SMSF Basics – What is involved in Running your SMSF (Self-Managed Super Fund)

SMSF Basics – What is involved in Running your SMSF (Self-Managed Super Fund)

What is involved in Running your SMSF (Self-Managed Super Fund)

After setting up your Self-Managed Super Fund, there is quite a list of on-going tasks involved in running your SMSF, covering administration, investment strategy and implementing it, compliance, insurance and pension stage responsibilities.

(a)   Administration tasks

Some of the many tasks to keep up with including paying expenses and keeping documents for proof at year end, recording minutes and resolutions of meetings for significant decisions and preparing the annual tax and regulatory return NAT 712266. It is also required that an Operating Statement and Statement of Financial Position be prepared. An independent auditor (not the accountant/tax agent) must be appointed to review the fund is complying, and once a report is given, the income tax and regulatory return can be lodged. A supervisory levy is paid when lodging – over $250.

By law, keep all records including accounting records, statements, annual returns for a minimum of five years. Where-as you must keep records such as minutes of meetings, change of trustee, reports to members and trustee consents, for a minimum 10 years.

(b)   Investment Strategy and Limitations

The law governing all super (SIS Act) at Section 52 requires a written investment strategy be formulated and given effect or put into action. This is to encourage a serious and professional approach. The overall guiding principle is the Sole Purpose Testthat funds are maintained for the sole purpose of providing retirement benefits. This is why some restrictions apply in order to avoid risk, and both the SIS Act and the trust deed need to be consulted. Restrictions include general prohibition from acquiring assets from members and related parties, keeping assets separate from personal and business affairs, limited borrowing rules, personal use of assets, careful use of derivatives and no lending to members.

(c) Compliance, Trustee Responsibilities, Disputes

To stay compliant, Trustees must regularly consult the trust deed to follow it, as well as consider changes in superannuation, taxation and other laws (an update Trust Deed if required), and keep aware of the circumstances of the members. A breach of the trust deed as considered a breach of the superannuation law. In all dealings, the Sole Purpose Test is the key requirement – to maintain the fund solely for the core purpose to provide retirement benefits.

Fund members must live in Australia, so be aware that relocation overseas for can affect compliance.

Outside Dispute resolution between members and trustees is not available via the Superannuation Complaints Tribunal, so Trustees must mediate themselves or resolve via the court system.

(d)   Insurance in your SMSF

The SIS law and Regulations require Trustees to consider and seek advice about member insurance needs. What if…? Ensure that your fund applies for cover that is appropriate – life, total and permanent disability (TPD) and/or disability income insurance (income protection). There are advantages to hold these in an SMSF – for example the premiums are tax deductible for the SMSF. Other considerations may include some circumstances where access to super benefits may be restricted such as disability payments.

(e)   Paying Benefits & Income Streams (Pension)

Contributions by employers (concessional) and members (non-concessional) as well as fund earnings are generally classified as “preserved benefits” and cannot be accessed by members until a condition of release is met. A condition includes meeting preservation age, which are dates determined by member date of birth, as well as officially retiring from work.

Preservation Age

When a member generally meets the age of 60, and has elected to convert super to pension/income stream, the lump sum or income stream payments are tax free. If a member is under 60 and paid a benefit PAYG tax will need to be paid and reported to the member and ATO on a payment summary. The amount withheld is reported to the ATO annually or quarterly.

Other conditions of release include reaching 65 YO, restricted access at preservation age via transition to retirement, death, permanent incapacity, terminal illness.

See ATO publications (number is the ATO Nat number eg NAT11032)

11032    Running a self-managed super fund

71454    How your self-managed super fund is regulated

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Book for a FREE webinar with bonuses, run every month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see SMSF – FREE Seminar or our other seminars above – Share Workshop and Property Boost (every few months) in the menu above or call us 0407 361 596

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CASE STUDY – Chris & Heather liked how SMSF gave the chance for control of investment their OWN super

CASE STUDY – Chris & Heather liked how SMSF gave the chance for control of investment their OWN super

Chris & Heather liked how SMSF gave the chance for control of investment their OWN super

WHERE they were at – Both Chris & Heather liked how SMSF gave them the chance for control of investing their OWN super. Having had short but successful careers in Government and hospitality, and then spent a decade in their own business, they had been through several accountants and some incorrect advice that had set them back years ago. Not only having had bad tax advice and having to pay a huge tax bill one year over several months, as well as working for themselves as sole traders before becoming a company years ago, this meant putting aside super was not possible due to legislation, back then. With children grown up and marrying and themselves aged into late 40’s, they didn’t need the big house any more.

They did the sums and researched renting returns in their suburb and surrounds. They found it would work to rent out the large 5 bedroom home of $470k to a family, rather than the costs to sell and re-purchase. They would then move to a smaller home. Refinancing was too tight at the moment due to recent broken work patterns for personal reasons, so they would rent cheaply and re-sort work and finances for 12-18 months and re-finance then.

The $80k super they had, could work better with the knowledge research of investment and particularly shares that Chris had made over the years, both Chris and Heather were keen to manage their super and invest it themselves.

