Masterclass SMSF – Winding up and SMSF – Reasons and what steps are required

SMSF – Winding up and SMSF – Reasons and what steps are required

Many reasons can lead to a decision to close or wind-up your SMSF – but if a change of trustee is the issue, there may be strategies you can apply to keep the SMSF running, as we wrote HERE.

However if closing is the necessity, such as one client who was a  single-member fund with himself as director of a Corporate Trustee and had passed away before he was 60, wind-up is necessary when the trustee of the estate and family request it.

Reasons to Wind up – 

There can be several reasons to wind up your SMSF:

• Members tired of the responsibilities;
• Assets reduced that it is no longer cost effective;
• Key member becomes non-resident for Australian taxation purposes;
• Inability to run the fund due to health reasons of a key member.

Steps to wind up –

A number of tasks need careful management, and is an involved process.

The first place to start is to check all prior year tax and compliance obligations have been met. Then check the trust deed for any specific requirements. Then all members should sign a minute/resolution that they all agree to close the fund and the reasons. Then members need to write to the fund stating whether the benefits are to be rolled into another super fund or paid as a lump sum (if the correct preservation and release conditions apply).

Next draft financial statements are prepared to determine member balances/benefits, factoring in future expenses such as accounting, audit, tax, capital gains, levies and expected income. Assets need to be sold; occasionally “in-specie” (other than money) transfers can occur. Relevant change of ownership documents may need to be prepared.

The final annual return is lodged after assets sold, member benefits paid and audit reports received. The SMSF then notifies the ATO in writing within 28 days, and wait for the ATO to issue written confirmation of ABN cancellation and recording the fund closure.

With corporate trustees, the directors must decide if the company should remain running or be would up. Even if not trading a company remains registered and subject to annual review fees. There are two ways to close down (deregister) the company – apply to ASIC to voluntarily deregister, or a member’s voluntary wind-up initiated by company members. Best to seek assistance. Books must be kept for three years.

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 You – top right hand side above.

 

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 SMSF – Insurance in super – What is allowed and what is not – and how you access it

SMSF – Insurance in super – what is allowed and what is not – and how you access it

Part of the Trustee compliance responsibilities include consideration of holding insurance in SMSF but need to know what is possible and what is not (section 4.09 (2(e)) Superannuation Industry (Supervision) Regulations 1994). However trustees are not compelled to take it out, but provide evidence it was considered.

There are four differing types of insurance that Trustees need to consider (one only applies from old rules).

1. Income Protection (Salary Continuance) Insurance
This provides a benefit if you’re unable to work due to an illness or injury and cannot meet ongoing financial commitments. The premiums are tax deductible to both the SMSF or individual. If the SMSF receives insurance proceeds the member will need to have temporarily ceased work due to physical or mental ill health, to be eligible to receive the benefit in the form of an income stream from the super fund and proof will apply (ie. a condition of release is required). So getting the cover can be limited. Consider if being directly payable to you is more beneficial – and seek advice.
2. Life Insurance
Life insurance provides a lump sum in the event of death to dependents and can help increase the amount payable to cover for loss of earnings and ongoing financial commitments. The premiums are tax deductible to the SMSF, but NOT to an individual. Life insurance is commonly provided together with Total and Permanent Disability (TPD) insurance.
3. Total and Permanent Disability (TPD) Insurance
Total and Permanent Disability (TPD) insurance provides a benefit in the event of becoming totally and permanently disabled.
The premiums are tax deductible to the SMSF, but not to an individual. However, the extent of the premium’s deductibility for the SMSF depends on whether the TPD insurance relates to ‘any occupation’ (From 1 July 2014, the only definition that will be permitted will be the ‘any occupation’ definition, (meaning the ‘own occupation’ definition of TPD will be prohibited from any new policies after July 1 2014) or ‘own occupation’ (which are grandfathered, can remain, if set up before 1 July 2014).
‘Any occupation’ pays a benefit if the insured person is unable to be employed in any occupation for which they are reasonably qualified, educated or experienced, due to ill health. If the policy is based on ‘any occupation’, then the premium remains 100% tax deductible.
‘Own occupation’ (pre-2014) is a policy which will pay a benefit if the insured person is unlikely to be employed in their own specific occupation due to ill health. If the policy is based on ‘own occupation’, 67% of the premium is tax deductible. Where a policy bundles TPD ‘own occupation’ with life insurance, the premium is 80% tax deductable to the SMSF.
Typically ‘any occupation’ policies often require a superannuation conditions of release so access to any benefit payment is often not an issue.
4. Trauma Insurance
Trauma insurance is no-longer available in super and SMSF since 1 July 2014, but policies purchased before 2014 are still valid. SIS regulation 4.07D states that since 1 July 2014, a trustee of a regulated super fund must not provide an insured benefit in relation to a fund member unless the insured event is a condition of release specified in the following items of Schedule 1 of the SIS regulations:

• Death (item 102)
• Terminal medical condition (item 102A)
• Permanent incapacity (item 103). Note that ‘permanent incapacity’ definition is a stricter definition than older insurance policies covering total and permanent disability.
• Temporary incapacity (item 109)

The advantages of Insurance in the SMSF

• Contributions into the fund can be used to pay the insurance premiums;
• Trustees can customise their insurance to suit their specific needs;
• Assists with cash flow outside of super, personal living costs;
• Net cost saving on premiums in some cases

The disadvantages of Insurance in the SMSF

• Sometimes more expensive due to missing wholesale cost savings which commercial funds can access;
• Members may need to qualify for insurance (via medical tests etc) which they were not subject to in a retail or industry fund.

For an overview – see ATO site and Money Smart ASIC site.

Want to learn more, know the options and what we need to retire on, the super system in Australia and what is self-managed super? To get the answers, 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

CASE STUDY – Paul & Paula – Supporting Elderly Mother and Preparing for Retirement

Paul & Paula – Supporting Elderly Mother and Preparing for Retirement

Paul and Paula had her elderly mother living with them so they could provide the best care they could. He also had his consultancy, and Paula worked part-time around her mother. They knew they needed to plan quickly for retirement to build up the small super they had – and liked the idea of property in their super

(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).

1.   WHERE they were at – Paul enjoyed his consulting work. They wanted to down size and move closer to a sea-change area as well as continue caring for Paula’s elderly mum, and had their eye on a particular development near the coast. They both planned to keep working well into their 60’s unless something changed that. And with property rising steadily, they wanted to work on reducing the loan but still wanted to move house and focus on retirement wealth-creation.

2.   WANT to have – The aim was to retire self-funded as much as possible.

3.   COST of that lifestyle – Estimated in today’s values, the annual income to retire that she desired would be at least $60-70,000. That would be well over the ASFA definition of “Comfortable” and allow dinning out and even occasional trips overseas.

4.   NEED – how much you need invested to cover the income required – To be safe, if a conservative investment return of 5% is used, (one 20^th of 100%) this means at least 20 times the income goal – which rounds to approx. $1,200,000 – 1,400,000 of income-producing assets other than the family home. They already had approx. $200,000 in 2 super funds. The value of the consultancy was considered to a bonus and would hopefully be sold as a going concern. Leveraging by borrowing via an SMSF was an option to help boost their super over regular 5-12% returns the average commercial superfund achieves.

5.   NOW what to do – After meeting their advisor and a Property Advisor and Real Estate Agent who explained the Pros and Cons of SMSF, then met with Paul the Administration Manager at SuperBenefit who supplied FAQ sheets, a Checklist of what was required, 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 superfunds signed, it was a simple matter to start organising the investments.

What was liked best of all – that the SuperBenefit Programme made it easy – SuperBenefit manages compliance from the annual documents, storage of records electronically and additionally, has a CONNECT-ASSIST service which provides co-ordination as well as help – with who to talk to for advice and any other help besides the financial advisor.

There was other value in our property investment specialists and private-client share broker, who can supply 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. 

Shares would be the main investment.

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)

The advisors had put these components in place –

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

Structure – use an SMSF and the SuperBenefit Programme administration

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 – it is not to be taken as advice, as your specific circumstances are not considered – we recommend asking for a consultation and/or seeking further professional advice with our recommended advisors or your own advisor.

