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  • >59 30 jun Over time advantage will disappear through indexatino (if the cap ever gets indexed.) 1 july 2018
  • Consider timing of the contributions – if an employer makes contributions late or pays too many in one period ….
  • Question to bankers: why do you think this type of contribution is important Who can take advantage of this contribution What happens if you exceed the cap for this contribution Example on whyte board of large tax liability recently experienced by a customer: 2008/09 $50,000 concessional + $150,000 non-concessional 2009/10 $50,000 concessional + $450,000 non-concessional Customer had done some contract work during 2008/09 and not aware contractor had paid $1,000 SG contribution to an industry fund This $1,000 has exceeded the concessional cap and will be taxed at 46.5% but this $1,000 is now treated as a non-concessional contribution by ATO so in 2008/09 customers non-concessional contribution is $151,000 which has now triggered the 3 year rule so we have now exceeded the non concessional cap by $151,000 and this is taxed at 46.5% thus a tax bill of $70,215.
  • Explain tax efficiencies of allocated pensions.
  • Lets have a look at a case study taking advantage of TTR. Speaker to go through current position /self-explanatory Anna is a 55 year old full-time worker with a salary of $76,000 per annum. She currently has $350,000 in super ($100,000 of which is undeducted).
  • Potential strategy Transfer current super to a non-commutable allocated pension Draw maximum pension income possible Salary sacrifice $25,000 per annum of salary - to remain in same after tax position. Assumptions: Salary indexed at 4% per annum Super/ Pension investments earn 7% pa pre tax Excess income not re-invested
  • Speaker to go thru results and pointing out particularly the effect of no tax on allocated pension from age 60 and the additional benefits that will provide at age 65. We are still maintaining the same net income from age 60 by reducing the pension amount.
  • The danger of passing control of s SMSF to dependent who may be tempted to distribute the death benefit to him or herself to the exclusion of others. The Katz/Grossman case is a perfect example of this: Daniel challenged the appointment of her husband but the NSW supreme court determined that his appointment was valid under the trust deed and trust law. Ultimately Daniel received no benefit from the super fund and the court ordered that the costs of the court action be paid by the fund. This could have been prevented by a binding nomination or a provision for Daniel as successor trustee on Mr. Katz death and provision of determining how voting power is exercised by trustees. Or if both children had become members and were appointed co trustees with their father prior to his death both would have assumed joint control of the fund after his death. An alternative solution would be to ensure the trust deed contains a provision allowing a deceased’s persons LPR to remove the trustee of a SMSF upon death of a member if need be. The provision could allow the LPR themselves to become trustee and /or appoint the surviving members as trustee. SIS allows a LPR to act as a trustee of a SMSF from date of death of a member until death benefits are paid. In this way, the deceased’s intentions with regards to the fund assets may be met. Alternatively individual trustees should consider appointing a corporate trustee especially for Mum and Dad funds where they have more than one child . Where the trustees are individuals, there is a need to have at least 2 individuals. On death of the first trustee, the survivor will be required to appoint another trustee and all too often, is for a child to be brought in as a trustee. By appointing a designated corporate trustee of the fund, with mum and dad as directors and shareholders, on the death of one, the survivor can continue to act as sole director of the company and there will not be any need for the survivor to appoint another trustee.
