Australian Superannuation Fund Industry Reaction to Potential New Government Legislation on Funds by Murray LeClair

In recent days, there has been a proposal tabled that would overhaul how superannuation funds will work in Australia. This is something of a delicate matter from a finance industry perspective, with so many people reliant on these funds as a way of ensuring an income after retirement. However, industry regulation is of course important to consumers too, so the proposal merits discussion.

What Is Being Proposed?

The new proposal states that any superannuation fund should have an independent chairman or woman, and that at least a third of trustees should be independent. While it is clear why this is something that may be raised in the public interest, it would require an overhaul of how the superannuation industry works in Australia, and has therefore caused a strong reaction from many people in the industry, including financial services minister Kelly O’Dwyer.

Kelly O’Dwyer’s Response to the Proposals for Changes to Superannuation Laws

Kelly O’Dwyer’s response as financial services minister has been that the new proposals are overly ideological and not sound for the industry. She stated that these changes wouldn’t protect members but create issues in the industry.

“The package of reforms that the government is bringing forward applies equally across the sector to all funds, whether they’re retail, industry or corporate funds.

“This is important because we force people to put money aside from their wages to provide for their retirement income, and people need to know that money is protected.”

These were Ms O’Dwyer’s responses to the proposals. Other analysts believe that this reaction is a sensible one, and the proposals won’t benefit members of superannuation funds, though some still think that the changes would make funds better managed and safer as investments.

Ideology and Finance

The discussion in this case is not so much about whether the proposals represent a nicer situation than the way the industry currently works, but about whether making changes to the systems that govern how Australian pension funds work need to change. People like Kelly O’Dwyer whose role is to understand the effects of changes on both the industry and consumers are understandably very interested in what the potential effects of these changes would be, and whether they would actually lead to benefits for citizens who want to engage with the funds or not.

The opinion of the industry so far seems to be that this change to legislation will not achieve the results it is intended to and will actually be a worse situation for consumers as well as businesses working in the industry.

Are There Other Options for Investors?

While people who want to prepare for their retirement tend to choose superannuation funds, if this is something you don’t currently like the management of, there are other ways of saving that can yield well, or you can start investing in things like stocks and shares as an individual rather than choosing a pension fund. You can also look into things like ‘what is CFD trading?’, and try to make some money to take with you into retirement from that kind of investment instead.

There really is no fool proof way to guarantee your financial stability in later life, other than being really rich, so any choice you can make is gambling on the industry working as it should. Most of us accept superannuation funds as a decent gamble. However how you feel about how they are managed, it is perhaps something you may want to consider in light of these proposed changes.

If you work in the industry, however, these potential legislative changes may well cause a lot of upset to how things are done and change the products that could be developed and sold to customers. Whether you think the ideology behind the suggestion makes sense or not, it is sure to be a period of upheaval. We don’t yet know whether these changes will be implemented or whether those in opposition to them like Kelly O’Dwyer will win the day. However, it is an interesting case to watch for anyone who is concerned with their own funds, or who works in the sector and is worried about changes.

 

“Murray LeClair is a freelance finance writer specialising in stocks and shares, forex and ISAs. After studying business at Lancaster University in the UK, Murray worked at a number of financial institutions in London and New York and is now following his passion for writing.”

 

SMSF – Self Managed Super Funds

Setting up a SMSF and comparing providers fees

It is important when shopping around to find someone to look after the administration of your Self Managed Super Fund that you read the fine print.  There are a number of SMSF’s providers who claim to set up the fund for FREE and provide the Administration services for extremely cheap but they recoup the fees through Investment Charges or Financial Advice or they only offer the cheaper rate for the first year.  Some providers outsource the administration to overseas which presents a number of issues in itself.  Ensure you are getting value for your money.

What is a self managed super fund?

An SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO), that you manage yourself. SMSFs can have up to four members. All members must be trustees (or directors if there is a corporate trustee) and are responsible for decisions made about the fund and for complying with relevant laws.

How do Self Managed Super Funds Work?

SMSFs are a legal tax structure with the sole purpose of providing for your retirement. They operate under similar rules and restrictions as ordinary super funds.

