Forming a SMSF Decide on who will be a member and act as the trustee for the fund. Could be...
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Forming a SMSF Decide on who will be a member and act as the trustee for the fund. Could be individual/s or Company Trustee Acquire a trust deed for the
Forming a SMSF Decide on who will be a member and act as the
trustee for the fund. Could be individual/s or Company Trustee
Acquire a trust deed for the SMSF Make the relevant declarations.
Up to 4 members (ATO regulated) over 4 members (APRA regulated)
Devise Investment strategy important it reflects the interests of
the party/parties. Meet with your solicitor, obtain enduring power
of attorney, have signed and witnessed by 2 persons. Trust Deed
must have power to hold life insurance policies.
Slide 2
Trustees Anyone aged 18 years and over can be trustee Except if
a disqualified person i.e. Convicted of an offence, subject to
civil penalty under SIS (Superannuation Industries Supervision
Act), Insolvent or under administration Leaves the country for more
than 2 years Loses mental capacity
Slide 3
Administration Receiving and dealing with paperwork relating to
investments held - Client Correspondence with share registries -
Client Open bank account nominate signatories Client Bank proceeds
and pay expenses - Client Apply for ABN and T/F/N - Accountant
Prepare minutes in regard to events - Accountant Prepare financial
statements and funds tax return annually Accountant
Slide 4
Administration contd If fund is in pension phase obtain
actuarial certificate as to taxable non taxable components Annual
independent audit of the SMSF
Slide 5
Superannuation Industry Demographics
Slide 6
Why should you use a SMSF Control Trustees of SMSFs self
determine what the SMSF invests in. This gives them the discretion
to invest in assets they understand and feel comfortable with and
ensure the type of assets match their tolerance for risk. Typical
Investments in SMSFs include Term Deposits, Australian Shares,
Residential Property, Commercial Property
Slide 7
Why would you use a SMSF
Slide 8
Accessing benefits through a SMSF Pensions Account based
pensions and transition to retirement pensions can be accessed upon
reaching preservation age. i.e. age 60 or meeting a condition of
release Transition to Retirement pension age 55 yrs This does not
cause a change in investment philosophy merely that an income
stream is paid. Importantly the tax status of members account
changes.
Slide 9
Commencing a TRIS Pension Ricky is approaching 55 years Has a
fund balance of $500K from promotions Ricky can commence a
Transitional pension once he turns 55 Known as a TRIS
(Transitional-to-Retirement Income Stream) Ricky may draw up to 10%
of his fund balance annually
Slide 10
Commencing a TRIS (contd) The effect of taking $50K p.a. is the
following: Income earned on the $450K remaining in the fund is not
taxed, nor are any capital gains made in the fund Provided the fund
consists of 100% tax-free component, no tax is paid by Ricky on the
$50K. Otherwise, Rickys drawing is taxed but Ricky receives a 15%
rebate on the taxable portion.
Slide 11
Commencing a TRIS (contd) Punters SMSF 55 10%
Slide 12
Accessing benefits through a SMSF Lump Sums can be paid if the
Trustee of the Fund is a company Lump sums can be accessed assuming
member has met a condition of release Lump sums must be taken in
cash (previously an in-specie payment could be used to satisfy
Slide 13
Strategies you may consider Contribution strategy. Pension
strategy In specie contributions of direct shares or commercial
property. This strategy would reduce personal tax and reduce
capital gains tax on future capital gains Commencement of account
based pension at age 55 years. Reduces tax inside super fund
Transition to retirement/salary sacrifice. Reduce tax (personal and
inside super) Maximise concessional contributions from taxed source
currently $25K and non-concessional (after tax) contributions
$150K. Bring forward non concessional up to $450K (3 years)
Withdrawal and re-contribution strategies minimise hidden death tax
and reduce personal tax by obtaining tax ded.
Slide 14
Business Real Property In-house asset rules usually render an
investment in a related entity as an in-house asset. Exception to
the related party rule is business real property BRP can be
acquired from related parties BRP definition 1. Any freehold or
leasehold interest of the entity in real property 2. Any interest
in Crown Land where the real property is used wholly and
exclusively in one or more businesses (whether carried on by the
entity or not)
Slide 15
Using related entity to acquire Property Usually cheaper option
than limited recourse borrowing arrangement $4k - $15K + SMSF may
not be able to find a lender Usually fund the initial purchase with
a pool of related parties then move the asset holding across to the
SMSF Using related trust allows the SMSF to acquire the units over
time as long as the trust continues to meet requirements under SIS
Regulation 13.22C
Slide 16
Case Studies Aristotle wants to invest in property and wishes
to use his SMSF reserves to acquire. Sets up a Unit Trust issues
units to SMSF Borrows balance of funds from the bank and subscribes
for remaining units in Unit Trust. Benefit 1) Negative geared
interest 2) Lower amount of capital needed to borrow 3) Rent and
capital gains taxed concessionally.
Slide 17
Borrowing to Acquire Property Unit Trust Aristotle SMSF
Aristotle $$ interest rent $ Warbucks Bank
Slide 18
Re-contribution strategy Scenario Juliet is aged 59. Juliets
Superannuation entitlements consist of $200K taxable (employer
contributions) and $100 tax-free personal contributions) Juliet can
instruct her fund to pay a low-rate cap $175K lump sum Thus leaving
$130K in the fund comprising $86,667 taxable and $43,333 tax-free.
Some time later, Juliet commences a pension of $6,000p.a. which is
2/3 taxable. Juliet then re-contributes the $175K as a personal
contribution to refresh and increase her tax-free proportion. Her
fund balance is now $82,667 taxable and $211,333 tax-free.
Government announces 15 May 2013 tax on earnings exceeding $100K
Highly likely taxable component of pensions (presently tax free)
will be taxed to the recipient due to Govt widening its revenue
capture.
ATO comments on Part IVA Media release 2004/58 The tax office
today confirmed that commonly used superannuation strategies will
not attract the anti-avoidance provisions in the tax law. The
strategies and variations we have examined so far are arrangements
to maximise an individuals retirement benefits and are allowable
under law
Slide 21
Pros and Cons of a SMSF Providing assets exceed say $300K M.E.R
costs in corporate sector/retail fund of 1.97% = $5910 plus
management fees. Industry super funds say $300K invested have M.E.R
costs of.68% = $2040 SMSF costs between $1500 - $5000. Fixed Cost
based on time spent Public sector and Industry funds require
conservative asset allocation after commencing a pension.
Essentially a super account closes and a pension account opens.
SMSF not so. SMSF has wider discretion but requires greater
personal involvement and time.