Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

What happens with an SMSF member  with a Non-Commutable Pension (cannot take out lump sums or withdraw the full amount) who has recently re-married, and on her death wants to have the income distributed to her spouse, but on the death of the spouse, would like the capital to go to her son of previous marriage. She has a single-member SMSF, and the new husband as the other Trustee. How can these events be achieved?

The Trust Deed (SMSF governing rules) will need to be checked to see if we can do the above – rarely can this sort of detail be noted in a trust deed. Then we vary the deed to specify this specific situation, so that on her death, her pension benefits are paid to the dependent spouse, as a non-commutable death benefit pension ( ie it cannot have a lump sum or the full amount withdrawn), and that on his death, the son will get the final capital.

What are the Potential Problems?

One potential problem is that on the death of the lady, the new spouse will become a member (Section 10(3) of the Superannuation Industry (Supervision) Act 1993 (Cth), or SIS Act). As a member he must become trustee (or director if there is a corporate trustee). This really means he now has FULL control of the SMSF and consequently, FULL control of all the assets! If he doesn’t get on with the son he could override the Trust Deed and possibly take all the money and put that in his own member account or other manoeuvres. When he dies, his account becomes his death benefit which can ONLY be paid to his dependants or legal personal representatives. Hence the son would miss out. The benefits would need to be paid to the spouse’s estate and the son would need to be specified in the spouse’s will as a beneficiary. Wills can be changed, so the payment to the estate could be halted there. A Mutual Wills agreement may assist to mitigate such risk. The son, also, as a third party could challenge the husband’s estate under a testator’s family maintenance claim.

As always, many costs and heartache can be saved by getting advice!

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.

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NEWS – Government and the Labor party may come to an agreement on superannuation changes 2016 budget

NEWS – Government and the Labor party may come to an agreement on superannuation changes 2016 budget

Government and the Labor party may come to an agreement on superannuation changes 2016 budget

The Government and the Labor party may come to an agreement on the superannuation changes announced in the 2016 Budget.

Speaking about the superannuation changes with The Guardian, Shadow Minister for Finance, Jim Chalmers, said: “There is some prospect of agreement with the Government”.

‘We’ve flagged what we’re concerned about, which is really the retrospective elements of the package.”

The ALP have been critical some of the 2016 Budget superannuation measures, in particular the lifetime $500,000 non-concessional contributions cap – which, if enacted as announced, would count contributions since 1 July 2007 and could apply penalties for excess contributions made after 7.30pm on the 3rd of May 2016. “But for some time now we’ve been saying, lets deal with those tax concessions largely at the top end,” Dr Chalmers said.

“So we’ve been as constructive as we can about the Government’s package.”

Dr Chalmers said the Opposition had been critical of the policies, as part of the political process and during the election, along with the “mess” and confusion caused in the community.

“But at the end of the day our task is to come at it constructively, to have an open mind, to try and iron out the bits we think aren’t great, but at the end of the day this might be best opportunity to get some sort of resolution on those very expensive tax breaks at the top end of the superannuation system.”

“So we’ll do what we can. The way we normally describe it is we’ll agree where we can and disagree where we must. But at the end of the day it’s not really about the contest between us and the Government, it’s about getting a good outcome, and I’ve always been relatively confident that we can get a good outcome.”

READ MORE HERE

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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MASTERCLASS – What is Return on Assets – What does it mean and how to calculate?

MASTERCLASS – What is Return on Assets – What does it mean and how to calculate?

What is Return on Assets – What does it mean and how to calculate?

Return on Assets (ROA), is a ratio (one figure divided by another) measuring the profitability, expressed as a percentage of the operating assets – it means we are comparing profit to assets. ROA is an indication of a firm’s efficiency to allocate and manage its resources and return a profit, but unlike Return on Equity, ROA ignores the firm’s liabilities. It is also be called Return on Total Investment (ROTI). The formula for how to calculate ROA is:

ROA = Profit (Net Operating income) ÷ Total (Operating) Assets

ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”. Sometimes interest expenses are added back into net income when calculating because they’d like to use operating returns (operating profit) before cost of borrowing is taken into account.

ROA reveals what earnings were generated from invested ASSET capital. ROA for public companies can vary substantially and is very dependent on the industry of the business, so it is best to compare it against a company’s previous ROA numbers or the ROA of a similar company in that industry.
The assets of the company can be expressed as containing both debt and equity. Both of these are types of financing and are used by business managers to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to generate into profit/net income return. The higher ROA is, the better, because the company is earning more money on the assets (investment).

To give an example,

  • one company A has a net income of $0.5 million and total assets of $2.5 million,  hence 0.5/2.5 and its ROA is 20%;
  • another company B earns the same income amount $0.5 million, but has total assets of $10 million, it has an ROA of 5%.

Comparing these examples in the same industry, company A is better at converting its investment into profit.

One would also look at the ROA of each company over the last 3-4 years to see what the trend is – the aim is for managers to excel at making better profits with little investment. That can indicate a good company that is worth investing our money in.