When you run your own SMSF you must:

  • Carry out the role of trustee or director, which imposes important legal obligations on you
  • Set and follow an investment strategy that ensures the fund is likely to meet your retirement needs
  • Have the financial experience and skills to make sound investment decisions
  • Have enough time to research investments and manage the fund
  • Budget for ongoing expenses such as professional accounting, tax, audit, legal and financial advice
  • Keep comprehensive records and arrange an annual audit by an approved SMSF auditor
  • Organise insurance, including income protection and total and permanent disability cover
  • Use the money only to provide retirement benefits

Is a SMSF right for you?

  • Have you considered other do-it-yourself super options which let you choose which assets you’d like your super invested in such as shares, exchange traded funds and term deposits?
  • Have you considered changing to another fund or investment option first if you are not happy with your current fund?
  • Consider whether your self-managed fund will outperform your current fund?
  • Have you considered the costs associated with running a SMSF?
  • Super funds usually have discounted life and disability insurance which may cost you more inside SMSF.
  • Bankrupts are not allowed to be a trustee, director or member of a SMSF.
  • You can not set up a self managed super fund with the aim of withdrawing some or all of your super to pay off debts, this is illegal.

Free Self Managed Super Fund Trustee Education Program

If you’re thinking of running an SMSF, consider completing a free Self Managed Superannuation Fund Trustee Education Program designed to assist trustees in understanding their role and responsibilities.

Plant and Associates cannot give financial advice so you must source Financial advice from a licenced third party including a statement of advice, cost varies from $1100 to $3300 so shop around.

  • Financial Advice on whether a SMSF is recommended for you, includes Statement of Advice $1,100.00
  • Set up of SMSF, including registration of ABN and TFN $770.00
  • Set up of Corporate Trustee (required where SMSF if investing in Property) $1,100, including ABN, TFN registration, and first year ASIC fee.
  • Annual Administration – $1,320 Basic, $1,760 if you have share trades or are in pension mode, $1,980 if you invest in property. Please see us for an obligation free quote.
  • Auditors Fee $330.00
  • Actuarial Certificate $176.00 – required where your fund is in both Pension Phase and Accumulation Phase.

We do not offer Financial advice on what to invest in, or which investment or insurance product to choose.

 

www.plantandassociates.com.au

07 5596 5758

PURCHASING VERSUS LEASING

THE COMPELLING CASE FOR PURCHASING VERSUS LEASING by Peter Tewksbury

Despite the lack of office rental growth in Brisbane in the last 8 years, the downward spiral of interest rates has made the case for purchasing an office rather than leasing still compelling.

For business owners with equity or a Self Managed Superannuation Fund the numbers speak for themselves.

We have two “live” examples below. The first is a smaller strata for a business of less than 6 people and the second is a much larger space that can accommodate more than 50 people.

pic

pic1

pic2

*Please note that the numbers used above are indicative only and are based on a number of assumptions.

Interested parties should seek independent financial and legal advice and not rely on these numbers.

Peter Tewksbury

M 0412 723 448

PH 07 3870 2555

E peter@tewksburycommercial.com.au

You should seek independent professional advice from a suitably qualified and licenced professional (Plant and Associates Pty Ltd) to determine whether buying a property is feasible and suitable for your needs, in particular advice on SMSF’s requires the professional to hold at least a Limited AFSL licence allowing them to discuss whether an SMSF is suitable for you.  We hold the relevant licences and offer a free 1 hour consultation to discuss your needs.  Assuming you meet the initial criteria then an Statement of Advice assessing your needs and making recommendations in relation to setting up a SMSF and whether property is for you will cost $1,100.  The cost to set up a SMSF is $770.  A corporate Trustee is $1,100.  (This includes Legals, ASIC fee, and our time in applying for the new entities and registering them with TFN and ABN).

Contact us to book an appointment. (07) 55965758 email: admin@plantandassociates.com.au

 

Budget Changes for Business and Superannuation

Superannuation pension phase – $1.6m transfer balance cap for retirement accounts
From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into a tax-free “retirement account” (also known as retirement phase or pension phase). Subsequent earnings on these pension transfer balances will not be restricted.
According to the Government, this $1.6m transfer balance cap for amounts transferred into pension phase will limit the extent to which the tax-free benefits of retirement phase accounts can be used for tax and estate planning. For those who will have more than $1.6m in super you can leave the excess in accumulation mode.

