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:

Do you have a SMSF and are thinking of moving overseas? by Bernie O’Sullivan and Julian Smith (Cleardocs)

Fund residency requirements generally

For an SMSF to be a ‘complying fund’ and receive concessional tax treatment, the SMSF must be an Australian resident fund. SMSFs are at risk of losing their complying status, if their members spend time working overseas. This is because the residency rules require trustees and the majority of contributing members to reside in Australia.

For a fund to remain resident, the fund has to satisfy the residency rules throughout an income year — unless an exception applies.

The trustees’ presence rule

Generally speaking, for SMSFs, the individual trustees of the fund must be the same people as the fund’s members. Similarly, if a fund has a corporate trustee, then the directors of the trustee company must be the same people as the fund’s members.

Under the residency rules, central management and control of the SMSF must be in Australia: this implies that the trustee directors or individual trustees must function in Australia. Although these are commonly called residency rules, on closer examination they actually involve a physical presence test, rather than a residency test.

The exception to the trustees’ presence rule

However, there is one exception: a trustee or director may be absent from Australia for a continuous period of up to 2 years and still not jeopardise the fund’s complying status. To start the 2 year period again, the person must return to Australia for a visit of more than 28 days.

The risk to the SMSF by a breach of the trustees’ presence rule

The problem then, is that an overseas assignment of more than 2 years may well pose a residency problem for an SMSF — unless the assignment is broken by a return to Australia for a month or more.

The active members asset rule

Non-resident members must not have more than 50% of the total fund of active members

Member residency requirements revolve around the concept of an “active” member. Generally speaking, an active member is a member who is resident in Australia and currently contributing to the SMSF, or having contributions made by their employer to the SMSF.

Under another rule, the accumulated entitlements of non-resident active members must not exceed 50% of the entitlements of total active members — unless an exception applies.

The exception to the active members asset rule

However, there is also an exception to this rule. The amount of active member entitlements does not include those of a member:

  • who does not contribute to the fund when they are non-resident; and
  • who does not have contributions made by their employer to the fund in respect of periods of non-residency

This exception is available because the member is considered non-active.

Non-active, non-resident members still cause a problem…down the track

Even if that exception applies, a non-active, non-resident member will still present a problem to the SMSF if they are overseas for more than 2 years. This is because the SMSF will not be able to comply with the trustees’ presence rule.

Why is it important for a fund to maintain its residency status?

A fund needs to maintain its residency status. If a fund loses its residency status:

  • it will no longer be “complying”;
  • the tax rate on its income and gains increases from 15% to 45%;
  • a tax of 45% of its assets applies in the year it becomes non-complying;
  • a tax of 45% of the assets applies again if it then becomes complying again;
  • it loses the discount for certain realised capital gains;
  • it loses the exemption for income supporting current pensions;
  • it loses exemption of income flowing from life policy investments and PST unit realisations; and
  • it loses deductions for life and disability insurance premiums.

The ATO’s approach

The ATO has indicated at recent industry forums, that:

  • it has no discretion to ignore a fund’s non-compliance arising from non-resident status; and
  • it will be monitoring the residency status of SMSFs.

Funds can avoid residency problems

Planning an overseas assignment

It is crucial to seek advice on how a SMSF will be managed, before members go overseas. Although a member/trustee may plan to be away for less than 2 years, a change of plan to extend the trip may have disastrous results.

Contributions

If one or more remaining resident members have:

  • more than 50% of the fund’s assets, then this will still satisfy the 50% resident active member requirement , and contributions may continue. However, it will be important to carefully monitor the situation in case those balances change or the intentions of the remaining resident members change; or
  • less than 50% of the fund’s assets, then this will not satisfy the test. However, this problem may be avoided if during a period of non-residency, the contributions of the remaining resident members cease and no employer support is provided that is, the remaining members become non-active. However, the fund will still have to comply with the trustees’ presence rule

Trustees

It is important to seek advice about maintaining central management and control in Australia. It is not enough that the trustees may remain resident for tax purposes.

The legislation requires the trustees to be present in Australia, unless the 2 year concession applies. If a majority of the trustees/members remain in Australia or satisfy the 2 year rule, then it may be possible to put forward a case supporting Australian management and control. However, it is crucial to plan ahead and monitor to ensure that compliance is achieved.

