Top10 SMSF Strategies for 2011/12<br />Aaron Dunn<br />Managing Director, The SMSF Academy<br />
This presentation provided general advice only.  No direct or implicit recommendations are given in this document. This me...
Strategy 1:<br />Contribution Splitting is back in vouge!<br />
A reincarnation of RBLs?<br />Government proposal to extend contribution cap for over 50’s with balance of less than $500,...
Example<br />John (52) – member account balance of $489,000 <br />SMSF audited financials at 30 June 2011<br />For the 201...
Strategy 2:<br />Contributions Reserve – strategy & saviour<br />
Using a Contributions Reserve<br />Ability to “park” contributions for up to 28 days after the end of month in which contr...
Reported FY 2011 contributions<br />Keep this in mind…<br />FY2011 contributions<br />  X     XX     X     XXXXXXXXX<br />...
Example – Contributions Reserve saviour!<br />Doug (53) currently salary sacrificing to his $50,000 concessional contribut...
Strategy 3:<br />Contributions Deferral<br />
Contributions Deferral<br />What if your client is on the top MTR (46.5%)?<br />Can potentially salary sacrifice or make a...
Example – Contributions Deferral<br />Ken (62) is a company director, earning $1,000,000 (incl. super). <br />Includes a $...
Example – Contributions Deferral<br />Excess Contribution Made              Financial Year End	                 2011/12 SM...
Be careful of…<br /><ul><li>Need to review previous history of NCC contributions
93% tax payable on an excessive concessional contributions for the next two years
Having triggered bring forward provisions
If fund is going to pay excess tax, need to ensure the NOA is provided within the timeframes
TR 2010/1 – don’t get caught with other transactions that could be classified as contributions</li></li></ul><li>Strategy ...
How does section 67A work?<br />Personal guarantee<br />Bare /Holding Trust<br />
Benefits of SMSF borrowing<br />Case Study<br />Property purchase - $600,000<br />Loan - $350,000 @ 8% (P&I repayments)<br...
Calculator available under Free Resources | Calculators www.thesmsfacademy.com.au<br />
Calculator available under Free Resources | Calculators www.thesmsfacademy.com.au<br />
What needs to be considered<br />Property Investors (residential or commercial)<br />Yield (rent)<br />Capital growth<br /...
The impact of the variables?<br />
Strategy 5:<br />Borrowing for Property Development<br />
Section 67A & 67B restrictions<br />Changes to super borrowing laws (s.67A & 67B) have imposed significant restrictions<br...
Property Development<br />Use of a SISR 13.22C trust (ungeared unit trust)<br />Unit Trust is the developer; SMSF is a con...
SMSF<br />(5). Lease agreement between SMSF and tenant (can be related party for commercial property)<br />(1). Redraws on...
Strategy 6:<br />Taking the minimum Pension as Lump Sum<br />
When does an income stream cease?<br />TR2011/D3 released on 13 July<br />Income tax: When an income stream commences and ...
Yes, he can<br />Where pension is partially commuted and payment is elected to be received as a lump sum, this amount will...
Strategy 7:<br />Locking in tax-free proportion for pensions<br />
Proportioning Rule<br />Simpler Super introduce many changes including the proportioning rule when commencing an income st...
Proportioning Rule Example<br />John (60) commences Account Based Pension with $1,000,000<br />50% tax-free proportion<br ...
Strategy 8:<br />Using segregation effectively<br />
Segregated<br />Understanding Segregation – what is it?<br />It’s a fund within a fund<br />Segregated<br />Segregated<br ...
Reason to segregate<br />Both members <br />in the pension phase<br />Member A – accumulation phase<br />Member B – pensio...
Strategy 9:<br />Understanding the benefits of Anti-detriment<br />
Anti-detriment tax deduction<br />Section 295-485 ITAA 1997<br />Additional amount paid in the event of the death of a mem...
Anti-detriment Example<br />Frank (58) recently passed away and is survived by his wife Maria<br />Death benefit of $550,0...
Tax Saving Amount<br />15/55 x $72,056 = $19,652 tax saving amount<br />Lump Sum to Maria of $169,652<br />Tax deduction a...
Strategy 10:<br />Maximising the death benefit with a Future Liability benefit deduction<br />
Future Liability Benefit Deduction<br />Section 295-470 ITAA 1997<br />Lesser known estate planning tool particularly bene...
Future Liability Benefit Example<br />John dies suddenly at age 50 and is survived by wife, Jane (48) and two (2) sons, Ro...