What they WANTED to have – They knew they needed to catch up if they would have any sort of retirement, and calculated that $40,000 would be comfortable for the living standard they required. Travel would be nice but was not a priority, as being with family and helping with community and charity work was their passion.

What they would NEEDTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this meant requiring at least 20 times the income goal – that rounded to approx. $800,000 in assets. They should be able to get another 3 bedroom home by re-financing in 12 months but that would not produce income. Their super totaled $80,000, and they would have an investment property worth $470,000, so we had $550k in income producing assets, and a further $250K to build up to. There was 15-20 years until retirement to get this together – in asset growth, share returns and saving in super – $16k pa over 15 yrs and $13k pa over 20yrs. They had an achievable plan in place.

What to do NOW After advice and review by the financial planner and their own accountant, as well as the research and seminars they had attended over 18 months – including SuperBenefit’s SMSF, share  and property events, they were feeling more confident about the chance of achieving a good return in their own SMSF. They prepared the family home to rent and found a nice extended family who were keen to move out of their small rental into a more suitable family home! Family helped them move to a small rental for 1-2 years.

We followed instructions and set up the SMSF and applied to the super funds to roll-over to the new SMSF bank account. Then they spoke to the stock broker about the list he had created for SuperBenefit clients, of healthy Aust companies based on the 12 financial health criteria. Since 2010 they have made returns ranging from 8-18%. Conservative estimates showed they were on-track to reach their goal in 16 years – and they were very happy the future was planned and had begun!

They now had the components in place –

Strategyto take control of the retirement plan, build a business and pay-down mortgage;

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 to call on.

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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NEWS – Residential Property is not a Major Asset in SMSFs

NEWS – Residential Property is not a major asset in SMSFs

Residential Property is not a Major Asset in SMSFs

Glenn Freeman writes at Professional Planner

Residential property plays only a minor role in self-managed super fund (SMSF) investment portfolios, according to Graeme Colley, director of technical and professional standards, SMSF Association.

Property is the third-largest asset class of SMSF investment, with the combination of direct investments and real estate investment trusts totalling around 15 per cent of the total pool of SMSF assets.

When it comes to assumptions that residential property equates for a majority of these investments, Colley says, “That’s quite incorrect. In fact, 80 per cent of the investments of SMSFs are in commercial properties.”

“These are not necessarily properties connected to the underlying member of the SMSF or connected entities. They’re also looking at the open market of commercial property and are investing via arm’s length arrangements,” he says.

“SMSFs often get criticised for the proportion of assets invested in those two particular sectors [equities, including property, and cash and fixed term assets] but there’s good reason why people go into it. You want to be really looking at a diversified portfolio.”

“People have this misconception that most of it is invested in domestic property, which is not true. It’s not only in the direct investments of SMSFs, but also indirectly through shareholdings that people might have in equities,” Colley says. READ MORE HERE

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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NEWS – Unpaid Super Means Missing Revenue for Government Revenue

NEWS – Unpaid Super Means Missing Revenue for Government Revenue

Unpaid Super Means Missing Revenue for Government Revenue

The issue of unpaid super by many employers is growing – Katarina Taurian at SMSF Adviser writes As speculation mounts that super tax breaks will be cut, one industry super fund has found the government has lost more than $1 billion in tax due to the non-payment of superannuation guarantee contributions. The losses have accumulated over the past three years, according to Cbus, and the problem of non-payment is continuing to grow. “This problem is getting bigger and is having an increasing impact on workers’ superannuation balances and on government revenues. Most contributions are taxed at 15 per cent which we estimate to be approximately $375 million per year in foregone tax revenue,” said Cbus chief executive David Atkin.

“For workers this impact continues with the loss of compounding interest on the unpaid super. Tria Investments estimate that an average 25-year-old impacted by non-compliance for five years loses 14 per cent of their retirement savings.

Mr Atkin said the tax revenue losses are a “double hit” to the federal Budget, with the government feeling the losses now and also when Australians retire with a lower-than-expected superannuation balance.

“If the government is addressing long-term Budget sustainability then this issue should be a priority for reform. There are some simple but effective steps the government could take,” Mr Atkin said.

“Firstly, investigate aligning payment of the superannuation guarantee with wages…This will reduce the risk of employers failing to contribute and ensure red flags go up early on employers who don’t intend to meet their obligations,” he said.

“Secondly the government should beef up regulatory enforcement and education. Stronger enforcement action will ultimately be the most effective deterrent. Either the ATO needs to be properly resourced to undertake this task or the regulation of the superannuation guarantee should fall to another body such as the Fair Work Ombudsman,” he added.

The ATO is this year targeting its education campaign at employers that have been identified as having a higher risk of not meeting their super obligations, including those in building and child care services, an ATO spokesperson told SMSF Adviser.

The ATO’s audit strategy will include a focus on clothing retailing, management advice and consulting.

“The ATO investigates every employee notification and we keep them informed of our progress for investigating and recovering any unpaid super amounts. We also initiate compliance action on high-risk employers that we identify ourselves,” the spokesperson said… Read More

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Book for a FREE webinar with bonuses NEXT month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see SMSF – FREE Seminar  or call us 0407 361 596.

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

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

No obligation. 0407 361 596, Paul.

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Masterclass SMSF – How an SMSF is set up

MASTERCLASS Investing – Interest Cover – What does it tell investors?

How an SMSF is set up

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

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

1. Preparation – what is involved and suitability

  • Consider options, seek advice, your time, skills
  • What Trustee Type and Eligibility (over 18, no legal disability, not disqualified, no convictions) individuals, corporate (preferred and more stable for succession planning)
  • Member numbers – single, multiple
  • Trust Deed, order/have written
  • Attend a FREE webinar – run each month – Self-Managed Super Fund Roadmap

2. Starting the SMSF

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

3. Operate the SMSF – each year from the start

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

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and 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.
Book for our next  FREE Webinar – 
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CASE STUDY – Taking control of her super with SMSF and a team she could trust

CASE STUDY – Taking control of her super with SMSF and a team she could trust

Taking control of her super with SMSF and a team she could trust

WHERE she was at – Coming from public service, then self-employment with her husband, Antonia was working on her passion with a community cause, in a voluntary capacity, as well as building a new business and awareness of available facilities and support. She had several super funds and wanted to simplify them, try to learn to invest for knowledge and seek better returns. Her voluntary work would not be forever, so she could focus on her passion as both a community service and her own business – educating government and the public.

What she WANTED to have – Having no children, and finding it was easier to be friends rather than live with her husband because they wanted to live different lives, Antonia sought a comfortable living, and to pay off the last amount on her mortgage as soon as possible before retiring at her goal in her late 50’s.

What it will COST Since there was no immediate family or children, she roughly calculated that $45,000 would be comfortable for the living standard she required.

What she would NEEDTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this meant requiring at least 20 times the income goal – that rounded to approx. $900,000 in assets. Knowing her own current home is not an income-producing asset, she did keep in mind that down-sizing may be an option later – she should get a good price in a popular suburb which would be a fallback position to keep in mind. Her super totalled $200,000, and she had a half-share in another property worth $650,000, so we had $525k. She needed to revise her goals – could she make up the shortfall with the business, or would down-sizing the home be the main way after-all?

She decided building her business would provide the cash-flow to pay down the last of the $120,000 mortgage, living leaner for a few years. Then to be able to sell it – $200k would be nice – now we had $725k – maybe the last $375k would have to come from selling the current home after-all, and buying a nice smaller one-bedroom unit near the coast. This all seemed achievable.

What to do NOW She missed our seminar on SMSF, so we had a meeting for a personal plan of advice to be drawn up, as well as a explain the administration and compliance requirements relating to SMSF, including how SMSF was set up, compliance responsibilities and what we would do – obtain the Trust Deed, AND, TFN and have a bank account papers set up ready for her to sign, then applications to her super funds. Her former husband would be co-trustee, but she would be the only member.

We now had the components in place –

StrategyTo take control of the retirement plan, build a business and pay-down mortgage

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 to call on.

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 – Interest Cover – What does it tell investors?

MASTERCLASS Investing – Interest Cover – What does it tell investors?

Investing – Interest Cover – What does it tell investors?

The interest cover ratio, (also known as interest coverage or times interest earned) tells us  how many times the profit of a  company covers its total interest-payment expense bill. The formula is calculated by dividing EBIT (earnings before interest and taxes) by the total Interest Expense. Note – some consider using profit after tax is taken, instead of using BEFORE, is a better indication.

See a detailed working calculation example.

Interest coverage is the equivalent of a person taking the total of their interest costs on mortgage, credit cards, car loans, etc and dividing that into their annual after-tax salary/income. Because the interest cover ratio uses current earnings and current expenses, it indicates a company’s short-term ability to meet interest obligations.

Comparing the result between companies is ONE indication of management, short-term financial health/strength and another view on the company debt situation. The lower the interest coverage result, the higher the company’s debt burden and the greater the possibility of bankruptcy or default especially if low over time. Generally, 1 or below is NOT desired, 1.5 is OK, but over 2 is seen as COMFORTABLE, and desired.

For legendary investor Benjamin Graham, the interest cover was an indication of  the margin of safety available in the investment – he related it to investing in bonds. He borrowed the term from engineering, for example when a bridge was constructed, it may say it is built for 10,000 pounds, while the actual maximum weight limit might be 30,000 pounds, representing a 20,000 pound margin of safety to allow for any unexpected situations.

Interest Cover is also important when interest rates are rising – especially if re-financing is required soon. A higher interest bill will reduce the interest ratio – and can be an important indicator if changing over time.

Some industries tend to have higher interest cover ratios than others, and cyclical companies in particular can experience significant swings in their interest cover ratios (especially during recessions). As such, comparison of interest cover ratios is generally most meaningful comparing companies within the same industry, and the definition of a “high” or “low” ratio should be made in this context.

Want to learn the core issues of share investing? Our workshop “Navigate to Successful Share Investing” gives a 2.5 hour practical 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. Other Bonuses as well. Check the next one see Share WORKSHOP or call 0407 361 596

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