do they end?
Answer? They end when the alcohol runs out. Rarely do they end immediately though. Good times roll on for a while longer before the sudden realisation hits the sobering crowd.
So when is the worst time to join a party?
As you’re pondering the answer, here is another view of HEICO to illustrate the point.
Although the intrinsic value of HEICO’s business has consistently increased over time, the increase in it’s price has far outpaced the fundamental growth of the company. HEICO is a solid and growing company, but its impressive performance has been driven primarily by sentiment and price, rather than actual business value. The price-to-intrinsic value ratio shows this.
Risk is heightened when a company’s stock price outpaces its intrinsic value for significant periods of time. As crazy as Mr Market is, one thing is certain – his enthusiasm and pessimism never last forever. The gravitational pull of a company’s fundamental value is unrelenting.
The best time to join a party is when there’s plenty of alcohol and not too many people. But tread carefully when there crowd is pumping and booze is running low. Whilst the fun may continue for a while longer yet, the risk of an abrupt ending is heightened.
A ‘reasonable’ price
Pure momentum investing focuses predominantly on the historical price movement and pays little attention to actual fundamental value. But if you want to understand if a trend is justified, the fundamentals are critical.
Armed with this insight, we can make a judgement call on what a ‘reasonable’ price would be and whether we should join the party. Some sectors run hot. Today, technology is a classic example. But a strong trend shouldn’t be a deterrent. Prices may seem exorbitant, but in the context of the company’s historical sentiment, sometimes the high price is worth paying. What may seem expensive on an absolute basis may be reasonable in the context of history. For example, the price-to-intrinsic value of Facebook was high on an absolute basis in late 2018, but was reasonable when compared to its history. It has proven to be a good entry point so far.
But there’s more for enterprising investors – the picture is still not yet complete.
A deeper level of analysis
Competition
You may have noticed my focus on individual company analysis rather than broad-based economic generalisations. We are buying slices of companies after all. Whilst we can understand the sentiment in our target company, it is also important to have context across other comparable companies. The same price-to-intrinsic value historical ratio across a few companies will give us a sense of sentiment across the sector. We’ll be able to see if there are any other reasonably priced companies.
Potential growth
So far the focus has been on gaining historical context. Sometimes the momentum is justified if there are tangible growth prospects. In other words, intrinsic value is expected to grow significantly with price. In those situations, the trend may be your friend. For those that heard me speak at the AIA National Conference, I outlined my framework to assess the potential growth of a company.
Intrinsic value
Speculators focus on stock price movements only. Investors focus on the underlying true worth of a company.
As Warren Buffett says “Price is what you pay, value is what you get”.
The fundamentals of a company’s value is reflected in its Intrinsic value. Importantly, in determining a company’s intrinsic value, I’ve stripped out accounting distortions that may hide a company’s true worth.
Closing remarks
Is the trend your friend?
If the fundamentals of a company are sound and the price is reasonable in the context of its history and other competitors, then the trend may indeed be an ally. Ride the wave and enjoy the party.
Price and intrinsic value may deviate for many years but price will eventually move towards intrinsic value over the long-term. Seeing the full picture is key to capturing sensible opportunities. In every party, everyone sobers eventually.
Happy compounding.
Note:
Stocks mentioned have been used as examples only. They are not recommendations to buy or sell.
About me
Lawrence Lam is the Managing Director & Founder of Lumenary, a fund that uncovers the best founder-led companies in the world. We invest in unique, overlooked companies in markets and industries beyond most managers’ reach. We are a different type of global fund – for more articles and information about us, visit www.lumenaryinvest.com
The SMSF Coach is in no way connected to Lawrence Lam of Lumenary Investment Management and we do not receive referral fees or commissions of any sort from them. This is purely general advice and market commentary from a trusted source and you should seek personalised financial advice before making any investment decision.
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 2024 the year to get organised or it will be 2029 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 98993693, Mobile: 0413 936 299
PO Box 6002 NORWEST NSW 2153
U40, 8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 434 605 488 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I am always on the look out for interesting tips for clients and while this may not necessarily be SMSF related, many of my readers are also wish to help their children with money for house deposits, education funds or other ad-hoc expenses . I read the blogs from Dr.Brett Davies at Legal Consolidated regularly and found them very informative and excellent guidance so, with his permission, I am “paying it forward” again!
In his blog Parents making loans to childrenhe discusses why smart parents use loan agreements to protect the family wealth. Here is the detailed article and video he prepared.
Parents making loans to children
Sad parents
Mum and dad give their daughter, Joanne $400,000 to buy a house. She then marries Ken. Ten years later Joanne and Ken divorce. The house is still worth $400,000. It is the only asset of the marriage. The Family Court awards $200,000 to Ken. The Family Court is not interested that the money was a gift from Joanne’s mum and dad. Instead, loans to children are safer.
Smart parents
Mum and dad lend $400,000 to their daughter, Joanne. Joanne signs a legally prepared Loan Agreement built on Legal Consolidated’s website. Joanne purchases a house with the money. She marries Ken. Ten years later they divorce. The house is still worth $400,000. It is the only asset. The Family Court is shown the Loan Agreement. The Family Court orders that Ken gets nothing. This is because the assets of the marriage are nil.
To protect your loan build a legally prepared Loan Agreement – on a law firm’s website. Homemade loan agreements may not work. They carry less weight with the Family Court and Bankruptcy Court. Why take the risk?
But I love my children
There is nothing wrong with helping our children financially. It could be for their first car, grandchildren school fees, a holiday or a property. Today it is becoming more popular to help out our children with a home deposit, but simply giving away the money has real risks. It is important to protect the money in case:
they divorce
go bankrupt
suffer from drugs
suffer a mental condition
stop loving you – ‘King Lear’ offers his daughters his Kingdom for the return of their love, but after they promptly abandon him
you run out of money yourself, in your old age
Documenting loans to children
Never ‘give’ your children money. Always ‘lend’ them money ‘payable on demand’. Get it back if something goes wrong. Treat yourself like you are a bank, and your children are taking out a loan.
