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.

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

n 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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SMSF Basics – What is the minimum amount for a self-managed super fund?

SMSF Basics – What is the minimum amount for a self-managed super fund?

SMSF Basics – What is the minimum amount for a self-managed super fund?

There are many views on what is the minimum amount for a self-managed super fund to have to make it worth the effort.

It will cost money, like the fees already paid in commercial retail and industry super funds! They have staff and running costs like any organisation.

Minimum amount $200,000 or less?

Overall, there is no right answer when it comes to the minimum amount with which you can start a fund, and $200,000 is often floated about because this is the point at which the cost of running an SMSF is comparable to the cost of having super in a retail fund such as those run by MLC, BT, Colonial or AMP. This equates to about 2% or $4000 per annum. Also, the Australian Securities and Investments Commission (ASIC) suggests $200,000 as a minimum, based on research from Rice Warner and their own assessment (see down the page there).

Note, in some situations it makes sense to start an SMSF with less, for example if the members want more control over their investments, or if the individual already has a high income and expects the SMSF balance will reach $200,000 in the near future. There are cases of people starting with smaller amounts and then quickly ­building their fund through ­contributions. There are now ways to build up an SMSF quite quickly. With SMSFs now able to borrow, such as to invest in residential property, people with account balances of $150,000 can now invest in a $450,000 property, depending on the lender’s criteria.

Lower costs by combining members with small balances

The typical SMSF has two members (70% of SMSF) and it is the combined value of their super that is important. The smaller the fund value, the larger the costs such as accounting, audit and annual lodgement fees will be as a ­percentage of the fund total. Some people start SMSFs with as little as $100,000.

But you can have up to 4 members start an SMSF together, and the same cost is shared over the FULL SMSF, not individual members – and thanks to economies of scale, what it costs someone to run an SMSF through an outsourced administrator has dropped.

With SuperBenefit the costs are negotiable, as we want to work with you and your advisors to succeed, not line our pockets!

However considering minimum accounting and audit costs, it is generally considered to be uneconomic to start with a ­balance lower than say $50,000. The average cost to run a fund is an Average $2500 a year (we can do less), the fund would need to earn 5 per cent a year just to cover costs. The average balance of NEW SMSFs is just over $200,000, and now that the cost of running SMSFs has come down, it ­may make ­economic sense to start SMSFs with smaller balances.

Age to start an SMSF

We are also seeing more young people open SMSFs, because they are empowered by information from the internet and their own investment knowledge. Younger people are also more driven by peer pressure from their friends, so they are emotionally compelled to start their own fund. They also have a sense of invincibility and believe retirement is a long way off, so time is on their side, and people in their 30s and 40s tend to start with lower balances in the knowledge they will build up their SMSF.

What about starting an SMSF with a small amount near retirement – it may or may not make sense, because the cost of running the fund will become more expensive, as a proportion of the balance, once the member starts drawing down on their fund. In addition, people over the age of 65 can earn up to around $26,000 tax free (2 x $18,000 as the tax-free threshold) so the need to have money in super is diminished for senior people and small balances.

Not for everyone

But running your own fund isn’t for everyone and people should think hard about whether they really want to ­manage their own money, especially as the compliance requirements of ­running an SMSF are considerable and the members can face severe ­penalties if they don’t run the fund within the law.

When it comes to finding the right administrator for the fund, although costs have come down as a result of technology and competition, people should be careful of using the cheapest provider.

Often, the cheapest providers don’t deliver the levels of ­service required by SMSF trustees. ­Ultimately the trustees are responsible for ensuring the fund is run correctly, and it isn’t worth taking on this risk for the sake of saving a few hundred ­dollars a year.

 

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.

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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NEWS – Is Transition to Retirement still Viable?

NEWS – Is Transition to Retirement still Viable?

NEWS – Is Transition to Retirement still Viable?

Professional Planner’s writer Alexandra Cain writes about whether the Transition to Retirement strategy is still viable – You could almost feel the wave of disappointment go through the financial planning community after the May 2016 federal budget, when the Coalition Government changed the transition-to-retirement rules.

Before the changes, TTRs were a popular strategy to help pre-retirees build wealth. And they can still work for some clients who truly are transitioning out of the workforce.

Tim Howard, who looks after technical advice at BT Financial Group, says he expects TTRs to be a lot less popular after July 1 this year, when the changes come into force.

“Fewer TTRs are being started now,” Howard says. “But if your client already has one in place, there might be merit in retaining it. It can still be worthwhile if you are benefiting from the drawdown, reducing your working hours and supplementing your income with the TTR strategy. Using the drawdown to accelerate debt repayments may be a reason to continue a TTR.”

Andrew Yee, director, superannuation, with HLB Mann Judd, agrees that TTRs can still make sense if a client is transitioning from full-time employment to part-time work and needs a pension payment from their super fund to supplement their income.

“It can work if their personal income and tax position remain the same,” Yee says. “But now the super fund will pay tax on income from assets paying the TTR pension.”

Let’s say the client is older than 60, salary-sacrificing employer super contributions into their fund and drawing a TTR pension from the fund to replace income lost through dropping down from full-time to part-time work.

Yee explains: “As they are over 60, their pension payments are still tax free post-July 1. But the income in the fund on assets paying the TTR pension will be taxable. There will be a lesser tax benefit but overall they are likely to be better off financially. [However,] you need to do the numbers beforehand.”

He says if someone under age 60 had mainly tax free-component super benefits in their fund, their pension payments would also be mainly tax free. So they could end up in a similar position to someone older than 60.

In some circumstances, however, it could make sense for the fund to return to accumulation stage.

“If you are between 55 and 60 years of age, it could be the case that the tax on income from the pension, combined with the earnings tax within the fund, outweighs the benefit of retaining the TTR,” says David Reed, from The Retirement Advice Centre.

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.

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CASE STUDY – Alex – Wanted to use SMSF to purchase property and take control

CASE STUDY – John & Lyn – To use SMSF to take control and work towards property in super

Alex – Wanted to use SMSF to purchase property and take control

Alex is a keen property investor with many years’ experience and had also researched Self-Managed Super funds (SMSF) as a way to take control of his retirement savings and how to purchase property in super. He already had several investment properties and he knew the changes to super since 2007 now allowed more investment possibilities, such as borrowing for property and diversifying into shares and other assets .

(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 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 – Alex was a professional who managed his own investments and wealth himself. He had about $85,000 when he pooled all his super funds together, and was paying off their own home, having a young family still with them. There were also several investment properties.

WANT to have – Alex wanted to be self-sufficient and comfortable as much as possible and not rely on the Government Pension, which is becoming a concern around the world for all Governments and citizens, due to ageing populations.

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 costTo 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).

Alex 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, such as investment property experts, and 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.

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 SMSF – Latest Changes to Pensions and Superannuation

Masterclass SMSF – Latest Changes to Pensions and Superannuation

SMSF – Latest Changes to Pensions & Superannuation

The 2016 Australian Government Budget handed down in May issued the most changes to pensions and superannuation seen in years, as part of the broader reform agenda to improve the sustainability and equity of our super system.

Some of the key elements are outlined here, from 2 main tranches of draft legislation in September –

Clearer Definition of the Objective of Super

“To provide income in retirement to substitute or supplement the Age Pension” and includes smoothing over an individual’s life, management of the risks of retirement, alleviate fiscal pressures on Government, and simplicity and efficiency.

Spouse Contributions

Entitled to tax offset up to max $540 per year for contributions to their spouse’s super whose assessable income is less than $40,000 (currently $13,800).

Reduced tax on contributions for low income earners – new LISTO

Those on income less than $37,000 will have up to $500 paid to cover the 15% employer/concessional contributions tax paid by the super fund.

Pension “Total Balance” cap of $1.6 Million

This is the maximum amount that can be transferred into a Tax-Free income stream for use when eligible for retirement, as from 30 June 2017, and no further contributions will generally be possible to that portion.  Super in excess will remain in accumulation phase, at 15% tax.

Concessional Contribution Caps

From 1 July 2017 the max will be $25,000 down from $30,000 and $35,000 for over 50’s, currently.

Non-Concessional Cap

This is after tax contributions from personal funds – the lower max will be $100,000 for 1 July 2017 with a bring-forward rule of 3 years at one time [$300,000) at once if under 65 and TOTAL super balance is under $1.6 million.

Other Measures

There are also catch-up provisions for those who have not had the full concessional contributions made say due to interrupted work patterns.

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.

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