                            Top10 SMSF Strategies<br />Contribution splitting back in vogue!!<br />Contribution Reserves<b...
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Top10 SMSF strategies for 2011/12

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Top10 SMSF strategies for 2011/12 presentation conducted by Aaron Dunn of The SMSF Academy in conjunction with Business Fitness.

Download a copy of the free webinar, by visiting http://thesmsfacademy.com.au/free-webinars/

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  • .. Aaron may lead into this one ...When thinking about segregation, I think it’s very useful just to keep this simple concept in mind:If you segregate part of a fund, you are just setting up a fund within a fund. Remember that concept: it’s a fund within a fund.It’s not a completely separate trust vehicle, with a deed, ATO reporting, trustees, etc. It’s simpler than that, it’s just a notional fund, defined only by the Trustees’ decisions and records.All it requires is for the Trustees to maintain records of what asset or assets are segregated, and what accounts are supported by those assets.Also, remember that essentially anything can be in or out of that fund within a fund:You can segregate all of a members’ accounts, or just some of that members accounts;You can segregate all pension accounts from all accumulation accounts, or segregate only some of them;You can segregate particular assets or groups of assets;Segregation can start or stop whenever the Trustees decide;If you need to, you can even have multiple segregated pools within your fund!So remember this idea, it’s key to understanding segregation: segregation is about setting up a sub-fund within your SMSF. That fund can include as much or as little as you choose and can start or stop whenever you choose.
  • Top10 SMSF strategies for 2011/12

    1. 1. Top10 SMSF Strategies for 2011/12<br />Aaron Dunn<br />Managing Director, The SMSF Academy<br />
    2. 2. This presentation provided general advice only. No direct or implicit recommendations are given in this document. This means that the general advice provided has not been prepared taking into account an individual’s financial circumstances (i.e. investment objectives, financial situation and particular investment needs). You should assess whether the advice is appropriate to your individual financial circumstances before making an investment decision. You can either assess the advice yourself or seek the help of an authorised representative through an Australian Financial Services License (AFSL) holder.<br />The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the time of compilation but does not warrant the accuracy of that information. Save for statutory liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss or damage which any person may suffer from reliance on this information or any opinion, conclusion or recommendation in this presentation whether the loss or damage is caused by any fault or negligence on the part of presenter or otherwise. <br />General Advice<br />Disclaimer<br />
    3. 3. Strategy 1:<br />Contribution Splitting is back in vouge!<br />
    4. 4. A reincarnation of RBLs?<br />Government proposal to extend contribution cap for over 50’s with balance of less than $500,000<br />Consultation paper dealing with parameters including:<br />How to calculate member balances?<br />Assessment model?<br />What financial year to use for assessment?<br />SMSF specific issues<br />
    5. 5. Example<br />John (52) – member account balance of $489,000 <br />SMSF audited financials at 30 June 2011<br />For the 2011/12 financial year:<br />$50,000 concession contribution<br />Net earnings of $10,000<br />Closing Balance of $541,500<br />What level of contributions will John be able to make from 1 July 2012?<br />Answer: $50,000<br />Why? Government likely to utilise balance ‘two years’ prior (i.e. 30 June 2011)<br />Contribution Splitting benefit?<br />Remember: $50,000 cannot be split until 1 July each year<br />30 June 2011 member balances become very important!!<br />Think about whether the 2010 contributions should be split when doing the 2011 financials.<br />
    6. 6. Strategy 2:<br />Contributions Reserve – strategy & saviour<br />
    7. 7. Using a Contributions Reserve<br />Ability to “park” contributions for up to 28 days after the end of month in which contribution made<br />June contributions can be held-over until following financial year (allocated before 28 July)<br />Deduction for taxpayer when paid<br />Assessed against cap when allocated to the member<br />NTLG Super Technical Sub Group Committee minutes <br />16 June 2009<br />Applicable to both concessional and non-concessional contributions<br />
