Advantages of electronic record keeping over manual – by Skye Lee

While some business owners prefer manual record keeping systems, most businesses use an electronic record keeping system – making it easier to capture information, generate reports and meet tax and legal reporting requirements.

Electronic record keeping

Most businesses use accounting software programs to simplify electronic record keeping, and produce meaningful reports. There are many other advantages to using electronic record keeping, as listed below.

Advantages

  • Helps you record your business transactions, including income and expenses, payments to workers, and stock and asset details.
  • Efficient way to keep financial records and requires less storage space.
  • Provides the option of recording a sale when you raise an invoice, not when you receive a cash payment from a client.
  • Easy to generate orders, invoices, debtor reports, financial statements, employee pay records, inventory reports.
  • Automatically tallies amounts and provides reporting functions.
  • Keeps up with the latest tax rates, tax laws and rulings.
  • Many accounting programs have facilities to email invoices to clients, orders to suppliers, or BAS returns to the Australian Taxation Office.
  • Allows you to back up records and keep them in a safe place in case of fire or theft.

Choosing accounting software

Your business may require more than one software program to meet all of your tax and legal needs, so it’s important to:

  • Seek advice from your accountant or financial adviser before purchasing software for record keeping
  • Check which accounting software is tax compliant on the Australian Taxation Office website.
  • Accountants and bookkeepers give varying levels of thought to this. Some are very good, considerate, and even go through a research phase before recommending any system to a client. They are quite agnostic on software vendors. They ask the right questions of the business owner and also the candidate software vendors to fill knowledge gaps. The decision is an authentic one that supports the business owners business workflow needs which may amount to hundreds or thousands of workflow hours.
  • Business accounting systems perform other tasks beyond compliance such as customer management, scheduling, time capture, inventory management, channel management (such as retail, partner and e-tail sales channels). It is also the system acting as a contact list for marketing purposes in many cases. Most importantly in the era of straight through processing from e-commerce or POS into accounting software it facilitates payment tracking in real time.

Electronic backup

Set up a secure electronic backup system to ensure records are safely stored and regularly backed up. Daily backups are recommended, particularly for important records. Make sure the backup copies are stored in a separate location to your business in case of fire, theft or a natural disaster.

For small businesses, the cheapest backup options are CDs and memory sticks. If your business has large amounts of data, external hard drives are a popular backup option.

Cloud backup

Cloud computing provides a way for your business to manage your computing resources and records online. The term has evolved over recent years, and can be used to describe the use of a third party for your storage and computing needs.

Cloud backup services are becoming more popular and can be automated for your convenience, but you should make sure the method you choose protects the privacy and security of your business and customers.

Posted in Bookkeeping

What are the main advantages and disadvantages of using a partnership of discretionary trusts for a professional practice?

I’ll start with the advantages and there are many.  Probably the biggest one is the access to thesmall business concessions moving forward.  Again as we’ve touched on in other parts of today’s program, the ability for a partnership of trusts for each individual partner to gain access to the small business concessions is one that just simply cannot be ignored.