Retirement account cap – $1.6m
Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the existing concessional rate of 15%). The
$1.6m cap will be indexed in $100,000 increments in line with CPI (the same as the Age Pension assets threshold does).

Existing pension balances
Members already in the retirement phase as at 1 July 2017 with balances in excess of $1.6m will be required to either:
transfer the excess back into an accumulation superannuation account to reduce their retirement account balance to $1.6m by 1 July 2017; or
withdraw the excess amount from their superannuation.
Excess balances for these members may be converted to superannuation accumulation phase accounts. A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.

Date of effect
This measure will apply from 1 July 2017.

____________________________________________________________________________________________________

Transition to retirement pensions – tax concessions to be reduced
The Government said it will remove the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs). Under the changes, earnings from assets supporting TRISs will be taxed at 15% (instead of the current 0%). The change will apply from 1 July 2017 irrespective of when the TRIS commenced. For clients whose personal tax rate is higher than 15% this will still represent a tax effective strategy.

No election to treat as lump sum
In addition, the Government said individuals will no longer be able to make an election under reg 995-1.03 of the ITA Regs to treat certain TRIS payments as lump sums for tax purposes, which currently makes them tax-free
up to the low rate cap ($195,000).

Example
Sebastian is 57 years old, earns $80,000 and has $500,000 in his super account. He pays income tax on his salary and his fund pays $4,500 tax on his $30,000 earnings. Sebastian decides to reduce his work hours to spend more time with his grandchildren. He reduces his working hours by 25% and has a corresponding reduction in his earnings to $60,000. He commences a TRIS worth $20,000 per year so that he can maintain his lifestyle while working reduced hours. Currently, Sebastian pays income tax but his fund pays nothing on the earnings from his pool of super savings. Under the Government’s changes, while the earnings on Sebastian’s super assets will no longer be tax-free they will still be taxed concessionally (at 15%). He will still have more disposable income than without a TRIS. This ensures he has sufficient money to maintain his lifestyle, even with reduced work hours.
Date of effect
These measures will apply from 1 July 2017 (irrespective of when the TRIS commenced).

________________________________________________________________________________________________________

Non-concessional contributions: $500,000 lifetime cap from Budget night
The Government has introduced a lifetime non-concessional contributions cap $500,000 effective from Budget night, i.e. 7.30 pm (AEST) on 3 May 2016. The lifetime non-concessional cap (indexed) will replace the existing annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3-years under the bring-forward rule for individuals aged under 65). Non-concessional contributions include contributions which are not included in the assessable income of the receiving superannuation fund, e.g. non-deductible personal contributions made from the member’s after-tax income (formerly known as undeducted contributions).
The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
Contributions made before commencement (i.e. 7.30 pm AEST on 3 May 2016) cannot result in an excess of the lifetime cap. However, excess non-concessional contributions made after 7.30 pm AEST on 3 May 2016 will need to be removed or subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings (AWOTE).

Concessional contributions cap cut to $25,000 from 1 July 2017
The annual concessional contributions cap will be reduced to $25,000 for all individuals regardless of age from 1 July 2017. The cap will be indexed in line with wages growth. The concessional concessional cap is currently set at $30,000 for those under age 49 on 30 June for the previous income year (or $35,000 for those aged 49 or over on 30 June for the previous income year) for the 2015-16 and 2016-17 income years.
Concessional contributions (i.e. before tax) include all employer contributions, such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed. Members of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of their “notional contributions”.

Excess concessional contributions
Existing processes for the administration of the concessional contributions caps and the imposition of the additional 15% on contributions, including the ability to withdraw the excess from super to pay the additional liability, will be maintained. Currently, concessional contributions exceeding an individual’s annual concessional cap are automatically included in an individual’s assessable income and taxed at the individual’s marginal tax rate (plus an interest charge). An individual is also entitled to a 15% tax offset for the contributions tax paid by the fund. Individuals can elect to release up to 85% of their excess concessional contributions from their superannuation fund to the Commissioner as a “credit” to cover the additional personal tax liability.

Concessional contributions catch-up for account balances less than $500,000
From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions for “unused cap amounts” where they have not reached their concessional
contributions cap in previous years. Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years. Only unused amounts accrued from 1 July 2017 will be available to be carried forward. It will
improve flexibility for those with interrupted work arrangements. The measure will also apply to members of defined benefit schemes. Consultation will be undertaken to minimise additional compliance impacts for these schemes.
According to the Government, allowing individuals with account balances of $500,000 or less to make catch-up concessional contributions will make it easier for people with varying capacity to save and for those with interrupted work patterns, to save for retirement to the same extent as those with regular income.