    8. 8. Reported FY 2011 contributions<br />Keep this in mind…<br />FY2011 contributions<br /> X XX X XXXXXXXXX<br />Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun<br />A contribution reserve can be used to identify excessive contributions made in the previous financial year<br />Reduction in contribution caps for FY2010 caught many people<br />June 2011 contributions only <br />28 days to allocate after month end<br />
    9. 9. Example – Contributions Reserve saviour!<br />Doug (53) currently salary sacrificing to his $50,000 concessional contribution limit<br />The timing of his super payments received by his employer has meant that the SMSF has received $54,167* for FY10<br />13 months x $4,166.67<br />Trustees can allocate any June contributions to a Contributions Reserve<br />Must be allocated to Doug’s member balance before 28 July<br />Saves a minimum of $1,313 in tax (31.5%)<br />Potentially more if maximum NCC reached (bring forward)<br />Ability to revise salary sacrifice arrangements to $45,833 for FY12 (Total CC = $50k)<br />
    10. 10. Strategy 3:<br />Contributions Deferral<br />
    11. 11. Contributions Deferral<br />What if your client is on the top MTR (46.5%)?<br />Can potentially salary sacrifice or make a personal deductible contribution up to CC cap plus up to NCC cap<br />Employer / individual receives full deduction on contribution<br />Excess tax payable, but on receipt of a Notice of Assessment (NoA)<br />Provided no further NCCs or excess CCs made in subsequent years there is no double taxation but get the benefit of the assessment deferral<br />
    12. 12. Example – Contributions Deferral<br />Ken (62) is a company director, earning $1,000,000 (incl. super). <br />Includes a $500,000 bonus, which was to be paid in September 2011.<br />He would like to retire in approx. three years time from his job<br />Ken intends to salary sacrifice up to his CC cap of $50,000<br />Expected personal tax payable on Ken’s taxable income of $448,550*<br />What if,<br />Ken salary sacrificed $484,225** of his bonus to super in 2010/11?<br />Excess concessional contributions of $450,000<br />Excess concessional contributions tax (31.5%): $141,750<br />Excess non-concessional contributions: $0<br />Instead of PAYGW on salary, amount taxed within SMSF @ 15% + ECT<br />Salary is withheld upfront vs. deferred at least 11 months after end of financial year (May 2013 - due date of SMSF Annual Return)<br />* Includes Income Tax, Medicare & Flood levies<br />** $500k bonus adjusted for SGC up to maximum super contribution base of $43,820 per quarter (2011/12)<br />
    13. 13. Example – Contributions Deferral<br />Excess Contribution Made Financial Year End 2011/12 SMSF AR lodge & payable ECT Assessment payable<br />Sept 2011 30 June 2012 May 2013Jan/Feb 2014<br />21 months<br />Up to 30 months<br />Why?<br />Cash is able to work harder within the SMSF<br />SMSF benefits from $209,750 invested up to 20 months, plus ability for $141,750 to stay in the fund if Ken pays tax personally (which he can elect to do)<br />
    14. 14. Be careful of…<br /><ul><li>Need to review previous history of NCC contributions
    15. 15. 93% tax payable on an excessive concessional contributions for the next two years
    16. 16. Having triggered bring forward provisions
    17. 17. If fund is going to pay excess tax, need to ensure the NOA is provided within the timeframes
    18. 18. TR 2010/1 – don’t get caught with other transactions that could be classified as contributions</li></li></ul><li>Strategy 4:<br />SMSF Limited Recourse Borrowing<br />
    19. 19. How does section 67A work?<br />Personal guarantee<br />Bare /Holding Trust<br />
    20. 20. Benefits of SMSF borrowing<br />Case Study<br />Property purchase - $600,000<br />Loan - $350,000 @ 8% (P&I repayments)<br />Rental - $460 p/wk (increases 3% p.a.)<br />Expenses - $4k p.a. / Depreciation - $5k p.a.<br />Individual currently salary - $100,000 (increases 3% p.a.)<br />Eight (8) years away from retirement<br />What is the tax benefit of acquiring the property within a SMSF vs. personally?<br />
    21. 21. Calculator available under Free Resources | Calculators www.thesmsfacademy.com.au<br />
    22. 22. Calculator available under Free Resources | Calculators www.thesmsfacademy.com.au<br />
    23. 23. What needs to be considered<br />Property Investors (residential or commercial)<br />Yield (rent)<br />Capital growth<br />LVR<br />Lender & interest rate<br />P&I or Interest-only period<br />Term of loan<br />Expenses, Depreciation & Building Allowance<br />Ability to contribute to super / servicing<br />Timeframe to retirement<br />
    24. 24. The impact of the variables?<br />
    25. 25. Strategy 5:<br />Borrowing for Property Development<br />
