Masterclass SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

MASTERCLASS SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

SMSF – CGT Relief – Capital Gains Tax Superannuation exemption when moving excess pension over $1.6 mill. pension account cap by 1 July 2017

If you have more than $1.6 million in superannuation pension phase, and/or a transition to retirement income stream (TRIS) and you wish to continue from 1 July this year, you must reduce the pension balance down to the $1.6 mill. Cap. This may cause Capital Gains Tax, but there is exemption relief in place. Here is an explanation from SMSF Advisor

Capital gains tax (CGT) relief

From 1 July 2017, the maximum amount a member can transfer from the taxable accumulation phase to the tax-free retirement (pension) phase will be limited by the new transfer balance cap (TBC) of $1.6 million (indexed). For pension balances in excess of this amount on that date, the member has the option to either:

  1. Withdraw the excess from the superannuation system; or
  2. Commute the excess back to the accumulation phase.

Also from 1 July, investment earnings and capital gains generated from transition to retirement income streams (TRIS) will no longer be tax free.

Transitional CGT relief – a special tax concession accessible between now and June 30 – is available to superannuation funds that have members affected by the new TBC, or pay TRISs that will lose the tax-exempt treatment of investment earnings.

Super funds where part of the fund’s investment return is a capital gain on individual assets will be impacted by the changes. These funds include self-managed superannuation funds (SMSFs), small APRA funds (SAFs), and public offer (retail) funds – including wrap accounts – and industry funds offering direct investments, i.e. shares and managed funds.

The CGT relief measure was introduced to discourage the mass selling of pension-supporting investments before 1 July 2017. The intent of the new rule is to provide CGT relief on the gains accrued before that date, so as not to disadvantage members who are required to commute a pension due to the new TBC, or are impacted by the TRIS tax changes. CGT relief preserves the tax exemption for these accrued capital gains on selected investments by resetting the cost base of those investments to their market value. 

For members who currently have more than $1.6 million in pension phase and choose option two (above) or have a TRIS, the legislation provides transitional CGT relief for assets owned by the fund on 9 November 2016 (being the date the legislation entered Parliament).

Importantly, CGT relief is not automatic – the trustee of a super fund must choose for the relief to apply for a CGT asset in the approved form.

For those assets that become taxable, i.e. that are transferred back to accumulation phase or support a TRIS, an irrevocable election can be made on an asset by asset basis to reset the CGT cost base to its market value, with the fund deemed to have sold and re-purchased the asset at that market value. This means the fund is only exposed to CGT on future growth in the asset value from that point.

CGT relief is quite complicated. Different rules apply depending on whether the fund currently uses the segregated or proportionate (unsegregated) method in determining its exempt current pension income (ECPI). Furthermore, from 1 July 2017, SMSFs and SAFs in some circumstances will no longer be able to use the segregated method in determining the ECPI….

What should I do now?

Important decisions must be made in the lead-up to 30 June. With only a few months to go, now is the time to consider whether claiming CGT relief on certain investments is worth pursuing… This choice will have a direct effect on the amount of income tax paid in future years.

And for several very detailed examples, READ MORE of the article

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

Call for free education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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CASE STUDY – George & Sue – Wanted to use SMSF to control and manage super by direct investments

CASE STUDY – George & Sue – Wanted to use SMSF to control and manage super by direct investments

George & Sue – Wanted to use SMSF to control and manage super by direct investments

George and Susan knew our financial advisor via referral from one of the advisor’s clients.

George had experience with personal direct share investment in his spare time after his busy professional position that included interstate travel for a multi-corporate. Sue was busy in the education field.

Their future was their concern, particularly after the GFC – and they wanted to use SMSF to control and manage their super by using George’s direct investment expertise. This was part of their Retirement plan.