Superannuation contributions tax (extra 15%) for incomes $250,001+
The income threshold above which the additional 15% Division 293 tax cuts in for superannuation concessional contributions will be reduced from $300,000 to $250,000 from 1 July 2017.
Currently, individuals above the high income threshold of $300,000 are subject to an additional 15% Division 293 tax on their “low tax contributions” (essentially concessional contributions). The Division 293 tax effectively doubles the contributions tax rate from 15% to 30% for concessional contributions. Note that Labor has also proposed that, if elected, it would reduce the high income threshold to $250,000. A taxpayer’s “low tax contributions” are essentially their concessional contributions less any excess concessional contributions for the financial year. Concessional contributions (before tax) include all employer contributions, such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed. Importantly, the extra 15% Division 293 tax does not apply to concessional contributions which exceed an individual’s concessional contributions cap (which is proposed to be set at $25,000 for all taxpayers from 1 July 2017: see para [567] of this Bulletin). Such excess concessional contributions are effectively taxed at the individual’s marginal tax rate in any event. As such, the maximum amount of Division 293 tax payable each year will be limited to $3,750 (i.e. 15% of the $25,000 cap) from 1 July 2017.

Division 293 tax – high income threshold
The Division 293 tax high income threshold is currently based on the individual’s “income for surcharge purposes” plus the individual’s low tax contributions. Given the broad definition of “income for surcharge purposes” (which adds back net investment losses to taxable income), negative gearing and many salary packaging arrangements generally will not assist in bringing a taxpayer under the high income threshold. If a taxpayer’s income for surcharge purposes is less than the high income threshold, but the inclusion of their low tax contributions pushes them over the threshold, the 15% Division 293 tax only applies to the part of the low tax contributions that are in excess of the income threshold.

Tax deductions for personal super contributions extended
From 1 July 2017, the Government will improve flexibility and choice in super by allowing all individuals up to age 75 to claim an income tax deduction for personal super contributions. This effectively allows all individuals,
regardless of their employment circumstances, to make concessional super contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners (e.g. contractors), and
individuals whose employers do not offer salary sacrifice arrangements will benefit from these proposed changes. To access the tax deduction, individuals will be required to lodge a notice of their intention to claim the deduction
with their super fund or retirement savings provider. Generally, this notice will need to be lodged before they lodge their income tax return. Individuals will be able to choose how much of their contributions to deduct.
Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes. Prescribed funds will include all untaxed funds, all Commonwealth defined benefit schemes, and any
State, Territory or corporate defined benefit schemes that choose to be prescribed. Instead, if a member wishes to claim a deduction, they may choose to make their contribution to another eligible super fund.

Superannuation contribution rules – work test to be removed for age 65 to 74
The work test for making superannuation contributions for people aged 65 to 74 will be removed from 1 July 2017. Instead, people under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.

Low income super tax offset (LISTO) to be introduced
From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce tax on super contributions for low income earners. The LISTO will provide a non-refundable tax offset to super funds,
based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional
contribution made on their behalf. Note that the proposed LISTO will replace the current Low Income Superannuation Contributions (LISC). The Government said this will provide continued support for the accumulation of super for low income earners and ensure they do not pay more tax on their super contributions than on their take-home pay. The ATO will determine a person’s eligibility for the LISTO and will advise their super fund annually. The fund will
contribute the LISTO to the member’s account. The Government said it will consult on the implementation of the LISTO.

Low income spouse super tax offset to be extended
From 1 July 2017, the Government will increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income spouse to $37,000 from $10,800. The offset will gradually reduce
for income above $37,000 and will phase out at income above $40,000. The low income spouse tax offset provides up to $540pa for the contributing spouse. The Government noted the proposed changes build on its co-contribution and superannuation splitting policies to boost retirement savings, particularly of women.