Obviously, discretionary trusts are the vehicle of choice by and large for most small to medium sized businesses these days.  So the ability to combine both the small business concession access with individual autonomy and flexibility on income tax planning is very attractive.
The other issue I guess with a partnership of discretionary trusts is that it’s relatively simple to explain and understand.  This point is often in the eye of the beholder and we’ll talk in a moment about some of the disadvantages and how this same advantage can in fact be a disadvantage, particularly in larger practices.  This issue can often be managed by making sure that the one company is trustee for all trusts in the group, and also perhaps acting as a nominee to the outside world, so that as far as clients are concerned, they are in fact only dealing with one entity, being the corporate trustee of a number of different trusts.
I guess the final point to make however in relation to the advantages is that the ability to limit liability to the actual interest in the practice is solely dependent on the actual trust making sure that it only owns one asset, being it’s interest in the partnership.  So in other words, the attraction of perhaps having different assets inside that one structure very much diminishes the ability to limit liability in relation to issues that might arise.
The disadvantages are probably not dissimilar to the advantages, just looking at things from the other side of the fence obviously.  I touched on in the advantages that the ability to have a number of partners in partnership via the trust structure can be an advantage.  Obviously, it can be a disadvantage as well, and particularly as partnerships get bigger, the concept of having countless discretionary trusts involved can administratively be quite prohibitive.  Now   argument would be that as long as you have the same corporate trustee across the group, that can be attractive.
This of itself creates further issues, particularly from a control perspective, because you then need to have the individual trusts looking very carefully at issues such as the appointorship, to make sure that if there is disharmony within the partnership that there’s an exit mechanism, via the trusts, for each of the individual partners.
Conceptually also, while the attraction of the small business concessions is very strong, you are not getting away from the stamp duty costs.  So in other words, if an individual trust decides to dispose of its partnership interest, it will still very much be exposed to all of the normal stamp duty costs at an ad valorem rate, on the full unencumbered value of interest in the partnership.

The last point, and this is in direct contrast to what the situation is for companies, is that you do not really have a corporate model.  So all of the normal advantages that you associate with incorporation, such as employee share arrangements, become very difficult indeed to achieve, because you’ve got this disparate structure of a number of different trusts involved in relation to the partnership.

Posted in Business, Trust

30 Tax planning strategies

DEFERRING INCOME

  1. Cash or Accruals – Determine whether you should use “Cash” or “Accruals” tax accounting.  On the cash basis, taxable income is the net of amounts that are actually received less amounts actually paid at year end.  The proceeds of pre – 30 June sales which have not yet been received, are excluded from income for the current year.
  2. Unearned income – Make sure that you exclude any income that you may have received but not yet earned. Defer the income until the next year.
  3. Defer Billing – If your cashflow can stand it, think about deferring your invoicing until after 30 June.  A one month delay in billing will mean you pay tax on the income a whole year later.  Mind you, your customers might want you to bill pre-June so that they can claim the deduction.  And a few days delay in billing will usually mean that you get paid a whole month later.
  4. Interest – For most taxpayers interest is only assessable when actually received.  If you are lucky enough to have a few term deposits, arrange to have them mature after 30 June rather than just before.

BUSINESSES DEDUCTIONS

  1. Bad debts – Trade Debtors should be reviewed prior to 30 June to identify and write off any bad ones.
  2. Scrap assets – Review your asset ledger and write off all assets that have been scrapped or which have outlived their useful economic lives.
  3. Low Value Pool – Assets which have been written down to where their value is quite low can be pooled together and depreciated at a higher rate.
  4. Low value assets – Assets costing $300 or less can be written off immediately under certain conditions.
  5. Obsolete Stock – Obsolete trading stock with no value can be written off and a tax deduction claimed this year.
  6. Slow moving Stock – Slow moving stock can be written down to net realisable value.
  7. Stock Valuation – Stock can be written down from cost to a lower replacement value; not a common adjustment but one that is more relevant these days with the stronger Australian dollar making imports cheaper.
  8. Maintenance – The work car is due for a service or some new tyres, why not get it done pre-June rather than just after?  For the sake of paying a few days earlier you accelerate the effect of the tax deduction by a whole year earlier.
  9. Superannuation – Employees’ superannuation contributions should be actually paid before 30 June to obtain a deduction, and to avoid the Superannuation Guarantee Charge.
  10. Personal Superannuation – You can claim a deduction for personal superannuation contributions if your salaries and wages income is less that 10% of your total income.
  11. Self Education deductions – If you receive a Youth Allowance, you are allowed a deduction for certain self-education expenses.

CAPITAL GAINS TAX

  1. Small Business Concessions – You should consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.
  2. CGT Discount – The CGT discount is not available when you sell an asset that you have held for less than 12 months. Consider deferring the disposal of these assets until the 12 months threshold has past.
  3. Roll gain into Superannuation – In some circumstances you can avoid paying tax on capital gains if you use some or all of the funds to make a personal superannuation contribution.
  4. Roll gain into another asset – CGT law allows you to roll over a capital gain into a replacement asset, effectively deferring the tax on the gain.