  • For best results when printing, select ‘color’ in print dialogue box ‘color/greyscale’ field, even if using a greyscale or black & white printer. Click here to add your own speaker notes

Smsf simplified Presentation Transcript

  • 1. Self-Managed Super Funds Take Control of Your Future
  • 2. What tax rate* do you prefer? Investment Structures A B C D Income 46.5% 30% 15% 0% Capital Gains 24% 30% 10% 0% Superannuation *Maximum tax rates
  • 3. 3 The SMSF Market *  503,320 funds registered with the Government  34,218 new funds established last 12 months  114,615 new funds in last 4 years  $1.58 trillion - total of all super assets  $496b – total SMSF assets (31.3%)  945,207 members  69% of funds have no more than 2 members *APRA stats as at Mar.2013
  • 4. Age Profile of SMSF Members 4 SMSF Age Profile 61.5% of SMSF fund members are age 55+ (nearing and post retirement age). These members would have higher average balances and as they move into pension draw down the growth in assets will slow. 4
  • 5. 5 Income Dividends Contributions Rollovers Fund Bank A/C Trust Deed / TrusteesAdministration Auditor Members The Funds Investments $$
  • 6. Compliance/Administration Checklist  Fund establishment  Trust Deed review  Trustees & members  Electing to become regulated  TFN  ABN  GST registration  Separate bank account  Accepting contributions  Investment strategy  Investing  Record keeping  Paying of benefits  Annual requirements  Tax matters 6
  • 7. 7 Drivers for SMSF Advantages o Control of investment decisions o Direct Investments options o Investment returns o Lower Costs o Ability to Gear o Tax Management o Flexible retirement pension options o Flexible estate planning Disadvantages o Full trustee responsibilities o Lack of Knowledge o Time consuming to run o Tough penalties for breaching rules o May be uneconomic for low balances o Extra legal responsibilities o Potentially higher costs o Maximum of four members
  • 8. ATO & Compliance 8
  • 9. How Should Trustees Be Investing ? 9
  • 10. 10 The Fund’s Investment Strategy SIS Regulation 4.09 As a Trustee you must consider:  Risk involved, likely returns and fund objectives  Composition of a fund’s investments, diversification  Liquidity requirements of the fund  Ability of the fund to discharge present and future liabilities  Providing insurance cover for members within the fund
  • 11. Asset & Family Protection  Providing insurance cover within a SMSF  The fund can insure members for:  Life Insurance as a result of death  Total & permanent disability  Income protection  The fund will claim a tax deduction for the insurance premiums  Provides cash liquidity to enable payment of death benefits to beneficiaries  Provides protection for any borrowings within the fund  Tax advantages of holding insurance in super as opposed to outside super 11
  • 12. The Different Types of Assets Core Type  Cash /TD’s  High interest savings a/c  Diversified fixed interest  Tailored TD’s  Australian property  Managed funds  ETF’s Satellite Type  Directly held shares  Self-funding instalment warrants  Specialised managed funds  Global property  Hybrid securities  Global fixed interest  Capital protected products  Collectables 12
  • 13. Concessional Caps Increased * Estimate only indexation expected from 1 July 2014 **Those aged 59 on 30 June 2013 also eligible for $35,000 (2013/14) Those aged 49 on 30 June 2014 also eligible for $35,000 (2014/15) Concessional Cap 2012-13 2013-14 2014-15 Under age 50 $25,000 $25,000 $30,000* Aged 50 - 59 $25,000 $25,000 $35,000** Aged 60 + $25,000 $35,000** $35,000**
  • 14. 14 Salary Sacrifice 2013/14 Income Superannuation Guarantee Maximum salary sacrifice For those Aged 60+ $100,000 $9,250 $15,750 $25,750 $125,000 $11,562 $13,348 $23,438 $150,000 $13,875 $11,125 $21,125 $180,000 $16,650 $8,350 $18,350 $200,000 $17,775 (maximum) $7,225 $17,225
  • 15. 15 Personal Contributions -Where No Deduction Claimed  Personal contributions capped at $150,000 pa  If under 65 you can bring forward 2 years of cap and contribute up to $450,000 $150,000 $150,000 $150,000 $150,000 30 June 2012 30 June 2013 30 June 2014 30 June 2015 $450,000 $0 $0 $450,000 $0 30 June 2016 $150,000
  • 16. SMSF Borrowing To Invest 16
