NEWS – Avoiding Fraudulent Investments in your Self-Managed Super Fund

NEWS – Avoiding Fraudulent Investments in your Self-Managed Super Fund

Avoiding Fraudulent Investments in your Self-Managed Super Fund

Christine St Anne is Morningstar’s online editor, and wrote a timely reminder and suggestions for avoiding fraudulent investments in your self-managed super fund (as well as any investment!) in her article Avoiding a Super Fraud

It was only a couple of years ago when the collapse of the Trio Capital left 6,000 people without their superannuation savings. Around $180 million of investors’ money was lost.

Only one person involved in the scam was sent to gaol, while 10 of the perpetrators were subjected to industry bans. History could well repeat itself following media reports about a recent government inquiry into financial scams.

Australia’s $1.8-trillion superannuation industry is increasingly being targeted by criminals, The Australian newspaper reported last week.

According to Australian Federal Police deputy commissioner Michael Phelan, self-managed superannuation funds (SMSFs) are particularly vulnerable to organized crime.

Phelan told The Australian“A lot of this money is available for sophisticated criminals to have a go at.”

As investors struggle to get greater investment returns, people should be vigilant when being tempted by lucrative offers, Phelan noted.

It might seem difficult to understand how sophisticated investors like SMSF trustees can be caught up in fraud. However, Phelan believes such fraud is seriously under-reported because people are embarrassed that they have been duped, particularly professionals such as doctors, lawyers and accountants.

Phelan’s views were echoed by Australian Crime Commission chief Chris Dawson. The same article noted that Dawson agrees that the SMSF sector is one that needs to be given close attention, not just by law enforcement and the regulators, but by the investors themselves because super is not used as an everyday account.

He said criminal entities would exploit this sort of area because investors don’t monitor it themselves and can’t rely on the regulators to do so.

Given what happened with Trio, the onus seems to be on the investor when it comes to taking responsibility for avoiding financial scams.

So, what can investors and SMSF trustees do to prevent themselves from being victims of fraud?

It is difficult, as a lot of websites are very sophisticated and can even look more real than the original company website, SMSF Professionals’ Association of Australia (SPAA) director of technical and professional standards Graeme Colley says.

Nevertheless, trustees can do some simple checks on such websites, he says.

Investors should check that the data is not outdated and that any click-throughs in the website actually land on relevant pages.

Colley also says trustees should ensure the adviser has an Australian financial services licence (AFSL).

“Investors should do a check on that person. Besides checking on whether that adviser has an AFSL, investors should also ask their peers or industry professionals about the business,” he says.

Trustees and investors can also fall victim to identity theft. The government’s moneysmart website provides simple and handy tips on how to avoid this sort of scam:

  • Never give your personal details to people you don’t know. If you receive a call from someone who claims to be from your bank or any other organisation, don’t give them your details. Call the organisation in question to check it is really them calling. Never click on a link or call a phone number in an email — use a phone directory to look up the correct number.
  • Check your bank and superannuation statements. If you see any unusual transactions, contact your bank, credit card provider or super fund immediately.

Tips to protect your computer and mobile phone include:

  •  Always type the website address into your browser. Don’t click on a link in an email or open emails requiring you to enter your personal information. They could be scams.
  • Disable pop-ups on your browser. People can use pop-ups to install programs on your computer that “spy” on you or record your key strokes. This is how they find out passwords to your bank account and other accounts. Most internet browsers let you block pop-ups.
  • Make your passwords hard to guess. Use a combination of numbers and letters and change your passwords frequently.
  • Install up-to-date anti-virus software. It will automatically prevent, detect and remove any suspicious programs from your computer or mobile device.
  • Enable security settings on your mobile device. Turn off Wi-Fi, Bluetooth and GPS when not in use.
  • Never use public computers for banking or payments. If you use a computer at a library or internet café to look up your bank account or do online shopping, your account details will be stored on the computer. You do not want your important online banking details to get into the hands of others.

And of course the old adage remains as important as ever: If something is too good to be true, it usually is.

What are your thoughts? Start or continue the conversation here!

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses every month – Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or call us 0407 361 596

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Masterclass SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

Masterclass SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

If you have set decided to move overseas and you are a Trustee because you have a Self-Managed Super Fund (SMSF), what are the issues you need to consider?

When you have an SMSF, one of the complying requirements is Australian Residency

I have highlighted key parts below, but in Summary, an essential part of compliance is Residency, where management and control (ordinarily in Australia) is temporarily overseas for up to 2 years. It will not pass if management is Permanently outside Aust. (see further below).