    26. 26. Section 67A & 67B restrictions<br />Changes to super borrowing laws (s.67A & 67B) have imposed significant restrictions<br />Definition of a Single acquirable asset? <br />What constitutes a replacement asset?<br />Within SMSF, can not undertake (breach of replacement rules):<br />Capital improvements<br />Subdivision <br />Property held over 2 or more titles (e.g. farmland)<br />Question – what strategies (if any) can be used to address the above?<br />
    27. 27. Property Development<br />Use of a SISR 13.22C trust (ungeared unit trust)<br />Unit Trust is the developer; SMSF is a contributor of capital to the trust (in full or part)<br />Trust acquires land and/or property to develop<br />Need to get capital in ‘up-front’ or would require additional bare trust for further borrowings<br />unless additional unit holders subscribed<br />Banks unlikely to provide a SMSF Limited Recourse loan<br />Related Party (BYO lender) loans only<br />Only security allowed by lender are the units in the unit trust<br />ATOID 2010/162 – dealing with SMSF on more ‘favourable terms’<br />Do not breach SISR 13.22D requirements<br />
    28. 28. SMSF<br />(5). Lease agreement between SMSF and tenant (can be related party for commercial property)<br />(1). Redraws on equity in own home to provide a loan to SMSF<br />(2). SMSF borrows money from related party on arms-length basis<br />(6). Rent paid to Unit Trust<br />(8). Repayments made by SMSF back to lender (principal and/or interest) – subject to terms of loan<br />Tenant<br />(inc. related party)<br />Bare Trust <br />Lender to SMSF<br />Units in U/T<br />(7). Distribution paid to SMSF as beneficial owner of units in unit trust<br />(3). SMSF acquires units in ungeared unit trust units in name of Trustee of Bare Trust<br />(4). Unit Trust acquires land and uses additional funds to develop site<br />(9). Lender makes repayments back to own bank where money originally drawn.<br />Ungeared Unit Trust (SISR 13.22C)<br />(3b). Lender’s rights in the event of default are limited to the property only.<br />
    29. 29. Strategy 6:<br />Taking the minimum Pension as Lump Sum<br />
    30. 30. When does an income stream cease?<br />TR2011/D3 released on 13 July<br />Income tax: When an income stream commences and ceases<br />Death benefits, failure to meet minimum pensions, commutations, etc.<br />ATO views in draft ruling on partial commutations and interaction between SIS Act and Tax Act<br />Example:<br />Bob (57) has recently retired and has $1,000,000 in accumulation within SMSF<br />Wishes to commence an Account Based Pension and take minimum of $40,000 (4%)<br />Subject to Bob’s other assessable income he will have between$600 (16.5% tax rate) -$12,600 (46.5%) of tax payable on this pension<br />If taken as a lump sum can use LRT, but 15% super fund tax rate applies (accumulation phase)<br />Could Bob have the best of both worlds?<br />
    31. 31. Yes, he can<br />Where pension is partially commuted and payment is elected to be received as a lump sum, this amount will count towards the member’s minimum pension for the financial year. <br />This benefit payment can be made in cash or in-specie<br />Partial Commutation Example<br />
    32. 32. Strategy 7:<br />Locking in tax-free proportion for pensions<br />
    33. 33. Proportioning Rule<br />Simpler Super introduce many changes including the proportioning rule when commencing an income stream<br />Proportioning rule locks in the tax-free and taxable component<br />Why is this important?<br />Greater tax efficiency for pensions under 60 years of age<br />Estate planning benefits<br />
    34. 34. Proportioning Rule Example<br />John (60) commences Account Based Pension with $1,000,000<br />50% tax-free proportion<br />olddeductible amount was $23,084<br />Move forward 10 years, account balance is $1,200,000<br />Tax-free component - $600,000 | old rules - $269,160 <br />difference of $330,840<br />Move forward 20 years, account balance is $1,000,000<br />Tax-free component - $500,000 | old rules - $38,320 <br />difference of $461,680<br />Why is this so important?<br />Future Tax saving of between $69,252 - $76,177 (incl. Medicare)<br />Consider optimising through recontribution strategy & running multiple pensions <br />
    35. 35. Strategy 8:<br />Using segregation effectively<br />
    36. 36. Segregated<br />Understanding Segregation – what is it?<br />It’s a fund within a fund<br />Segregated<br />Segregated<br />Member 1<br />Member 2<br />Segregated<br />
    37. 37. Reason to segregate<br />Both members <br />in the pension phase<br />Member A – accumulation phase<br />Member B – pension phase <br />1 July <br />1 June<br />30 June <br />Average value of current pension liabilities<br />Average value of super liabilities <br />Asset sold here<br />Capital gains tax (ancillary benefit)<br />Different investment strategies (per member or interest)<br />Benefiting from a market recovery <br />