COMPANIES

  1. Tax Losses – Check to see if your company has any tax losses carry forward from prior years.  These will be able to be offset against this year’s income.  You’ll need to make sure that the company passes either the Continuity of Ownership or the Same Business tests.
  2. Loans treated as dividends – Companies are allowed to make loans or payments to their shareholders or associates (or even forgive debts).  There are onerous tax consequences however unless the loans are put on a legitimate footing with proper loan agreements with interest being charged, principal repayments made and, in some case, genuine security taken.  Alternatively, the loan can be repaid by the earlier of the due date for lodgement of the company’s return for the year or the actual lodgement date.  It’s important to get some good tax advice or suffer the tax consequences.
  3. Tax Consolidation – If you’ve got a few companies that make up your group, you may want to consider consolidating them for tax purposes before the end of the year.  The resultant single tax entity allows you to offset profits and losses from the different entities.
  4. Personal Services – The company tax rate on income is currently 30%.  Individual tax rates can be much higher.  If you provide services through a company where those services are virtually all from your personal exertion, you could well l find that the income will be considered to be all yours and not the company’s.  There are a couple of hoops to jump through to make sure that the income is treated as income of the company.  You need to look at these well before the end of the tax year to give you time to comply.

TRUSTS

  1. Distribute all income – You need to make sure that you effectively distribute all income each year otherwise undistributed income may be taxed at 46.5%.
  2. What constitutes trust income – A recent High Court case has challenged the historic advantages of using a trust to reduce the rate of tax that you pay.  Nothing has been outlawed; the rules for some have just changed a little.  It all swings on the wording of your trust deed as the deed dictates how trust income is defined and whether capital gains are treated as normal income or not.
  3. How income is assessed – When some accounting expenses are not tax deductible, the net income of the trust for tax purposes exceeds its accounting income. Recent tax law resolved that the distribution of the taxable income must align proportionately with the distributions made for the accounting income.  This can create a problem if you want to limit the income of some beneficiaries to a set dollar amount eg: children under 18.  It pays to leave a little leeway in your accounting distributions to allow for potential rejection of some tax claims.
  4. Unpaid present entitlements – If a trust has an unpaid present entitlement to a corporate beneficiary, complex tax issues arise.  If you can, you should pay the entitlements back before you lodge the trust’s income tax return.

SUPERANNUATION

  1. Co-Contribution – Let’s start with the easy money.  Low-income earners should think about making a personal superannuation contribution so that they qualify for the government’s superannuation co-contribution payment.
  2. Re-contributions – Currently, strategies exist that allow you to draw a pension from your fund and re-contribute amounts to the funds, reducing tax significantly, while maintaining your same net cash.  Don’t leave it to the last minute to set this up though.
  3. Contribution caps – Make sure that you don’t contribute more than the annual concessional contribution cap or risk being subject to an excess contributions tax of 46.5%. Taxpayers are often brought undone by forgetting salary sacrificed superannuation while also contributing to an industry fund.
Posted in Tax Minimisation

Social Security – Centrelink

Income for the retired

  • Retirement benefits include the age pension and the wife pension.
  • The partner of a pensioner who does not qualify for an age pension can apply for NewStart allowance, a carer payment or disability support pension, depending on his or her personal circumstances.
  • The age pension is available once you are over 65.
  • Generally you must have lived in Australia continuously for 10 years, at least five of these years in one period. Social security agreements with some countries may mean that residency of another country may count in this test.
  • The age pension is subject to both income and assets tests, unless the applicant is permanently blind.