This is what the ATO (Australian Tax Office, the Regulator of SMSF) website currently explains (I have highlighted key parts)

Check the residency of your fund

To be a complying super fund and receive tax concessions, your fund needs to be a resident regulated super fund at all times during the income year. This means your fund needs to 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.

If a member moves or travels overseas for an extended period, this may affect the residency status of the fund.

Your fund needs to meet certain conditions to be an ‘Australian superannuation fund’. For more information, refer to Residency of self-managed super funds. (see next)

Last modified: 17 Apr 2014QC 23312

(Above From – https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up-an-SMSF/Check-the-residency-of-your-fund/ detailed next…)

Residency of self-managed super funds (from link above)

For your self-managed super fund (SMSF) to receive tax concessions, it must be a complying super fund. To be a complying super fund, your SMSF must satisfy the residency test.

To satisfy the residency test, your SMSF must meet the definition of an Australian superannuation fund.

What is the residency test?

As a trustee, you must make sure your fund meets all conditions of the residency test to ensure it qualifies as an Australian superannuation fund.

The residency test has three elements:

    1. Your fund was established in Australia, or at least one of the fund’s assets is located in Australia;
    2. The central management and control of your fund is ordinarily in Australia;
    3. Your fund must have no active members or have active members who are Australian residents and who hold at least 50% of:
      • The total market value of your fund’s assets attributable to super interests; or
      • The sum of the amounts that would be payable to active members if they decided to leave the fund.

When is a fund established in Australia?

An SMSF is established in Australia when you are paid and accept the initial contribution to establish the fund in Australia.

What is ‘the central management and control’ of the fund?

‘The central management and control’ of your SMSF is the strategic and high level decision-making processes of the fund. These include carrying out duties like:

    • Formulating the investment strategy of the fund;
    • Reviewing the performance of the fund’s investments.

These duties are generally performed by you as the trustee of the fund.

What does ‘ordinarily in Australia’ mean?

We accept the central management and control of your fund is ordinarily in Australia if the SMSF’s strategic decisions are regularly made, and high level duties and activities are performed, in Australia.

In some situations, a fund’s central management and control may be outside Australia for a period of time. In general, your fund will still meet the ‘ordinarily’ requirement if its central management and control is temporarily outside Australia for up to two years. If the central management and control of the fund is permanently outside Australia for any period, you will not meet this requirement.

Whether the central management and control of your fund is ordinarily in Australia is based on the fund’s circumstances at that time.

When is a member an active member?

A member is considered to be an active member of your SMSF if:

    • They are a contributor to the fund;
    • Contributions to the fund have been made on their behalf.

However, a member is not an active member if contributions have been made to the fund on their behalf and:

    • They are not a resident of Australia;
    • They have ceased to be a contributor;
    • The contributions made on their behalf after they ceased to be an Australian resident were made for the time they were an Australian resident.

What happens if your SMSF doesn’t satisfy the residency rules?

Your SMSF must satisfy the residency rules at all times to be eligible for the tax concessions available to complying super funds. There are tax consequences if your fund becomes non-complying.

If your fund stops being a complying fund because it does not satisfy the residency rules and therefore cannot meet the definition of an Australian superannuation fund, an amount equal to the market value of the fund’s total assets (less any contributions the fund has received that are not part of the taxable income of the fund) will be included in the fund’s assessable income. This amount is taxed at the highest marginal tax rate.

For every year that the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.

Here are some ways to avoid these consequences:

    • If members are planning on going overseas, the SMSF trustees should seek professional advice to ensure they maintain the residency status of their SMSF;
    • *********If an SMSF fails the residency test the trustees should rollover their funds to a resident regulated super fund and wind up the SMSF. Failure to do this leaves us with no option other than to make the fund non-complying;
    • If a non-resident member of an SMSF wishes to make or receive contributions they should consider making or receiving these outside of their SMSF, for example to a retail or industry super fund. They can then rollover the contributions to their SMSF when they return as an Australian resident for tax purposes.

For more information on super fund residency rules, see Taxation Ruling TR 2008/09.

(Above From HERE)

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CASE STUDY – Pooling super with brother-in-law in Self-Managed Super and having flexibility and Centrelink assistance!

CASE STUDY – Pooling super with Brother-in-Law in Self-Managed Super and having flexibility and Centrelink assistance!

Pooling super with Brother-in-Law in Self-Managed Super and having flexibility and Centrelink assistance!

