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

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

Opportunity to invest in a local company with his super

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

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

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

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

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

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

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

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

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

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

They now had the components in place –

Strategyto take control of the retirement plan, and build super

Structure an SMSF using SuperBenefit administration,

Support with resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connector service provides, working with the client advisors in unison.

Note – This is a simplified summary of one client – we recommend asking for a FREE consultation and/or seeking further professional advice with our recommended advisors or your own.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

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

No obligation. 0407 361 596, Paul.

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

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

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

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

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

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

                     ( Shareholders’ Equity + Total Liabilities)

How It Works/Example:

Let’s assume Company ABC generated

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

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

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

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

Why It Matters:

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

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

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

See our next seminar/webinars above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596, Paul.

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Masterclass SMSF – What is In Specie Transfer or Contribution?

Masterclass SMSF – What is In Specie Transfer or Contribution?

Masterclass SMSF – What is In Specie Transfer or Contribution?

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

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

Assets Allowed for In Specie Transfer

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

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

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

How to Transfer Allowable Assets

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

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

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

Market Value of In Specie Assets

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

How the In Specie transfer in is treated in the accounts

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

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

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

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

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

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

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

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Super Basics – Save our Super – Federal May Budget Super changes: unfair, unreasonable and undermine trust?

Super Basics – Save our Super – Federal May Budget Super changes: unfair, unreasonable and undermine trust?

Super Basics – Save our Super – Federal May Budget Super changes: unfair, unreasonable and undermine trust?

Jack Hammond, Melbourne QC, says the Federal May Budget Super changes are unfair, unreasonable and undermine trust in the Government. He has begun a campaign and petition – “Save our Super”.

On his site he says –

The proposed changes to superannuation rules would cause millions of Australians who are effectively compelled by the Australian compulsory superannuation scheme to place their trust in the government” to lose their faith in the system.

Certain of the proposed changes are manifestly unfair, unreasonable and undermine trust in government if they are not grandfathered.

Unfair and Unreasonable

It is manifestly unfair and unreasonable to individuals who now, or will, rely on their superannuation savings for a retirement income to make new rules which significantly affects them by penalising their actions taken in good faith, encouraged by the Government, under the then existing rules.

Therefore, appropriate grandfather clauses need to be put in place to protect all affected Australians.

Undermines Trust

A Government’s right to govern is based upon the bond of trust between the people and their Government. Trust is the currency of Government. When, by a breach of trust, a Government debases that currency, the people lose confidence in their Government.

And so it is when Governments make major rule changes to an existing superannuation system. If, as above, as a consequence, they penalise actions people had taken based on the then existing rules, without also providing grandfather clauses, Australians will lose faith in the superannuation system.

Those who will lose faith include the millions of Australians who are effectively compelled by the Australian Compulsory Superannuation Scheme to place their trust in the Government.

Furthermore, those who are yet to enter the superannuation system need to be assured, before they commit their savings to the superannuation system, that they can trust Governments to always treat them fairly and reasonably.

Superannuation – A Long Term Savings Plan Under Threat

Australians’ investment in superannuation is an almost life-long savings plan. It starts from the first superannuation contribution and lasts until the final pension payment.

In 1991, the Superannuation Guarantee levy was imposed. Australian’s participation in superannuation has accelerated from about 30% of employed persons to over 90% today.

Since the 1980s, Australia’s accumulated superannuation savings have risen from an amount equivalent to about 30% of GDP to about 120% of GDP today.

Over time, as more Australians contribute more super funds for longer proportions of their working lives at higher rates, average superannuation balances at retirement should continue to rise.

However, that growth is threatened if appropriate grandfather clauses are not included in superannuation legislation.

How have the proposals appeared to you? What do you think?

To find out more or to sign up for the petition, go – http://saveoursuper.org.au/

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.

What are your thoughts? Start or continue the conversation here!