__________________________________________________________________________

Changes affecting Businesses

 

The Budget announced that the small business entity threshold will increase from $2m to $10m from 1 July 2016. As a result, a business with an aggregated annual turnover of less than $10m will be able to access a number of

small business tax concessions from 1 July 2016, including:

  • the simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017 and then less than $1,000;
  • the simplified trading stock rules, which give businesses the option to avoid an end of year stocktake if the value of the stock has changed by less than $5,000;
  • a simplified method of paying PAYG instalments calculated by the ATO, which removes the risk of under or over estimating PAYG instalments and the resulting penalties that may be applied;
  • the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
  • immediate deductibility for various start-up costs (e.g. professional fees and government charges);
  • a 12-month prepayment rule; and
  • the more generous FBT exemption for work-related portable electronic devices (e.g. mobile phones, laptops and tablets) – the FBT car parking exemption for small business already applies to entities with “annual gross income” of less than $10m.

 

CGT concessions

The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain available for businesses with annual turnover of less than $2m or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test).

 

Reduced tax rates for small business

The company tax rate for small business entities will reduce to 27.5% (from 28.5%) from the 2016-17 income year. The rate is set to reduce further to 27% in 2024-25 and then by 1 percentage point per year until it reaches 25% in 2026-27.

 

GST reporting on a cash basis

The reporting of GST on a cash basis will be extended as an option to businesses with a turnover of less than $10m (previously $2m)

 

GST and the importation of low-value goods

The Government is to impose GST on goods imported by consumers regardless of value. The new rules will commence on 1 July 2017.

The liability for the GST will be imposed on overseas suppliers, using a vendor registration model. This means that those suppliers which have Australian turnover of $75,000 or more will be required to register for, collect and remit GST for all goods supplied to consumers in Australia, i.e. regardless of value.

The Budget papers state that the measure will have a gain to GST revenue of $300m over the forward estimates period (i.e. the next 4 years). There will be additional funding of $13.8m over the next 4 years to implement the measure. The arrangements will then be reviewed after 2 years to “ensure they are operating as intended and take account of any international developments”.

 

www.plantandassociates.com.au

admin@plantandassociates.com.au

07 55965758

Protecting your finances and planning your estate after retirement

Posted on by admin

In a previous article we wrote about Centrelink deeming income.  In particular, the structure used to hold your assets can result in you being eligible for some Centrelink payments that you would not be eligible for if your assets are not structured correctly.

 Most readers of this article will be either close to retirement or already there.  Everybody will have different tax and financial needs but something everyone will have in common is protecting your assets no matter how big or little they are.

 At a time where your loved ones want to grieve, they do not want to be worrying about where your will is and sorting out your finances.  In addition, you have worked hard to amass what little or grand assets you have so don’t let them go to waste.

Prepaid Funerals

Whilst these are not a tax deduction they are also not classed as an asset by Centrelink.  Therefore if you have some cash sitting around, prepaying for your funeral reduces the burden on family, locks in a price at today’s rates and reduces your assets with Centrelink potentially making you eligible for some further benefits.

 Wills and super

Most people either do not have a will, or it is not up to date.  Do you know where your will is?  Remember your superannuation may not form part of your estate and as such you may need a binding death nomination within your super fund.  Did you know that you can reduce the amount of estate taxes paid by ensuring the right person is the beneficiary of your super?  This can apply to the rest of your assets too.

 Access to bank accounts where only one signatory

Do you have a bank account where your spouse is not a signatory?  Does that account get used to pay the bills?  If so, your family could potentially have difficulty in paying your bills when the account is frozen once you are no longer there to access it.  An enduring power of attorney can be put in place to avoid this issue.

 SMSF

If you have a Self Managed Super Fund and you are individual trustees, your fund becomes non-complying upon the loss of one of the trustees.  This can be avoided by having the executor of your estate step in but also through having a corporate trustee.

 Insurance

Ensuring you are adequately covered and the right entity holds the insurance is vital.

 Investment Properties

As per our previous article on deemed income, holding the property as an individual is generally the best way to go unless you are a property tycoon.  However there are pros and cons of holding the property in a trust or a company.  When to sell is another commonly asked question.  Timing is very important when it comes to selling an asset that may have a capital gain as it makes a difference to the amount of tax you have to pay.

 As you are reading this article you may be thinking of a number of questions.  Give us a call for a free consultation to discuss these matters in more detail or alternatively sign up to our monthly email newsletter by providing us your email address. These monthly editions give advice, tips and up to date information on current and emerging laws.

Posted in Retirement, Super

Refund option for excess superannuation contributions

Posted on by admin

The refund option for excess superannuation concessional contributions up to $10,000 is now law following Royal Assent to the Tax Laws Amendment (2012 Measures No 1) Bill 2012.As a result of the new law, eligible individuals will have a once-only option to have 85% of their excess concessional contributions up to $10,000 released from their superannuation fund to the Commissioner and assessed as income for the financial year in which the contribution was made. The individual will effectively pay tax on refunded excess concessional contributions at their marginal tax rate (less a 15% refundable tax offset for the tax already paid by the fund on the contributions), rather than the potentially higher excess contributions tax (ECT) of 31.5% (in addition to the 15% contributions tax for the fund).

While the refund option will provide some welcome relief in limited situations, it also presents another layer of complexity with further pitfalls for unsuspecting taxpayers.

Eligibility for refund option

The new refund option will only be available for excess concessional contributions in respect of 2011-12 or later years, and only for the first year. However, it will not provide any relief for taxpayers who exceed the concessional cap by more than $10,000 or for breaches before 1 July 2011. To be eligible, the individual must also lodge an income tax return for the relevant income year within 12 months of the end of that year.

The Commissioner will provide eligible individuals with a choice, via a notice of offer, to have the excess concessional contributions released from their superannuation fund to the Commissioner and assessed as income at their marginal tax rate. The Commissioner is expected to provide these notices of offer at a similar time to the current letters he sends to individuals prior to making an ECT assessment

Access to tax credit may be denied

Once the choice to refund is received from a taxpayer, the Commissioner will provide the taxpayer’s superannuation fund with a compulsory release authority for 85% of the amount of excess concessional contributions. If a superannuation fund pays an amount to the Commissioner in accordance with a release authority, the taxpayer is entitled to a tax credit equal to that amount.

However, a superannuation fund will not be required to comply with a compulsory release authority if:

  • the superannuation interests held by a fund is less than the release authority amount, or
  • if the interest is a defined benefit interest, or
  • if the interest is supporting a superannuation income stream

As a result, the release authority exemptions will operate to deny the taxpayer access to a tax credit. In addition, the release authority exemptions will not affect the Commissioner’s refund determination which will remain on foot to include the excess concessional contributions in the taxpayer’s assessable income.

Therefore, a taxpayer will need to consider whether she or he may need to access the refund option on any excess concessional contributions before commencing a superannuation income stream from that superannuation interest. Once an income stream is commenced, it will effectively prevent the taxpayer from receiving a tax credit (via a release authority on that interest) if he or she accepts a refund offer for excess concessional contributions

Posted in Super

SMSF – insurance

SMSF – insurance

The SIS Act changed to require, for the 2012-2013 financial year and beyond, that:

  • 1. trustees of self managed superannuation funds (SMSFs) consider insurance for their members as part of the fund’s investment strategy;

This does not mean that life insurance must be included in every Fund but it does mean that the Investment strategy should show that the matter has been appropriately considered.

  •  2. money and other assets of an SMSF be kept separate from those held by a trustee personally and by a standard employer-sponsor or an associate of a standard employer-sponsor;

 This has always been the case but is now an operating standard which gives the ATO greater enforcement powers.

  •  3. SMSF assets be valued at market value for reporting purposes.

 This formalises a previous ATO guideline that we have always abided by.

 Given that points 2 & 3 should already have been in place for most Funds it will be the need to consider life insurance which will cause the most activity as the majority of Fund investment strategies will probably require alteration. Auditors will require that Investment Strategies comply.

www.plantandassociates.com.au

07 55965758

Posted in Super

Super or Mortgage

 Super versus mortgage: And the winner is… Article by Adam Kennedy

The pros and cons of using spare income to pay more off your mortgage or increase your super needs to be weighed up, but with both strategies the winner could be your financial future.

Choosing to channel more of your cash into either your mortgage or your super can be a fork in your financial road and leave you asking which path you should commit to.

The direction you take depends on a few factors such as your age, how much you earn, your level of debt and your income tax rate.

If you are in your twenties, for instance, you may not want to save for a retirement that is 40 years or more away. A better strategy might be to invest in a home where you can build some equity by the time you are nearing your forties and considering a retirement strategy.  However, the older you get, the more you might want to invest in your superannuation and begin the transition to retirement financially.