WHERE they were at – Rob and Glen were related by family but that was not of the unfriendly kind – far from it! They were mates in many ways, and since they only had moderate amounts in their super, talking with the advisor raised the desire to combine in a Self-Managed Super Fund (SMSF). They also liked that since they had been helped in the past and could continue to benefit from our advisor, Jim Brownlee’s many years’ experience with Centrelink (especially with some of Rob’s particular issues) employing our service was a sure thing.

Our advisor, Jim Brownlee, went through a fact-find to understand their financial situation better and Jim explained how self-managed super worked and what was involved. He emphasised the compliance responsibilities, but that most would be managed for them by the SuperBenefit service, so they didn’t need to worry.

What they WANTED to have – Rob and Glen both had worked hard, but super only arrived late in their working life, so they needed to look to invest but also have access with emergencies, or to help the family.

They didn’t plan on big trips, just a local trip or 2 occasionally, but health would determine what could be possible. They had paid off their houses.

What it will COST The planner explained that they should live on the Centrelink payments, and the SMSF would be a  bonus and a back-up. They lived comfortably currently but not extravagantly and dinner out was rare. A local trip would be a maybe. They would just run the 1 car, estimated at annual running costs of $4-5,000 each per year, as they expected running around with grandchildren on occasions!

What they would NEEDTo live on Centrelink and only use the super when and if needed. Jim and the stock broker would aim to grow their money to cover the minimum pension they could draw to supplement the government pension.

What to do NOW I came and met Rob & Glen and explained the administration and compliance requirements relating to SMSF. I explained how SMSF was set up and what we would do – obtain the Trust Deed, AND, TFN and bank account set up ready for them to sign as owners and members. They also liked that we would support them with any questions, and that other investment ideas could be discussed with the CPA and their auditor – but they knew that was unlikely! They just wanted a simple but reasonable return. Another part of the service they liked was that although workshops and one-on-one mentoring was available, they just need a simple life and to continue to be under the wing of Jim as had been the case for many decades!

They now had the components in place -

StrategyTo take control and their pool super, and contribute extra, and learn more when they had time

Structure To set up an SMSF together,

Support With resources and all compliances taken care of by SuperBenefit, and other professionals, they could learn more about investment in property & shares as time allowed later. They now felt in control and it felt very manageable to them. They could see a well-planned future and had a team to support them.

Note – This is a simplified summary of one client – we recommend asking for a FREE consultation and/or seeking further professional advice with our or your advisor.

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses every month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or call us 0407 361 596

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MASTERCLASS Investing – How Return on Equity is used by investors and what does it mean?

MASTERCLASS Investing – How Return on Equity is used by investors and what does it mean?

Investing – How Return on Equity is used by investors and what does it mean?

Return on equity (ROE) is a ratio used by investors which expresses how much profit a company earned (or return) and compares that to the total shareholder equity. In basic terms, Shareholder equity is the total assets less total liabilities. It’s what the shareholders “own” and it is also comprised of the assets created by the retained earnings (profit, sometimes after dividends) of the business and the paid-in capital of the owners. Be aware what is used for the calculation, as there can be differences.

ROE is the amount of net income (company earnings or profit) achieved as a percentage of shareholders equity. It can also show a corporation’s profitability by telling us how much profit a company makes with the money shareholders have invested (equity).  Another name is “return on net worth” (RONW).
ROE is expressed as a percentage by the calculation:
Return on Equity = Net Income (Profit) /Shareholder’s Equity
As an example, if a company’s net worth (shareholder’s equity) is $250 million dollars and it produced $12.5 million in profit, it would be earning (return) 5% on your equity (ROE is $2.5 ÷ $250 = .05, or 5%).

A company manger’s goal is to achieve a higher “return” on your equity. Net income/profit is usually for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder’s equity does not include preferred shares.
Why is it important?

ROE is an important measure for a company because it is ONE measure to compare the company profitability against oter companies. ROE measures performance and generally the higher the better. Some industries have a high ROE as they require little or no assets while others require large infrastructure before they generate profit, such as mining. For this reason ROE is even more useful when used to compare companies of the same industry

Performance ratios like ROE, are of course based on past performance but are used as an indicator on future performance.

A business that has a high return on equity is more likely to be able to generate cash and has less need for borrowings. The higher a company’s ROE compared to its industry, the better and the easier it is for the company to raise money for growth. When there is opportunity – taking on some debt, and managing it well, can be good for business growth.

Further good examples and comparisons of ROE of actual companies in USA can be found at http://www.buffettsecrets.com/return-on-equity.htm

Caution – Why one ratio and one year is not enough?

