smsf begins
DESCRIPTION
A presentation about Self Managed Super Funds by Hanrick CurranTRANSCRIPT
www.hanrickcurran.com.au
Self Managed Superannuation Funds
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Superannuation - Overview
1. Why save using superannuation?
2. Superannuation funds available in Australia
3. Self Managed Superannuation Funds
Setting up a SMSF Running an SMSF Advantages of SMSFs
4. Making an informed decision on whether or not a SMSF is right for you
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Why save using superannuation?
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A word about saving
Why Save?
To spend on living – home, car, family, lifestyle Retirement – when income from working stops
Who will pay for your retirement?
Government? You?
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Government Policy Government funded basic age pension
– means tested
Encourage private savings & investment
Compulsory employer superannuation support:
The Superannuation Guarantee
Tax concessions:
“Negative gearing” – tax deduction for interest on income earning investments
Dividend imputation – refund of tax paid by listed companies on profits paid as dividends
Superannuation
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Compulsory Superannuation Superannuation Guarantee (SG) – Employer funded retirement
YearSG Rate - % of ordinary time
earnings
2014/2015 9.5%
2015/2016 9.5%
2016/2017 9.5%
2017/2018 9.5%
2018/2019 10.0%
2019/2020 10.5%
2020/2021 11.0%
2021/2022 11.5%
2022/2023 12.0%
SG rate frozen at 9.5%
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Voluntary superannuation saving Government tax concessions to encourage you to contribute
to superannuation:
Tax deductible superannuation contributions:
1. “Salary sacrifice” above the 9.5% compulsory rate2. Self employed - tax deduction against business income
Low rates of tax on earnings by superannuation fund investments while “accumulating” during your working life
Tax free retirement lump sum or pension on retirement after age 60
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Is Superannuation the right tax concession for you?
1. Negative gearing – tax deduction for interest on income earning investments
2. Dividend imputation – refund of tax paid by listed companies on profits paid as dividends
Personal tax rates up to 49%
3. Superannuation – tax deduction for contributions, low tax on investment earnings
Tax on earnings of superannuation investments
• While accumulating – 15%
• When retired & drawing a superannuation pension – tax free
The big “trade off” of with superannuation
? Usually better tax savings Vs Cannot spend savings until retirement
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Superannuation Funds
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Choice of Superannuation Fund
Australia has $1.85 trillion saved in superannuation funds*
* APRA Statistics as at 30 June 2014
SMSFs control almost 1/3rd of Australia’s superannuation wealth
There are currently around 535,000 SMSF’s in Australia
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Choice of Superannuation Fund
* APRA Statistics as at 30 June 2014
3. Self employed:
All complying superannuation funds, including SMSFs
1. Employer “default” superannuation fund:
Must be a “MySuper” approved fund:
Provides minimum life insurance cover; Maximum direct member fees
Includes Industry Funds, Retail & Corporate Funds
2. Your own “Choice of Fund”:
All complying superannuation funds, including SMSFs;
No minimum requirements for insurance cover or fees
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Self Managed Superannuation Funds
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Choice of Superannuation Fund
* APRA Statistics as at 30 June 2014
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Public-Offer Funds Vs SMSFs
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Self Managed Superannuation Funds (SMSFs)
Q: How many members can a SMSF have?
A: Up to 4 members
But typically, 2 members “Mum & Dad” or 1 solo member
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Self Managed Superannuation Funds (SMSFs)
Q: What can a SMSF invest in?
A: Most investments!
Subject to some restrictions like including lending the SMSF’s money to yourself, your relatives or your business.
Real Estate
Typical SMSF investments:
Cash
Fixed interest e.g. bonds term deposits
Listed Shares
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Self Managed Superannuation Funds (SMSFs)
Q: How do you get money into an SMSF?
A: Contributions
1. By your employer – Super Guarantee + salary sacrifice contributions; or
2. Personal contributions (from your private savings)
3. Roll-overs from other superannuation funds
Q: How much can be contributed?
A: Contribution “Caps” apply to each individual
Concessional (tax deductible) contributions; or
Non-Concessional (undeducted) contributions (from your personal savings)
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SMSFs - Establishment
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Self Managed Superannuation Funds (SMSFs)
Q: How do you establish an SMSF?
A: Once you decide you want a SMSF:
1. Lawyers draw up a “trust deed” which becomes the governing rules of the SMSF. The SMSF must have a ”trustee”, either individuals or a company
2. The prospective members & trustee(s) sign the trust deed to create the SMSF.
3. The SMSF is registered with the ATO and receives its own ABN & TFN
4. You open a bank account for the SMSF in its name at a bank of your choice
5. You roll-over benefits from other funds or make contributions into the SMSF bank account
6. You may exercise a “Choice of Fund” to have your employer contribute to your SMSF
7. You formulate an investment strategy & begin investing
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Self Managed Superannuation Funds (SMSFs)
Q: How do you establish an SMSF?