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NEWS – ATO targets – Lawyer flags areas of increasing ATO interest for SMSFs

NEWS – ATO targets - Lawyer flags areas of increasing ATO interest for SMSFs

ATO targets – Lawyer flags areas of increasing ATO interest for SMSFs

One industry lawyer has outlined areas that the ATO has increased its surveillance and activity broadly and in the SMSF sector, noting it is getting particularly “aggressive” with offshore investments.

Speaking to SMSF Adviser, Arnold Bloch Leibler partner Clint Harding noted the ATO’s surveillance capabilities have vastly improved in the last three years, as the government continues to direct funding and resources towards specific compliance targets.

Money coming to Australia from overseas is high on the ATO’s watch list, Mr Harding said, which can involve funds that make their way into an SMSF.

“When money crosses the border it sets off a little flag with Austrac, and the ATO is now getting pretty aggressive in terms of sending letters to people demanding that they explain the nature of the money,” he said.

“If that’s not clear, the ATO will certainly ask the question, and put the onus on people to demonstrate where it’s come from and what it is,” he added.

Residency statuses is also a key item on the ATO’s agenda, Mr Harding said, in particular where a taxpayer is trying to convince the ATO that they have ceased to become an Australian resident.

Mr Harding said the ATO is closely monitoring the activity of these taxpayers, and again actively pursuing and questioning where there is an element of doubt.

The ATO told SMSF Adviser earlier this year there would be several items on the regulatory radar in the 2016-17 financial year specifically for SMSFs, including related party transactions, out-of-pattern growth in the value of an SMSF, and the tax treatment of funds in pension phase.

AS reported by Katarina Taurian, SMSF Adviser

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

See our next seminar/webinars above.

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

No obligation. 0407 361 596, Paul.

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MASTERCLASS Investing – Investor Risk Profile – What is yours?

MASTERCLASS Investing – Investor Risk Profile – What is yours?

MASTERCLASS Investing – Investor Risk Profile – What is yours?

Everyone has different tolerances toward investing risk. How comfortable you are with the possibility of losing money, what are your timeframes to invest and how do you emotionally deal with volatile returns? Consider investments that balance your appetite for risk with their ability to reach your financial goals. This is a decision that is very specific to you and it is a very important one. Only you can determine your ‘sleep at night’ factor.

So consider the general investor risk profile – what is yours?

Conservative Aim is Capital Protection – you require stable growth with the least risk and/or high income, and look at your investments rarely or every few years, and need return in 12-24 months

Cautious  Capital Protection also, but fairly stable growth and moderate income and investment  period is looking at 3 years or more

Moderate Capital Growth and Income balance, can tolerate some fluctuations in investment value with some income, investing for 5 years or more

Moderately Aggressive  Higher Capital Growth – and lower income is the focus, and looking at being invested for 5-10 years

Aggressive  Highest Capital Growth return with little concern for income, fluctuations in short term accepted in pursuit of highest return, looking at 10 years and over

You may like to consider using one of many tools available (not a  recommendation, such suggestions) –

Risk Profiling

BT Investments

Hesta

Colonial First State

To look at general principles of how you could invest across the various asset classes based on your profile, go to our post Masterclass – Member Risk Profile is Important

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

See our next seminar/webinars above.

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

No obligation. 0407 361 596, Paul.

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Super Basics – Super Changes Budget 2016 – Summary

Super Basics – Super Changes Budget 2016 - Summary

Super Basics – Super Changes Budget 2016 – Summary

Here is a summary of some key superannuation changes announced in the Federal Budget 2016.

This year’s Budget focused on the aim of superannuation, which is to provide income in retirement to substitute or supplement the Age Pension. The measures announced as part of the Government’s Superannuation Reform Package have been proposed to align with this objective and improve the sustainability, flexibility and integrity of the superannuation system.

Summary

  • A lifetime non-concessional contributions cap of $500,000 will be established as at Budget night 3 May 2016.
  • The annual cap on concessional superannuation contributions will be reduced to $25,000. Unused amounts can be used within the next five years. From 1 July 2017.
  • The introduction of a transfer balance cap of $1.6 million on amounts moving into the tax-free retirement phase. Balances will be able to increase above the cap, on account of tax-free earnings, once transferred.
  • The work test for those aged 65 to 74 will be abolished from 1 July 2017.
  • Transition to Retirement changes from 1 July 2017.

Non-concessional contributions (personal) – new lifetime cap

As of 7:30pm AEST on Budget Night, 3 May 2016, the Government introduced a $500,000 lifetime non-concessional contributions (also known as after-tax or personal contributions) cap. This replaces the existing annual NCC cap of $180,000 and bring-forward provisions of 3 years. 

  • The new NCC cap will be indexed to average weekly ordinary time earnings and will take into account all non-concessional contributions made on or after 1 July 2007.
  • Contributions above $500,000 made before the commencement of this cap won’t result in an excess. However, excess contributions made after commencement will need to be removed, otherwise they will be subject to penalty tax. 
  • This measure will also provide Australians with flexibility around when they choose to contribute to their super, and will be available to all Australians up to age 74. 

Concessional contributions treatment

  • From 1 July 2017, the concessional contribution (CC) cap will be reduced to $25,000 for everyone. This means the previous $30,000 cap, and the over-50s cap of $35,000, will be abolished. 
  • From 1 July 2017, the Government will lower what’s called the Division 293 threshold from $300,000 to $250,000. This means that concessional contributions, when added to a client’s income that is over $250,000, will be taxed at 30%.

Catch-up concessional contributions

From 1 July 2017, individuals will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward. Access to these unused cap amounts will be limited to those individuals with a superannuation balance of less than $500,000. 

The annual concessional contribution caps can limit the ability of people with interrupted work patterns – for example women or carers – to accumulate superannuation balances commensurate with those who do not take breaks from the workforce. Allowing people to carry forward their unused concessional contribution cap provides them with the opportunity to ‘catch-up’ if they have the capacity, and choose to do so.

Removal of work test for over-65s who want to make super contributions

If you’re aged between 65 and 74, the good news is that from 1 July 2017, you no longer have to meet the work test (i.e. the requirement that you work 40 hours over a consecutive 30-day period before you can make a contribution).

This means it will be easier for older Australians to increase their retirement savings, in particular from sources that may not have been available to them before retirement – this includes proceeds from the sale of a property.

Transition to retirement pension tax removal

When transition to retirement (TTR) pensions were first introduced, the aim was to enable individuals to reduce their hours of work and supplement their lower income through a non-commutable income stream from their super savings, which paid no tax in the super fund, tax only applied to what was taken (up to 10% max) and individual’s marginal tax rate.

From 1 July 2017, however, earnings in a TTR pension will no longer be tax-free. The earnings will be taxed at up to 15%, the same as if they were in accumulation phase.

It will also remove a rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes.

Introduction of a cap on funds you can use to start a pension

From 1 July 2017, the Government will introduce a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the retirement phase (applies across all pension accounts they may hold). Subsequent earnings on these balances will not be restricted. 

This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by wealthy individuals. Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). 

For those already in retirement and have balances above $1.6 million, you’ll need to reduce your retirement balance to $1.6 million by 1 July 2017. Your excess balances may be converted to superannuation accumulation phase accounts.

Cessation of anti-detriment payments

From 1 July 2017, the ability for super funds to make anti-detriment payments will cease. An anti-detriment payment is essentially the refund of contributions tax paid on a member’s death, that increases the death benefit paid to an eligible beneficiary who does not pay tax.

Something new: The Low Income Superannuation Tax Offset

From 1 July 2017, a Low Income Superannuation Tax Offset (LISTO) will be introduced to reduce tax on super contributions for low-income earners. This replaces the previous Low Income Super Contribution, which will stop on 30 June 2016. 

The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500.

The LISTO will apply to members with income of less than $37,000 in order to avoid paying more contributions tax than they would have if they did not contribute to super.

Got questions?

If you want experts who have years of helping others, without the hype – Then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You – Top right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul

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