Creating a loan agreement not only protects your own interests but also benefits the child as you can decide in the future to forgive the loan while you are alive or in your Will.
With loans to children, never rely on a verbal agreement. Press the Build button and build a Loan Agreement on our website. We are Australia’s only law firm website providing legal documents online. It puts everything in writing with rules about the loan.
Any tax issues?
There are no tax issues. The interest rate for the loan is ‘as advised by the Lender’. Therefore, while the interest rate is zero you have no income tax issues. If the child separates you can increase the interest rate to draw more money out of the failed relationship. There is less money for the Family Court to give to your ex-in-law.
A loan isn’t always for property and the grandchildren’s school fees. You can also fund the children’s Superannuation fund. Speak to your Financial Planner and Accountant.
At different times, it is common to benefit one child over another with money. If you benefit one child over another then it is adjusted automatically at the time of your death. Say you lend one child $500k and the other child $300k then that is adjusted at your death. So it is all fair again.
When making loans to children:
talk with all your children together about the loans
never gift children money – only loan them money (this protects both you and them).
don’t rely on home-made loans or IOUs – build a Loan Agreement
Can I just do a Loan Agreement on the back of an envelope?
In the movies, IOUs are often handwritten on a piece of paper. Sometimes instead of a Loan Agreement, someone does a ‘minute’. Both approaches fail. In Rowntree v FCT [2018] FCA 182 shows the additional care required to document even simple related-party transactions, such as loans. In this case, the taxpayer, a practising NSW lawyer, claimed he borrowed over $4m from his group of private companies. The Court said:
‘Mr Rowntree has not deliberately chosen to ignore the law. His evidence presented to the Tribunal suggests that he genuinely believed that there were arguments to support his view that a loan was in existence.’
He failed. Only a legally prepared Loan Agreement satisfies the ATO, Bankruptcy Courts and Family Court.
Cheeky son refuses to pay Dad back
In Berghan v Berghan [2017] QCA 236 the son borrows money from his Queensland aged father. The son refuses to pay it back.
The son, in the first court case, successfully argues that the monies were given to him as a gift. However, the Court of Appeal held that the amounts were loans.
Portrait of an ungrateful child
The son’s company suffers financial stress. The son gets $98k from this Dad. The boy continues to borrow more money from dad.
Later, the son borrows his father’s credit card. The boy clocks up another $13k of debt.
The First court case
His Honour said that Dad failed to prove a legal binding agreement. There was no paperwork. There was no written loan agreement. It was a gift.
The Judge said:
The son promised to look after his Dad in old age. But that was just a moral obligation.
Dad is making the payments to the son, for the benefit of the company, was simply discharging his parental obligations. This is because their daughter was an employee at the son’s company. The money was therefore of a charitable nature. Dad was protecting the son’s company so his daughter would keep her job.
Dad allowed his boy to use the credit card when the boy was injured and impecunious. These circumstances are charitable.
Good sense prevails in the Appeal
The Court of Appeal had a better sense:
The lengthy period it took Dad to make a demand for the money does not count against his assertion that a breach of contract existed. The Court held post-contractual conduct is not taken into account when interpreting the terms of a contract.
The motive Dad had in transferring his son the money, be it “charitable” or otherwise, was not relevant.
The Court set aside the decision of the District Court. The Court said that the monies were paid with an understanding that they would be repaid. This was an “inescapable conclusion”. The transactions were a contract of loan. The Court gave judgement in favour of Dad of $286,000 including interest.
This is another example of elder abuse. The decision shows the perils of not signing a loan agreement. Going to Court – twice in this instance – was expensive and exhausting for the aging father.
What happens if your child has a partner and buys a home?
What if your child has a partner? The loan agreement may change depending on whose name the home is purchased under. Best that your child signs the Loan Agreement and buys the home just in their name. This binds your child alone, and the partner has no say in the matter. What if the partner objects? It is important to stay firm and explain it is ‘to protect your interests, it is nothing personal’. This protects yourself and your child, if the relationship with the partner does not end up ‘happily ever after’.
What happens if the home is purchased in both your child and their partner’s name? Then both your child and their partner sign the Loan Agreement. Our Loan Agreements allows the loan to be lodged as a caveat. Or our Loan Agreement can be registered as a second mortgage – but the bank is notified. So caveats are more common.
We are in no way connected to Legal Consolidated, we do not receive referral fees or commissions of any sort from them. This is purely general advice from a trusted source and you should seek legal advice form them or your own solicitor before making any decision.
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 2019 the year to get organised or it will be 2029 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™
I was on the hunt for some interesting insights in to the current market and using momentum or contrarian strategies for clients . Lawrence Lam of Lumenary Investment Management writes in this guest blog that it not always a case of either or but a combination.
At a recent lunch with another fund manager I found myself engaged in a discussion about the state of the current market.
‘From your perspective, are you seeing many good opportunities?’ I asked.
‘I’m seeing good companies, but prices are toppy,’ he said, wincing before continuing. ‘More than I’d like to pay. But we’ve recently deployed more anyway.’ He shrugged his shoulders, ‘Momentum in the market is strong – the fed is decreasing rates. Despite the high prices, we wouldn’t want to miss this momentum.’
I nodded as we both acknowledged this unique investment environment. Decreasing rates, high stock valuations, yet stock prices that have continued to climb steadily.
Walking back to my office I reflected. ‘Is now a good time to be a momentum investor? Or is it time to go against the herd?’
Harness the power of momentum or be a contrarian?
It’s a dichotomy faced by all investors, but it isn’t a binary decision. Your portfolio can be made up of both momentum and contrarian investments. So the question becomes: how can we determine the optimal proportion of holdings between momentum and contrarian?
Are you seeing the full picture?
Momentum investors have much to gain if the wave of popularity is caught early. However, be the last one to the party and you will be left with all the cleaning up. The real question is: how much more of the wave is left to catch? The solution to this contradiction can be found by understanding the long-term context.