ROE from one year does not tell you enough. And as Conscious Investor and Stock Doctor can show the ROE over the years can vary. A consistent and steady ROE (and other ratios) is what is required).

A good point is made at http://www.fool.com/investing/beginning/return-on-equity-an-introduction.aspx  in the comments.

On March 23, 2010, at 3:51 AM, fdgxdfgxcf wrote: Roe is not as helpful as you think. It is easy to raise ROE with little effects on the valuation of a stock. Consider Netflix, a company who has a current ROE of 36. The extremely high PE was achieved by increasing long term debt by 200 million dollars and using the money borrowed to buy back 100 million dollars worth of stocks. By buying back stocks, the company reduces shareholder’s equity (the denominator), which ultimately increases the ROE. The current ratio will increase because of the extra 100 million dollars from the notes payable. The company seems stronger in the short term and more profitable when judged solely on return on equity. The bad news is that the company incurs a higher long term debt with more interest expense. To be fair to netflix, the stock was bought around $40 and is now close to $70. Management is praised as an efficient company, but a great extent of it is not due to actual net income but because of strategic accounting techniques.

See also what Professor John Price said about avoiding companies with low ROE

Want to learn the core issues of share investing? Our workshop Navigate to Successful Share Investing gives a 2.5 hour practical session to learn to easily understand Company Financial Statements, how to find healthy companies, what tools and ratios to use, work on examples, and also includes how to get better investment outcomes. Other Bonuses as well. Check the next one see Share WORKSHOP or call 0407 361 596

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Pensions – Can I still work once I am past Pension Age?

Pensions – Can I still work once I am past Pension Age?

Pensions – Can I still work once I am past Pension Age?

The Australian Government can assist older Australians with many income support and services, and even if you get some form of Government support, you can still work once you are past pension age. To determine if you have reached pension age, it will depend on when you were born so see Age Pension (click to find out more, as the age depends on when you were born) if you don’t already have this help to support you.

From the Govt. website –

Women born before 1 January 1949 reach qualifying age at 64 and a half, and women born between 1 January 1949 and 30 June 1952 at age 65.

Qualifying age for men born before 1 July 1952 is age 65.

From 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65 and a half years. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023.”

To qualify you first have to satisfy age as well as residency requirements. As to how much you can receive will depend on your income and assets and other circumstances.

If you are a self-funded retiree such as have savings, an income stream from a commercial super fund or Self-Managed Super Fund (SMSF) or you are still working, you may be able to receive a part pension, once past pension age.

Note: If you have lived or worked outside of Australia and are claiming or receiving Age Pension here, the Government may ask you to apply for a pension from those other countries you have lived or worked in.

When working past pension age another payment is the Work Bonus which is an incentive for pensioners past age pension age to remain in the workforce  by increasing the amount you can earn before your pension is reduced. You do not need to apply for the Work Bonus. If you receive eligible employment income, we will automatically apply the Work Bonus to your income test. All pensioners over age-pension age (other than recipients of Parenting Payment Single) are eligible for the Work Bonus. A transitional rate of pension protects the entitlements of pensioners who received a payment reduction as a result of the Pension Reform changes that came into effect on 19 September 2009.

The transitional rate of pension is calculated using the old pension-income-test rules. The Work Bonus is not included in this transitional rate calculation.

The Work Bonus applies to income from employment, including:

  • Wages paid in Australia and outside Australia
  • Leave, where you remain an employee of the same employer and
  • Director’s fees

We will apply the Work Bonus to your assessable employment income before your pension is paid each fortnight.

The Work Bonus is not applied to income from:

  • Leave payments if you have terminated your employment
  • Self-employed income
  • Payments to you as a principal from sole traders or partnerships
  • Investments or
  • Superannuation income

If you qualify for Work Bonus, you may be entitled to other payments and benefits, such as:

And some other programmes that may apply to you –

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul.