Get our FREE Expert Guide – Self-Managed Super and You – it has all the info you need to know, with bonus TIPS and CHECKLISTS  to determine if SMSF is for you and what steps are needed to set up. It also gives you ALL the Aust Tax Office publications about SMSF. Get you copy now – click Free Download top right hand side above. You’ll also get monthly SMSF news, investment teaching and upcoming seminar and workshop briefs! Download your FREE Guide now!

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NEWS – Burden of Age Pension is still set to rise – Actuaries Institute Report

NEWS – Burden of Age Pension is still set to rise – Actuaries Institute Report

Burden of Age Pension is still set to rise – Actuaries Institute Report

A study shows the burden of Age Pension is still set to rise, finding that half of Australian retirees tend to be very conservative with drawing on superannuation their savings, but a growing minority exhaust their balances completely before death, according to the Actuaries Institute of Australia research.

Killian Plastow at Investor Daily  writes –

New research commissioned by the Actuaries Institute has found nearly 50 per cent of retirees only draw down the regulated minimum from their superannuation balances. However, the number of retirees who will exhaust their balances entirely is set to grow in coming years, according to the research.

The research data was taken from two sources: an Actuaries Institute-commissioned Plan For Life analysis of data from 15 large super funds, and ATO data provided to the CSIRO.

Anthony Asher, convenor of the Actuaries Institute’s Retirement Incomes Working Group, says the key finding – that half of Australian retirees are conservative – contradicts “some views” that retirees tend to draw down their balances very quickly.

The current number of retirees that completely exhaust their superannuation balances is relatively small, at 5 per cent of SMSFs – but that number is expected to increase in coming years as the population ages, said the report.

The Actuaries Institute notes that approximately 20 per cent of superannuation balances held by retirees aged between 75 and 85 are being drawn down at more than 10 per cent, a level that the institute says is unsustainable.

Mr Asher said more research must be conducted to understand why an increasing number of Australians are using up the entirety of their superannuation balances.

“It could be intentional and a natural step as their income needs decline, such that the age pension is sufficient at older ages. On the other hand, they may have lost money due to dementia, financial abuse of some kind, or poor decision making,” he said.

The data also highlighted that drawdown patterns were “remarkably similar” across retail, industry, corporate and SMSFs, despite industry funds having “significantly lower” average account sizes.

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 – Roger – Opportunity to invest in a local company with his super

CASE STUDY – Roger – Opportunity to invest in a local company with his super

Opportunity to invest in a local company with his super

Roger was working in financial areas and a major bank in the past, now running his own business, and knew there was an opportunity to invest in a local company with his super, using a self-managed super fund (SMSF)

There are 5 main steps to planning anything – start where you are at, what you want to have, what that state/position will cost in money (to maintain or living costs), what you need to meet that cost of having what you want and what action we need to take to get there.

WHERE he was at – Roger was in his 30s and had no partner or children yet. He was busy building up his business.

What he WANTED to have – He wanted to take control of his super and invest in interesting areas that had potential for better returns, but also to know what his super was invested in. Additionally, he wanted to be able to return each year overseas to visit family annually instead of infrequently as current.

What it would COST Although he found it hard to consider what he needed in retirement as it seemed so far away, by meeting several tax, banking and financial advisors, they encouraged him to aim to increase his business income to have more borrowing capacity, and put more into super for the tax advantages, then estimated an annual income to retire  would be $30-40,000 in today’s money. That would be modest and allow an occasional trip overseas if family were still there in years to come.

What he would NEEDTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this meant he required at least 20 times the income goal – that rounded to approx. $600-800,000 of income-producing assets other than family home.

What to do NOW His current super was growing with small business contributions with current balance about $60,000. Roger would aim to contribute half again above his usual contribution of $5,000 per year. He thought of other avenues for income and would prepare fliers to explain the offer and benefits to new client groups and affiliates. He understood the drawbacks of a low balance SMSF but the advisor saw he had good investment experience and knowledge, and had potential to achieve good returns as well as negotiate a lower fee with SuperBenefit in proportion to the accounts and compliance work (that would be low also). Knowing of a business in his building looking to grow, Roger wanted to supply debenture finance loan to support it, and the return would be better than bank interest and some super fund returns. He would also look at listed companies and other opportunities.

Roger liked that the SuperBenefit Programme had a CONNECTOR/ASSIST service which could help him know who to talk to for other help besides the advisor, such as a share broker who supplied a list twice a year after the Australian company reporting seasons, supplying financial data on companies with strong financial health that are likely to perform well.

We were instructed by the planner to set up the SMSF and applied to the super funds to roll-over to the new SMSF bank account.

Roger also had peace because any queries or compliance issues, could simply be directed to SuperBenefit the administrator, who would CONNECT them to the right advisors as required (SMSF Connector/Assist Service)

They now had the components in place –

Strategyto take control of the retirement plan, and build super

Structure an SMSF using SuperBenefit administration,

Support with resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connector 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 Investing – What is Return on Capital – what does it mean and how to calculate rate of return?

MASTERCLASS Investing – What is Return on Capital – what does it mean and how to calculate rate of return?

Investing – What is Return on Capital – what does it mean and how to calculate rate of return?