 

Income support for the disabled and sick

  • Income support payments administered under this program include:

o   Disability support pension

  • People who cannot work due to illness or injury before they reach age pension age may qualify for this pension to bridge the gap to age pension age. In broad terms, if you are unable to work more than 15 hours a week in the next two years you will qualify for disability support pension. If you can work more than 15 hours a week you will qualify for NewStart allowance.
  • Applicants of this pension must be aged 16 or over and less than age pension age.
  • The applicant must have a physical, intellectual or psychiatric condition preventing them from working more than 15 hours a week.
  • The person must be unable to undertake education, vocational or on the job training likely to reskill them.
  • The person is required to undergo regular medical examinations.

o   Carer payment

o   Carer allowance

o   Sickness allowance

o   Mobility allowance

  • Income for the unemployed and students

o   Newstart Allowance

  • Payable to people who are temporarily unemployed and still of working age. People who retire before age pension age or who are retrenched may find this allowance useful.
  • Applicants must be prepared to enter into a preparing for work agreement and satisfy activity tests (attending interviews, training or community work of at least 20 hours a week)
  • This is subject to income and assets test

o   Austudy payment

  • Provides mature age students with income support while they study. Some retirees or pre retirees may wish to return to study to enhance their job prospects or for personal satisfaction.
  • Must be full time student aged 25 years or over and an Australian resident
  • Assets test applies

o   Widow Allowance

  • Provides a non activity tested income to a woman who was a member of a couple but has been widowed, divorced or separated.
  • Must be over age 50 and under age pension age, and have no recent workforce experience.
  • Income and assets tests apply.
  • Other benefits

o   Rental Assistance

  • Individuals who pay rent to a private body or landlord may be entitled to rent assistance.
  • This is non taxable and not counted as income for pension purposes

o   Concession cards

  • Pensioner concession card
    • This is issued annually to pensioners as well as to people over 60 who are receiving some other Centrelink allowances or benefits.
  • Commonwealth Seniors Health card
    • This card is available to people of age pension age who do not receive a pension
  • Health care card
    • This card is issued to people receiving NewStart Allowance and most other Centrelink payments where the cardholder is not eligible for the pensioner concession card.

You should seek financial advice from a financial advisor or speak to Centrelink direct regarding your personal circumstances

Plant and associates Pty Ltd

Suite 5, 39-41 Nerang St Nerang QLD 4211

Suite 4, 13 Cameron St Beenleigh QLD 4207

www.plantandassociates.com.au

Posted in Centrelink

Department of Veterans Affairs

The Department of Veterans’ Affairs (DVA) administers a number of benefits, including pensions and allowances, to veterans and their dependents under the Veterans Entitlements Act 1986.

DVA Benefits

  1. Service Pensions
    1. There are three types of services pensions payable to veterans:

i.      Age

ii.      Invalidity

iii.      To a veterans partner

  1. The pension is means tested and taxable (except for invalidity pensions under age pension age)
  2. Veterans qualify for the age service pension earlier than the Centrelink age pension.
  3. The invalidity pension is payable before age 60 where the veteran is blind or unable to work.
  4. Generally a veterans partner would not qualify until normal age pension age unless a veteran was receiving the TPI pension.(totally and permanently incapacitated.
  1. Disability pensions
    1. This pension is paid as compensation for an injury or disease that was caused by war or in the individual’s role in the defence forces.  It is not means tested or taxed.
  2. Other benefits
    1. DVA pensioners are entitled to receive the pensioner concession card, Commonwealth Seniors Health Card and Seniors Card in the normal way.  These provide various concessions, including pharmaceutical benefits.  In addition, DVA also provide three repatriation health cards – the gold, white and orange cards.  These provide further benefits.
    2. The gold card is issued to certain disabled veterans, service pensioners over age 70 and service pensioners subject to means testing.  It provides free medical treatment for all conditions and increased pharmaceutical benefits.
    3. The white card provides subsidised medical benefits for specific conditions.  It is issued to veterans with war related disability or who have cancer, tuberculosis or post traumatic stress disorder.
    4. The orange card provides increased pharmaceutical benefits to a much wider range of veterans.

It is recommended you seek advice from a financial advisor or you contact DVA for information relating to your personal circumstances.