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 You – top right hand side above.

If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

MASTERCLASS Investment – Difference between Debt and Liabilities

Investment – Difference between Debt and Liabilities

Investors can sometimes mention liability or debt when they mean the same thing.

However more precise –

• debt refers to borrowed money
• liabilities to an obligation of any kind, such as loans, tax or employee super

But when using and comparing company financial ratios – there is a difference between Debt & Liability and one needs to know which is used in the ratio to understand it’s meaning.

For example in the debt-to-equity ratio, debt means the total amount of liabilities both short term (less than 12 months), and long term (over 12 months). This means, debt includes short-term accounts such as overdrafts and credit cards and normally also includes accrued wages and utilities, income taxes due and other liabilities, plus long-term accounts like long-term loans and bonds payable. In other words, sometimes debt means all obligations… all amounts owed… all liabilities.

However, other times, the word debt is used more narrowly to mean only the formal, written financing contracts such as short-term loans payable, long-term loans payable and bonds payable, example – hire-purchase, equipment finance, etc.
As always, keep these in mind to know WHAT is being used – be clear and have it defined!

Want to learn the core issues of share investing?

See our slides SMSF & Shares Overview to get a quick session where you can 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

SMSF Basics – How to set up SMSF – Self-Managed Super Fund

SMSF Basics – How to set up SMSF – Self-Managed Super Fund

Setting up an SMSF is an important decision and has several considerations BEFORE you decide an SMSF is for you, or have had discussions with your financial or tax agent advisor and conclude an SMSF may be a suitable part of your strategy for wealth creation and the retirement you want.

Here is a simplified layout – Step by Step: (sections of the SIS Act and Regulations are given, eg S104A) –

  Preparation – what is involved and suitability

1. Consider options, seek advice, your time, skills
2. What Trustee Type and Eligibility (over 18, no legal disability, not disqualified, no convictions) individuals, corporate (preferred and more stable for succession planning)
3. Member numbers – single, multiple
4. Trust Deed, order/have written
5. Slides – our FREE slides to explain more – SMSF Roadmap Overview

2.   Starting the SMSF

1. Commence the SMSF by executing the Trust Deed
2. Application for ABN, TFN and Regulation by ATO
3. ATO Trustee Declarations signed and kept 10 years S104A
4. Bank Account opened in name of SMSF – MUST segregate super money from personal
5. Roll-in monies – request from your current super funds, and/or contribute own monies and assets as allowed Reg 7.04
6. Decide if you will keep insurance in your current commercial super fund (leaving a small balance there to maintain insurance cover), or get quotes to pay from your SMSF and roll the full super over (call us to find out why this is an important consideration)
7. Organise Employer to contribute to your new SMSF bank account – Complete Standard Choice form, from ATO
8. Investment Strategy decided and write – Reg 4.09.

3.   Operate SMSF – each year from the start

1. Manage contributions from employer or personal, and roll-ins from Super Funds
2. Invest monies as per your Investment Strategy Reg 4.09
3. Life & TPD Insurance Requirements can be paid by SMSF if required
4. Maintain Record keeping, mail, banking – S35B
5. (When later required) – Pensions (benefits) min. payment, documented, application, minutes, actuary certificate (if applic), pension payments – Sub Reg 1.06 (9A)
6. Further Compliance tasks, meeting minutes for major decisions eg change in investment strategy, keep 10 yrs – S103
7. Organise annual return, audit at year end – S35B, S35C(2)(d).

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 You – top right hand side above.

Call 0407 361 596

Masterclass SMSF – BDBN – Binding Death Benefit Nominations that allow more complex planning

SMSF – BDBN – Binding Death Benefit Nominations that allow more complex planning

Last month in our previous post talked about the basics of super death benefit nominations, how tax applies and how they work in general and now we look at how they work for complex estate plans. If the self-managed super (SMSF) trust deed allows more complex estate planning strategies that include death nominations to be made to multiple beneficiaries or specific asset allocations especially with prior and mixed marriage situations, the benefits of SMSF are clearly higher than regular super funds, if this kind of planning is required/desired.