(There are 5 easy steps to planning anything – start where you are at, decide what lifestyle you want to have, what that lifestyle state/position will cost in money (to maintain or the living costs) what you need invested to meet that cost of having what you want, and what action we need to take now to get there. (Get the Free Resource: 5 Easy Steps to Plan your Retirement).

WHERE they were at – George was a professional who managed his own investments and wealth himself. Together they had about $300,000 when they pooled all his super funds together, and had nearly paid off their own home, with just 2 older children still at home. There were also several investments in shares.

WANT to have – For George and Sue being self-sufficient and comfortable in retirement and having to not rely on the Government Pension, was the plan.

COST of that lifestyle Estimated in today’s values, an annual income to retire that he desired would be at least $75-90,000 in today’s money. That would be close to the ASFA definition of “Comfortable” and allow meals out and occasional trips overseas.

NEED invested to return the cost To be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this means at least 20 times the income goal – which rounded to approx. $1.5 – 1,800,000 of income-producing assets other than the family home.

NOW what to do After meeting the advisor who explained the Pros and Cons of SMSF, he met with Paul the Administration Manager at SuperBenefit who supplied FAQ sheets, a Checklist of what was required, diagrams how Borrowing worked with SMSF, and a detailed list of what would be included in the service. Once the Trust Deed was prepared and executed, bank account formed and applications to their superfunds signed Alex could organise for his employer to start paying his super to his new SMSF. (This was a challenge as they were behind in their obligations).

George liked best of all that the SuperBenefit Programme handled all the set up and documents, storage of records electronically and additionally, had a CONNECT/ASSIST service which provides co-ordination as well as help with who to talk to for advice and other help besides the financial advisor. He also saw value in our private-client share broker who supplied a list twice a year (after the Australian company reporting seasons) summarising financial data on companies with strong financial health that are likely to perform well.  He thought this would work alongside his own analysis and choices.

There is also peace of mind because any queries or compliance issues, could simply be given to the SuperBenefit administrator, who would CONNECT them to the right advisors as required (Connect/Assist Service)

They now had the components in place –

Strategy to take control of the retirement plan, and build super,

Structure use an SMSF using SuperBenefit administration service where ALL is taken care of,

Support with resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connect/Assist service provides, working with the client advisors in unison.

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

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

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MASTERCLASS Investment – What is, and how do you read the Balance Sheet or Financial Position?

MASTERCLASS Investment – What is, and how do you read the Balance Sheet or Financial Position?

Investment – What is, and how do you read the Balance Sheet or Financial Position?

The balance sheet (also known as the statement of financial position, is a snapshot of a company’s health at a particular point of time, such as end of month or end of year. By reading it, we can learn how much a company owns (assets), and how much it owes (liabilities). The difference between what it owns and what it owes is called equity, or “net assets” or “shareholders equity”.
Put another way, the balance sheet tells a lot about a company’s fundamentals: how much debt the company has, how much it needs to collect from customers, how much cash and equivalents it possesses and what kinds of funds the company has generated over a period.

Assets, liability and equity are the three main sections of the balance sheet. They can tell investors a lot about a company’s fundamentals especially when ratios are performed on certain parts.

Here is a simple diagram of the Balance Sheet –

Business Balance Sheet
Assets
There are two main types/groups of assets: current assets and non-current assets or long-term assets.

Current assets are likely to be used up or converted into cash within twelve months. Three important current asset items are: cash, inventories and accounts receivables.

Cash – Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash offers protection against tough times, and it also gives companies more options for future growth. Growing cash, if watched from year to year, can signal strong company performance. A reducing cash pile could be a sign of trouble. So, if loads of cash are more or less a permanent feature of the company’s balance sheet, investors will ask why the money is not being put to use.

Inventory – Inventories are the finished product that hasn’t been yet sold. Investors want to know if a company has too much money tied up in its inventory. Companies have limited funds available to invest in inventory. To generate the cash to pay bills and return a profit, they must sell the product they have manufactured or purchased from suppliers.

Accounts Receivable – are outstanding invoices owed by customers. The speed at which a company collects what it’s owed can tell a lot about its financial efficiency. If a company’s collection period is growing longer, it can indicate problems. The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can bring  trouble later on, especially if customers face a cash crunch. Getting paid sooner is preferable to waiting for it – since some of what is owed may never get paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and most importantly, dividends and growth opportunities.

Non-Current assets – Non-current assets are all the rest that are not classified as a current asset. This includes items that are fixed assets, such as property, plant and equipment . Unless the company is in financial distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since companies are often unable to sell their fixed assets within any reasonable amount of time they are carried on the balance sheet at cost regardless of their actual value. As a result, it’s is possible for a company to inflate this number.

Liabilities
There are current liabilities and non-current liabilities.

Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers, payroll taxes, superannuation, credit cards and other short-term loans.

Non-current liabilities, are what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt.
We usually want to see a manageable amount of debt. When debt levels are falling, that’s a good sign. Generally speaking, if a company has more assets than liabilities, then it is in decent condition. By contrast, a company with a large amount of liabilities relative to assets ought to be examined with more diligence. Having too much debt is one way a company can go bankrupt.

Equity
Equity represents what shareholders own, so it is often called shareholder’s equity. As described above, equity is equal to total assets minus total liabilities. The two important equity items are shareholders’ funds or paid-in capital and retained earnings.

Shareholder Funds are the amount of money shareholders paid for their shares when the stock was first offered to the public. It represents how much money the firm received when it sold its shares.

Retained earnings are profit or loss after tax accumulated over the years – it is money the company has chosen to reinvest in the business rather than pay to shareholders. Investors look closely at how a company puts retained earnings and borrowings/debt (together are called Capital) to use and how a company generates a return on it.

Want to learn the core issues of share investing?

Our slides SMSF & Shares Overview give a quick 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.

If you have questions, call 0407 361 596

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Pensions – Call to save missing out on lost super

Pensions – Call to save missing out on lost super

Pensions – Call to save missing out on lost super

In a pre-budget submission Association of Superannuation Funds of Australia (ASFA) chief executive Martin Fahy called on the federal government to amend the Superannuation (Unclaimed and Lost Members) Act to enable the Australian Taxation Office (ATO) to return unclaimed funds directly to an individual’s current active superannuation account.

“One way to greatly improve the system is to have the ATO, which has the necessary capacity and identifying information, to return unclaimed funds currently captured by legislated threshold transfers,” Fahy said.

“The holding of Tax File Numbers and other identifying information in regard to most superannuation accounts makes it relatively easy for the Commissioner to match lost member account owners with their current active superannuation accounts.”

As of 31 December 2016, inactive super fund accounts over $6000 are transferred to the ATO to be held as unclaimed super, rather than being placed into a person’s active superannuation account.

ASFA estimates the ATO is currently holding an estimated $2.7 billons in consolidated revenue. Fahy contends the move to place the responsibility on the ATO would be welcomed by consumers, many of whom struggle with the complexity of super.

“There would be no Australian rejecting the return of their hard earned funds, particularly when consolidation into an active account could mean thousands extra in retirement,” Fahy said.

“Fund members with missing or lost accounts are more likely to generate earnings with their balance in a super fund, rather than with the ATO, where balances only attract interest at a current rate of 1.5%per year.”

ASFA said that it hopes the government would consider its submission and implement the changes into the upcoming May federal budget.

Taken from – ATO must reunite individuals with lost super: ASFA

What are your Thoughts? Comment below!