The ratio of a company’s stock price-to-intrinsic value tells us how much the market is willing to pay for the company. It’s a useful measurement of sentiment at one point in time. There’s a clear link between sentiment (the stock price) versus fundamental value (intrinsic value).
But it doesn’t give us the full picture. To understand this contradiction, we need to see how sentiment for the stock has changed over a significant period of time – over entire market cycles. Extend the ratio of stock price-to-intrinsic value over a 15 year horizon and you’ll now gain a multi-dimensional view of just how manic-depressive Mr Market is.
As an example, here is the change in sentiment for the founder-led aerospace electronics company HEICO Corporation.
During the GFC, Mr Market was very pessimistic. He was only willing to pay 1.8x the intrinsic value of HEICO. But alas Mr Market is as fickle as they come. More recently, he has been very bullish. He’s willing to pay 4.8x intrinsic value. A large proportion of the returns have been driven solely by the company’s increasing popularity with investors.
Now we have a better view of the context. Understanding the stock price and intrinsic value over a long time period equips us to answer the following question…
Is the party getting started or is it about to end?
There’s an interesting observation about parties. When do they end?
Answer? They end when the alcohol runs out. Rarely do they end immediately though. Good times roll on for a while longer before the sudden realisation hits the sobering crowd.
So when is the worst time to join a party?
As you’re pondering the answer, here is another view of HEICO to illustrate the point.
Although the intrinsic value of HEICO’s business has consistently increased over time, the increase in it’s price has far outpaced the fundamental growth of the company. HEICO is a solid and growing company, but its impressive performance has been driven primarily by sentiment and price, rather than actual business value. The price-to-intrinsic value ratio shows this.
Risk is heightened when a company’s stock price outpaces its intrinsic value for significant periods of time. As crazy as Mr Market is, one thing is certain – his enthusiasm and pessimism never last forever. The gravitational pull of a company’s fundamental value is unrelenting.
The best time to join a party is when there’s plenty of alcohol and not too many people. But tread carefully when there crowd is pumping and booze is running low. Whilst the fun may continue for a while longer yet, the risk of an abrupt ending is heightened.
A ‘reasonable’ price
Pure momentum investing focuses predominantly on the historical price movement and pays little attention to actual fundamental value. But if you want to understand if a trend is justified, the fundamentals are critical.
Armed with this insight, we can make a judgement call on what a ‘reasonable’ price would be and whether we should join the party. Some sectors run hot. Today, technology is a classic example. But a strong trend shouldn’t be a deterrent. Prices may seem exorbitant, but in the context of the company’s historical sentiment, sometimes the high price is worth paying. What may seem expensive on an absolute basis may be reasonable in the context of history. For example, the price-to-intrinsic value of Facebook was high on an absolute basis in late 2018, but was reasonable when compared to its history. It has proven to be a good entry point so far.
But there’s more for enterprising investors – the picture is still not yet complete.
A deeper level of analysis
Competition
You may have noticed my focus on individual company analysis rather than broad-based economic generalisations. We are buying slices of companies after all. Whilst we can understand the sentiment in our target company, it is also important to have context across other comparable companies. The same price-to-intrinsic value historical ratio across a few companies will give us a sense of sentiment across the sector. We’ll be able to see if there are any other reasonably priced companies.
Potential growth
So far the focus has been on gaining historical context. Sometimes the momentum is justified if there are tangible growth prospects. In other words, intrinsic value is expected to grow significantly with price. In those situations, the trend may be your friend. For those that heard me speak at the AIA National Conference, I outlined my framework to assess the potential growth of a company.
Intrinsic value
Speculators focus on stock price movements only. Investors focus on the underlying true worth of a company.
As Warren Buffett says “Price is what you pay, value is what you get”.
The fundamentals of a company’s value is reflected in its Intrinsic value. Importantly, in determining a company’s intrinsic value, I’ve stripped out accounting distortions that may hide a company’s true worth.
Closing remarks
Is the trend your friend?
If the fundamentals of a company are sound and the price is reasonable in the context of its history and other competitors, then the trend may indeed be an ally. Ride the wave and enjoy the party.
Price and intrinsic value may deviate for many years but price will eventually move towards intrinsic value over the long-term. Seeing the full picture is key to capturing sensible opportunities. In every party, everyone sobers eventually.
Happy compounding.
Note:
Stocks mentioned have been used as examples only. They are not recommendations to buy or sell.
About me
Lawrence Lam is the Managing Director & Founder of Lumenary, a fund that uncovers the best founder-led companies in the world. We invest in unique, overlooked companies in markets and industries beyond most managers’ reach. We are a different type of global fund – for more articles and information about us, visit www.lumenaryinvest.com
The SMSF Coach is in no way connected to Lawrence Lam of Lumenary Investment Management and we do not receive referral fees or commissions of any sort from them. This is purely general advice and market commentary from a trusted source and you should seek personalised financial advice before making any investment decision.
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 2019 the year to get organised or it will be 2029 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 98993693, Mobile: 0413 936 299
PO Box 6002 NORWEST NSW 2153
U40, 8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 434 605 488 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Many SMSF investors have listed and unlisted exposure to commercial property in their portfolios and much of that is retail exposure so I was looking for some up to-date guidance on the Australian retail property sector specifically for a client and decided to share this article that I found from APN Funds Management This is neither a recommendation nor a paid advertisement from APN, just me passing on what I felt was a good analysis of the current state of play in Australian retail property. So here goes:
Everyone shops on the Internet these days, don’t they? That’s why Armageddon looms for retailers and therefore investors in retail property.
If you’re looking for a reason why the share price of Retail AREITs in the ASX 300 are down 2.3% over the last two years, there’s your answer. You may also think these falls are justified. If so, we’d suggest you do three things.
The first is to take heed of the last 12 months performance. The retail sector is up 14% (even outperforming the overall AREIT market) as investors realise the value that has been created by the over selling of the sector.
The second is to visit your local super regional shopping centre, maybe Chadstone in Melbourne, Bondi Junction in Sydney or Carindale in Brisbane. On arrival, take a look around. It’s busy isn’t it? And how about those families, maybe three generations wide, engaging in an activity that is as much social as it is commercial?
These small groups are simply doing something together in a clean, convenient, climate controlled, secure and accessible environment. For them, shopping is not a chore. This is not something they want to substitute for online shopping, huddling around a mobile phone, looking at pictures of shoes.
Both activities might lead to a sale but there is a world of difference in the social activity and environment that precedes it.
The third suggestion is to consider the view of experienced investors that study shopping centre assets for a living and get their take on retail Armageddon.
Yes, there are such people, and APN Property employs quite a few of them. Between us, we have 84 years of commercial property investing experience.
We dig deep into the demand and supply dynamics that drive local retail property markets, analysing everything from personal income growth, population data and economic growth indicators to individual shopping centre performance, vacancy rates and rental growth.
For us, this is the only way to establish the attractiveness or otherwise of a retail property. If, for example, a particular property market has excess supply, low population growth, weak “buying power” (lower income levels) and low economic growth – it is best avoided.
It is our view that not only is Armageddon highly unlikely, the prevalence of the belief that it is, offers an opportunity.
Let me explain why. Our AREIT valuation process includes a property-by-property risk analysis, drawing on pertinent local market data, ABS and Census data for specific areas and property specific information. We also seek to understand Australia’s high level retail property market dynamics.
This approach delivers a very different picture from the narrative seeping into the mainstream media, foretelling empty shopping centres, declining retail brands and the end of shopping as a social activity.
This is what our research tells us about Australia’s current retail property markets:
The Melbourne regional shopping centre market is typified by low per capita supply, driven by the strongest population growth and Gross State Product (GSP). It is also enjoying below average new supply across all retail sectors. This is an attractive market ripe with investment opportunities.
The same cannot be said of south east Queensland, a market typified by an excess supply of all categories of retail property, especially in the vulnerable sub-regional centre category. The region also suffers from below average GSP and only average population growth. The current supply phase is well in excess of national averages across most sectors and will likely compound return weakness in the region.
In Perth, a large pipeline of new retail space is in development, a “catch up” following years of oppressive town planning restrictions and retail trading laws stifling the market. As a consequence, a number of existing centres are experiencing major extensions, including Mandurah Forum, Westfield Carousel, Midland Gate Shopping Centre, Booragoon and Karinyup. This new supply looks excessive but being aware of the historic context makes us more comfortable.
In Sydney, the market has elevated levels of new Neighbourhood and Large Format space being built. But compared with the rest of Australia there appears to be less of the weak sub-regional shopping centre space and less new supply looming. And Sydney’s higher than average regional space provision appears consistent with the population’s superior spending power.
It hardly sounds like Armageddon, does it? In Australian retail property, overall growth is broadly positive, current supply is not excessive (in an absolute sense – relative to other developed, comparable markets around the world) and neither is new supply excessive.
South east Queensland has some challenges and Melbourne is fundamentally strong but overall Australia’s retail property market is well positioned for slow and steady growth. Armageddon appears unlikely.
Retail property is not dead. We are, however, witnessing a cyclical slowdown. Different to past cycles, it has been confused by less experienced investors as a structural issue.
It’s this kind of measured, fact-based analysis that you won’t read about in the media. Instead, Amazon’s arrival has led to a kind of scaremongering that defies reality. Professional investors like us enjoy and aim to profit from the disparity, as we hope will investors in APN’s AREIT Fund. The headlines point one way, the facts quite another. Personally, I prefer facts.
This article has been prepared by APN Funds Management Limited (ACN 080 674 479, AFSL No. 237500) for general information purposes only and without taking your objectives, financial situation or needs into account. You should consider these matters and read the product disclosure statement (PDS) for each of the funds described in this article in its entirety before you make an investment decision. The PDS contains important information about risks, costs and fees associated with an investment in the relevant fund. For a copy of the PDS and more details about a fund and its performance,
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I recently took part in a panel discussion on Peter Switzer’s Money Talks program on Sky Business around end of year tax planning. you can view the 20 minute show below for for some tips from all the panel. What was clear from the audience questions after the show is that many people just don’t know the strategies available to them.
But its now 5 days before the end of the financial year and many people may think it is too late! But there are still strategies you can still out in place.
1.Think first. First tip is to think carefully on each strategy before implementing any of them. review the eligibility criteria and your own personal circumstances.
2. Review Your Concessional Contributions – $25K this year if under 65 and then work test applies for 65+.
Maximise contributions up to concessional contribution cap but do not exceed your Concession Limit. The sting has been taken out of Excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit. This year for the first time for employed people, you can still top up directly to your Superfund or SMSF without having to go through your employer and salary sacrifice. Work out you available cap and make a Personal contribution now!
3. Review your Non-Concessional Contributions
Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name. Maybe you have proceeds from and inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control your tax bill. Are you nearing 65? then consider your contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to the $300,000.
4. Co-Contribution
Check your eligibility for the co-contribution and if you are eligible take advantage. You can get up to $500 co-contribution from the government so it is not as attractive as previously but it is free money – grab it if you are eligible. Check here for details
To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.
5. Spouse Contribution
People are eligible to claim the maximum tax offset for the 2017-18 $540 if:
you contribute to the eligible super fund of your spouse, whether married or de-facto, and
your spouse’s income is $37,000 or less.
The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.
6. Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)
You should review your ability to make contributions as if you if you have reached age 65 you must pass the work test of 40 hours in any 30 day period during the financial year, in order to continue to make contributions to super. Check out ATO superannuation contribution guidance
7. Check any payments you may have made on behalf of the fund.
It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.
8. Notice of intent to claim a deduction for contributions
If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim or vary a deduction’ (NAT 71121). If you intend to start a pension this notice must be made before you commence the pension. Many like to start pension in June and avoid having to take a minimum pension but make sure you have claimed your tax deduction first.
9. Contributions Splitting
Consider splitting contributions with your spouse, especially if:
• your family has one main income earner with a substantially higher balance or
• if there is a n age difference where you can get funds into pension phase earlier or
• If you can improve your eligibility for concession cards or pension by retaining funds in superannuation in younger spouse’s name.
