Masterclass SMSF – When a member dies – What happens and who are “dependents”?

MASTERCLASS SMSF – When a member dies – What happens and who are “dependents”?

SMSF – When a member dies – What happens and who are “dependents”?

Death of an SMSF Member

In the sad situation when a member of a SMSF dies, the Superannuation Industry Supervision Act (SISA) has additional Regulations to go with it, and at Reg 6.21(1) states that the member’s benefits must be ‘cashed’ as soon as practicable. The money is then paid by either a lump sum payout to dependants or to the estate, or an income stream commenced to a dependant (note that a child must be less than 18, or be between 18 and 25 and be financially dependent, or have a severe disability at the time of death for the benefit to be paid as an income stream).

If a member has no surviving dependents

When there is NO spouse (or de facto) or children when they die, there may be other people who were dependant on the member (this is defined in section 10 of the Superannuation Industry Supervision Act 1993 (SISA), as any person with whom you have an ‘interdependency relationship’.)

Section 10A of SISA also explains that an interdependency relationship between two people is where:

(a) They have a close personal relationship; and
(b) They live together; and
(c) One or each of them provides the other with financial support; and
(d) One or each of them provides the other with domestic support and personal care.

Subsection 10A(2), further explains that if two people satisfy the requirement of (a), but they do not satisfy the other requirements because either or both of them have a physical, intellectual or psychiatric disability, then they are still classified as having an interdependency relationship.

The SIS definition of a dependant is inclusive and as such under the common law principles, includes any other person who was a financial dependant of the member (i.e. relied on the member for financial maintenance) just before he/she died.

Therefore, unless relatives or co-habitants in the same household, or nieces and nephews satisfy the above at the time of death, they would NOT be classified as SIS dependants under section 10 of SISA, and NOT be able to receive a payout of death benefits.

Where there are no remaining dependants then there is very little choice. The member’s legal personal representative (‘LPR’) will become the trustee of the SMSF (an automatic appointment under well-written Trust Deeds such as what SuperBenefit provides), assets will be realised and paid out to the estate and then paid out according to the will (for example to nieces and nephews).

The only time that a superannuation fund could pay directly out to non SISA dependants is when after reasonable inquiry the remaining trustees could not find a LPR or any dependants.

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

Call for FREE education, or to speak to an advisor about your specific situation. 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.

Posted in Masterclass SMSF | Tagged , , , , , | Leave a comment

MASTERCLASS Investment – Stock market recovery and timing markets – an historic view

MASTERCLASS Investment – Stock market recovery and timing markets – an historic view

Investment – Stock market recovery and timing markets – an historic view

It is interesting to look back on what history has shown happens in similar situations to get an idea what COULD happen, then assess factors that make the CURRENT situation DIFFERENT and what is LIKELY.

No one knows for sure – we all make educated and informed guesses / estimates.
Let’s look at some great research by leading researchers, and what we can learn.

Graham Hand at Cufflinks looks at How stock markets recover and the perils of timing the markets.

Investors in shares must expect market shocks as part of the long-term benefits of owning part of a company. Over time, stock markets fall one year in every five. History provides a valuable guide to how markets normally recover from shocks, and this article illustrates some of the dangers of exiting equities and not re-entering.

However, it must be acknowledged that coronavirus did not start as a financial shock, such as a rapid fall in share prices or a market collapse such as the GFC or tech wreck. This started as a social and health scare and has spread into financial markets, which might limit what history can teach us. As supply chains close and countries shut their borders, the wealth created by globalisation will be compromised, and with it, economic growth and business activity.

Morningstar has prepared a series of slides based on US data which show market recoveries and some basic investing principles, and we have selected the following four highlights.

1. Stock market contractions and expansions

The stock market moves in cycles with periods of contraction followed by periods of expansion. There have been 8 market downturns in the past 47 years. The regions shaded in orange below highlight a contraction phase of a stock market cycle, and the green regions show an expansion phase. A contraction is defined as a period when the stock market value declines from its peak by 10% or more.

These declines seem to happen at random and last for varying time periods. Expansion measures the recovery of the index from the bottom of a contraction and the subsequent performance of the index until it reaches the next peak level before another 10% decline.

While some periods of decline have been severe, the market has increased over time. For instance, the stock market fell by 14.7% from its peak at month-end May 1990 to its trough in October 1990 but grew by 355.1% from November 1990 to its next peak in June 1998.