Most common SMSF trust deeds allow simple binding death benefit nominations (BDBN) as a default document that allows little more than nominating one or more individuals to receive a benefit. Where-as a basic nomination is usually the ONLY option available for members of large public offer funds. But these don’t allow for a beneficiary pre-deceasing a member, or leaving specific assets to certain beneficiaries.

For more complex situations, as part of estate planning (remember super does NOT form part of your estate and is NOT controlled by your will directly) a greater range of possibilities should be sought.

This would seek to cater for situations such as:

• Benefits to multiple beneficiaries;
• Allocation of benefits to alternative beneficiaries where one or more pre-decease a member;
• Allocation of specified assets to specified beneficiaries.

Some examples to illustrate the possibilities –

A.     Margaret holds collectable assets in her SMSF, and constructs a BDBN that directs specific assets to certain beneficiaries, and the remainder to another beneficiary, as follows:

• A Monet to son Peter;
• A Ming Dynasty vase to daughter Heather;
• Remainder to husband Phil with a condition that should he pre-decease her, or is no-longer her husband, all remaining benefits will pass to Peter and Heather in equal proportions

B.    Matt and Marsha, with Marsha’s son from prior marriage, Steve, who may not be a dependent of Matt’s at Matt’s death, so Matt prepares a BDBN as follows, that in event of his death, benefits pass as follows:

• First to Marsha;
• Secondly to Steve, if Marsha pre-deceases Matt, with a condition that it is paid ONLY if Steve is a SIS Act dependent at the time;
• Thirdly to Matt’s legal personal representative (LPR or estate) – here they can then pass to Steve under provisions of Matt’s will.

As each situation is different, speaking to an advisor is recommended.

If you require an advisor, call us to arrange a no-obligation discussion.

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 You – top right hand side above.

If you have any questions, we can determine who is best to advise, as general education can only be given – it’s FREE also!

No obligation. 0407 361 596, Paul.

NEWS – Maintain super fund choice and sole purpose

Maintain super fund choice and diversity

Certain characteristics currently embodied in the retirement savings framework, such as fund diversity (free choice of super fund) and the system’s sole purpose (savings for retirement) need to be maintained, according to a panel of senior executives.

Speaking during a panel session at the recent Fairer Retirement Summit in Sydney, SMSF Association chief executive, John Maroney, said it was important for a variety of superannuation funds to be available to manage the retirement needs of Australians.

“I think we would be in difficult areas if everyone said here is the best model [and] everyone has got to look like this,” Maroney said.

“And there is a risk over the next five years that could be the process [where] someone says this type of fund is the best fund and every other sort of fund really doesn’t match up, [so] let’s get rid of all the others and force everyone into one type of fund.

“I think that’s very dangerous so I’d keep that diversity area. Like in the environment diversity of species, potential for evolution, innovation, creativity and engagement are all by-products of having a good healthy ecosystem of different types of funds.”

Fellow panellist Cameron Ralph Khoury consultant Lynn Ralph expressed her wish for the system not to stray from the role it was designed to play.

“Over the [past] 30 years there have been various times where people have argued that people should be able to access their superannuation savings for various purposes. We’ve been talking about housing and how people should be able to access [super] for housing if they haven’t got a deposit yet,” Ralph said.

“But in a minute it’s going to be about healthcare, aged care and a whole bunch of other things.

“I’ve been one of those people that says as soon as you open the door, the door is open and we’ll be accessing it for everything.”

She pointed out there are already early-access provisions in the current system that are strictly monitored for people who need to use their retirement savings for a different purpose, suggesting a degree of flexibility currently exists.

“The system is there for your retirement. That’s its purpose. It’s not meant for 16 other things,” she noted.

Reported by Darin Tyson-Chan at Self-Managed Super Magazine online

SuperBenefit agrees – fund diversity (free choice of super fund) and the system’s sole purpose (savings for retirement) need to be maintained for the integrity and confidence of the system.

SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need for a better result. A call is FREE.

If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul