Tag Archive: investment opportunity

  1. The ultimate personal protection for successful business owners

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    For many business owners, the eventual sale of the business or businesses IS the retirement fund.  And current profits are used to extend the business or fund personal lifestyle decisions such as luxurious family holidays.  In fact the more successful a business is, the more the family tends to rely on its future success to fund an accustomed lifestyle.

    So super, quite understandably on the surface, is almost considered risky given the access restrictions, and the fact that a rainy day may come when the funds are required.

    However, a long term growth investment, in the form of listed or unlisted companies, property, loans or collectibles, may just be the best insurance policy your current profits could buy.

    Any business, no matter how successful today, faces the risks of poorer returns, creditor risk, margin squeeze, even insolvency.  The prospect of starting again becomes increasingly daunting as the 50s and 60s draw nearer, so to have assets largely secured from creditors for the purposes of being able to provide a tax free passive income at some future date is just smart business.

    Take a scenario where a commercial property is valued at $1,500,000 today.  The likelihood of the super fund having this kind of balance is low for many reasons, not least because of the contribution caps in place that makes most people assume they are completely restricted as to how much they can get into the super environment.

    But a Self Managed Super Fund (SMSF) can borrow from Related Parties, such as Family Trusts and Companies owned by the members.  Restrictions then do apply as to what the Fund invests in, and the commercial terms of such arrangements – BUT it is feasible that the super fund MAY lease the premises back to a related company.

    And the immediate benefits from a tax perspective shouldn’t be overlooked.

    For simplicity’s sake, assume the following:

    • Growth rate of 8% incl CPI
    • Income (or rent) at 5% net of costs

    If the commercial property was owned by an SMSF instead of a family trust or individual person as is generally the case, the super fund would generate over $1.1m more income over 20 years*, purely because of the difference in the tax rates (assuming a 46.5% top marginal tax rate).

    CGT and Income Chart for personal protection blog

    More importantly, if the property was sold after 20 years at a future value of almost $7m*, the beneficiary could be up for a tax bill of over $1.2m, vs NIL if the members after that time had commenced pensions (a likely strategy so long as the members were over 60, even 55 in some cases).  And even if they sold earlier, the tax rate would only be 10% representing significant savings.

    So not only is the strategy extremely tax effective, the notion of hedging today’s investment (or lifestyle) bets in favour of a future income, partially funded by tax savings, is worthy of consideration, we think!

    We’ve ignored any impact of the 3 year Debt Levy of 2% for high income earners.  We’ve also ignored the impact of borrowing costs and related deductions for illustrative purposes.

  2. What Tax Deductions can your SMSF Make?

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    Whether or not expenses are deductible is largely about common sense.  If the investment is allowable under the Superannuation Industry Supervision (SIS) Act, or the cost is genuine in running your fund, then chances are, it is a deductible expense.  It’s actually as much about remembering to record such expenses so that you can make the claim.

    You can get a comprehensive list from the ATO, but here’s a list of the most common that you should be ensuring that you are retaining records for and claiming, that is assuming you are in Accumulation phase and therefore paying tax!

    • Bank Charges
    • Valuation and storage costs of collectible assets (as long as income producing)
    • Depreciation on plant and equipment
    • Interest on investment loans
    • Actuarial costs (relating to pension funds)
    • Accountancy/Greenlight Fees
    • Audit Fees
    • Trust Deed Updates
    • Insurance Premiums
    • Investment adviser fees
    • Subscriptions for membership that assist you to run your fund such as Research Fees, Education Programs
    • Fines
    • Costs in connection with the calculation and payment of benefits to members, eg some Greenlight Consultancy Fees, medical costs in assessing invalidity claims
    • A range of other Property related deductions – see below

    Tips and Traps:

    1. Make sure the invoice is made out to the Super Fund
    2. Wherever possible, pay the expense directly from the Super Fund bank account
    3. Watch paying expenses from your own bank account or company bank account as they could be deemed a loan to your fund, or a contribution.

    Property Related Deductions

    First up, you need to consider whether an expense is in fact a deductible expense against the taxable income of the fund, or a capital cost.  Capital costs include things like:

    • In-ground swimming poos, saunas, spas
    • Major work renovations
    • Replacement of plumbing and gas fittings
    • Garage doors, skylights

    These things won’t be tax deductions per se, but need to be added to the cost base for valuation purposes, and can be depreciated.