No one can predict market declines with certainty. Investors should have a long-term investment horizon to allow their investment to grow over time but returns from stocks are not guaranteed.

Markets recover 1

Note: Large stocks are represented by the Ibbotson® Large Company Stock Index. The data assumes reinvestment of all income and does not account for taxes or transaction costs.

2. Stock performance after recessions

History reveals that small stocks have been among the strongest performers after recessions. Many investors fear the volatility of small stocks, but the potential of this asset class should not be ignored. The chart below shows that, on average, the cumulative returns of small stocks outperformed those of large stocks one month, six months, one year, and three years after the end of a recession.

Diversification does not eliminate the risk of investment losses. Stocks are more volatile than other asset classes. Furthermore, small stocks are more volatile than large stocks and are subject to significant price fluctuations and business risks and are thinly traded.

(On the data, the average cumulative returns are calculated from the end of each of the 10 recessions in U.S. history since 1953. The National Bureau of Economic Research defines a recession as a recurring period of decline in total output, income, employment, and trade, usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy).

Markets recover 2

Note: Large stocks are represented by the Ibbotson® Large Company Stock Index. Small stocks are represented by the Ibbotson® Small Company Stock Index.

3. Risk of missing the best month each year

Investors who attempt to time the market run the risk of missing periods of exceptional returns, compromising an otherwise sound investment strategy.

Missing the one best month during a year drastically reduces returns in this chart. During years when returns were already negative, the effect of missing the best month exaggerates the loss for the year. In seven of the 49 years shown -1970, 1978, 1984, 1987, 1994, 2011, and 2015 – otherwise positive returns would have been dragged into negative territory by missing the best month.

Markets recover 3

4. Risk of missing the best days over the long term

Investors who attempt to time the market run the risk of missing periods of exceptional returns. The following chart illustrates the risk of attempting to time the stock market over the past 20 years by showing returns if investors had missed some of the best days in the market.

The bottom graph illustrates the daily returns for all 5,035 trading days in the sample.

Investors who stayed in the market for all 5,035 trading days achieved a compound annual return of 6.1% from 2000 to 2019. However, that same investment would have returned 2.4% had the investor missed only the 10 best days of stock returns.

Further, missing the 50 best days would have produced a loss of 5.5%. Although the market has exhibited volatility on a daily basis, over the long term, stock investors who stayed the course were rewarded.

The appeal of market-timing is obvious. Investors want to improve portfolio returns by avoiding periods of poor performance. However, timing the market consistently is extremely difficult, and unsuccessful market-timing (the more likely result) can lead to a significant opportunity loss.

Markets recover 4

Note: Stocks in this example are represented by the Ibbotson® Large Company Stock Index.

The overall lessons are:

  • Timing the market is extremely difficult and likely to lead to suboptimal performance;
  • The safest way for an investor to gain from the long-term benefits of investing in equities is to stay invested over time;
  • Responding to short-term falls may mean exiting at the wrong time and struggling for a reinvestment point;
  • Although recessions and market falls can be painful, so is missing the subsequent recovery.

Article source

Want to learn the core issues of share investing?

See our slides SMSF & Shares Overview to get a quick session where you can 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

Posted in Investing - Stock Fundamentals, Masterclass Investment, SMSF Investing | Tagged , , , , , , | Leave a comment

NEWS – Coronavirus Support Package SIMPLIFIED – Early Access to Super

NEWS – Coronavirus Support Package SIMPLIFIED – Early Access to Super

Coronavirus Support Package SIMPLIFIED – Early Access to Super

Due to the Coronavirus COVID-19 significant economic consequences, the Australian Government has enacted a response that was passed in Parliament this week, to support individuals, households, businesses and broader community.

One aspect is the Early Release of Super under certain conditions.

Here is a summary of the key conditions, based on ATO and Treasury website information (links below)

Summary

The Government recognises that for those significantly financially affected by the Coronavirus, having access to some of their superannuation today may outweigh the benefits of maintaining those savings until retirement.

Individuals can apply to access $10,000 in tax year 19/20 and another $10,000 in tax year 20/21.

Eligible individuals will be able to apply online through myGov in Mid-April, to access up to $10,000 of their superannuation before 1 July 2020 and up to a further $10,000 from 1 July 2020 for approximately three months, 24 September.