What you should plan for

If there is any doubt about the central management and control of the fund, it would be prudent to plan for:

  • Replacing the trustees:

This could be done by converting the SMSF to a small APRA fund with a professional trustee. This approach would generally enable the fund to continue its existing investments and strategy — as long as the new trustee agrees with the existing investment strategy. However, there are increased costs to engage a professional trustee and increased regulatory fees.

  • Transferring entitlements to another fund:

Another approach is to consider winding up the fund and transferring the entitlements to a larger fund. However, the trustees would lose control over the specific assets: Also larger funds are most unlikely to accept the transfer of the member’s specific assets. This means that the SMSF’s assets may have to be converted to cash first (with duty and CGT consequences). However, one benefit is that administrative burdens and compliance concerns become a thing of the past.

These choices should be carefully considered in the context of members’ long term plans.

Plant and Associates Pty Ltd

www.plantandassociates.com.au

1300783394

admin@plantandassociates.com.au

Posted in Accountant, Asset Protection, Super, Tax

Superannuation Concessional Contributions

For the 2015/2016 financial year and the 2014/2015 financial year the concessional contribution cap is $30,000 (if you are over 49 years of age as at 30/06/2014 then you can contribute up to $35,000 in the 2014/2015 financial year.) (if you are over 49 years of age as at 30/06/2015 then you can contribute up to $35,000 in the 2015/2016 financial year.

If you salary sacrifice then ensure the total you have contributed does not exceed the thresholds.  Remember it is the date your fund receives the funds that determines whether the amount counts towards your cap or not.  As such if your employer is late or early with a contribution then your fund may receive contributions of over the cap.

 

Income year Under 50 50 years to 59 years* 60 years and over*
2014/2015 $30,000 $35,000 $35,000
2013/2014 $25,000 $25,000 $35,000
2012/2013 $25,000 $25,000 $25,000
*Concessional contributions cap for older Australians applies in the following way for different financial years:

  • 2013/2014 year: If you were 59 years of age or older as at 30 June 2013 then you were eligible for the higher concessional cap of $35,000 for the 2013/2014 year. If you were 58 years or younger as at 30 June 2013, then you were eligible for the general concessional cap of $25,000 for the 2013/2014 year.
  • 2014/2015 year: The concessional cap for older Australians was broadened to those in their fifties from 1 July 2014. If you were 49 years of age or older as at 30 June 2014, then your concessional contributions cap for the 2014/2015 year is $35,000.
  • 2015/2016 year: If you were 49 years of age or older as at 30 June 2015, then your concessional contributions cap for the 2015/2016 year is $35,000.
Posted in Super

Minimum annual pension (income stream) payments

How much is the minimum you must withdraw from your super fund as a pension if you are in pension mode?

Remember that if you don’t need the funds, depending on your circumstances, you may be able to re contribute the amount back into super.  If you do this as a non concessional contribution this can make your super account tax free so that in the event of your passing and your adult children receiving your super, they will receive more of the funds and less will go to the tax man.

 

Back to normal Temporary relief
    2015/2016, 2014/2015 and 2013/2014 years 2012/2013 and 2011/2012 years* 2010/2011, 2009/2010 and 2008/2009 years
Age Percentage factors (PF)  No relief 75% of PF 50% of PF
55-64 4% 4% 3% 2%
65-74 5% 5% 3.75% 2.5%
75-79 6% 6% 4.5% 3%
80-84 7% 7% 5.25% 3.5%
85-89 9% 9% 6.75% 4.5%
90-94 11% 11% 8.25% 5.5%
95 or older 14% 14% 10.5% 7%
Posted in Super Tagged with:

Superannuation Guarantee and excess contributions

As an employer, you are required to pay compulsory superannuation to provide for the retirement of your employees and some contractors. The minimum super guarantee payable is currently 9.5% of an employee’s ordinary time earnings (i.e. their ordinary hours of work, including commissions, shift loadings and allowances but not overtime payments).

The super guarantee must be paid at least four times during the year, on the 28th day of the month following the end of each quarter (e.g. super accrued for the July to September 2015 quarter must be paid to the employee’s superannuation fund no later than 28th October 2015).

Failing to pay the superannuation by the due date will result in your business being denied a deduction for that expense. This can significantly increase the tax liability of your business.  Furthermore, failing to pay by the due date requires you to submit documentation by no later than 28 days after the due date for the late paid superannuation with an admin fee and interest on the superannuation components.  If you are severely behind in the superannuation, the ATO can come after you personally for the unpaid superannuation.

There are certain circumstances where you are NOT liable to pay super on an employee’s wages, these being:

  • If the employee earns less that $450 in a calendar month;
  • If an employee is under 18 years old and works less than 30 hours per week;
  • If the employee is a private or domestic work (e.g. a nanny, housekeeper or carer) and works less than 30 hours per week;
  • Non-resident employees you pay for their work outside Australia;
  • Some foreign executives who hold certain visa or entry permits;
  • Employees under the Community Development Employment Program;
  • Members of the army, naval or air force reserve for work carried out in that role;
  • Employees temporarily working in Australia who are covered by a bilateral super agreement.

You have to pay super guarantee for contractors (even those who have quoted an ABN) if:

  • Their contract is wholly or principally (i.e. more than half the dollar value of the contract) is for their labour;
  • For their personal labour and skills, and not to achieve a result. This may include physical labour, mental effort or artistic effort;
  • To perform the contract work personally (i.e. they must not delegate the work to someone else).

Excess Concessional Contributions Assessments

The contributions made into superannuation are subject to certain annual contribution caps. These are dependent on the age of the member and also the type of contributions being made. Exceeding these caps can result in significant tax consequences, as the additional contribution amounts are taxed at the top marginal tax rate, currently 49%.

The most common instance where we see employees incur an Excess Concessional Contributions Assessment is where their employer has failed to make their compulsory superannuation guarantee contributions for several years and then pays the outstanding amounts into an employee’s superannuation fund in one lump sum. This can result in the employee having to pay the excess contributions tax. Where the contributions actually related to a prior year, the employee can apply to the tax office to have these contributions “reallocated” to the year to which they related. Generally, the employee is required to pay the additional tax up front to the tax office and then if their application for reallocation of the contributions is successful, the ATO will refund the tax amounts. This process can take some time and in some instances our clients have waited 6 months for the additional tax amounts to be refunded to them. This can be a significant burden for the taxpayer, given that they have no control over when their employer pays their superannuation or if they pay it on time.

It is therefore important that employers are paying their employee superannuation contributions in a timely manner. Employees should also be checking their superannuation accounts regularly and following up with their employer if contributions have not been made.

Plant and Associates Pty Ltd

07 5596 5758

www.plantandassociates.com.au

Posted in Super, Tax, Tax Minimisation Tagged with: ,

Intellectual Property

Intellectual Property

Intellectual property (IP) refers to creations of the mind such as inventions, literacy and artistic works, designs and symbols, names and images used in work.  It includes all types of identifiable intangibles that are protected by legal rights. Eg Copy rights, Patents and Trade marks.

The economic value of IP is based upon the following concepts:

  • Monopoly rights provided to the owner
  • Provides a discernible economic advantage to the holder
  • Is often not considered to be an asset by financial institutions

It is important to protect your IP by seeing an solicitor who specialises in IP protection.

Posted in Accountant, Asset Protection, Super, Tax, Tax Minimisation Tagged with: ,

Avoid Payroll errors – simplify your payment summary preparation

Another financial year is almost over and it will soon be time to prepare your payment summaries.  Minimise the time spent fixing errors by checking your files now.

Ensure the following details are collected and current:

  • Tax File Number
  • Full Name
  • Employment start and termination date
  • Date of Birth
  • Current Address
  • Pay information: gross salary, allowances, hourly rate, period of employment, salary sacrifice and FBT items

Ensure you report your payroll obligations in a timely manner:

  • PAYG withholding deduction from employee wages is reportable monthly/quarterly on the BAS/IAS
  • Payment summaries must be prepared and given to employees by 14/07/2016 and lodged with the ATO by 14/08/2016
  • Superannuation must be reported and paid by the 28th of the month following the quarter (eg 28/07/2016 for the June QTR).  If you are late you must complete the charge statement for late contributions.

We can prepare your payment summaries for you (Cost is $11 per summary)

We can also attend to the reporting of your superannuation contributions quarterly to a super clearance house at a cost of $132 for 1-9 employees or $187 for 10-19 employees.

If you are late remitting your superannuation we can assist you with the completion of the charge statements at a cost of $132 plus $11 per employee per reporting period.

www.plantandassociates.com.au

admin@plantandassociates.com.au

07 55965758

Posted in Super, Tax Tagged with: , ,