Plant & Associates Pty Ltd

Suite 5, 39 – 41 Nerang St Nerang QLD 4211

Suite 4, 13 Cameron St Beenleigh QLD 4207

1300783394

www.plantandassociates.com.au

 

Posted in Retirement

Private Company Loans – (Loans to shareholders – Division 7A) by Claire Chapman

Loans to shareholders (paid outside ordinary wages and dividends eg ‘drawings’) made by private companies can be deemed to be dividends unless they meet strict requirements.  The ATO is focusing risk review and audit activity on loans to shareholders.

The documentation and repayment requirements are very strict.  Tax planning provides an opportunity to review these issues prior to year end and also plan for dividends that you may need to declare personally to meet the minimum repayments.

We are seeing an alarming increase in the number of clients taking large drawings from their companies with no tax planning to deal with it.  When they bring their historical information in to us to prepare the tax returns, it is too late to do anything about it and as a result they are left with very large tax bills.

DIRECTORS’ LOAN ISSUES

There are strict laws and regulations in place to prevent directors, shareholders and their associates of private companies withdrawing amounts from those companies for private purposes.

The only means by which a company can pay amounts to directors, shareholders or associates are as follows:

  • Wages (if the person is an employee of the business)
  • Directors fees
  • Dividends (either franked or unfranked)

Wages and Directors’ Fees
The company may be able to pay amounts out as wages or directors fees where the person is employed in the business. It is important to note that if they are classified as employees, all entitlements relevant to other employees will also apply. E.g. Compulsory superannuation contributions will be required to be paid and the company will be required to withhold tax on the payments and declare this to the tax office. They will also need to include these amounts in their calculations for workers’ compensation insurance premiums.

Dividends
For shareholders, the company can declare and pay dividends to distribute the profits. Preferably these would be franked dividends, however this will be dependent on the amount of tax credits available in the company.

Wages, directors’ fees and dividends will need to be declared as income in the personal income tax return of the director or shareholder.

Under limited circumstances, the company may enter into a loan agreement with the director or shareholder for the amount to be repaid. Under these circumstances, the parties must have a written loan agreement (prepared by a solicitor) and the loan must be repaid within 7 years from the date that it commenced. In addition, the company is required to charge interest on the loan and there will be tax payable on this interest. Also the director or shareholder is required to make a minimum repayment each year as calculated by the tax office.

Failure to comply with these regulations can result in severe penalties being imposed on the company, directors, shareholders or associates. This may result in them being liable to pay significantly higher amounts of tax than they would otherwise be liable for..

It is important that clients contact us to discuss their circumstances prior to withdrawing any amounts from their company for personal purposes.

Posted in Tax

Residency vs Non Residency by Claire Chapman

RESIDENCY VS NON-RESIDENCY FOR TAX PURPOSES

There is a common misunderstanding that residency for tax purposes is the same as residency for immigration purposes. It is possible for a person to be an Australian resident for tax purposes whilst being a non-resident for immigration purposes.

Generally, if you reside in Australia, you will be considered an Australia resident for tax purposes. As there is no definition of the word ‘reside’ in the tax legislation, the tax office relies on the ordinary definition of the term ‘reside’. The Shorter Oxford Dictionary defines ‘reside’ as:

“…to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place…’[1]

Some of the matters that the tax office will take into account when determining if a person is a resident for tax purposes or not are as follows:

Individuals Coming to Australia

  • Intention or purpose of presence
  • Family and business/employment ties
  • Maintenance and location of assets
  • Social and living arrangements

In particular, if an inbound individual has been in Australia for more than half the tax year (183 days), they will generally be declared as an Australian resident.

Individuals Leaving Australia

  • Intended and actual length of stay overseas
  • Any intention either to return to Australia at some definite point in time or to travel to another country
  • Existence of an established home overseas
  • Abandonment of any residence or place of abode in Australia (while overseas)
  • Duration and continuity of the individual’s presence in the overseas country
  • Family and financial ties with Australia.

The weight to be given to each factor will vary with the individual circumstances of each case and no single factor is conclusive.