Want to know the options and what we need to retire on, the super system in Australia and what is self-managed super? See our FREE slides Super & SMSF for Business owners

Call for free education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. No obligation. 0407 361 596, Paul

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NEWS – New Caps (max amounts) for Contributions before (Concessional) and after tax (Non-Concessional) from 1 July 2017

NEWS – New Caps (max amounts) for Contributions before (Concessional) and after tax (Non-Concessional) from 1 July 2017

NEWS – New Caps (max amounts) for Contributions before (Concessional) and after tax (Non-Concessional) from 1 July 2017

The ATO (Australian Tax Office) confirms the new max contribution amounts for the 2 major contributions methods – before (Concessional) and after tax (Non-Concessional) that begin form 1 July 2017.

From the ATO site

Change to concessional (pre-tax) contributions cap

Concessional (pre-tax) contributions to your super include employer contributions and any amount you salary sacrifice* into super. Personal contributions you claim as a personal super contribution deduction also count as concessional contributions. As these contributions are paid before tax is applied, it means that your super fund pays 15% tax on the contribution when it is paid to them.

From 1 July 2017, the concessional contributions cap is $25,000 for everyone. Previously it was $30,000 for people 50 years and older at the end of the previous financial year and $35,000 for everyone else. The new cap will be indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down).

The intent of this change is to better target tax concessions to ensure the super system is equitable and sustainable.

Change to non-concessional (after-tax) contributions cap

Non-concessional (after-tax) contributions include personal contributions for which you do not claim an income tax deduction. If you have more than one super fund, all non-concessional contributions made to all of your funds are added together and counted towards the non-concessional contributions cap.

From 1 July 2017, the annual non-concessional contribution cap will be reduced from $180,000 to $100,000 per year. This will remain available to individuals between 65 and 74 years old if they meet the work test. The cap will be indexed in line with the concessional contributions caps.

If you have a total super balance greater than or equal to the general transfer balance cap for the year ($1.6 million for the 2017–18 financial year) at the end of 30 June of the previous financial year, and you make non-concessional contributions, they will be excess non-concessional contributions.

See examples and more detail on the ATO site at the links above

Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also!

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           No obligation. 0407 361 596, Paul.

Also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

Posted in News & Stats, Pensions / Income Streams, Retirement Planning, SMSF Info, Superannuation General | Tagged , , , , , , | Leave a comment

Masterclass SMSF – What Happens when an SMSF member dies who is an ex-spouse with a Binding Death Nomination?

An associate had a situation with a client as follows –

A is married to B.

During the marriage A does a BDN in super to B.

We will assume the BDN is valid.

After the BDN, A and B divorce but A doesn’t change his BDN.

A dies.

Is the trustee obliged to pay the super to B as per the BDN?

The associate said (they are a lawyer) they think there are two ways of looking at this –

At the time the BDN was made – B was a dependent of A and therefore the BDN is valid.  The trustee should pay it that way – subject to any other provision of the governing rules of the fund.

Another view is that as A & B are now divorced- that BDN is invalid as B is no longer a dependent.

According to the ATO site the main info states –

Dependent – may include former or ex-spouse ATO says

A person is a dependant of a deceased member if, at the time of death, that person was:

  • the deceased’s spouse;
  • a child of the deceased – this includes a child less than 18 years old or a child that was financially dependent on the deceased and less than 25 years old or the child has a disability;
  • in an interdependency relationship with the deceased – this is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.

For income tax purposes, a person is death benefits dependant of a deceased member if, at the time of death, that person was:

  • the deceased’s spouse or former spouse;
  • the deceased person’s child, aged less than 18;
  • any other person whom the deceased had interdependency relationship.

I also wrote about this here

Binding Death Rules –

Super law does not require an SMSF member to have a death benefit nomination to pay out death benefits.

But, if an SMSF does have one, it will need to first follow the rules of the SMSF’s trust deed (the deed must allow them, and not invalidate the SISA Act) and the rules of super law (SISA act).

For more refer to – SMSFD 2008/3: Binding death nominations.

Snippets here from that link –

The governing rules of a fund are invalid to the extent that they are inconsistent with this SISA requirement.

And it seems this Example 1 given fits into the example you gave –

Example 1

28. In 2004 Jen, a member of an SMSF, makes a valid binding death benefit nomination in the form required under the governing rules of the SMSF. The nomination made by Jen requires the SMSF trustee to provide the whole of any benefit payable in the event of her death to Seth to whom she was married at the time. Under the governing rules of the SMSF a member’s binding death benefit nomination remains valid for five years from the date received by the trustee.

29. In 2006, Jen and Seth divorce.

30. Jen remarries in 2008 but dies later that year. At the time of death the nomination made by Jen in 2004 had neither been revoked nor amended.

31. The SMSF trustee is not required to follow the death benefit nomination which Jen made in favour of Seth. While the death benefit nomination was made in accordance with the governing rules of the SMSF, Seth, no longer being Jen’s spouse, had ceased to be a dependant of Jen for the purposes of the SISA and SISR. Therefore, payment of a benefit to the nominated person would contravene the operating standards of the SISA.

32. As such, the payment of Jen’s death benefits becomes subject to the discretion of the SMSF trustee.

33. In this regard, the SMSF trustee must comply with regulation 6.22 of the SISR and not, subject to limited exceptions, cash the death benefits in favour of a person other than the executor of Jen’s deceased estate or any dependants of Jen.

So it seems that the “other view”, that no-longer dependent, not based on the situation at the time the BDBN was written holds.

But even if no-longer a spouse, there may be dependency via agreed support or court order for income tax purposes – see below

But ultimately, the Trust DEED takes precedence as along as it doesn’t contravene the SIS Act and SIS Regulations

So it seems the Trustee will be BOUND to pay the ex-spouse if still dependent, as I read it… see also further down…

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to  find the right expert to answer your question – it’s FREE also!

No obligation. 0407 361 596, Paul.

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MASTERCLASS Investment – What is a Profit & Loss or Income Statement?

MASTERCLASS Investment – What is a Profit & Loss or Income Statement?

Investment – What is a Profit & Loss or Income Statement?

The Profit & Loss (or income Statement) is one of three reports or statements that a company or business produces which shows how the business has performed. The other two reports are Balance Sheet (Financial Position) and Cash Flow Statement.

The Profit & Loss reports on a particular prior period eg month, quarter, year, and shows the sales or revenue, less cost of the goods sold (if selling product), then takes away the operating expenses or overheads to show either a gain/profit, or loss.

Below that, there may be unusual other income or expenses (non-operating) that are then claimable, and added or taken away after that. For example, sale of assets or events that are not part of the regular operations of the company.

The Components

Revenue or sales are compared to prior years – ideally we want to see growth in sales.

The Cost of Sales will usually include raw material, labour and manufacturing costs to produce goods that are sold. If the business is a service business eg accounting, there are no products, just service.

Gross Profit is Revenue/Sales less Cost of sales and if costs can be reduced or kept stable while sales grow, the business is healthier and seen as an ideal management process.

Operating Expenses or overheads include selling and general administration costs – office expenses, stationary, office and sales staff wages.

Operating Income/profit/revenue will be the Gross Profit less the Operating Expenses, often also known as Earnings Before Interest, Depreciation and Amortisation (EBITDA).

Next Depreciation and Amortisation are listed and deducted, leaving EBIT.

Then Interest and Tax (company tax – Australia is 30%) are listed and deducted.

Net Profit or Net Income is the final amount left

See an example

For the investor

From the investor view point, it is important to gain an understanding of what the company sells, how that compares to similar companies, what costs are involved and whether unnecessary costs are being paid, what gross profit is achieved (often expressed as a percentage so it can easily be compared to similar companies for comparison) and what operating profit at EBITDA and EBIT levels.

Then comparisons with prior years by looking at what changes in sales, Gross Profit and Net Profit – growth or decline, helps the investor determine the efficiency and competency of the management.

Our slides SMSF & Shares Overview give a quick 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.

If you have questions, call 0407 361 596

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