Tag Archive: SMSF

1. Superannuation Guarantee frozen until 2021

   August 24, 2014 10:16 am Comments Off on Superannuation Guarantee frozen until 2021

   The government has just announced that it had been successful in gaining support for the repeal in the Mining Tax Tax, but with that comes a freeze on the increase in Superannuation Guarantee Contributions (SGC). Until this year’s budget, the Labor government had SGC reaching 12% by 2019. This change sees it staying at 9.5% until 2021 before increasing in 0.5% increments until 2025. Adding fuel to the fire is suggestion that with the change comes increased powers to current and future Treasurers, allowing them to make further changes to this without parliamentary approval.

   The bad news in this of course is the fact that our compulsory retirement savings will potentially fall further short of where they need to be to fund future retirement income needs. This comes at a time when the government has also increased the Age Pension age to 70 for those born after 1966, and there are grave concerns for the nation being able to fund our ageing population.

   The good news in all of this is that for the large percentage of people on Total Remuneration Packages (TRP), it means that the money stays in “take home pay” and can fund current debt and lifestyle needs. This “take home pay” though is of course taxed at Marginal Tax Rates, which for many people is far higher than the 15% that superannuation enjoys. Take someone earning $150,000 a year. If they contributed 12% to super instead of 9.5%, the tax saving would be $900 per year. That $900 saved year and invested, (assuming a 12% return incl CPI) over 15 years is over $31,000.

   
   With contribution caps now making it difficult to contribute to super later, the smart money will likely look to increased Salary Sacrifice strategies to make up likely income shortfalls later. For more about Salary Sacrificing, check out the ATO Website, and keep an eye out for next month’s Super Vision where we’ll explore the benefits in more detail.

2. How long will my super last me?

   August 22, 2014 12:31 pm Comments Off on How long will my super last me?

   Have you ever wondered what your super is actually going to give you once you decide to stop working?  When is it going to run out? Will there be any left for the kids?  Here, we use the ASFA “Will My Super Savings Be Enough” calculator to show you how you can determine:

   1. When can I access my super?
   2. How much income will it give me?
   3. How long will it last?

   Our calculator is great at anticipating that you might want to slow down a little at some point, or take work breaks, for whatever reason.  To show this flexibility, we’ve incorporated a desire to work less in our 50’s, and see what impact this is going to have on our ability to accumulate enough passive income for later.

   Here’s our scenario:

   

   We’ve then assumed:

   

    

   …and played around with some assumptions that you can tailor to your situation:

   

    

   The result is a significant shortfall, and heavy reliance on the Age Pension being available when I hit 64…

   

   For more information, plug your own details into the calculator, and give us a call if you need to accelerate your strategy.

   Remember, we’re experts at finding tax savings to boost your bottom line, now and down the track!

3. Don’t get hit with Super death taxes

   July 23, 2014 1:54 pm Comments Off on Don’t get hit with Super death taxes

   What happens after you go is often one of those things left for someone else to worry about.  But your adult kids won’t thank you for an unnecessary tax bill, so what can you do about it?

   A large portion of most people’s Super is considered “taxable” due to the fact that they or their employer have received a tax deduction when it was contributed.  By the time a pension is drawn from the fund post retirement or after age 60, it is generally tax free anyway, so largely ignored.

   BUT, if the Super finds itself in the hands of adult children (over 25 or over 18 and not studying full-time), they will pay 17% tax on a portion of the proceeds.  The portion is determined by the percentage of the fund that was considered “taxable” at the point when a pension was first commenced.

   For example, let’s assume Jack has $1m in his super fund today, of which 80% had been created through contributions that have received a deduction, along with the associated earnings.  If he were to pass away today, his children could be up for $136,000 in tax.

   The solution is to put in place a proactive “Withdrawal and Re-contribution” strategy that increases the percentage of the fund that is considered “tax-free”.

   To do this, Jack needs to:

   • Be retired, or over age 65 and therefore able to withdraw lump sums from his super fund without paying tax.  If he’s retired he can withdraw up to $180,000 as a one-off tax free payment between the ages of 55 -59, or at 60 he can withdraw any amount tax free.
   • Be able to contribute to super (if retired be under age 65, or if over 65 be able to meet a 40 hours in 30 days “work test”)
   • Be able to re-contribute the amount to super without breaching any Contribution Caps (which are typically $180,000 per year or $540,000 using the 3 year bring forward rule under age 64).  See our Post Budget Ready Reckoner for further details.

   Assuming we start this strategy early enough, Jack may be able to eradicate the taxable portion of his fund completely and save his children the $136,000 in tax.

   There’s a range of complexities and opportunities that make advice critical for the over 55’s when it comes to Super.  Ensure you, or your family members, don’t make costly mistakes during this important self-funded retirement period.

4. The ultimate personal protection for successful business owners

   July 10, 2014 1:11 pm Comments Off on The ultimate personal protection for successful business owners

   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).

   

   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.

5. New ATO Penalties mean more likely cash fines!

   June 20, 2014 12:16 pm Comments Off on New ATO Penalties mean more likely cash fines!

   Historically, the ATO only had extremely harsh penalties in the form of Trustee Disqualification, or rendering a Fund Non-Compliant and imposing the loss of all tax benefits.  Because the “time” far outweighed most crimes, the ATO rarely took these courses of action.

   However from 1 July, the ATO will be providing either “education” or “rectification” directions along with fines for tardy responses, as well as raft of explicit Administrative Penalties carrying significant cash fines to be met by the Trustees themselves, rather than the Fund.

   An “Education Direction”, as the name suggests, will likely be used for first time offenders and requires the Trustee to better understand their obligations via the completion of an ATO designated course or program. The Trustee must then complete the course and notify the ATO appropriately (via a SMSF Trustee Declaration Form), or incur a fine of $1,700 and an $850 administrative penalty.

   A “Rectification Direction” refers to an ATO instruction to remedy the breach.  Where the Trustee cannot or does not provide evidence of the rectification, the fine is $1,700 for each breach.

   Further Administrative Penalties are also on offer ranging from $850 up to $10,200 for each contravention!  The proposed table of penalties are detailed as follows:

   Section and Rule	Proposed Penalty
   s35B – failure to prepare Financial Statements	$1,700
   s65 – prohibition on lending or providing financial assistance to members and their relatives	$10,200
   s67 – prohibition on super fund borrowing, except as permitted (LRBA)	$10,200
   s84 – contravention of In-House Asset rules	$10,200
   s103(1) & (2) – failing to keep trustee minutes for at least 10 years	$1,700
   s103(2A) – failure to maintain a s71E election, where applicable, in relation to a fund with an investment in a pre-11/8/99 related unit trust	$1,700
   s104 – failing to keep records of change of trustees for at least 10 years	$1,700
   s104A – failing to sign Trustee Declaration within 21 days of appointment and keeping for at least 10 years	$1,700
   s105 – failing to keep member reports for 10 years	$1,700
   s106 – failing to notify ATO of an event that has significant adverse effect on the fund’s financial position	$10,200
   s106A – failing to notify ATO of change of status of SMSF, eg. fund ceasing to be a SMSF	$3400
   S124 – where an Investment Manager is appointed, failing to make the appointment in writing	$850
   s160 – failing to comply with ATO Education directive	$850
   s254(1) – failing to provide the Regulator with information on the approved form within the prescribed time upon establishment of the fund	$850
   S347A(5) – failing to complete a form with requested information provided by the Regulator as part of the Regulator’s Statistical Program	$850

    The way the legislation is written penalty amounts will be issued to each trustee of an SMSF.  For Corporate Trustees, this will mean that one penalty will be issued, with all directors jointly and severally liable.  Where Individual Members exist, technically the penalty may be imposed on each trustee.

   The bottom line

   With ASIC now monitoring Auditor capability and compliance, the pressure is on all Auditors to report any imperfections with financial reporting and fund activities.  These penalties now also mean that Auditor calls cannot be ignored.

   It all makes for more reasons to make the most of Greenlight’s expertise and technological innovation.  Ask us for a Greenlight Online demonstration today or talk to us about how our specialists can help you steer clear of any ATO penalties!