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MASTERCLASS Investment – What is Balance Sheet and how do you read it (Also called Financial Position)?

MASTERCLASS Investment – What is Balance Sheet and how do you read it (Also called Financial Position)?

What is Balance Sheet and how do you read it (Also called Financial Position)?

As previously explained in our post about Company Reports, the Balance Sheet (or Financial Position) 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 Profit and Loss (or Income Statement) and Cash Flow Statement.

The balance sheet (also known as the statement of financial position) is a snapshot of a company’s health at a particular period or 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”.
Another way to explain, 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 –

Balance sheet

Let’s look at the 3 sections of the 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 – 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.

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NEWS – Work test stops 2022 for 67yo-74yo contributions non-concessional (but applies for concessional)

NEWS – Work test stops 2022 for 67yo-74yo contributions non-concessional (but applies for concessional)

Work test stops 2022 for 67yo-74yo contributions non-concessional (but applies for concessional)

The (Australian) federal government will remove the work test for people aged 67 to 74 when making or receiving non-concessional contributions (no tax benefit claimed) into superannuation as part of a budget measure to boost the retirement savings of those who have had limited exposure to the compulsory superannuation system.

The change was outlined in Budget Paper No 2, which stated 67 to 74 year olds will also be able to access the non-concessional bring-forward arrangement, subject to meeting the relevant eligibility criteria, but a number of caps will remain in place.

These include the cap on lifetime superannuation contributions, currently at $1.6 million but changing to $1.7 million from 1 July 2021, and the annual concessional and non-concessional caps. The work test will remain in place for concessional contributions.

A superannuation fact sheet distributed with the budget papers stated the reason for the change was that “retirees aged 70 today potentially had 20 years or more in the workforce before compulsory superannuation was introduced in 1992”.

“That is why the government will amend the work test rules to allow retirees who have not had the benefits of compulsory superannuation throughout their working lives to get more out of the superannuation system. This change also recognises that many retirees have accumulated savings outside of superannuation,” it said.

SuperConcepts SMSF technical and strategic solutions executive manager Philip La Greca said the change was a positive move for individuals who had large sums of money outside the superannuation environment.

“If a person only has a small sum of money, this may not make a big difference in their ability to move it into superannuation, but for those with larger sums, and in conjunction with the bring-forward arrangements, they could get up to $440,000 into superannuation in a single year,” La Greca told selfmanagedsuper.

Jason Spits excert from http://www.smsmagazine.com.au Read more

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Basics about Super – EOFY – Personal End of Financial Year checklist!

Basics about Super

EOFY – Personal End of Financial Year checklist!

Time is moving – End of Financial Year (EOFY) approaches, it’s time to use a checklist to have a review and ensure all is in order and all ACTIONs taken by 30 June deadline, as well as collecting the papers and documenting all transactions during the year for good records.

Here is a personal checklist for end of year steps to consider –

  1. Super Fund Contributions cut-off datessome large commercial super funds are requiring contributions by June 20-24th. This is to allow processing time with the busy end of year period – act fast if you want to claim super by 30 June!
  2. Contribution Caps

The concessional contribution (tax deductible / employer) cap from 1 July 2017 is $25,000 for ALL individuals, regardless of age (earlier years were higher). Take care – if you have more than one fund, ALL concessional contributions made to ALL your funds are added together and counted towards the cap. MORE HERE

  1. Claim Tax Deductions for Personal Contributions (Non-Concessional)
  2. If you are claiming a tax deduction for your superannuation contributions, make sure you are eligible to claim the tax deduction – seek advice if you’re unsure. An error in over-contributing or claiming a tax deduction for personal superannuation contributions could have excess tax consequences.
  3. Minimum Pension taken

If there are members in the pension phase, ensure they have received the required minimum pension amount by 30 June. Failure can result in the investment income derived from your assets supporting that pension no longer being exempt from tax and other penalties could apply. MORE HERE

  1. Claim Tax Deductions for Personal Contributions (also called Non-Concessional)

If you are claiming a tax deduction for your superannuation contributions, make sure you are eligible to claim the tax deduction – seek advice if you’re unsure. An error in over-contributing or claiming a tax deduction for personal superannuation contributions could have excess-tax consequences.

  1. Government Co-Contribution

Remember to take advantage of the Government co-contribution by making a non-concessional (after tax) super contribution before the end of the financial year. For every dollar of eligible contributions, the Government currently contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. It is income-dependent and drops on a sliding scale, so check the latest with the ATO site. See Co-Contribution

  1. Self-Employed? Pay April-June quarter super early if in good profits

If you have a business or company and you are making good profit, discuss with your advisor or tax agent – it may help to pay the quarterly (or monthly) super BEFORE June 30 to get the full tax deduction to reduce profit.

  1. Boost your partner’s super

If your partner earns under $40,000, you can contribute some of your after-tax (savings) up to $3000 to their super fund. You in return get a $540 tax offset against your tax.

  1. Selling a small business – reduce Capital Gains by contributing some to super

If you are selling your small business (subject to current limits and criteria) seek advice whether there is a chance some of the proceeds could be contributed to your super – it may save some Capital gains tax with the small business capital gain concessions.

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MASTERCLASS Investment – Top 8 Tips for Year End Investment Planning

MASTERCLASS Investment – Top 8 Tips for Year End Investment Planning

Top 8 Tips for Year End Investment Planning

Year end investment planning for the end of financial year (EOFY) is a crucial stage as an SMSF investor, as many actions MUST be completed or reviewed before 30 June!!

Here are 8 actions for year end investment planning to set-up well for the end of financial year.

1. Review Portfolio

Review the assets held against your investment strategy and goals.

2. Consider how your investments are structured

When purchasing an investment, it is important to get advice and consider how the investment is owned. Common structures include individual ownership and joint ownership, however structures such as Super, discretionary (family) Trusts and Companies are often miss-used or ignored.

Consider – the type of investment, the expected return, the expected size of the investment and also the end goal of the investment before deciding on a structure, as how an investment is owned can have a big impact on how it is taxed both now and into the future.

3. Capital Gains offset by concessional contributions

If you have made a capital gain, you may be able to reduce how much CGT you will have to pay (or more precisely, how much tax you have to pay for the entire year) by making concessional contributions. For example, if you have made a capital gain of $50,000 (reduced to $25,000 for assets held longer than a year for individuals), then a concessional contribution (CC) will generally reduce your taxable income and might allow you to pay less tax on your capital gain, particularly if it impacts on your marginal tax rate. But, in any case, a $10,000 CC could save your tax return of up $4700, while you’ll pay a maximum of 23.5% on the capital gain itself.

4. Capital Loss & Gains – solidify before 30 June

You could also consider disposing of investments that have experienced a capital loss which is not recovering and/or does not fit in your portfolio anymore. This loss can be used to offset any capital gains you have realised this financial year.

5. Capital gains tax relief in pension mode in SMSF

If you had more than $1.6m in pension or transition-to-retirement pension on 30/6/17, then you were able to potentially take advantage of the CGT relief provisions when selling down assets to meet the Cap., to soften the blow of the new transfer benefit cap (TBC), of $1.6m.

Those decisions need to be made soon, if they have not been made yet, before 30 June.

Note – The action required is rarely portfolio-wide, but should be made asset by asset. There will be assets in most portfolios where you want to apply for the CGT relief, while other assets (potentially, where you’re sitting on losses) where you don’t want the CGT relief, so that you can use a future CGT loss to offset other gains.

It is a complex decision-making process, which might go down to evaluating each parcel of a particular share that you bought over an extended period. Don’t leave this complex work until too close to the deadline – sit down with your adviser and/or accountant to work through this process, sooner rather than later. See Here, left menu 4th item down.

6. Bring-forward deductions/expenses

Bringing forward deductions is a great way to reduce your tax liability for the current financial year. Examples of this are investment subscriptions, pre-paying interest payments on investment loans or paying an annual premium payment for your Income Protection cover.

7. Defer taxable income

If possible, deferring income until after the 1st of July can be a useful strategy. This could involve delaying the sale of an asset or considering when fixed term investments will mature.

8. Property Investments

(a) Interest that is part private – ideal way is to have a separate loan for the investment and private portion to save more work at tax time.

(b) Conveyancing and purchase costs are not deductible, they are part of the cost base for capital gains tax purposes.

(c) Do minor repairs that can be immediately written off before they become major and possible capital repairs and need to be depreciated – eg we had a tap that come loose at the based, and a small water leak had developed under the sink. The water travelled to the downstairs study, and took weeks to show by a small stain in the roof plaster in the study. The tenant took weeks to tell us. We thought it was the shower in the ensuite directly above, but the plumber later found it was the powder room sink tap! Renovating the shower would costs several thousand – which was considered capital expense, fixing the tap, and roof plaster was directly deductable.

(d) Rental property visit costs – are no-longer claimable from 1/7/17 tax years onwards.

(e) Delay large item purchasing, as they are generally depreciated, not immediately deductible – like a new oven, hot water systems etc.

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Masterclass SMSF – Year End Checklist – 12 Tips for EOFY End of Financial Year – start now!

Masterclass SMSF – Year End Checklist – 12 Tips for EOFY End of Financial Year – start now!

Year End Checklist – 12 Tips for EOFY End of Financial Year – start now!

Time is running out – only days left to the End of Financial Year (EOFY), it’s time to have a review to ensure all is in order and all ACTIONs taken by 30 June deadline, as well as collecting papers, documenting all transactions during the year are ready for the accountant and then auditor verification later.

  1. Super Contributions in the SMSF bank account – If you want to claim super contributions in this tax year, they need to be DEPOSITED in full as cleared funds – act soon if you want to claim super by 30 June!
  2. Contribution Caps – The concessional contribution (tax deductible / employer) caps vary some years for ALL individuals, regardless of age (earlier years were higher). Take care – if you have more than one fund, ALL concessional contributions made to ALL your funds are added together and are counted towards the cap. MORE HERE
  3. Minimum Pension takenIf there are members in the pension phase, ensure they have received the required minimum pension amount by 30 June. Failure can result in the investment income derived from your assets supporting that pension no longer being exempt from tax and other penalties could apply. MORE HERE
  4. Claim Tax Deductions for Personal Contributions (Non-Concessional) – If you are claiming a tax deduction for your superannuation contributions, make sure you are eligible to claim the tax deduction – seek advice if you’re unsure. An error in over-contributing or claiming a tax deduction for personal superannuation contributions could have excess tax consequences.
  5. Off-Market TransfersYou are still eligible to conduct in specie contributions of shares to your fund. Listed stock held in your personal name can be transferred to your fund as non-concessional or concessional contributions (if eligible) to your SMSF. Consideration should be given to capital gains tax, contribution caps and the off market transfer procedures.
  6. Bring Forward ruleIf you are under the age of 65, you can bring forward up to two years’ worth of non-concessional contributions, in one year, representing your non-concessional (after-tax) cap over a three-year period. See Here
  7. Government Co-ContributionRemember to take advantage of the Government co-contribution by making a non-concessional (after tax) super contribution before the end of the financial year. For every dollar of eligible contributions, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. See Co-Contribution
  8. Investment Strategy was followedReview your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members.
  9. Valuation of InvestmentsEnsure the assets in your fund have a current value. If you hold unlisted investments such as property or unit trusts, make sure you have documented a process of valuing the assets. It is best to have an independent valuation where possible. See the ATO’s “Valuation guidelines for SMSF’s” for further information. 
  10. Insurance PoliciesSince 1 July 2014, new rules come into effect that will prohibit superannuation fund trustees from providing an “insured benefit” in relation to a member unless the insured event is entirely consistent with a superannuation condition of release. This means that Trauma policies and own occupation Total and Permanent Disability (TPD) policies will not be permitted. However, it is important to note these new rules will not apply to policies taken out prior to 1 July 2014.
  11. In-House AssetsIf your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanors ranging from $820 to $10,200 per breach, per trustee!
  12. Estate PlanningReview what will happen should a member prematurely die. Ask yourself how will the fund continue? What death benefit nominations are in place? Are they binding, lapsing? Are the investments able to be quickly cashed? If the fund has life insurance policies, are they appropriate for the member’s needs, and are the policies correctly set up in the fund? 

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MASTERCLASS Investment – Aust. housing prices: Shane Oliver insights

MASTERCLASS Investment – Failure of traditional investment paths for retirees – expert says

Aust. housing prices: Shane Oliver insights

AMP Capital Chief Economist, Shane Oliver takes a look at Australian House price boom after the COVID-19 global upheaval –

The Australian housing market is booming. Prices are rising sharply, auction clearance rates are very strong, sales are surging, and housing finance is around record highs. This is being driven by record low mortgage rates, multiple home buyer incentives, economic and jobs recovery, pent up demand, activity associated with  a desire to “escape from the city” and an element of FOMO (fear of missing out). Forecasts for prices to rise 15% to 20% in total across this year and next now seem consensus. So here we go again with yet another cyclical property boom against the backdrop of poor affordability and high debt levels! Of course we all know this, but how does the latest upswing fit in the context of the long-term or secular swings in the Australian property market?

Mega booms and busts in Australian home prices

The next chart shows real Australian home prices (average property prices after removing increases in consumer price inflation) indexed to start in 1926 at 100 (red line) against their long-term trend (blue line).

Source: ABS, AMP Capital

Over the last 100 years real property price growth has averaged around 3% per annum in Australia which out of interest is in line with long term average real GDP growth (which is a rough proxy for long-term income growth). While property prices go through lots of short-term cycles, these are less noticeable when annual data is used as in the last chart. In a big picture context, we can see that real Australian property prices have gone through three major long-term booms (highlighted with green arrows) and two major long-term busts or weak periods over the last century.

The current long-term boom was initially set off by the shift from high to low interest rates with mortgage rates dropping from around 17% in the very early 1990s and trending down the point that they can now be found for less than 2%. Through the first half of the 1990s this was offset by recession and there was a fear that rates would bounce up again. But through the second half of the 1990s the trend to lower rates became entrenched and believed. At the same time financial deregulation and increased competition in the home lending market led to easier access to debt. This with the growth of two income families combined to result in home buyers being able to borrow more and hence Australians being able to pay each other more for property. So, prices & household debt surged.

Normally the resultant surge in property prices – with average prices up 11% per annum between 1998 and 2004 – would have led to a surge in supply which would have brought prices back to earth, but this was thwarted from the middle of last decade by a surge in underlying demand for housing. This can be seen in the next chart.

Source: ABS, AMP Capital

Annual population growth surged from around 2005 with average population growth rising from around 215,000 pa over the decade to 2005 to 370,000 over the 2006 to 2019 period, which would have implied roughly the need for an extra 50,000 dwelling per annum but supply did not start to catch up until after 2015, which led to a chronic undersupply of housing.

This combined all goes to a long way to explain how Australian housing went from cheap in the mid-1990s to expensive in the early 2000s and has stayed there ever since. Tax breaks for property and foreign demand at times may have also played a role but the main drivers have been the combination of low rates and an undersupply of property where people wanted to live (big cities). Other countries have low rates and tax breaks too, but they have kept housing more affordable because of a better supply/demand balance eg, according to the Demographia Housing Affordability Survey the median multiple of house prices to income is around 6 times in Australia compared to 3.5 times in the US and 4.5 times in the UK and in Sydney and Melbourne its around 10 times.

The long boom may be close to the end

Our own forecasts see house prices rising another 15% or so out to end 2022, although the pace of growth will likely slow thanks to worsening affordability, likely higher fixed mortgage rates and a likely tightening in lending standards. But there are good reasons to believe that the long-term boom in Australian property prices may be close to an end. The last two long booms were bought to an end by Depression and stagflation which hopefully won’t be the case this time. And it’s not necessarily the case that it will end with a crash either.

However there are three reasons why it may fade in the years ahead:

  • First, the long-term decline in interest rates that began in the early 1980s with bond yields and then spread to Australian mortgage rates interest rates in the 1990s looks like it might be at or close to the bottom. The RBA and other central banks are now resorting to more extreme measures to get inflation back up & some of the structural forces that drove inflation down over the last 40 years, like globalisation and deregulation, look to have run their course. If inflation is bottoming, then so will interest rates and the super cycle of each new economic slowdown leading to even lower mortgage rates and ever higher debt levels driving ever higher house prices relative to wages will come to an end.
  • Second, the chronic under supply of property may be starting to fade thanks to the unit building boom since 2015, the hit to immigration and home building incentives which are likely to keep house building high for the next 12 months at least. As evident in the last chart, supply is likely to remain strong this year and next, but population growth has collapsed implying a shift from property undersupply last decade to oversupply. This can also be seen in the next chart which shows our estimate of underlying demand for housing (blue line) based on population growth and demolitions versus completions of new dwellings (red line). The cumulative balance is shown with the green line and indicates that the surge in underlying demand from 2006 led to an undersupply of more than 200,000 dwellings by 2013. The collapse in population growth has likely now seen this move back to balance and if population growth remains as weak as the Government is projecting over the next two years, and construction stays up, we will move into a clear oversupply. This will be healthy in terms of improving housing affordability for new buyers and renters.

Source: ABS, AMP Capital

  • Finally, the pandemic has seen a profound shift in how office workers work. The work from home (WFH) phenomenon is likely to remain, albeit not five days a week for all. This means less need to live close to work and a greater focus on lifestyle, meaning greater demand for houses in outer suburbs, smaller cities and regional areas which are generally more affordable. It may also mean a significant conversion of CBD office space (as WFH goes from 1 day in 10 pre pandemic to 2 days in 5 post pandemic) to residential, again boosting housing supply.

Concluding comments

The Australian property market has continuously surprised on the upside over the last two decades and it could continue to do so: there could be one last low in interest rates (negative rates anyone?); population growth may bounce back faster than expected once borders reopen; and once the pandemic is over Australians could forget lifestyle and return to the rat race. That said there are good reasons to expect that the forces that have driven average Australian capital city property prices well above trend and well above price to income ratios seen in other comparable countries over the last two decades may be at or close to having finally run their course. Of course, Perth and Darwin may be exceptions to this having just emerged from deep six-year bear markets.

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Basics about Super – 5 more facts about Australian Super, #6-10

Basics about Super – 5 more facts about Australian Super, #6-10

5 more facts about Australian Super

Here are five more facts about the Australian Super system. (For the first 5 Basics 1-5 see earlier HERE)

6. Investment Choices While the big major super funds allow you to choose the level of risk that you want your money invested by the super fund (by choosing from your super fund’s investment options) you have much more choice in self-managed super (SMSF). Of course if you don’t make an investment choice, then your super money in the major super funds is invested in the default investment option. The default option is usually invested in a range of assets, often called the balanced investment option, although some super funds call it a growth option. Investments are spread across high and low risk assets to manage the risk that some of the investments may lose money.

7. Member StatementsYour super fund must send you regular reports (at least annually, including SMSFs) on the fund’s performance, and on your own personal super account performance. Your super fund must also disclose fees charged, and show you any other transactions on your super account (such as the deductions for insurance premiums and taxes).

8. Preservation until you Retire. Your money is preserved in super, which means you generally can’t take your money (benefits) out of the super fund until you elect to retire at or after your preservation age (from age 55 to 60, depending on your date of birth), or when you satisfy another condition of release. For permission to withdraw your super you must, in the correct technical language, satisfy a “condition of release” which are very specific, such as having resigned from your employment.

9. Co-contribution extra from the Government! If you make a deposit of your own personal money (that is non-concessional (after-tax)) contributions to your super fund, depending on your income tax level/margin, the government may put some tax-free money into your super fund for you. This is known as the co-contribution and phases out on a sliding scale, currently, at writing, up to $500. See More at the ATO site.

10. Contributions caps – Max Contributions. There are maximum levels that can be contributed, that you can make each year to non-concessional caps (after tax ) $100,000, years 17-18 & 18-19 (or up to 3 years in one go if under 65YO) and concessional caps (before tax) max $25,000, years 17-18 & 18-19.

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Masterclass SMSF – Acquiring assets from related parties – a possible solution?

Masterclass SMSF – Acquiring assets from related parties – a possible solution?

Acquiring assets from related parties – a possible solution?

Related party assets like residential property cannot be directly purchased – when the SMSF hasn’t enough to borrow itself – acquiring assets from related parties may be possible using a non-geared related unit trust or company.

From August 1999, the only other alternative for your SMSF to invest in a related party unit trust or company (holding greater than the 5% in-house asset limit) is via the non-geared exemption under SIS regulation 13.22B and 13.22C. A SMSF investment using these provisions is not considered an in-house asset.

One of the benefits of the non-geared unit trust or company holding business real property, is it can provide flexibility of ownership between your SMSF and other related parties  compared to direct ownership via tenants in common. Of course, you will need to consider the potential impact capital gains and stamp duty may have when transferring units or shares between parties.

However, these non-geared unit trusts and companies are significantly limited to what assets they can hold or activities they can undertake. The restrictions include not being able to:

  • Borrow or allow a charge over any assets
  • Run a business
  • Hold an interest in another entity (e.g. can’t hold shares in company)
  • Loan money to another entity
  • Lease an asset to a related party, except if the asset is business real property
  • Acquire an asset from a related party of the SMSF after 11 August 1999 except if business real property
  • Acquire an asset that has previously been owned by a related party since the later of 11 August 1999, and three years before the SMSF first invests in the non-geared entity.

Most importantly, if the non-geared unit trust or company breaches any one of the above provisions, then the exemptions under SIS regulation 13.22B and 13.22C ceases immediately; resulting in your SMSF’s investment in the non-geared unit trust or company being classified an in-house asset. This is regardless if the breach is rectified during the current or future financial years.

For a good explanation, see THE SMSF Coach article and consult your advisor, or ask us to refer one for you – best to seek advice BEFORE a costly mistake is made!

Want to know the options and how property works in SMSF? See our Free slides SMSF & Property Overview

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 – Get Admin on track and buy another property, Kathy & Paul

Case Study - Property purchase in Super by finance expert and wife, Jack and Melissa

Get Admin on track and buy another property

Kathy & Paul had busy work positions and 2 very energetic children – they were flat out. They had concerns about where they had set up their SMSF and lack of service and  to get their SMSF accounts up to date, as a new property opportunity had come along.

  1. WHERE it was at – Their SMSF had combined their commercial super accounts with a combined total of over $400,000, and they had purchased an apartment in Melbourne suburbs where demand and growth had good signs and future growth potential. But they felt unsupported and left by the way from the accountants who helped set up the SMSF, and needed the year end accounts and returns up to date, because they wanted to purchase another property.
  2. WANT to have – The goal was to self-fund retirement, with enough to be comfortable, to allow the chance to live without struggle and afford holidays, but keep administration low and simplify the process.
  3. COST of that lifestyle Estimated in today’s values, the annual income aimed for at retirement they wanted, would be at least $90,000. That would be well over the $62,562 (Dec 2020) reported by ASFA definition of “Comfortable”, where “comfortable” enables “…an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”
  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 20th of 100%) this means at least 20 times the income goal – which rounds to approx. $1,800,000 of income-producing assets (other than the family home). There was also the need of administration assistance as they did not fancy doing it themselves!
  5. NOW what to do After a recommendation from a friend and real-estate professional, they met with Paul the Administration Manager of SuperBenefit who supplied a detailed list of what would be included in the service. Once the structure and position of the accounts would be reviewed by an auditor, the catch-up on the administration and accounting and tax returns could begin.

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, if required.

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 –

Strategyto 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.

NoteThis 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.

(There are 5 easy steps to planning anything – start where you are at, decide what lifestyle you want to have, what that lifestyle state or position will cost in money (to maintain 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. Here is how it works with one of our clients.. )

(Get the FREE Resource: 5 Easy Steps to Plan your Retirement)

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 Investment – Failure of traditional investment paths for retirees – expert says

MASTERCLASS Investment – Failure of traditional investment paths for retirees – expert says

Failure of traditional investment paths for retirees – expert says

Retirees need a more innovative approach to investing than that offered by traditional investment portfolios in order to navigate the current low interest rate environment, a retirement income expert has said.

According to Allianz Retire+ chief executive Matt Rady, the traditional investment portfolio approach for retirees is “outdated” and based on flawed perceptions that ultimately leave retirees exposed to low interest rates and higher market volatility.

“Traditional portfolio-construction approaches for retirees are becoming increasingly less effective. What worked in the past in retirement investing isn’t cutting it today,” Rady said.

Using volatility to define risk was a key flaw in the traditional approach to retiree portfolios, he noted, as was an inadequate response to share-market volatility.

“For years, retirees have been told to hold more defensive assets (bonds, cash) and fewer growth assets (equities) as they age. But that theory is now blown out of the water because it consigns them to low returns and a higher risk of running out of money,” he pointed out.

“Retirees have to hold a lot more growth assets to generate the same return as previous years. But that exposes their portfolio to much higher return uncertainty at a time in their life when they have less capacity to recover from financial setbacks.”

He also highlighted the adverse impact of heightened sequencing risk faced by retirees during times of higher volatility.

“Those nearing or just in retirement, who held more shares for yield, watched the value of their shares tumble in March as the pandemic erupted,” he said.

“Sadly, some will never fully recover those losses because their portfolio was in the wrong place at the wrong time.”

One way financial advisers could seek to protect retiree capital was to consider protected-style equity-linked products for their clients, he added.

Read more at smsmagazine.com.au

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