Eligibility

To apply for early release you must satisfy any one or more of the following requirements:

  1. You are unemployed; or
  2. You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  3. On or after 1 January 2020:
    • You were made redundant; or
    • Your working hours were reduced by 20 per cent or more; or
    • If you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

People accessing their superannuation will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments. It can be returned later, within the usual contribution rules.

How to apply – to commercial superfunds

Those eligible for this new special early release, can apply directly to the ATO through the myGov website: www.my.gov.au from April. You will need to certify that you meet the above eligibility criteria.

You can only apply ONCE  – if you take $8,000 you cannot apply again for the $2,000.

After the ATO has processed your application, they will issue you with a determination. The ATO will also provide a copy of this determination to your superannuation fund, which will advise them to release your superannuation payment. Your fund will then make the payment to you, without you needing to apply to them directly. However, to ensure you receive your payment as soon as possible, you should contact your fund to check that they have your correct details, including your current bank account details and proof of identity documents.

SMSF applications

Separate arrangements will apply if you are a member of a self-managed superannuation fund (SMSF), via the my.gov access as well.

When to Apply

You will be allowed to apply for early release of your superannuation from mid-April 2020 via MyGov site. And again after 1 July 2020 until 24 Sep 2020.

Example – Edward

Edward has had his work hours reduced from 40 hours (on average in the second half of 2019) to 20 hours per week on average in May 2020. As a result, Ed determines that his hours over the last month have reduced by more than 20 per cent compared to the average of his hours over the last six months of 2019.

Ed decides to apply for the early release of $8,000 of his superannuation in May 2020 to help pay his rent and other living expenses. Ed self-certifies that he is eligible for early release on myGov. (He could have applied for up to $10,000, but chose not to.) Ed cannot seek any further early release of superannuation in 2019-20 on the grounds that he has been affected by the adverse economic effects of the Coronavirus.

However, Ed finds after 1 July 2020 that his hours continue to be reduced by more than 20 per cent compared to the average of his hours in the last six months of 2019. Ed decides to make a second application and self-certifies through myGov that he is eligible for early release. Ed submits a second application for the full amount of $10,000 this time.

For each application, the ATO approves Ed’s early release and notifies both him and his superannuation fund. Ed has received a total of $18,000 of his superannuation in two separate payments. He will not be taxed on this amount and is free to spend this money on anything he chooses, or save it for future expenses. He is also free to recontribute any unused amounts to his superannuation in the future (within the contribution caps).

Rachel the sole trader

Rachel is a sole trader with a catering business. At the end of July 2020, Rachel seeks to apply for an early release from her superannuation for the 2020-21 financial year.

Due to the economic effects of the coronavirus, Rachel’s turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019. Rachel therefore determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019.

Rachel self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.

ATO details

For the full details GO HERE.

Outside these Special Coronavirus periods, Early Release in other circumstances under other conditions –

TREASURY Fact sheet with examples

For the full details and detailed examples to demonstrate GO HERE.

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

No obligation. 0407 361 596, Paul

Posted in SMSF Info, News & Stats | Tagged , , , , , , , | Leave a comment

NEWS – Coronavirus Support Package SIMPLIFIED – Stimulus Package 12 & 22 March 2020

Aust. Govt.Support Simplified - Coronavirus

Aust. Govt.Support Simplified – Coronavirus

Summary

Due to the Coronavirus COVID-19 significant economic consequences, the Australian Government has enacted a response that was passed in Parliament this week, to support individuals, households, businesses and broader community.

Here is a comprehensive summary of several ATO Treasury and government websites to give easy reliable access.

 

Aust. Govt Support IndividualsIndividuals

Individuals – Temporary Early Release of Super

Individuals and sole traders directly impacted can access up to $10,000 of super tax-free and can apply in April 2020 via MyGov website, plus a further $10,000 from July 2020, tax-free.

But consider Carefully – you need to declare you are unemployed or work has reduced by 20% or more, and other factors.

Treasury.

ATO details.

Income Support

Expanded eligibility for Income Support for 6 months to both new and existing people for JobSeeker (former Newstart) and 4 other payments PLUS a Coronavirus Supplement of an additional $550, per fortnight. This supplement has expanded eligibility for employees who have been stood down or lost employment, sole traders (who try to sustain their business when possible), self-employed, casuals, contract workers and carers for someone affected by Coronavirus. Asset tests waived but income tests such as leave payouts or insurance payments will apply, plus reduced waiting periods. Payments from 27 April.