    However where costs are incurred in the process of earning an income, these expenses should be recorded and claimed as per above.  Examples include:

    • Advertising
    • Body Corporate Fees, Rates,
    • Energy and Water Bills (only if paid by you rather than the tenant)
    • Land tax
    • Cleaning, mowing, gardening, repairs and maintenance
    • Insurances
    • Property Management Fees
    • Security patrol fees
    • Travel expenses when inspecting the property (though you need to apportion any personal travel costs)
    • Stationery, postage, telephone

    Additionally, items that are furniture, fixture or fittings (not part of the building) that are part of the income production, these can be depreciated over 1-20 years.

    For information about how to make the administration of your fund and its expenses more streamlined throughout the year, keep an eye out for some upcoming Administration Tips on the website or chat to Danielle or Vanessa today!

  3. Real Money Lessons

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    This idea came from Fred, who’s 75 going on 25 by the way! A career entrepreneur, his passion and energy isn’t slowing any time soon! Neither too are his ideas for leaving his family well prepared for the future, especially his grandchildren.

    Fred spent his lifetime building businesses, which like many people has had its fair share of boom and bust successes and failures. But he credits his father’s early advice on savings for where he is today. Fred has well in excess of $2m to fund every last lifestyle wish and medical requirement, so “comfortable” is how he describes his financial position.

    And so it was mid last year, having been one of the first to entrust Greenlight to manage his SMSF pension accounts, he asked the question

    Why couldn’t I set up multiple bank and trading accounts in my SMSF, and let my grandchildren manage some of their inheritance today? It would give me an avenue and a vehicle to teach them what I can see they need to be taught – patience, responsibility and accountability.”

    Fred wishes he’d taught his own children more, but like most Father’s was busy… And his focus was on ensuring he could provide his kids with the best education, great holidays, a nice house and yard, the list goes on.

    But with more time now, and opportunity to reflect on changes in today’s pace of life, he’s desperate to spend time with his grandchildren, teaching them the things he most valued about his own upbringing.

    And the idea seriously got the attention of the whole extended family!

    How it works:

    • Fred’s 100% in retirement, and all of his super monies are fully accessible, tax free.
    • He can spend unlimited amounts (though this strategy might be reigned in slightly for people trying to access the Seniors Card post 1/1/15 after Budget Announcements!)
    • He can’t contribute any more to super, so the kids have to work within the constraints of holding money in shares vs cash (incl Term Deposits), and expenditure
    • Fred can monitor every transaction through Greenlight Online using datafeeds provided by the bank and trading accounts
    • Greenlight’s fees are fixed, so any increase in trading activity has no impact on Fred’s costs
    • Fred retains 100% actual control of the money within his SMSF

    And almost a year on, the scoreboard has become somewhat of a family talking point – OK, competition! Each of the 5 grandchildren, ages ranging 16 to 28, started with $25,000 in cash on 1st August 2013. The total values range from $29,336 to $18,943. Only 1 grandchild has spent any of the money, while the rest are largely focused on cash rates and sharemarket movements. Most interesting is that 2 of the grandchildren in particular, have taken a FAR greater interest in both their super and saving than they have ever indicated before, so it’s been the start of something pretty amazing.

    Talk to us more about their progress, or setting up your own arrangements for children or grandchildren. Though every family is different, and there’s some tips and traps to be mindful of, something like this, might just work for you too!

  4. Beware! The ATO’s eyes are open… and they’re on a mission!

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    Barbara was on a mission of her own, until the ATO slowed things down markedly for her.  She had decided to use part of her superannuation assets to invest in a Private Company opportunity, and so had engaged Greenlight to set up an SMSF.

    All was on target until she received notice that her brand new SMSF would be one of the 15,100 SMSF establishments this year that would be randomly audited by the ATO (up from 9000 in 2012-13).  That in itself was not a problem, and from our perspective a positive that such action was being taken by the ATO.  A crackdown on unscrupulous operators and spruikers can only be a positive outcome for everyone!

    Fast forward 4 months, and as we sit currently, her fund has been suspended until October 2014, still another 8 months away.  Why?

    As part of the audit, the ATO reviewed all of her personal and business affairs and uncovered overdue personal returns and business lodgements.  She was given 1 month to rectify the outstanding items, and did that.  But while overseas for 5 weeks over the Christmas break, a further request and deadline was missed, and…. Well you know the punch line.

    And the consequences are devastating.  Not only did Barb miss out on the investment opportunity completely, her intended rollovers are now sitting in cash in her incumbent retail fund – earning practically nothing in the current environment.

    Furthermore, she has been forced to rethink her intended investment strategy for the Fund – a distressing outcome for someone who thought they had their retirement future mapped out.

    Needless to say, a lesson for anyone currently setting up a fund, or thinking about it… The house needs to be in order.  Call it a by-product or even unintended consequence of the crack-down, but a stark reminder that the ATO has no tolerance for tardiness or oversight, especially when it comes to who is entitled to run their own SMSF!