A: …………….
5. You roll-over benefits from other funds or make contributions into the SMSF bank account
6. You may exercise a “Choice of Fund” to have your employer contribute to your SMSF
Caution!
If you roll-over some or all of your superannuation benefits from a large fund, you may lose some or all of your life insurance cover in that fund.
If you reduce or stop employer contributions to a large fund, you may also lose life insurance entitlements in that fund
Life insurance cover in a large fund can often be transferred to your SMSF, without having to go through medical exams.
This is a good starting point in your decision process
You may need a licensed insurance professional to advise & assist you
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SMSFs - Membership
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Self Managed Superannuation Funds (SMSFs)
Q: How many members can a SMSF have?
A: Up to 4 members
Typically, 2 members “Mum & Dad”Q: Who else can be a member?
A: Adult children? Yes, but consider:
superannuation(in any fund) is a marital asset, that can be split on divorce or de-facto separation.
Children cannot “inherit” their parents superannuation. On death of the last surviving member who is not a “tax dependant”, all remaining benefits must be paid out of the fund, typically to their Estate.
Note: “tax dependant” means a spouse, or child under age 18 or any person in an inter-dependency relationship with you .
A: Your business partners?Yes, but consider divorce risk
and business/partnership breakdown
A: Your unrelated employees?
No.
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SMSFs – The Trustee
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Self Managed Superannuation Funds (SMSFs)
An SMSF must have a trustee!
Trustee is responsible for:
Investing on behalf of the members Receiving contributions from members or
their employers Paying benefits to members Paying taxes and expenses of the SMSF Reporting to members & ATO
All within the rules & requirements of:
Superannuation Industry (Supervision) Act & Regulations “SIS” Income Tax Assessment Acts Various other laws e.g. Super Guarantee, State based laws.
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Self Managed Superannuation Funds (SMSFs)
Q: Who can be a trustee?Q: Who must be a trustee?
A: Trustee can be:
At least 2 individuals; or A company
A: All members MUST be:
trustees; or directors of the trustee company
Q: What about a single member?
A: You can:
1. have one other individual trustee who is not required to become a member; or
2. be the sole director of a trustee company
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Self Managed Superannuation Funds (SMSFs)
Q: Should I have individual trustees or a create a company trustee?
A: Having individual trustees is cheaper because a company costs money to buy and maintain
However, a company can be better for a few reasons:
1. Estate planning;
a company continues on seamlessly after death of a member/director, whereas individual trustees need to be replaced.
Ensuring succession to the role of trustee when you die
Administrative ease
2. Limited liability
3. SMSF Borrowing? Banks want a company trustee.
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Self Managed Superannuation Funds (SMSFs)
SMSF Trustee requirements:
You must be 18 years of age or more You cannot be under a legal disability You cannot currently be insolvent
(e.g. bankruptcy) You cannot have prior convictions in respect
of dishonest conduct
Trustee declaration:
You have to make a declaration to the ATO that:
You are eligible to be a SMSF trustee/trustee director; & Accept & understand the responsibilities of being a SMSF
trustee/trustee director
Q: Who regulates SMSFs?A: The Australian Taxation Office (ATO)
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Self Managed Superannuation Funds (SMSFs)
ATO Regulates SMSFs & says:
1. “SMSF Trustee education is very important”
2. “Persons who demonstrate that they are not suitable to be SMSF trustees should be excluded from having their own fund”
SMSF Penalty Regime – From 1 July 2014
If you break the “rules”:
Rectification directions – requiring a SMSF trustees to rectify a breach of the SMSF rules
Education directions – requiring SMSF trustees to undertake an approved SMSF education course.
Administrative penalties - assessing a monetary penalty for certain breaches of the SIS Act & Regulations which govern the operation of SMSFs
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Self Managed Superannuation Funds (SMSFs)
SMSF Penalty Regime – From 1 July 2014
If you break the “rules”:
Administrative penalties - assessing a monetary penalty for certain breaches of the SIS Act & Regulations which govern the operation of SMSFs
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SMSFs – The “Rules”!
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Self Managed Superannuation Funds (SMSFs)Q: So what are the “rules”?
A: SMSFs must comply with “operating standards”:
1. The “sole purpose” of the fund must be to provide retirement benefits
2. Trustees & Members: Max. 4 members, all members are trustees/directors
3. Acceptance of contributions: e.g. members age 65 or over must pass a work-force participation test
before they can contribute in any year.
