Here’s the latest snapshot from the ATO (out quarterly) of what SMSF Trustees are doing with their money:
516,925 total number of SMSFs representing 986,441 trustees
Controlling 31.5% of all Super assets (up from 10% just a decade ago) at over $531b
Average fund balance over $1m
As at Sept 13, 77% of all SMSF assets in direct Australian Shares (32.3%), Cash and Term Deposits (29%) and directly held Property (15.3%).
The remaining 23% is spread across Unlisted Trusts (9.2%), Listed Trusts (3.6%), Other Managed Investments (4.3%) and remaining (6.3%) spread across 12 other categories.
Broken into SMSF size:
As against 10 years ago, cash has been the big winner against directly held shares (25% and 31% respectively), with property and trusts largely stagnant, though down from 10% for the $150-250K band.
How is your Fund positioned, and is it likely to change over the next 10 years?
Comments Off on Beware! The ATO’s eyes are open… and they’re on a mission!
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!
Comments Off on Oops – divorce on the horizon? What now?
Divorce is the worst-case scenario for a marriage. Amongst the emotional, legal and financial turmoil – which is only compounded if there are kids or pets involved – it can be easy to forget about your super.
If you are already within an SMSF, chances are your soon-to-be ex-partner is also a trustee. So what happens when retirement plans, like so many other things, were built with a shared future in mind?
Superannuation splitting within an SMSF does not differ greatly to super held within a traditional fund structure in the eyes of the law. Any difficulties are mostly commonly caused by the relationship between the trustees and the nature of assets held in the fund. Superannuation splitting laws exist to make sure a settlement is fair however, there are still several things to be aware of to avoid an unfair distribution of super.
Here are our top 4 things to keep in mind when navigating SMSF and super splitting due to divorce.
1. If you were married before 1975 make sure that your Deed allows for the requirements set out by the Family Law Act 1975.
Make sure your SMSF Trust Deed to reflect the requirements set out by the Family Law Act 1975. If your deed hasn’t incorporated the requirements, it won’t stop the law – it will just make things confusing for your Fund’s trustees. We can help you both through the process, set out below:
Obtaining information
Determining the documentation method
Determine the splitting time and calculation
Serving the superannuation agreement/order
Notifying the parties
Implementing the superannuation agreement/order and making payment.
2. Use a Family Court Document to request all of the information you will need. You will need to submit this yourselves, but you can get help from your adviser or accountant (or Greenlight).
3. Use your Consent Order (where the parties agree), Court Order (where the parties don’t agree) or a Superannuation Agreement to document how your combined super assets will be split. Just make sure you’re not planning to rely on a Stat Dec as it won’t suffice. Never heard of a Superannuation Agreement?
If you opt for a superannuation agreement, Greenlight can help you manage the process with your legal representatives or contact a specialist advisor on your behalf. Together, we will make sure your superannuation agreement is in the correct format, obtain signatures from both yourself and your partner, and organise a legal declaration which states that each party has received independent legal advice. This legal declaration will be accompanied by a statement from each legal practitioner that advice was provided. Superannuation agreements are a more expensive option across the board because of the added necessary legal expertise than the first two options.
4. The hard bit – splitting the assets. You’ll either be physically separating the assets immediately (Payment Split) or flagging the arrangements until a condition of release (such as Retirement) is met. This is called Payment Flagging.
There are two main payment types:
A payment split – the super payment is made now.
This payment type is the most consistent with the Family Court’s desire that property settlements represent a clean break. It involves creating an interest for the non-member spouse, either in the same fund or in a fund of their choice, which cannot be cashed until the non-member spouse meets a condition of release.
A payment flag – the super payment is deferred until a condition of release is met.
When the condition of release is met, the trustee notifies the court that a splittable payment will become payable. These may be suitable for defined benefit funds where a retirement benefit significantly larger than the current withdrawal benefit may be payable in the near future. However, they are rarely used in an SMSF.
The three main methods of calculating the amount of a payment split are:
A percentage amount – a percentage of the account balance is payable
A base amount – a fixed dollar amount is payable
A calculated base amount – a method by which a base amount can be calculated
The hardest part about this when parties are in dispute is realising asset values, especially if valuations fluctuate considerably. Don’t make this time any harder on yourself, make sure you’re across all the facts and secure your retirement future.
Comments Off on Need a loan for your SMSF? Welcome to the Related Borrowing party!
Did you know you can borrow money from Related Parties rather than banks? Limited Recourse Borrowing Arrangement rules allow you to borrow money from anyone you like – including related parties!
Many trustees don’t know that their business, a family member, their own company or trust, or even themselves could provide the loan to their SMSF. In some special cases, you can even borrow money personally, and then on-lend that money to your SMSF – how’s that for flexibility?
Borrowing within an SMSF allows your fund to act quickly if it wants to purchase an investment asset, providing a quick injection of money (over and above the contribution caps) when it’s time to do deals.
Setting up a ‘self-loan’ structure within an SMSF means that the money lent to your fund will be repaid to you, so this money won’t be locked within your SMSF until you reach retirement age (as is the case of a contribution).
Any related party loans will need to follow the same ‘arms-length’ rules that would apply if you were dealing with an unrelated lender. This means that the loan arrangement will need to be entered into and carried out on commercial terms, and repayments will need to include a commercial rate of interest – which will be taxable.
Other ‘arms-length’ rules that you should watch out for in this scenario include:
Don’t charge too high an interest rate! If you do, the structure could be viewed as an “early access scheme” or otherwise breach the sole purpose test through providing a ‘non-retirement’ benefit to the Members. You will also create a tax liability in your own name.
Is your interest rate commercial? There is no official ATO restriction on this – but to prove the interest rate is commercial you should consider ensuring rate is in line with what the banks would charge.
Don’t fall in the third-party lender interest rate trap! On the face of it, on-lending a third-party lender loan to your SMSF at the same interest rate as that charged by the lender makes sense. Nope! As the third-party loan is a full recourse loan and the loan you make to your SMSF is a limited recourse loan – different rules apply. Commercial ‘rate for risk’ rules dictate that the loan to your SMSF should be at a higher rate.
Related party lending can be the ticket to your next great SMSF investment purchase, as long as you follow all the rules – and make sure it is set up in a way that benefits you. Before you hit the ground running, make sure you have a chat with us about partying safe.