The intention of a particular individual to either become or cease to be an Australian resident is particularly important. As a result, the tax office is now placing more emphasis on this intention as indicated on the person’s Australian immigration incoming or outgoing passenger cards.

It is important to determine the correct residency status as Australian residents are taxed in Australia on their world-wide income, whereas non-residents are only taxed on their Australian-sourced income. Non-residents are also taxed at higher rates than residents. Residency status must be determined each year.

[1] TR 98/17, para. 13
Posted in Accountant, Foreign asset, Income, Property, Tax

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

SMSF – Self Managed Super Funds – by Sharon Plant

Structuring your fund

For your fund to be an SMSF it must meet several requirements under the super laws.

The requirements can vary depending on whether your fund has individual trustees or a corporate trustee. Some additional rules apply to funds with only one member (see below).

  • If your fund has individual trustees, it is an SMSF if all of the following apply:
    • it has four or fewer members
    • each member is a trustee
    • each trustee is a member
    • no member is an employee of another member, unless the members are related
    • no trustee is paid for their duties or services as a trustee.
  • If your fund has a corporate trustee, it is an SMSF if all of the following apply:
    • it has four or fewer members
    • each member of the fund is a director of the trustee company
    • each director of the corporate trustee is a member of the fund
    • no member is an employee of another member, unless the members are related
    • the corporate trustee is not paid for its services as the trustee
    • no director of the corporate trustee is paid for their duties or services as director of the corporate trustee.
  • Single member funds It is possible to set up your super fund with only one member. If your single member fund has a corporate trustee, the member must be one of the following:
    • the sole director of the corporate trustee
    • one of only two directors, that is either
      • related to the other director
      • any other person but not an employer of the member.

If you choose not to have a corporate trustee, you must have two individual trustees. One trustee must be the member and the other must be a trustee that is either:

  • a person related to the member
  • any other person but not an employer of the member.

A corporate trustee is a company incorporated under the law that acts as a trustee for the fund. If you already have a company, you may choose to use it as trustee, as long as it meets the same requirements for members and trustees.

Your choice of trustee will make a difference to the way you administer your fund and the types of benefits it can pay, so make sure it suits your circumstances.

Trustee eligibility

In most cases, all members of the fund must be trustees, so it is important to make sure all members are eligible to be a trustee.

Generally, anyone 18 years old or over and not under a legal disability (such as bankruptcy or mental incapacity) can be a trustee of an SMSF unless they are a disqualified person.

A person is disqualified if any of the following apply. They:

  • have been convicted of an offence involving dishonesty
  • have been subject to a civil penalty order under the super laws
  • are considered insolvent under administration
  • are an undischarged bankrupt
  • have been disqualified by a regulator – for example, by us or APRA.
  • A company cannot be a corporate trustee if any of the following apply:
    • the responsible officer of the company (such as a director, secretary or executive officer) is a disqualified person
    • a receiver, official manager or provisional liquidator has been appointed to the company
    • action has started to wind up the company.

You must declare that you and the other trustees or directors of the corporate trustee, are not disqualified when you register your fund with us. In certain circumstances (such as minor dishonesty offences) a disqualified person can apply to us in writing for a waiver of their disqualification status.

Minors

Members under 18 years old are under a legal disability and cannot be trustees of an SMSF. A parent or guardian of a minor who does not have a legal personal representative can act as a trustee on the minor’s behalf.

Legal personal representatives

A legal representative can be:

  • the executor of the will or the administrator of the estate of a deceased person
  • the trustee of the estate of a person under a legal disability
  • a person who holds enduring power of attorney to act on behalf of another person.

A legal personal representative can act as a trustee or director of a corporate trustee, on behalf of:

  • a deceased member, until the death benefit becomes payable
  • a member under a legal disability (mental incapacity)
  • a minor – a parent or guardian can also act as a trustee on behalf of a minor.

A legal personal representative cannot act as trustee on behalf of a disqualified person, such as an undischarged bankrupt. A legal personal representative who holds an enduring power of attorney granted by a member may be a trustee of the SMSF or a director of a corporate trustee in place of the member.