 Issues to consider if you take the mortgage route:

•Paying no tax on growth in the value of your family home

•Access to redraw facilities if you need a quick flow of cash

•Equity which you can borrow against

•Reliance on the property market as a long–term strategy

•Changes to interest rates

Issues to consider if you send more money your super’s way:

•Boosting retirement income

•Tax–effective as tax on investment returns is capped at 15%

•Tax–effective when you salary sacrifice

•Potential benefits of Federal Government co–contributions if you earn less than $46,920

•Inability to access funds if you are under retirement age

Questions to ask yourself…

If you are at the time in life when you feel it’s better to place your cash into super, here are some steps to help you decide how to put a strategy in place:

How much do you owe on your mortgage?

Sit down and do your sums to figure out how much money is going into repayments, and how long it will take you to pay off your mortgage.

How is your mortgage set up?

Do you have an interest–only strategy at the moment and how long is the life of your loan? It might be worthwhile considering if this needs to be changed. Switching to an interest only loan may also give you more cash–flow that can be invested into your super.

Is there cash looking for a better home?

You may have more money floating around than you think and some can go into growing your super balance.

Do you have the capacity to salary sacrifice?

Your employer may allow you to salary sacrifice some of your income which will be taxed at a maximum rate of 15%, saving you a tidy sum in tax if your income is currently being taxed at a higher rate.

In conclusion…

It’s wise to speak to a professional who has the necessary tools at their finger tips to assess your personal situation and identify which options and blend of strategies will place you better in your retirement.

Have a good week.

Posted in Home Loans, Investments, Super

Centrelink benefits

Make sure you aren’t missing out! article by Tracey Roberts Financial Planner

Are you missing out on valuable Centrelink benefits because your assets aren’t correctly structured?  Sometimes, restructuring your assets can give you access to benefits like Newstart,  a pension card and/or part aged pension!

 Check with your financial planner to see if they can help or call Tracey Roberts at Foundation Planning Pty Ltd 07 5631 4343 or 0403 844 071 who wil be happy to have an obligation free chat (tracey_roberts@netspace.net.au).

 Here’s a couple of examples of what can sometimes be achieved.

Case Study

Reg (age 65) and his wife Carolyn (age 60) have the following assets:

  • Home – $300,000
  • Super – $380,000 (Reg}
  • Bank account – $10,000 (joint)
  • Car – $20,000
  • Home contents – $10,000

As Reg has recently reached Age Pension age and retired, he would like to apply for the Age Pension. Carolyn has been receiving Newstart Allowance for the past few years.  If Reg uses his entire superannuation balance to commence an allocated pension, he would be entitled to a part Age Pension of $448 per fortnight ($11,648 per annum). Carolyn’s Newstart Allowance would cease as their combined assessable assets now exceed the lower assets test threshold of $265,000*.

 Reg decides to cash in $170,000 of his superannuation benefits. This withdrawal will be completely tax-free^ as Reg is over age 60. Reg will then use this money to make a spouse superannuation contribution into Carolyn’s superannuation fund. Reg will commence an allocated pension with his remaining superannuation balance. As a result of this strategy, Reg & Carolyn’s assessable assets have been reduced by $170,000 to $250,000, which is below the lower assets test threshold of $265,000*.

 Reg will qualify for a full Age Pension of $564.50* per fortnight ($14,677 per annum).

Carolyn will continue to qualify for a full Newstart Allowance of $428.70* per fortnight ($11,146 per annum). This results in combined social security benefits of $25,438.40 per annum.  Further, while it is not likely to be applicable in this scenario, depending on their income position for the entire financial year, Reg may also be eligible for a spouse contribution tax offset of up to $540.

^ However, Flood levy of approximately $1,093 will apply.

* Rates and thresholds used are current to 31 December 2011. Rates include Pension Supplement for Reg.

Case Study

Sam (age 56) is single, owns his home, and has been unemployed for three months. His assets consist of the following:

  • $15,000 in the bank
  • $180,000 in managed investments (subject to deeming under the income test)
  • $75,000 in superannuation

As his assets (excluding superannuation) exceed the $186,750* asset test threshold, Sam is not eligible to receive any Newstart Allowance. Sam would like to receive some Newstart Allowance to help meet his living expenses and he is not averse to increasing his superannuation balance. He accepts his financial planner’s advice to make a $145,000 non-concessional contribution (using his managed investments) into his superannuation fund.  Following this contribution, the level of assets counted under the assets test is reduced to $50,000. The level of deemed income (from the managed investments) under the income test is also significantly reduced.