And book for our next  FREE Seminar – Self Managed Super Fund Roadmap – All you need to know plus bonuses see HERE and our SMSF and Property Boost to Super (combined) Free Seminar HERE

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Basics about Super – Basics 6-10 about the Australian Super System

 

Basics about Super - Basics 6-10 about the Australian Super System

Basics 6-10 about the Australian Super System

Continuing our 2 part series, here is five more basics about the Australian Super system. (For the first 5 Basics 1-5 see HERE)

  1. Investment Choices - While the big major super funds allow you to choose how you want your money invested by the super fund (by choosing from your super fund’s investment options) you have much more choice in self-managed super (SMSF). Of course if you don’t make an investment choice, then your super money is invested in the default investment option. The default option is usually invested in a range of assets, often called the balanced investment option, although some super funds call it a growth option. Investments are spread across high and low risk assets to manage the risk that some of the investments may lose money.
  2. Member Statements - Your super fund must send you regular reports (at least annually) on the fund’s performance, and on your own personal super account performance. Your super fund must also disclose fees charged, and show you any other transactions on your super account (such as the deductions for insurance premiums and taxes).
  3. Preservation until you Retire - Your money is preserved in super, which means you generally can’t take your money (benefits) out of the super fund until you elect to retire at or after your preservation age (from age 55 to 60, depending on your date of birth), or when you satisfy another condition of release. For permission to withdraw your super you must, in the correct technical language, satisfy a “condition of release” which are very specific, such as resigned from your employment
  4. Co-contribution extra from the Government! - If you make a deposit of your own personal money (that is non-concessional (after-tax)) contributions to your super fund, depending on your income tax level/margin, the government may put some tax-free money into your super fund for you. This is known as the co-contribution and phases out on a sliding scale. See More at the ATO site.
  5. Contributions Caps – Max Contributions – There are maximum levels that can be contributed, that you can make each year to non-concessional caps (2014-2015 $180,000) and concessional caps ($, or you pay penalty/extra tax.

The general concessional (before tax) contributions cap for 2013-14 is $25,000.

However, from the 1 July 2013 if you are 59 years old or over on 30 June 2013, additional concessional contributions will be able to be made to your super, with the cap increasing from $25,000 to $35,000.

From 1 July 2014:

- The higher cap of $35,000 will also apply to people who are 50 years or over

- The general concessional contributions cap will rise to $30,000.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul.

And book for our next  FREE Seminar – Self Managed Super Fund Roadmap – All you need to know plus bonuses see HERE

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Masterclass SMSF – Penalties the ATO can exercise on SMSF Trustees

 

Masterclass SMSF – Penalties the ATO can exercise on SMSF Trustees

SMSF – Penalties the ATO can exercise on SMSF Trustees

Self-Managed super fund (SMSF) trustees must always keep in mind the  penalties the ATO can exercise on them.

The penalty system  has been in existence since the  Superannuation Industry (Supervision) Act (SIS Act) and Regulations came into existence in the 199o’s.  They consist of court-imposed civil AND Criminal penalties a s well as the ability of the ATO to administer enforceable undertakings from Trustees, disqualify trustees and or decree the SMSF as non-complying and freeze certain abilities. Court-imposed penalties has been successful in a number of cases since 2007 and peaking in 2010-2011.

Civil Penalties

The civil penalty provisions of the SIS Act  cover some but not all breaches of the operating standards. Civil penalties up to 2000 points ($340,000) can be imposed by the court for breaches such as on the:

  • Sole purpose test;
  • Lending and borrowing of the fund;
  • In-house asset rule;
  • Failure of trustees to report significant events.

Other penalties can include prison sentences.

Criminal Penalties

If a matter is investigated under civil penalty provisions, it is precluded from criminal proceedings. And a mater must be proven “Beyond reasonable doubt”. Criminal proceedings involve:

  • Dishonesty;
  • Deceit;
  • Reckless behaviour.

From 1 July 2014

Because of the pro-longed delay in court proceedings, new legislation has come into being to deal with many of the breaches seen as minor occurrences and to reduce the cost to all parties. The new options for the ATO include:

  • Rectification;
  • Education;
  • Administrative penalties.

Rectification involves the ATO directing the trustee where-as a similar process called enforeceable undertaking is where the trustee provides a corrective measure, and  if so, the ATO cannot make a rectification direction. Rectification usually results with failure to correct a breach and ensure it doesn’t re-occur.

Education often applies with first-time contravention where the trustee displays lack of knowledge of the rules. An ATO-approved course of study is usually required, and proof of completion, or a $850 fine is imposed.

Administrative penalties range from $850 – $10,800 such as for not providing information the ATO requests, or accounts not prepared or kept, or at the top end, lending and borrowing breaches.

For more see:

https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up-an-SMSF/Laws,-rules-and-consequences/

http://www.fsadvice.com.au/media/library/FS_Advice/FS_SMSF_Advice/FS_Advice_New_ATO_SMSF_penalties-Colley.pdf

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses, run every month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or our other seminars above – Navigate Shares and Property Boost (every few months) in the menu above or call us 0407 361 596

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