  • 17. SMSF Borrowing Rules  Loan must be used to purchase a single acquirable asset  The asset must be held in trust for the SMSF- SMSF holds beneficial interest in that asset  SMSF has the right to acquire the asset following the SMSF making one or more subsequent payments  The loan must be limited recourse  Rules are complex and extreme care should be taken in setting up properly 17
  • 18. 18 The Structure SMSF$ contributions loan funds used to acquire asset held on trust Rental Income Trust holds property interest personal guarantee? lim ited recourse
  • 19. Recent Changes –SMSFR 2012/1  Clarification of definition of a “single acquirable asset”  Improvements o Still not allowed with “borrowed” funds o However money from other sources can be now used e.g. Contributions/other fund assets  Replacement assets o If asset subject to borrowing is improved too much may become a different asset & breach the rules o Off the plan purchases are OK 19
  • 20. The Borrowing Option to Purchase Asset The Advantages o Can increase your returns by using borrowed funds o Income from investment taxed at maximum 15% o Capital Gains Tax limited to 10% o Nil tax if in pension phase o Interest payments are tax deductible to the fund The Disadvantages o Borrowing can magnify losses as well as gains o Borrowing costs are usually higher due to limited recourse loan o Asset usually locked in super until retirement o Costs to set structure & ongoing administration 20
  • 21. The Transition to Retirement Option (TTR) “How to get a free kick-start for your retirement”
  • 22. 22 Your Preservation Age for Super Access Date of birth Preservation age Before 1 July 1960 55 1 July 1960 to 30 June 1961 56 1 July 1961 to 30 June 1962 57 1 July 1962 to 30 June 1963 58 1 July 1963 to 40 June 1964 59 After 30 June 1964 60
  • 23. 23 Advantages of a TTR Pension  Allows you to work full or part-time and access your super  Convert super to a pension and invest tax free  Must draw a pension each year –Min. 4% to Max. 10% of account balance  Cannot draw a lump sum until you retire  Combine with salary sacrifice tax savings on contributions  Ages 55-59 pension amount receives a 15% rebate/ age 60+ non -assessable  Can be rolled back to accumulation super
  • 24. 24 TTR Case study - Anna aged 55 Client Anna ‘s current situation Employment Full-time Income $76,000 p.a. Super $350,000
  • 25. 25 Anna’s TTR strategy  We transfer her current super benefits to a transition to retirement pension  Draw pension each year required to be same after tax position  She salary sacrifices $25,000 p.a. to super (includes SG) Assumptions: Salary indexed at 4% per annum Super/ Pension investments earn 7% p.a. pre-tax Excess income not re-invested
  • 26. 26 Anna’s TTR Option Do nothing Implement strategy Gross income $76,000 $71,950 Tax payable $17,490 $13,072 Net income $58,510 $58,878 Super balance $377,046 $22,745 Pension balance $360,390 Net balance year 1 $377,046 $383,135 Balance at 65 $720,248 $821,584
  • 27. 27 $300,000.00 $400,000.00 $500,000.00 $600,000.00 $700,000.00 $800,000.00 $900,000.00 56 57 58 59 60 61 62 63 64 65 Superbalances Current Transitionto retirement Case Study : Anna’s result
  • 28. SMSF & Estate Planning 28
  • 29. SMSF & Estate Planning  In the event of death of a member the SMSF can pay death benefits in the form of:  a lump sum to beneficiaries  a pension to a SIS spouse dependant or child dependant beneficiaries  a reversionary pension to spouse for existing pensions  Super death benefits do not form part of your estate unless the estate is nominated as beneficiary under binding or non-binding death benefit nomination form 29
  • 30. Katz v Grossman [2005] NSWSC 934  SMSF with $1m of assets  Mr and Mrs Katz had 2 children – Linda & Daniel (adults)  Mrs Katz died a few years earlier and Mr Katz appointed Linda as co-trustee of SMSF  Mr Katz made a binding nomination that death benefit ($1 m) be paid to children equally  Mr Katz died  Linda appoints her spouse as co-trustee  Guess what happened ???
  • 31. 3232  Our division name  Sets us apart from our banking brands  Widely know for super, retirement and investment  Secondary to our customer brands –Super –BT Wrap –Insurance –Investments BT Financial Group – a multi-brand strategy
  • 32. 33 This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to note that past performance is not a reliable indicator of future performance. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on 132 135 8:00am to 6:30pm (Sydney time)