4. Payment of benefits: Benefits can only be paid to a member on satisfaction of a “condition of
release” e.g. retirement; age 65; permanent disability, terminal illness, death
5. Reporting: Value SMSF assets & prepare Financial Statements each financial year SMSF Annual Return (ATO) includes tax & regulatory information Minutes/resolutions of meetings & decisions
6. Investment: A written investment strategy must be created & regularly maintained
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Self Managed Superannuation Funds (SMSFs)Q: So what are the “rules”?
c) Artwork:
Must be separately insured within 7 days after purchase Cannot be kept at the members home No personal use or enjoyment is permitted
i.e. a pre-retirement “benefit”
A: SMSFs must comply with “operating standards”:
7. Investment restrictions:
a) No financial assistance to SMSF members or relativese.g. no personal loans or other financial assistance
b) Restricted lending to related entities called “in-house assets”
e.g. loans to companies or trusts you “control”: Cannot exceed 5% of the market value of the SMSF assets at any time Must be on arms length terms e.g. loan agreement, interest rate &
repayment terms Cannot be on-lent to members or relatives from a company or trust
(anti-avoidance)
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Self Managed Superannuation Funds (SMSFs)Q: So what are the “rules”?
7. Investment restrictions continued/-
d) A SMSF must not acquire assets from a member or a related party
e.g. a SMSF cannot purchase a residential rental property that you own
e) A SMSF cannot rent a residential property it owns to a member or a relative, not even for holiday letting or if they pay rent.
f) Exceptions:
A SMSF can acquire “business real property” from a member or related party provided:
It is used wholly & exclusively in a business (no residential part);& Is acquired at market value
A SMSF can lease business real property it owns back to a member’s or related party’s business; provided it is rented at arms length rental & terms
An SMSF can buy listed shares from a member or related party at market value.
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SMSFs – Making the most of the tax rules
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While “accumulating” in super:
Investment earnings taxed @ 15%
Capital gains realized are taxed @ 10%
(1/3rd discount ) if held > 12 months
Dividend imputation credits refunded
(30% company tax – 15% super tax = 15% tax refund)
SMSF investment income:
interest
rent
dividends on shares
realized capital gains
Superannuation fund income - Taxation
Contributions:
Personal tax deductible “concessional”
Personal undeducted “non-concessional”
Employer 9.5% & salary sacrifice “concessional”
Concessional contributions taxed at 15%
Non-concessional contributions – tax free
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While in “pension” phase
Investment earnings are tax free
Capital gains realized are tax free
Dividend imputation credits refunded
(30% company tax – nil super earnings tax = 30% tax refund)
SMSF investment income:
interest
rent
dividends on shares
realized capital gains
Retirement
Retire after age 60; or
Simply reach age 65 (even if still working)
Commence a superannuation pension
Pension: Age 60+ tax free
Retirement
Retire after age 60; or
Simply reach age 65 (even if still working)
Superannuation fund income - Taxation
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Contributions: Personal tax deductible
“concessional”
Personal undeducted “non-concessional”
Employer 9.5% & salary sacrifice “concessional”
Deductible contributions & earnings taxed at 15%
Transition to Retirement Income Stream No need to retire, reduce working hours (if
you want to)
Supplement your personal income with a superannuation pension
Pension: Age 60+: Tax free
Age 55 to 59: 15% tax rebate **based on individual circumstances
Tax free earnings & capital gains
Superannuation fund income - Taxation
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SMSFs – Making the most of the investment rules
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Self Managed Superannuation Funds (SMSFs)
Q: Can I buy or contribute my business premises to my SMSF; & Can I lease it back to my business?
One of the unique features of an SMSF
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Self Managed Superannuation Funds (SMSFs)Q: So what are the “rules”?
6. Investment restrictions continued/-
d) A SMSF must not acquire assets from a member or a related party
e.g. a SMSF cannot purchase a residential rental property that you own
e) A SMSF cannot rent a residential property it owns to a member or a relative, not even for holiday letting or if they pay rent.
f) Exceptions:
A SMSF can acquire “business real property” from a member or related party provided:
It is used wholly & exclusively in a business (no residential part);& Is acquired at market value
A SMSF can lease business real property it owns back to a member’s or related party’s business; provided it is rented at arms length rental & terms
An SMSF can buy listed shares from a member or related party at market value.
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A: Yes; provided:
The property (land & buildings) are wholly being used in a business, The property has no debt or mortgage on it, The SMSF acquires is based on a written valuation, If the SMSF is purchasing it from you, it has the cash to do so.
(Alternatively, you may be able to “contribute” the property to the SMSF, within your contribution caps?)
Self Managed Superannuation Funds (SMSFs)
Q: Can I buy or contribute my business premises to my SMSF; & Can I lease it back to my business?
Important!: Capital gain on sale? Stamp duty Land tax Can’t use that property for
business finance/borrowing
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A: Yes; provided:
The property is leased at market value to your business
Self Managed Superannuation Funds (SMSFs)
Q: Can I buy or contribute my business premises to my SMSF; & Can I lease it back to my business?