Sam is now able to receive the full amount of Newstart Allowance of $486.80 per fortnight*

or $12,657 per annum.

* Rates used are current to 31 December 2011.

Foundation Planning Pty Ltd

ABN 93 150 110 517

Authorised Representatives of AMP Financial Planning Pty Limited

Ph: 07 5631 4343 Fax: 07 5522 8836 Mob: 0403 844 071

PO Box 35, Mudgeeraba, QLD 4213

Posted in Centrelink, Investments, Retirement, Super

Taxation of a SMSF (Self Managed Super Fund ) by Sharon Plant

Taxation within a SMSF

One of the basic principles of superannuation is that it is a low taxation vehicle. The Government gives these tax concessions in return for your SMSF complying with the super laws, which restrict when you can access these funds.

The following is a overview of the basics of the taxation within a SMSF, assuming that the fund is a complying superannuation fund.

Taxable income

The trustees of a complying SMSF are liable to pay tax (from the assets of the SMSF) on the taxable income of the fund for each year of income. The taxable income of a SMSF is calculated as:

Total assessable investment income + concessional contributions + taxable capital gains – allowable deductions.

This taxable income is taxed at the concessional rate of 15%.
However, the are some special rules for:

– capital gains
– special income

And a further reduction of tax payable by way of any rebates such as imputation credits.

Capital gains tax:

A capital gain arising from the disposal of an asset of the SMSF will form part of the fund’s taxable income and will be subject to tax at 15%. However there are some further concessions:

  • – Where the fund has held the asset for more than 12 months, the fund will receive a discount of one-third of the capital gain (effectively reducing the capital gains tax to 10%). This is known as the CGT discount method. For example, if the fund makes a $10,000 capital gain on the disposal of an asset and the discount method applies, only $6,666.66 would be counted as taxable income.

  • – Where the fund acquired the asset prior to 21 September 1999 and has held it longer than 12 months, the fund has the choice of using either the above discount method or the frozen indexation method (frozen at 30 September 1999) to calculate the capital gain. If the fund acquired the asset on or before 30 June 1988, the asset is deemed to have been acquired by the fund on 30 June 1988.

  • Special income:

  • Special income of a SMSF is taxed at the highest marginal tax rate i.e. 45%. It includes:

  • – Dividends received directly or indirectly from a private company, unless the Commissioner is of the opinion that it would be unreasonable having regard to a number of factors.

  • – Distributions from a trust, where the SMSF as beneficiary had no fixed entitlement (i.e. discretionary trust distributions)

  • – Any other income of the fund where the parties were not dealing with each other at arm’s length, or the income derived is greater than that which could be expected if the parties had been dealing with each other at arm’s length (i.e. excessive unit trust distributions).

  • Concessional (Taxable) contributions

  • Concessional contributions (or formerly known as Taxable contributions) are those contributions generally made up of Employer contributions, and those personal contributions where the member has claimed a tax deduction. Contrary to popular belief, these contributions actually make up part of the fund’s taxable income.

  • Use of imputation credits

  • Once the 15% tax rate has been applied to the taxable income of the fund, the use of imputation credits may be able to reduce, or even eliminate the actual tax payable.

  • Member goes into the pension phase:

  • Upon retirement (or other condition of release), members of your SMSF will commence a private pension from the fund. From a tax perspective, any income and capital gains generated from what is known as “segregated pension assets” of the fund is subject to zero tax within the fund. That’s right, zero. In this case, any imputation credits received can be used to reduce the tax payable by other members of the fund who are in the accumulation phase. This allows incredible flexibility. If there are no “accumulation” members, then these imputation credits can be received by the SMSF as a refund from the ATO.

    Once a lump sum or pension payment is made to a member, the lump sum or income stream itself is tax free in the hands of the member if they are over the age of 60, however there may be some tax payable if you are less than 60.

Plant and Associates Pty Ltd

Accountants Beenleigh, Accountants Nerang

www.plantandassociates.com.au

1300783394

Posted in Accountant, Asset Protection, Super, Tax