Return on Capital  is similar to Return on Equity, ROE which we covered before, but also includes capital costs. So what is Return on Capital and how to calculate this rate of return.

Return on Capital is the same formula as Return On Equity ROE, but in addition of the value of ownership in a company (equity), we include the capital employed such total value of debts owed by the company in the form of loans and bonds.

The Formula is:
ROC =             Net Income (profit/earnings) EBIT

                     ( Shareholders’ Equity + Total Liabilities)

How It Works/Example:

Let’s assume Company ABC generated

1.     $5,000,000 in net income last year,

2.     Shareholders’ equity equalled $20,000,000 last year, and

3.     Total debt/liability $10,000,000,

then we can calculate ROC as:
ROC = $5,000,000/($20,000,000+10,000,000) = 0.17 or 17%
This means that Company ABC generated $0.17 of profit for every $1 of capital.

Why It Matters:

ROC is a measure of profit against capital as well as a measure of “efficiency”, which takes into account debt/borrowings.

If there is NO debt, the result will be the same as return on equity (ROE), however, when there is debt, the denominator figure is larger, resulting in a lower ratio figure than the ROE.

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.

See our next seminar/webinars 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 SMSF – What is In Specie Transfer or Contribution?

Masterclass SMSF – What is In Specie Transfer or Contribution?

Masterclass SMSF – What is In Specie Transfer or Contribution?

An “In Specie” transfer or contribution is a way of moving an asset into a Self-Managed Super Fund by ownership without having to actually sell the asset for cash. In specie” is a Latin term meaning “in the actual form”. Transferring an asset in specie means to transfer the ownership of that asset from one person/company/entity to another person/company/entity in its current form/as is, meaning without the need to convert the asset to cash.

Members of a SMSF usually make contributions in cash or employers pay in cash the SG (Super Guarantee) concessional super obligations. Importantly only certain assets listed in the Super Laws can be transferred in specie from a Member who owns the asset, otherwise the transfer is a legal breach.

Assets Allowed for In Specie Transfer

The only assets currently allowed to be transferred to a SMSF from a Member (or an associate of an SMSF Member by blood relation or marriage or entity controlled by a Member) are as follows

  • ASX Listed Securities
  • Widely Held Managed Funds
  • Business or Commercial Property
  • Cash Based investments such as Bonds and Debentures.

Residential Property Note – whilst a SMSF can purchase Residential Property from a person who is not an Member (or an associate/relative of a Member) a SMSF cannot purchase Residential Property from a Member (or an associate/relative of a Member) even if the purchase is at market value, otherwise it is a legal contravention.

How to Transfer Allowable Assets

To transfer ASX Listed Securities from your personal name to the name of the SMSF, an Off Market Transfer Form must be completed and lodged where you list the purchaser of the Shares as your SMSF.  You will not need to specifically state which Member the shares are being allocated to until the year end accounts are prepared.

To transfer Widely Held Managed Funds such as large commercial managers like AMP, Platinum, Colonial  etc.) from your personal name to the name of the SMSF, an Off Market Transfer Form is completed and lodged with the Fund Manager directly. 

To transfer Commercial Property from your personal name to the name of the SMSF, you will need to execute a Contract of Sale and will need a solicitor to prepare the required documentation including lodging the transfer documents with the relevant State Revenue Office.  You will need to list the Purchaser of the Commercial Property as your SMSF.

Market Value of In Specie Assets

It is important to note that all In Specie Transfers of assets from a Member (or an associate/relative) must be transferred at Market Value.  The Market Value must be clearly detailed in the forms for ASX Listed Securities or Managed Funds or in the event of Commercial Property in the Transfer Documentation. 

How the In Specie transfer in is treated in the accounts

When an In Specie Transfer occurs in an SMSF, it can be treated in one of two ways – either as a Contribution or alternatively as an Asset Purchase by the SMSF.

Accounting for an In Specie Transfer as a Contribution (to a member)

If you want the transfer to be treated as a contribution you will need to elect which Member will be allocated the contribution and the type of the contribution to be allocated, namely Non Concessional (no tax deduction claimed) or Concessional (tax deduction claimed, eg employer). Once the election is made, the value of the asset (not the asset itself) will be allocated to the Member when preparing the annual compliance documents for the SMSF.  Remember the Contribution Limits will need to be watched under this option.

Treating In Specie Transfer as an Asset Purchase (to pooled funds)

In this case the value of the asset (not the asset itself) will be allocated on a proportional basis to each Member based on that Member’s existing ownership of the SMSF at the time of the transfer, when preparing the annual compliance documents for the SMSF.

Note – The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Ask us to refer the appropriate professional you can obtain advice from, no obligation.

Get our FREE Expert Guide – Self-Managed Super and You – it has all the info you need to know, with bonus TIPS and CHECKLISTS  to determine if SMSF is for you and what steps are needed to set up. It also gives you ALL the Aust Tax Office publications about SMSF. Get you copy now – click “Free Download” top right hand side above. You’ll also get monthly SMSF news, investment teaching and upcoming seminar and workshop briefs! Download your FREE Guide now!

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