This is a simple no-cost strategy I recommend everyone look at especially with the Government moving on limiting the tax free balance on accounts. See my blog about this strategy here.
10. Off Market Share Transfers (selling shares from your own name to your fund)
If you want to move any personal shareholdings into super you should act early. The contract is valid once the broker receives a fully valid transfer form not before. It takes about 4 days to implement this from the brokers end so Tuesday 26th would be the cut off day for the forms to be received by your broker. YOU CAN DO IT!
11. Pension Payments
If you are in pension phase, ensure the minimum pension has been taken. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
The following table shows the minimum percentage factor (indicative only) for each age group.
Age Minimum % withdrawal (in all other cases)
Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95 or more 14%
Sacrificial Lamb
Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension” you will have a buffer for mistakes.
Before reading the following:Be careful not to reset a pension that has been grandfathered under the new deeming of pension rules that came in on Jan 1st 2015 without getting advice.
12. Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child.
You should review your pension documentation and check if you have nominated a reversionary pension. If not, consider your family situation and options to have a reversionary pension. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children. the reversionary pension may become more important with the application of the proposed budget measure on $1.6m Transfer limit to pension phase. If funds already in pension and reverting to another person then the beneficiary has 12 months to implement strategies to maximise how much they can retain in the superannuation system.
13. Review Capital Gains Tax Position of each investment
If you have been affected by the changes in the rules on taxation of TTR Pensions and the implementation of the $1.6m Transfer Balance Cap then you should be considering the CGT relief that may be available to your fund.
In accumulation phase review any capital gains made during the year and over the term you have held the asset and consider disposing of investments with unrealised losses to offset the gains made.
If in pension phase then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to government changes in legislation like those imposed in 2017/18
14. Review and Update the Investment Strategy not forgetting to include Insurance of Members
Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do…..call us.
15. Collate and Document records of all asset movements and decisions
Ensure all the funds activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant/administrator and auditor.
16. Double Dipping! June Contributions Deductible this year but can be allocated across 2 years.
For those who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording! Just call is an Allocated Contributions Holding Account.
17. Market Valuations – Now required annually
Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectibles. Here is my article on valuations of SMSF investments in Private Trusts and Private Companies. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
18. In-House Assets
If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanors ranging from $820 to $10,200 per breach.
21. Check the ownership details of all SMSF Investments
Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.
22. Review Estate Planning and Loss of Mental Capacity Strategies.
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid (check the wording matches that required by the Trust Deed) and still in accordance with your wishes. Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of illness, mental incapacity or death. Do you know what your Deed says on the subject? Did you know you cannot leave money to Step-Children via a BDBN if their birth-parent has pre-deceased you?
23. Review any SMSF Loans
Have you provided special terms (low or no interest rates , capitalisation of interest etc.) on a related party loan? Then you need to review your loan agreement and get advice to see if you need to amend your loan. Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee? If you bought a property using borrowing, has the Holding Trust been stamped by your state’s Office of State Revenue. Please review my blog on the ATO’s Safe Harbour rules for Related Party Loans here
24. Valuations for EVERYTHING
Not just for property, any unlisted investment needs to have a market valuation for 30 June. If you need assistance on how to value unlisted or unusual assets, including what evidence you’re going to need to keep the SMSF auditors happy, then contact us.
25. Collectibles
Play by the new rules that come into place on the 1st of July 2016 or get them out of your SMSF. More on these rules and what you must do in a good blog from SuperFund Partners here.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I wrote an article a few years ago for MYOB’s small business blog called How much do I need to retire at 60? that certainly caused some heated debate and has been viewed over 425,000 times. The comments we got on that article were amazing and eye-opening to see how people’s vision of a “budget” and “comfortable lifestyle” is so different depending on their personal circumstances.
Some of the figures used for sample retirement budgets have been updated so I thought I would provide those figures as guidance for people facing the retirement funding conundrum and not sure where to start. I have also included figures more specific to the average SMSF member and those who want to have a much more than just “comfortable” lifestyle
The latest figures released by the Association of Superannuation Funds of Australia ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living in retirement.
Budgets for various households and living standards for those aged around 65
(March quarter 2018, national)
Modest lifestyle
Comfortable lifestyle
Single
Couple
Single
Couple
Total per year
$27,368
$39,353
$42,764
$60,264
Budgets for various households and living standards for those aged around 85
(March quarter 2018, national)
Modest lifestyle
Comfortable lifestyle
Single
Couple
Single
Couple
Total per year
$25,841
$36,897
$40,636
$56,295
Source ASFA Retirement Standard. The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
As you can see from the figures if you are looking at a ‘comfortable’ retirement at age 65-67 you need to consider a budget of $60,264 for a couple or $42,764 for a single person household.
In my previous article I talked about retiring at age 60 but as most people will be looking more likely at 65 as their target, I wanted to clarify what I believe you need to fund such a retirement. In my opinion a couple would need a combined superannuation and non-super investment assets balance of around $760,000 minimum and a single individual would need a balance of around $560,000. This at odds with ASFA who have increased their requirement by a whopping $130,000 but still have lower figures than mine as they believe you only need $640,000 for a couple or $545,000 as a single person.
My figures are based on No Centrelink Support. I am happy to accept ASFA are correct if you take into account some age pension but I find that many clients do not qualify for this because of non-income producing assets like holiday homes, caravans boats etc reducing their pension entitlements. Also there is an inherent risk that the now reduced Asset and Income Test limits may be reduced further in the search for more Government Budget Savings.
SMSF Members save more for a better lifestyle
So let’s get take it for granted that an SMSF member wants a bit better than just a Comfortable lifestyle. My friends at Accurium who I use to do Retirement Healthchecks for my clients came up with these figures for those looking for a better lifestyle and having at least 50% chance of sustaining it for their life expectancy. This assumes all you capital will be used in your lifetime. If you want more detail and options on having capital to pass on to your children then visit Accurium’s website to access their full report.
Spend
Level of savings needed
ASFA Comfortable ($60,000 p.a.)
$580,000
SMSF typical spend ($80,000 p.a.)
$1,100,000
SMSF aspirational spend ($100,000 p.a.)
$1,600,000
Source: Accurium – Retirement Insights Vol 7
So have a look below at what the ASFA Retirement Standard includes and then add in your own preferences to find out your ideal budget and capital requirement.
The Standard includes the cost of things such as health, communication, clothing, travel and household goods.
Comfortable lifestyle
Modest lifestyle
Age Pension
Single
$42,764 a year
$27,368 a year
$21,222 a year *
Couple
$60,254 a year
$39,353 a year
$31,995 a year *
Replace kitchen and bathroom over 20 years
No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom
No budget to fix home problems like a leaky roof
Better quality and larger number of household items and appliances and higher cost hairdressing
Limited number of household items and appliances and budget haircuts
Less frequent hair cuts or getting a friend to cut your hair
Can run air conditioning
Need to watch utility costs
Less heating in winter
Restaurant dining, good range & quality of food
Take out and occasional cheap restaurants
Only club special meals or inexpensive takeaway
Fast internet connection, big data allowance and large talk and text allowance
Limited talk and text, modest internet data allowance
Very basic phone and internet package
Good clothes
Reasonable clothes
Basic clothes
Domestic and occasional overseas holidays
One holiday in Australia or a few short breaks
Even shorter breaks or day trips in your own city
Top level private health insurance
Basic private health insurance, limited gap payments
No private health insurance
Owning a reasonable car
Owning a cheaper more basic car
No car or, if you have a car, it will be a struggle to afford repairs
Take part in a range of regular leisure activities
One leisure activity infrequently, some trips to the cinema or the like
Only taking part in no cost or very low cost leisure activities. Rare trips to the cinema
Figures from March Quarter 2018.
Most people I see in my day-to-day work advising on retirement planning have a “sugar coated view” of how they want to spend their time in retirement. Many have hobbies or interests that cost very little but others who like international travel or partaking in expensive social lifestyles of hobbies often under-estimate the costs.
Another worrying trend is people borrowing in their 50’s to fund lifestyle for fear of missing out or to keep up with the Jones! Others are helping children with home deposits and losing the vital compounding interest on their savings. Many tell me they believe they can live on the Government Age Pension in retirement. Well if you can’t manage on your current wage now without borrowing then you are in for a big shock if you plan to rely on the meagre Age Pension.
I see one industry commentator saying that the savings required to live a modest lifestyle in retirement only requires a small amount of retirement savings in addition to the age pension, however that sort of budget leaves you very vulnerable to food and utility price inflation as people will have seen with rising vegetable and electricity pricing in the last few years.
When you look at these estimates of the amount capital or assets you need to achieve the lifestyle you want in retirement, it’s still important to remember that most of these work on the average life expectancy. If your family has a history of longevity or early death, then you need to make allowances accordingly.
The bottom line: It’s never too early and hopeful not too late to start planning. So if you want to see where you stand at present based on your current savings and contributions to super, then use the Retirement Planner on the ASIC’s free Money Smart website.
Once you work out you target you should consider seeing a Financial Planner to see what strategies are available to you to boost your savings such as using a Transition to Retirement Pension and Salary Sacrifice strategy to save on personal and superannuation tax and build your nest egg.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Self-funded retirees have felt like punching bags for the last few years with hit after hit chipping away at their ability to fend for themselves within the rules they had relied upon in making their savings plans over the last 30 years. Combine the changing of goal posts with low interest rates and blue-chip underperformance from the banks, telcos and utilities and they are not to be blamed for thinking a hex had been put on them.
So an SMSF friendly budget is the welcome news coming out of the 2018-19 Federal Budget. With many of us SMSF Specialists and you the SMSF members still working through the wide-reaching and complex superannuation changes which took effect from 1 July 2017, this Federal Budget will provide much needed stability while looking to reduce costs for SMSFs and prove additional flexibility.
The key changes proposed for SMSFs and superannuation are:
Three-yearly audit cycle for some self-managed superannuation funds.
The Government will change the annual SMSF audit requirement to a three yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
One concern I have is if trustees make a mistake in year 1 that is not discovered until year 3, will they face 3 years interest charges on the penalties.
Expanding the SMSF member limit from four to six
As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.
Whilst there are some concerns over making decisions I like this move where as mum and dad in their later years want to reduce their involvement but they want help rather with the fund rather than moving to separate retail funds. It may help prevent elder Financial abuse where instead of one child assuming control of the SMSF, more of the family could be involved. Temptation and inheritance impatience is always there for one person but add a few others in to the decision making and the risk of financial abuse reduces considerably.
Also 6 members of a family small business allows for later drawdown from the parents accounts and recontribution for younger family members to retain business real property in the fund after death of the older generation.
Note; you will need to ensure your trust deed allows more than 4 members and it most likely won’t so you will need to update the trust deed first before accepting new members. READ THE DEED
Over 65, 1 additional year Work test exemption
The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test.This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements.
This is good but limited in its scope as more and More people have reached the $300k level because of Super Guarantee Contributions for most since 1992 or before for some. But it is a female friendly move as they are most likely to have lower balances
Life insurance cover in super to be opt-in for individuals under 25 years of age.
The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6000 to ensure that unnecessary fees do not erode smaller balances.
Life insurance cover will also cease where no contributions have been made for a period of 13 months.
If you have kept a retail or industry fund open with small balances to retain insurances you may need to put a small annual contribution in place (I would recommend $100 per half year just in case) to ensure it does not get tagged as dormant.
Older Australian package
The Government introduced the following measures to enhance the standard of living older Australians:
• Increase to the Pension Work Bonus from $250 to $300 per fortnight.
• Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.
• Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.
I think this will be a major bonus for those with a lumpy asset or shareholding’s they wish to retain but need more cashflow. At a current rate of 5.25% the Pensions Loan Scheme is a very decent rate and security that you are borrowing from a bank or predatory lender based on a brokers conflicted commissions.
Personal income tax bracket changes (take most these with a pinch of salt!)
The Government has provided personal income tax relief to lower and middle income earners. A Low and Middle Income Tax Offset will now be available for individuals with incomes of up to $125,333.
The $87,000 income threshold, above which a 37 per cent tax rate applies, will increase to $90,000.
Other changes
• A surplus of $2.2 billion is expected in 2019-20, one year ahead of schedule.
• The Government’s planned increase in the Medicare levy from 2 per cent to 2.5 per cent, to fund the National Disability Insurance Scheme, will now not go ahead due to increased tax revenues.
How can we help?
Some of these measures may open up strategy options for you and your family.
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to give me a call or email to arrange a time to meet or talk by phone so that we can discuss your particular requirements in more detail.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Adapted from ‘Managing Transitions’ by William Bridges.
Retirement. It’s something you’ve thought about for years but kept saying you will deal with it nearer the time. But how do you make sure you’re ready to deal with change when you do come to retire?
So this blog is not about money, it’s about managing change, anxiety and relationships during one of the biggest changes in your life. It has been adapted from an US article.
Retirement might be your time to do your own thing, to travel overseas, go bush in the outback, spend quality time with your loved ones, to return to education, start a different career, take up a volunteer activity, begin an exercise program, or pursue a hobby. There are so many things you could be doing with your newfound time. It seems as though the possibilities for life changes in retirement are endless. But many struggle in that initial period.
Even though you are excited to enter this new stage of life, the amount of change can feel overwhelming and it can intimidating to handle change in retirement. If a lifetime of work demanded much of your time and attention, you may not have had the opportunity to develop many leisure time interests. You may find yourself looking for new things to do and get involved with.
If many of your social activities have involved people from work, you may want and need to develop friendships that are based on your new interests (think about Rotary, Probus, Men’s Shed, Book Club, Classic Car Group, Yoga, Red Hat Society, Bush Walking Club etc.). If you are retiring and adjusting to an empty nest at the same time, you may feel especially challenged handling all of this change associated with retirement. Despite wanting to retire, adapting to so many changes in your life can be difficult.
How you’ve handled change during your lifetime can offer insight into how well you’ll adapt to change in retirement. Having an awareness of how to better manage change can improve your adjustment to retirement.
Here are ten questions to ask yourself about handling life changes in retirement:
1.What changes do you want to make in your life? This is a big question but you probably have some ideas of things you’d like to start doing or do more of. Exercise, travel, family time and household projects are all common starting points. Make a list and begin to identify all the ways you want to change your life in retirement. Tip for Ladies: Is your husband struggling for ideas? Try “101 Things to Do With A Retired Man: … to Get Him Out From Under Your Feet!”
2. Why do you want to make these changes? It’s not enough to say you want to improve your diet or read more books. It’s time to figure out the benefits of making these changes. What will you gain by eating differently or reading more? Recognise why you want to make the change so that you’ll be encouraged to follow through with it.
3. What change do you want to make first? If you’ve been thinking about all you could do in retirement, you may discover that it’s hard to figure out where to begin. Feeling overwhelmed by the choices may mean that you don’t select anything. Keep it simple. If you could change just one thing, what would it be?
4. What impact will your changes have on others? Often if we change something in our life, it has a domino effect. If you go back to school, you may need to use weekend time for studying. If your volunteer project involves evenings, you may need to give up some family time. Recognise that others in your life may question the changes that involve them. Talk about the upcoming changes with significant others and gain their support.
5. Are you willing to change? Are you going to be frustrated making a change in your life when it isn’t something you truly want to do? If you’re a stay-at-home person, don’t kid yourself and try to adopt a freewheeling, caravanning lifestyle just because others say you’ll love it. This is could be a change that you won’t really be willing to make long-term.
6. Are you ready to change? It’s one thing to say you want to start exercising, volunteering or start learning a language. Doing it may be harder than you think. You may be someone who finds change is really difficult. If that’s you, prepare yourself mentally for more challenges right at the start.
7. Are you prepared to make the effort? Making changes in your life requires an effort. Be ready for a learning curve and some inherent frustrations. As adults, we get comfortable in our habits and routines. If you really want to begin an exercise program, you may need a significant amount of willpower to get yourself started.
8. Who can help you change? When you’re learning something new, ask for help. Join a group, connect online or ask others in your network for advice. You may have spent your whole life wanting to figure things out for yourself. Recognise that your time now is a valuable resource. Don’t waste it. Ask for help.
9. Can you check your ego at the door? The first time you try doing something new, it’s likely you won’t be great at it. New things take practice. Don’t let your fear of failure or ego get in the way of learning something new. Look at it this way—you made it this far in life, you are certainly capable of learning a yoga pose or to put up shelves.
10. Are you seeing the results you expected? Make your changes and give yourself a reasonable amount of time to get used to them. Are you seeing the benefits you expected? If not, chalk it up to good experience and move on.
Accept that retirement will bring many changes in your life. Increasing your awareness about how you adapt to change will contribute to your overall retirement happiness.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2018 the year to get organised or it will be 2028 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I have adapted this content to Australian circumstances from an original American article on retirementstyle.com By Deborah Williams
When I talk to self-directed SMSF trustees their excuse for not diversifying more from Aussie Shares and Term Deposits was that it was difficult to understand some sectors and to get a decent diversification without building a huge portfolio of stocks, unlisted managed funds, bonds, hybrids etc. They hated application forms especially for SMSF investments but they have been reluctant to use a platform despite my argument that often a platform was a useful vehicle. Most just are not interested in another layer of fees for their SMSF. Each to their own so I left the argument there. However now the mountain is coming to them!
The following is general information and not a recommendation, you still need to do your own research or get advice for your personal circumstances.
In November 2017 Vanguard Australia finally launched a suite of four exchange traded funds (ETFs) that provide greater access to their leading diversified portfolio strategies. This will make SMSF and personal investing a far more accessible and transparent option for many and ultimately help them achieve their financial goals at a lower cost, easier reporting and with less paperwork than currently. They offer a great opportunity to develop a well simple, market leading diversified core to your portfolio.
The four Vanguard Diversified Index ETFs build on their extensive suite of ETFs and unlisted Managed Funds, and are one of the first ETFs allowing investors to gain diversification across and within all major asset classes, while making a clear choice about how much risk they take on. I would argue that AMP’s DMKT and Schroder’s GROW do this to some extent but not at this low a cost as they are actively managed an many might think they are a good blend with Vanguard’s new range.
The conservative (VDCO), balanced (VDBA), growth (VDGR) and high growth (VDHG) ETFs offer investors simple, single trade access to Vanguard’s global expertise in portfolio management and asset allocation, with annual investment costs at just 0.27 per cent. Yes that’s only $2.70 management fee for every $1000 invested in a diversified portfolio, wipe the floor of many industry and retail super funds.
Each Diversified Index ETF is a share class of an existing Vanguard Diversified Index Fund, meaning ETF investors can tap into the benefits of an established asset pool, collectively worth more than $7 billion, through Vanguard’s existing range of non-listed multi-asset funds. Vanguard’s Diversified Index Funds consistently rank in the top quartile of performance with their peers over three, five and 10 year periods, according to Morningstar.
Yes you are giving up some transparency and control but I believe you can rely on Vanguard’s investment experts to continuously assess their portfolio’s exposure and periodically rebalance it back to its intended level of risk.”
Each Vanguard Diversified Index ETF provides investors with extensive global exposure to around 6500 individual companies and more than 5000 fixed income securities.
Just in case you have not heard of Vanguard, here is a little detail to help build a picture of their strength and reach:
The Vanguard Group, Inc.: Key facts and figures*
Founded
1975
Total assets under management
AUD $5.9 trillion
Funds offered
180 in the US, and 190 funds in markets outside the US
Ownership
The Vanguard Group, Inc. is owned by its US-domiciled funds,
which are owned by their shareholders.
Headquarters
Valley Forge, Pennsylvania, USA
Chairman and CEO
F. William McNabb III
Number of employees
About 15,000 worldwide
Vanguard’s Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the diversified funds as part of a robust framework used by Vanguard globally. This framework includes analysis of concentration risk and currency exposure, and incorporates comprehensive modelling generated by Vanguard’s proprietary forecasting engine, the Vanguard Capital Markets Model.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2018 the year to get organised or it will be 2028 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I am being inundated by queries from young men aged 20-40 looking to learn more about Bitcoin and then a cohort of traditional SMSF trustees aged 40-70 who have an interest in alternative investments and especially Gold who now want to at least know more about Bitcoin and cryptocurrencies in general. so when I came across this latest paper dealing with both subjects from my good mate Jordan Eliseo, Chief Economist at ABC Bullion I twisted his arm to let me share it to my readers.
The key finding of his paper are:
KEY FINDINGS
Blockchain technology has serious real world applications – it is here to stay
Given valuations in broader financial markets, it can make sense to speculate in the cryptocurrency market with a small portion of one’s wealth
Cryptocurrencies like Bitcoin are money today, but whether that status will endure remains to be seen
Physical gold remains the simplest and most effective hedge against the monetary, market, and macroeconomic risks that investors confront today
I recommend that you read Jordan’s full report here:
Now, if you are determined to go ahead and invest in Bitcoin or other cryptocurrencies then you need to do some serious groundwork.
NOTE: I DO NOT RECOMMEND CRYPTO CURRENCIES AS A SUITABLE INVESTMENT FOR AN SMSF, I AM JUST MAKING SURE THAT THOSE WHO DO INVEST DO IT COMPLIANTLY
How the SMSF regulations affect investing in Bitcoin, Ethereum or other cryptocurrencies
SMSF Professionals and Trustees should be well aware of the restrictions placed on the investment choices of SMSFs by the Superannuation Industry (Supervision) Act 1993 and supporting regulations. The Australian Taxation Office (ATO) is in charge of the administration of these rules and they have issued this guidance on their website:
Although there are not yet any formal rulings from the ATO clarifying how the rules apply to Bitcoin, there are a number of Tax Determinations that help guide any SMSF Trustees considering investing in bitcoins.
TD 2014/25 Income tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)
TD 2014/26 Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
TD 2014/27 Income tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
GSTR 2014/3 Goods and services tax: the GST implications of transactions involving bitcoin.
Considerations before investing in Bitcoin:
Is it right for your needs and objectives? Consider if an investment in Bitcoin would satisfy the ‘sole purpose test’? – Are you honestly investing in it for your retirement?
In your circumstances does Bitcoin investing suit your risk tolerance (and the other member’s of your SMSF) and have you done enough research to validate your investment decision,
Does you Trust Deed allow for investing in bitcoins or cryptocurrencies. Read your deed and maybe ask the trust deed provider.
Talk to your fund’s auditor before proceeding as they have to sign off on the investment’s validity annually so better to run the strategy by them upfront.
They may ask you to verify the following:
If you wish to proceed with a purchase then have you amended your SMSF’s investment strategy to cater for this investment? Click the link for more details.
Trap: Make sure you know who is in ‘control’ the bitcoins? All assets must be clearly in the name/control of the trustees of the fund
How would the SMSF acquire the bitcoins? Do not acquire them from yourself or a “related party”
How secure is the exchange/wallet you are storing your cryptocurrencies in. Some have been hacked and coins lost.
No matter what it is essential to do you research and not take a gamble with your retirement nest egg unless you have covered all your bases.
Audit Tip:
Auditors and trustees can have access to the single public ledger that records Bitcoin. Websites such as Blockchain, BlockExplorer and Blockonomics allow input of a transaction ID to get detailed data of that Bitcoin transaction. Third party verification for auditors is therefore also possible. You can obtain a transaction list from the SMSF wallet provider and verify each holding. I am sure further tools will become available.
Here is another article worth reading as part of your research:
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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.
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.
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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.
