NEWS – Is your SMSF worse off due to poor advice?

NEWS – Is your SMSF worse off due to poor advice?

Is your SMSF worse off due to poor advice?

ASIC has found that 10% of SMSF set up advice is likely to leave people significantly worse off, with 91% of SMSF set up advice files not complying with the law.

The regulator reviewed 250 client files randomly selected from ATO data and assessed them for compliance with the ‘best interest’ duty and other obligations in the Corporations Act. It found that 91% didn’t comply, in part due to failings in record-keeping. In 19% of files ASIC found clients were at increased risk of financial detriment due to a lack of diversification and in 10% the client was “likely to be significantly worse off in retirement due to the advice”. ASIC said it will be taking “follow up” regulatory action.

ASIC Deputy Chair Peter Kell said the standard of SMSF advice must improve.

“A healthy and robust SMSF sector is an important part of our super system. However, it is clear lots of people are setting up self-managed super funds without knowing whether this is the best option. The financial advice sector has significant work to do to lift their performance on this issue.”

Market research conducted by ASIC found that many SMSF trustees do not fully understand their obligations as SMSF trustees, or the risks of SMSFs.

The online survey found 33% of SMSF trustees didn’t know an SMSF was required to have an investment strategy and 29% believed SMSFs have the same protection from fraud as prudentially regulated super funds.

Read More Here

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MASTERCLASS Investment – How to Understand Profit & Loss (or Income) Statements

MASTERCLASS Investment – How to Understand Profit & Loss (or Income) Statements

Investment – How to Understand Profit & Loss (or Income) Statements

As previously explained Company Reports and 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 Statement 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.

After 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 of the Profit and loss Statement

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.

profit-loss-diagram

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 of the Profit and Loss statement is also important, 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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Masterclass SMSF – How the downsizer contribution works from sale of your home near retirement

MASTERCLASS SMSF – How the downsizer contribution works from sale of your home near retirement

SMSF – How the downsizer contribution works from sale of your home near retirement

The 2017 federal budget brought in a new allowance for a new type of superannuation contribution for individuals looking to downsize their principal residence. Michael Hallinan at smsmagazine.com.au explains some of the rules around these new contributions.

The downsizer contributions proposal was announced in the May 2017 budget to address the housing affordability crisis. The policy justification for downsizer contributions is to remove a hurdle for older taxpayers from selling their current homes for smaller homes, thereby freeing up the housing market by increasing supply.

The legislation to implement downsizer contributions has now been introduced in bill form: Namely Schedule 2 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 1) Bill 2017. This bill was introduced into Parliament on 7 September 2017. 

In broad terms, the proposal is that from 1 July 2018 a taxpayer can apply up to $300,000 of the capital proceeds from the disposal of their principal residence as a superannuation contribution for themselves or for their spouse. The contribution will only qualify as a downsizer contribution if the beneficiary of the contribution is aged 65 or over at the time the contribution is made. This contribution will be considered as a non-concessional contribution (NCC).

The contribution can be made despite the beneficiary of the contribution not satisfying the age work test and despite having no or insufficient NCC cap space.

However, downsizer contributions will form part of the total superannuation balance of the beneficiary and will also be counted for the purposes of the transfer balance cap of the beneficiary if and when the downsizer contribution is used to commence an income stream. Consequently, downsizer contributions will have a similar treatment to capital gains tax (CGT) NCCs.

In order to make a downsizer contribution, the taxpayer must dispose of a property that satisfies two requirements.

The first is that there must be a disposal of an ownership interest in relation to the property, which must have been continuously held for 10 years or more prior to its disposal.

The other requirement is that the interest relates to property that must have had the benefit of Division 118 treatment (in whole or in part) or would have been entitled to Division 118 treatment but for the fact the property is a pre-CGT asset. In order to satisfy the second requirement, the property must have a dwelling that was used as the principal place of residence of the taxpayer.

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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Basics about Super – EOFY – End of Financial Year – Last Days – Checklist!!

Basics about Super – EOFY – End of Financial Year – last days – Checklist!!

Basics about Super – EOFY – End of Financial Year – last days – Checklist!!

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 papers documenting all transactions during the year are in hand and ready for auditor and accountant verification later.

Here is a recap of our post last month, with an extra notice about cut off dates (item 1 below) for end of year steps to consider –

1.     Super Fund Contributions cut-off datessome large commercial super funds are requiring contributions in THIS WEEK! It is to allow processing in time with this 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 for 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

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

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 Transfers

You 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.     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 contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. The maximum government co-contribution (scaled as income rises) is payable is for income between $36,813 to max $51,813 (2017/18)  See Co-Contribution

7.     Investment Strategy was followed

Review 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.

8.     Insurance Policies

From 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.

9.     In-House Assets

If 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!

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.

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CASE STUDY – Tradie and Animal Carer Wanted Peace of Mind

CASE STUDY – Tradie and Animal Carer Wanted Peace of Mind

Tradie and Animal Carer Wanted Peace of Mind

Phillip was a tradie running his own business, and his wife was an animal carer, but they need to build for retirement, and their plan was to be able to take control of their super and aim to retire early.

(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 – Phillip and Lyn worked hard and kept busy. They didn’t have children.

2.   WANT to have – The aim was to be self-sufficient and comfortable in retirement, hopefully without Government support.

3.   COST of that lifestyle Estimated in today’s values, the annual income to retire that she desired would be at least $80,000 in today’s money. That would be well over the ASFA definition of “Comfortable” and allow meals out and even occasional trips overseas.

4.   NEEDHow much you need invested to cover the income requiredTo 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. $1,600,000 of income-producing assets other than the family home.

5.   NOW what to do After meeting their advisor 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 –

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.

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 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.

SB Programme educates and coaches you in connection with all the key SMSF admin issues. Where “advice” becomes necessary, we can refer you to a financial advisor. Or alternatively if you have your own financial advisor, please talk with them. 

This is a simplified overview and does not constitute advice, nor consider your circumstances, and should not be solely relied upon.

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MASTERCLASS Investment – End of Year Investment Strategies – Tips to set up for the end of Financial Year

MASTERCLASS Investment – End of Year Investment Strategies – Tips to set up for the end of Financial Year

Investment – End of Year Investment Strategies – Tips to set up for the end of Financial Year

Preparing for the end of year is an important stage as an investor.

Here are a selection of tips for end of year investment strategies to set up well for the end of financial year.

1. 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.

2. Capital Gains review

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.

3. 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.

4. Bring-forward deductions

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.

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

5. 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.

6. Property Investments

(a) Interest that is part private – best to have a separate loan for the investment

(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 – new oven, hot water systems etc.

What are your Thoughts? Comment below!

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.

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Basics about Super – Will your money last? What could living longer mean for your Retirement?

Basics about Super – Will your money last? What could living longer mean for your Retirement?

Basics about Super – Will your money last? What could living longer mean for your Retirement?

Will your money last?

As Australians are now on average living longer, superannuation needs to stretch even further to cover living expenses. Will your money last as long as you live?

You have a 50/50 chance of living as long as your life expectancy and in some cases, you may even exceed it.  So how do you make sure you have enough money stashed away to last a lifetime?

The Australian Securities and Investment Commission (ASIC) has a useful guide that can assist you to estimate how long you will live, how much money you may need and how you can maximize your retirement planning to achieve your target.

Could your life expectancy be even longer?

Over the last century, life expectancies have improved. For example, based on the 2000-02 Life Tables, men at age 65 could expect to live five years longer than compared with the 1960-62 Life Tables. You should allow for the possibility that life expectancies will continue to improve. ASIC asked the Australian Government Actuary to come up with some estimates that take into account possible improvements in mortality rates. The figures shown in Table 1 are based on an assumption that mortality rates will continue to improve from 2000-02 at the same rate they improved over the preceding 25 years. Remember, on average, it is more likely that people at these ages will live beyond the life expectancies shown (if mortality rates behave in line with these assumptions).

Table 1 Life Expectancy

Note: These estimates take into account the falls in mortality rates that might be expected to have occurred already, together with further improvements that could be experienced over someone’s lifetime.

What are your chances of a ripe old age?

Of course, it’s all very well knowing that at typical retirement ages you have a better than 50/50 chance of living beyond your life expectancy, but you probably want to know what are the chances of living past that. For example, at what age is there a 10% chance that you’re still alive? You may be surprised by the figures in Table 2.

Table 2 Chance Living

Note: These are estimates, based on the same assumptions as Table 1. Particular assumptions about future mortality rates may not be borne out in practice, and should not be taken to be forecasts. So don’t be too quick to write off planning for your 100th birthday. Are you likely to be living alone without any children or other close relatives to look after you in your old age? You might want to have some extra money to pay for help at home or a place in your preferred aged care home. Just to be on the safe side, you might want to plan for the 10% chance that you’ll live past 100. You may want to consider other probabilities or survival in Table 3. (We do emphasise that these are estimates, not certainties.)

Table 3 Estim Survival

Note: These are estimates, based on the same assumptions as Table 1. Particular assumptions about future mortality rates may not be borne out in practice, and should not be taken to be forecasts.

To find out if your money is likely to last as long as you do, visit www.moneysmart.gov.au

What does this mean for your retirement plans?

ASIC hopes you’ve now taken on a new lease on life, and are looking forward to living longer and healthier. If you’re concerned about how you’ll support yourself, review your retirement plans, and consider these possibilities:

Sources:

https://www.moneysmart.gov.au

www.aboutseniors.com.au

http://www.superannuation.asn.au/

what's the plan for retirement

Simple steps to TAKE ACTION:

  • Talk with your financial advisor and tax agent;
  • A plan of action is better than NO action;
  • Strategy – to become a controller of your wealth;
  • Structure – maybe a Self-Managed Super fund (SMSF) is the answer; and
  • Support – a service to handle all the set up and compliance such as SuperBenefit.

BONUS tool – Try this simple one-page free tool at 

5 Easy Steps To Plan Your Retirement

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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