Treasury.

Services Aust. details.

Household payments – pensioners, social security and concession card holders

$750 from 31 March and a second payment again from 10 July 2020, for pensioners and concession card holders. For 5 payment recipients such as JobSeeker and Youth Allowance and receiving the Coronavirus Supplement above, will not the second $750.

Treasury.

Services Aust. details.

 

Aust. Govt Support RetireesRetirees

Lower Deeming rates

The deeming rates reduced to upper 2.25% and lower 0.25% rates for income support recipients

Treasury.

Services Aust. details.

Temporary Reduced Minimum Drawdown rates on pensions

Account-based pensions will have rates halved for the 19/20 and 20/21 years (but not be able to put any amounts already paid over the applicable %).

Treasury.

ATO details.

Aust. Govt Support BusinessBusiness

Boosting Cash Flow for Employers

The first support is delivered as a CREDIT when lodging the March to June activity statements minimum $10,000 to max $50,000 over the March, April May and June activity statements. It is based on PAYG paid on wages.

Additional support is delivered as a CREDIT when lodging the June to Sept activity statements minimum $10,000 to max $50,000 over the June, July, Aug and Sep activity statements. To Qualify the entity must continue to be active and paying employees.

These will also be automatically calculated by the ATO as a credit on the activity statement, no forms required, from 28 April with active employers prior to 12 March 2020. Where this raises a refund position, it will be refunded within 14 days.

Treasury.

ATO details.

Protect Distresssed Businesses – Increased thresholds for Statutory Demand, Response time and Insolvency

Otherwise profitable and viable businesses temporarily face financial distress, and there a safety net to make sure that when the crisis has passed they can resume normal business operations. One element of that safety net is to lessen the threat of actions that could unnecessarily push them into insolvency and force the winding up of the business.

Treasury.

Instant Asset Write-off Increase

The instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.

Treasury.

ATO details.

Business Investment – Accelerated Depreciation

Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation, as accelerated depreciation, with existing depreciation rules applying to the balance of the asset’s cost.

Treasury.

ATO details.

Apprentices and Trainees

Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for 9 months from 1 January 2020 to 30 September 2020. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).

Treasury.

Support for Coronavirus Regions and Communities

Funds will be available to assist regions significantly affected during the outbreak and the recovery. In addition, the Government is assisting our airline industry by providing relief from a number of taxes and Government charges estimated to total up to $715 million.

Treasury fact sheet.

Aust. Govt. Support Coronavirus Flow of CreditFlow of Credit

SME Credit

Under the Coronavirus SME Guarantee Scheme, the Government will provide a guarantee of 50 per cent to SME lenders to support new short-term unsecured loans to SMEs. The Scheme will guarantee up to $40 billion of new lending, by further enhancing lenders’ willingness and ability to provide credit.

Treasury.

Other Measures

The Government is cutting red tape by providing a temporary exemption from responsible lending obligations for lenders providing credit to existing small business customers. This reform will help small businesses get access to credit quickly and efficiently.

The RBA announced a term funding facility for the banking system. Banks will have access to at least $90 billion in funding at a fixed interest rate of 0.25 per cent. This will reinforce the benefits of a low cash rate by reducing funding costs for banks, which in turn will help reduce interest rates for borrowers.

Treasury page.

The Top pages for all Information

All Government departments – visit australia.gov.au

Treasury’s Economic Response to the Coronavirus

ATO Covid19

Got questions?

Why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

Posted in Coronavirus COVID-19, Economic Support Package, News & Stats, Super Law & Compliance | Tagged , , , , , , , | Leave a comment

CASE STUDY – Trevor & Julie – Already have property investments, now want property investment in superannuation

CASE STUDY – Trevor & Julie – Already have property investments, now want property investment in superannuation

Trevor & Julie – Already have property investments, now want property investment in superannuation

Trevor and Julie had built a property investment portfolio already. Trevor now had a well-paid job while Julie studied and stayed at home with their young children. Now was the time to put their super in their own control and in their favourite asset – Property.

 

 (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).

  1. WHERE they were at – Julie and her husband wanted to know what was involved if they were to invest via super into property so they spoke to a handful of experts – real estate agents, investor firms, accountant and advisor. They also researched online to supplement this education. The key thing for them was strategy and support.
  1. WANT to have – The goal was to self-fund retirement, with enough to be comfortable, but keep administration minimal and simplify the process.
  2. COST of that lifestyle Estimated in today’s values, the annual income to retire they desired would be at least $100,000. That would be well over $62,000 (Dec 2019) the 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.”
  3. NEEDhow 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. $2,000,000 of income-producing assets other than the family home. They also needed administration assistance as it did not appeal to them!
  4. NOW what to do After researching and talking to several services, they met with Paul the Administration Manager at SuperBenefit who supplied a detailed list of what would be included in the service. Once the structure of the bank and investments was clearly mapped out to ensure all components involved were covered, it was a simple matter to start organising the collection of documents required and have the accounts processed.

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 –

  • Strategy – to 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.

 

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

Posted in Case Studies of Clients, Retirement Planning | Tagged , , | Leave a comment

Masterclass Investment – Working Capital Meaning

Masterclass Investment – Working Capital Meaning

Investment – Working Capital Meaning

Companies need to balance the right amount of working capital to function optimally so let’s look at the working capital meaning.

Working Capital is the liquid (cash) assets/capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. It is also known as the Net Working Capital.

The formula:

Working Capital = Current Assets – (less) Current Liabilities

With too much working capital, they could look at current assets which would be better put to other uses, eg extra cash to purchase better, more efficient equipment that would save costs.

With too little working capital, a company may not be able to meet its day-to-day cash requirements.

The correct balance is obtained through Working Capital Management, and an often-quoted ratio is to have twice the current assets to current liabilities. If you divide the current assets by current liabilities, you have the Current Ratio.

Another term, Gross Working Capital is the sum of all of a company’s current assets (which are those assets that can be converted to cash within a year or less). Gross Working Capital includes assets such as cash, business cheque and savings accounts, accounts receivable (debtors), short-term investments, inventory and marketable securities. From Gross Working Capital, we subtract the sum of all of a company’s current liabilities (those liabilities due in the next year or so) to get Net Working Capital.

Want to learn the core issues of share investing?

See our slides SMSF & Shares Overview to get a quick session where you can 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

Posted in Investing - Stock Fundamentals, Masterclass Investment, SMSF Investing | Tagged , , , , , , , | Leave a comment

Basics about Super – How much do you need to retire in Australia?

Basics about Super – How much do you need to retire in Australia?

Basics about Super – How much do you need to retire in Australia?

It’s not hard to find out – don’t put it off. Be informed and be prepared!

How much do you really need?

Recent research shows that the annual value of Age Pensions paid to those entitled to maximum benefits, amounts to less than half of what a retired single needs to live a comfortable life.

The Association of Superannuation Funds of Australia (ASFA), found that to have a comfortable lifestyle, retired singles who live in their own home need to spend over $43,000 a year and couples over $60,000.

Keeping in mind that the maximum annual Age Pension for singles amounts to just over $23,000 (including the Pension and Energy Supplements) and just over $35,000 for couples, there is a huge shortfall between aspiration and reality, for “comfortable” living.

The news isn’t any better for those single age pensioners around 65YO who are simply looking for a modest lifestyle compared to comfortable.

ASFA lifestyle 65YO Dec 2019 SuperBenefit How much need to Retire

ASFA lifestyle 65YO Dec 2019 SuperBenefit How much need to Retire

For those around 85 YO

ASFA lifestyle 85YO 19dec How much do you need to Retire? Superbenefit

The ASFA Retirement Standard also provides a breakdown by state and territory of how much is needed to support a chosen lifestyle in these areas. 

For up to date details, visit the ASFA – http://www.superannuation.asn.au/ click Resources in the top menu, and click Retirement Standard in the left menu

or this link – http://www.superannuation.asn.au/resources/retirement-standard/

Also look at www.superguru.com.au for tools calculators and information.

Learn more –

Learn if your money will last your LIFE Expectancy – do you know the chances of ripe old age? READ HERE

Call for FREE education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need.

A call is FREE. No obligation. 0407 361 596, Paul

Posted in Basics about Super, Retirement Planning, Superannuation General | Tagged , , , , , | Leave a comment