Rent
Rent taxed at 15% - accumulation fund
No tax if a pension fund
Rent is tax deductible to your business
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SMSFs – Borrowing
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Superannuation:
Borrowing Update
Holding trust holds title to asset until loan is repaid
Super Fund receives rent, claims interest tax deduction, repays borrowing
Title passes to superannuation fund on completion
Self Managed Superannuation Funds (SMSFs)
Important! SMSF can only repair the property, can’t improve it (to keep out property developers)
SMSF can only borrow once on this property. Cannot use it to borrow to buy other properties
Interest deduction at 15% or nil (pension fund).
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SMSFs – Contribution Caps
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Financial Year Age 50 & Over Under age 502014/2015 $35,000 $30,000
2014/2015If you were at least age 49 on 30 June 2014, your concessional cap is be $35,000 for the year ending 30 June 2015.
For all others the concessional cap is $30,000 for 2014/2015.
Superannuation Contributions
Concessional Contributions
Capped at $180,000 per person p.a.
Can be accelerated for those under age 65 using a “bring forward” rule
e.g. contribute up to $540,000 in any 3 financial year period.
Non-concessional “undeducted” contributions
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SMSFs – The Decision?
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Self Managed Superannuation Funds
SMSFs
You are the trustees & the members
Choose your own investments: Cash, fixed interest, bonds Shares in listed companies Managed funds & property trusts Residential or commercial property
Flexibility in implementing your financial strategies
Surety in Estate planning
Being in control
Self Managed Superannuation Funds (SMSFs)
Q: Why do people establish their own SMSF?
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Some important questions:
Self Managed Superannuation Fund
Q: You have to want to take control of your superannuation & investments
Q: Do you have the time?
Make an informed decision
Q: Do you need to see a financial adviser first?
Q: What are the costs involved for an SMSF?
Estate planning:
Q: Who will receive my superannuation on my death?
A: Your Will does not necessarily control to whom your super will be paid (in any fund)
Q: If you have a SMSF, who will be the trustee when on your death?
A: Succession to the role of trustee of the SMSF is vitally important if you are not intending on leaving your superannuation to your current spouse!
Self Managed Superannuation Funds (SMSFs)
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Hanrick Curran Superannuation
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Self Managed Superannuation Funds (SMSFs)
We are Accountants who are Superannuation Specialist Practitioners
Our Services:
Arrange for establishment of SMSFs
SMSF annual administration SMSF annual audit
SMSF compliance & taxation advice
SMSF Trustee “mentor/coach’
Chris Campbell – Partner
Clive Todd – Director
Frances Hill - Manager
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Self Managed Superannuation Funds (SMSFs)
Chris Campbell – Partner
Clive Todd – Director
Frances Hill - Manager
We are Accountants who are Superannuation Specialist Practitioners
We are not financial planners, we are not licensed to give financial advice. We don’t advise on investments
We give you the facts about superannuation, you make your own decisions
Ongoing role of SMSF Trustee “mentor/coach’
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Q: Where do I start?
Q: Which way do I go?
Q: How do I…?
Q: Can I…..?
Self Managed Superannuation Funds (SMSFs)
A: Working together with you & other professionals
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Self Managed Superannuation Funds (SMSFs)
More information on SMSFs?
https://www.ato.gov.au/super/self-managed-super-funds/
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ATO videos:
What’s involved with an SMSF
SMSF – You can’t do it all yourself
SMSF annual obligations
SMSF sole purpose test
SMSF loans and early access
SMSF investment strategy
SMSF paying an income stream
SMSF planning for the unexpected
SMSF trustees – individual or corporate
SMSF – trustee declaration
Self Managed Superannuation Funds (SMSFs)
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DisclaimerThis document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.
We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication.
These notes specifically contain factual information concerning the taxation and compliance implications of certain superannuation matters. The notes are intended as a guide only and may not apply to circumstances of particular individuals. Do not act on the contents of these notes without first obtaining specific advice from a qualified tax or legal professional about your particular circumstances.
Hanrick Curran Group, its associates and the presenter hereby disclaim any responsibility for persons relying in whole or in part on these notes or the information presented at this seminar.
The Corporations Act 2001 deems superannuation funds, self managed superannuation funds (SMSFs) and pensions to be “financial products” and may consider a recommendation to contribute to a fund, increase or decrease contributions, establish or join a SMSF, or to commence a superannuation pension to be financial product advice as defined by that Act. We are not licensed to give such advice. You should consider taking advice from an AFS License holder before making a decision on any financial product.
© Hanrick Curran, June 2014All rights reserved
Thank you
www.hanrickcurran.com.au