    38. 38. Strategy 9:<br />Understanding the benefits of Anti-detriment<br />
    39. 39. Anti-detriment tax deduction<br />Section 295-485 ITAA 1997<br />Additional amount paid in the event of the death of a member (tax saving amount) to compensate for tax paid on contributions received.<br />Use Audit Method or Calculation Method (ATOID 2010/5) to determine amount<br />How to ‘fund’ the tax saving amount?<br />Tax deduction claimed only on amount paid as lump sum<br />Confirmed in ATO NLTG Super Technical Meeting Minutes – March 2011<br />
    40. 40. Anti-detriment Example<br />Frank (58) recently passed away and is survived by his wife Maria<br />Death benefit of $550,000 to be paid<br />Maria wishes to take $150,000 as a lump sum with balance as an Account Based Pension (ABP)<br />Can we claim a deduction for the tax saving amount and how much can we claim?<br />
    41. 41. Tax Saving Amount<br />15/55 x $72,056 = $19,652 tax saving amount<br />Lump Sum to Maria of $169,652<br />Tax deduction available of $131,013<br />Available under SMSF resources  SMSF calculators on The SMSF Academy website<br />
    42. 42. Strategy 10:<br />Maximising the death benefit with a Future Liability benefit deduction<br />
    43. 43. Future Liability Benefit Deduction<br />Section 295-470 ITAA 1997<br />Lesser known estate planning tool particularly beneficial for SMSFs<br />Election to claim tax deduction on future liability benefit replaces claim of deduction for insurance premium where:<br />Member dies*, <br />Disability superannuation benefit is paid*,<br />Income stream is paid as a result of temporary incapacity<br /> * Must be in connected with employment<br />Note: SMSF becomes ineligible claim future insurance premium deductions for members<br />No need for the fund to have insurance to claim the deduction<br />
    44. 44. Future Liability Benefit Example<br />John dies suddenly at age 50 and is survived by wife, Jane (48) and two (2) sons, Robert (23) & Chris (19)<br />Member balance of $600,000 in SMSF ($120k TFC)<br />Life Insurance policy of $650,000 in which fund is ordinarily entitled to a tax deduction<br />John’s service period (work) was 24 years<br />What tax deduction can the fund claim for the Future Liability to pay benefits?<br />$1,250,000 x (15 years / 39 years) = $480,769<br />Remember that no tax deduction can be claimed for the insurance in the elected year of the tax deduction <br />Regardless of previous years where tax deduction was claimed<br />Look to magnify the tax deduction using both anti-detriment and future liability to pay benefits.<br />
    45. 45. Top10 SMSF Strategies<br />Contribution splitting back in vogue!!<br />Contribution Reserves<br />Contribution Deferral<br />SMSF Limited Recourse Borrowing<br />Borrowing for Property Development<br />Minimum Pension as Lump Sum<br />Locking in Tax-Free proportion income streams<br />Using segregation effectively<br />Anti-detriment<br />Future Liability Benefit<br />
    46. 46. Free educational content for trustees & advisors including videos, podcasts, calculators and flyers on SMSF topics<br />Trustee & Advisor Membership accessing ongoing training, educational content and practical tools<br />Special Offer:<br />Subscribe to our news & events to receive a free copy of 30+ page booklet on Top10 SMSF Strategies <br />for 2011/12<br />ADVISOR MEMBER <br />$770 or $2200<br />
    47. 47. www.thesmsfacademy.com.au<br />Thank You<br />twitter.com/thesmsfacademy<br />facebook.com/thesmsfacademy<br />youtube.com/thesmsfacademy<br />Follow my blog,<br />http://thedunnthing.com<br />
    48. 48. This presentation provided general advice only. No direct or implicit recommendations are given in this document. This means that the general advice provided has not been prepared taking into account an individual’s financial circumstances (i.e. investment objectives, financial situation and particular investment needs). You should assess whether the advice is appropriate to your individual financial circumstances before making an investment decision. You can either assess the advice yourself or seek the help of an authorised representative through an Australian Financial Services License (AFSL) holder.<br />The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the time of compilation but does not warrant the accuracy of that information. Save for statutory liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss or damage which any person may suffer from reliance on this information or any opinion, conclusion or recommendation in this presentation whether the loss or damage is caused by any fault or negligence on the part of presenter or otherwise. <br />Disclaimer<br />

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