Having a resident fund

To be a complying super fund and receive tax concessions, your fund must be a resident-regulated super fund at all times during the income year. This means your fund must meet the definition of an ‘Australian superannuation fund’ for tax purposes.

If your fund is a non-complying fund, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate.

Preparing an investment strategy

Before you start making investments, you must prepare an investment strategy. An investment strategy sets out how you plan to achieve the fund’s investment objectives. It provides you and the other trustees with a framework for making investment decisions to increase member benefits for their retirement.

 

A licensed financial adviser can help you prepare an investment strategy, but you and the other trustees are responsible for managing the fund’s investments.

There is no prescribed format for the investment strategy, but it must reflect the purpose and circumstances of the fund and its members and must be reviewed regularly to make sure it is still appropriate.

When preparing your investment strategy, consider the following:

  • diversification (investing in a range of assets and asset classes)
  • the risk and likely return from investments to maximise member returns, including insurance requirements
  • the liquidity of fund’s assets (how easily they can be converted to cash to meet fund expenses)
  • the fund’s ability to pay benefits when members retire and other costs the fund incurs
  • whether the fund should hold insurance cover for members
  • your members’ needs and circumstances.

Your investment strategy should be in writing so you can show your investment decisions comply with the strategy and the super laws.

  • Being a trustee of an SMSF gives you more ?exibility in investing your fund’s money. Unlike some other super funds, you can choose the investments for your fund, but you must invest according to the:
    • fund’s trust deed
    • investment strategy
    • super laws.

While the super laws do not tell you what you can and cannot invest in, they do set out certain investment restrictions you must comply with.

For example, in most cases, trustees cannot:

  • use the fund’s money to provide financial assistance to members or member’s relatives
  • acquire assets (with limited exceptions) from related parties of the fund, including
    • fund members and their associates
    • all the fund’s standard employer-sponsors and their associates
  • borrow money on the fund’s behalf (certain limited recourse borrowing arrangements are allowed)
  • lend to, invest in or lease to a related party of the fund (including related trusts) more than 5% of the fund’s total assets
  • enter into investments on the fund’s behalf that are not made or maintained on an arm’s length (commercial) basis.
Posted in Asset Protection, Property, Super

Winding up a SMSF

To wind up a SMSF you need to:

  • Refer to your SMSF Trust deed as it may contain vital information about winding up your fund.
  • Notify the ATO within 28 days
  • Deal with all the assets of the fund
  • Arrange a final audit
  • Complete your reporting responsibilities including lodging your SMSF annual return and finalising any outstanding tax liabilities.

Why would you need to wind up a SMSF

There are a number of reasons why you might need to wind up your SMSF:

  • All the members and trustees may have left the SMSF
  • All the benefits may have been paid out of the fund
  • Relationship breakdown
  • The fund may no longer meet the definition of an Australian Superannuation fund because the trustees have moved overseas permanently
  • You may have found that running an SMSF is not in your best interests
  • The trustees’ circumstances may have changed in a way that affects their capacity to effectively manage their fund.
  • There may be insufficient balance of funds in the SMSF to meet the ongoing costs of operating the SMSF.

Options available to pay out the benefits

To pay benefits to a member when you wind up your SMSF, a condition of release must be met to allow them access to their benefits. If the member does not meet a condition of release or does not want to access their benefits at the time the funds winds up, the benefits must be rolled over to another complying super fund.

Assuming a condition of release has been met, there is the option of an in specie transfer of assets to the member. This is particularly useful if the timing is not right to sell the assets in the SMSF. (This includes when a managed fund puts a stop on trading due to a financial crisis). There are various tax consequences of paying out benefits both as cash and in specie so you should always seek advice before proceeding.

Plant and Associates Pty Ltd

Accountants Beenleigh, Accountants Nerang

www.plantandassociates.com.au

1300783394

Posted in Accountant, Asset Protection, Capital Gains Tax, Deceased Estate, Property, Super Tagged with: