NEWS – TRIS – Transition to retirement (or TTR) now seen as a short-term strategy

NEWS – TRIS – Transition to retirement (or TTR) now seen as a short-term strategy

NEWS – TRIS – Transition to retirement (or TTR) now seen as a short-term strategy

Darin Tyson-Chan at smsmagazine.com.au reports on advice by Grant Abbott who said a Transition to retirement income stream (TRIS) or Transition to Retirement (TTR) is now seen as a short term strategy with recent changes in the last 12 months. He reports –

A transition-to-retirement income stream (TRIS) should be viewed purely as a short-term strategy to enable SMSF members to withdraw money from the accumulation account of the fund, a sector strategist has said.

“Effectively a TRIS now sits on the accumulation side of the fund and it’s not going to sit on the pension side. A TRIS is not a pension, it’s a short-term income stream,” I Love SMSF director Grant Abbott told attendees at a seminar in Sydney today.

“So if you set up a TRIS for your client, because you’re not getting tax benefits in the fund, it should always be a short-term TRIS. The only purpose of setting up a transition-to-retirement income stream is in order to pull that money out of the system.

“And it’s not coming out of the pension side, it’s coming out of the accumulation side.”

Abbott suggested the short-term nature of a TRIS now means when the purpose of starting one of these arrangements has passed, that is, when the member no longer needs to draw funds down from the accumulation side of the SMSF, the TRIS should be commuted.

He pointed out should the need arise again for a particular member to draw funds from the accumulation side of an SMSF, another TRIS can then be commenced.

“It means you can effectively have a three or four-month income stream that is in accordance with all of the annuity and pension laws,” he said. Treating a TRIS as a short-term strategy will mean they no longer need to be considered from an estate planning perspective, he noted.

“The issue of whether a TRIS should be reversionary for estate planning is a furphy because it’s always going to sit in the accumulation account,” he said.

To that end, he recommended the rules governing a TRIS should state it will play no part in a member’s retirement years in its current form. “The terms of the TRIS should state it will automatically convert to an account-based pension when the member retires,” he said.

Also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

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MASTERCLASS Investment – What is the Cash Flow Statement and what do we learn from it?

MASTERCLASS Investment – What is the Cash Flow Statement and what do we learn from it?

Investment – What is the Cash Flow Statement and what do we learn from it?

Today’s Masterclass looks at what is cash flow and the Cashflow Statement, what does it tell us and why it is as important along-side the Profit & Loss and Balance Sheet.

What is the Cashflow Statement –

When we talk Cash flow, we are looking at the ACTUAL CASH and is a way to show the solvency of a business. It is a record of what has happened in the past, like inflow such as the sale of service or product, what was spent and on what in three key areas – Operations, Investing or Financing.  In other words, it shows what a business took in and spent. It can also be projected into the future to predict what is coming and where cash will be short. Cash flow is crucial to managing business survival. Having adequate cash on hand will ensure that suppliers/creditors, employees and others are paid on time. When a business or person does not have enough cash to support its operations, it is said to be insolvent, and a possible candidate for bankruptcy if the insolvency continues, depending on the circumstances.
The Cash Flow statement of a business’s cash flows can be used to gauge financial performance. Companies with spare cash on hand are able to invest the cash back into the business in order to generate more cash and profit.

Cash inflows usually arise from one of three activities – Operations, Investing and Financing, (as well as a result of donations or gifts in the case of personal finance).

Cash outflows are for expenses or investments in assets (both business and personal finance) in the same three activities.

Examples of cash transactions are sales paid into the bank, expenses paid from the bank or purchasing inventory, loans of actual money into the bank, loan instalment payments, prepayment of interest or insurance premiums. NON-cash transactions that will NOT be on the Cash Flow Statement are increase in asset value, depreciation, invoicing such as payment terms 30 days, placing an order for stock to pay in 45 days.
The statement is calculated by adding the non-cash charges (such as depreciation etc) back to net income after taxes. Cash flow can be reported for a specific project, or for the business as a whole. Cash flow is an indication of a company’s financial strength.

The areas of the statement are –

1.

Operating activities

Reports the received and paid parts from the income statement (no invoices outstanding to be paid or to pay).

2.

Investing activities

Reports the cash-paid purchase and sale of long-term investments and property, plant and equipment.

3.

Financing activities

Reports loans taken and re-payments on loans, as well as the issuance and repurchase of the company’s own bonds and stock and the payment of dividends.

4.

Supplemental information

Reports the cash of significant items and reports the amount of income taxes paid and interest paid. Although these are sometimes included in the Operating area above.

Because the Income Statement or Profit & Loss Statement reports under the accrual basis of accounting, the sales/revenues reported may not have been collected yet. Similarly, the expenses reported on the income statement might not have been paid yet. We can review the Balance Sheet changes to see what occurred (debtor or accounts payable increase or decrease, etc), but the cash flow statement already has included all that information.

To use the Cash Flow statement:

the cash from Operating activities is compared to the company’s net income on the Profit & Loss. If the cash from operating activities is consistently greater than the net-profit income, we say the company’s net income or earnings are of a “high quality”. If the cash from operating activities is less than net income, a red flag is raised and we need to look at why the reported net income is not turning into cash.

What are your Thoughts? Comment below!

Want to know the options and what we need to retire on, the super system in Australia and what is self-managed super? See our FREE slides Super & SMSF for Business owners .

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.

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Basics about Super – 6 more things to know about Superannuation in Australia – Super Basics

Basics about Super – 6 more things to know about Superannuation in Australia – Super Basics

Basics about Super – 6 more things to know about Superannuation in Australia – Super Basics

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

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

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

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

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

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

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 your copy now – click “FREE Downloadtop 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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Masterclass SMSF – Related Party Investment SMSF – or In-House asset SMSF – what is allowed?

Masterclass SMSF – Related Party Investment SMSF – or In-House asset SMSF – what is allowed?

SMSF – Related Party Investment SMSF – or In-House asset SMSF – what is allowed?

The Australian Tax Office (ATO) as regulator of SMSFs, is clear about the investing part of running an SMSF –

You need to manage your fund’s investments in the best interests of fund members and in accordance with the law. The self-managed super fund’s (SMSF)’s investments must be separate from the personal and business affairs of fund members, including your own.” (From Here)

In summary from that page, you need to consider the following –

  • Your Investment Strategy
  • Sole Purpose Test
  • Ownership and Asset Protection
  • Member Insurance
  • Restrictions on Investments – especially considering Related Party Investing**
  • Carrying on a Business in SMSF
  • Tax on Income

**Restrictions On Investments

All investments must be made on a commercial ‘arm’s length’ basis. You can’t buy assets from, or lend money to, fund members (or other related parties) unless an exception exists. Generally, your fund can’t borrow money except under strict rules.

The purchase and sale price of fund assets should always reflect a true market value for the asset, and the income from assets held by your fund should always reflect a true market rate of return.

In Summary restrictions need to take into account – (click to get more info, any of the following)

*Related Parties and Relatives

The ATO says

A number of investment restrictions apply to transactions involving ‘related parties’ of your fund and ‘relatives of members’. This is because no-one associated with your fund should get a present-day benefit from its investments. Your fund needs to be maintained for the sole purpose of providing death or retirement benefits to your members or the members’ dependents.

A ‘related party‘ of your fund includes –

  • All members of your fund
  • Associates of fund members, which includes:
    • The relatives of each member
    • The business partners of each member
    • Any spouse or child of those business partners, any company a member (or the members or their associates) controls or influences and any trust the member (or the members or their associates) controls
  • Standard employer–sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of your fund
  • Associates of standard employer–sponsors, which includes:
    • Business partners and companies or trusts the employer controls (either alone or with their other associates)
    • Companies and trusts that control the employer.

A relative of a member means any of the following:

  • A parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
  • A spouse of any individual specified above.

Note there is a distinction that can be drawn between an ‘in-house asset’ and a ‘related party investment’.

An in-house asset is an asset of the fund that is a loan to, an investment in or a lease with a related party of the SMSF.

related party investment is also an asset of the fund that is a loan to, an investment in or a lease with a related party of the SMSF that meets one of the exceptions of the ‘in-house asset’ rules.

They appear similar, but one is in fact a subset of the other and the distinction is important because a fund is not permitted to invest more than 5% of its capital in an ‘in-house asset’, whereas no such cap applies to a ‘related party investment’.

So, when is a ‘related party investment’ not an ‘in-house asset’? That is, what are the exceptions to the ‘in-house asset’ rules?

Some of the exceptions to the ‘in-house asset’ rules include (ie these are allowed):

  • A life policy issued by a life insurance company, but not a life policy acquired from a member of the SMSF or a relative of a member;
  • An investment in a pooled superannuation trust made on an ‘arm’s length’ basis;
  • Business real property subject to a lease, or to a lease arrangement, between the trustee of the fund and a related party of the fund, if the property is business real property of the fund throughout the term of the lease or lease arrangement;
  • An investment in a widely held unit trust;
  • Investment in a non-geared related unit trust or company (see below for restrictions)
  • A unit trust in which the unitholders have fixed entitlements to all of the income and capital of the trust and fewer than 20 entities between them do not have fixed entitlements to 75% or more of the income or capital of the trust;
  • Property owned by the fund and a related party as tenants in common, other than property subject to a lease or lease arrangement between the trustee of the fund and a related party.

Also, an SMSF is able to invest in a unit trust or a company without that investment being considered an in-house asset if certain conditions are met. These include, but are not limited to, the unit trust or company not acquiring an asset from a related party of the fund other than business real property, do not directly or indirectly lease assets to related parties other than business real property and do not conduct a business.

(Also see The three Rs: Responsibility, Related party transactions and Rules Stuart Forsyth, Assistant Deputy Commissioner, Compliance, Strategy, Risk and Delivery, Superannuation)

Interested to know what self-managed super (SMSF) is all about, and if it is for you?

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.

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CASE STUDY – Nicole was preparing the last few years of working her business and preparing for retirement

CASE STUDY – Nicole was preparing the last few years of working her business and preparing for retirement

CASE STUDY – business and preparing for retirement

Nicole had raised her children on her own since separating years ago from an unhealthy marriage.

(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 she was at – Running her own business, Nicole had supported herself and family offering healthy food methods and loved helping people acquire healthy products. She had used our advisor for decades, to assist with many financial decisions and appreciated his advice and sounding-board ear but wanted to be sure about more control of her future.
  2. WANT to have – The aim was to supplement the Government pension, when she was ready to give up the business.
  3. COST of that lifestyle Estimated in today’s values, the annual income to retire that she desired would be at least $10-15,000 in today’s money to top-up the Government pension. That would be well over the ASFA definition of “Comfortable” and allow meals out and even occasional trips overseas.
  4. NEED how 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. $300,000 of income-producing assets other than the family home. She already had $300,000 in 3 super funds.
  5. NOW what to do After meeting their advisor who explained the Pros and Cons of SMSF, then meeting 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:

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.

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 – What is, and how do you read the Balance Sheet or Financial Position?

MASTERCLASS Investment – What is, and how do you read the Balance Sheet or Financial Position?

Investment – What is, and how do you read the Balance Sheet or Financial Position?

As previously explained in our post about Company Reports, the Balance Sheet (or Financial Position) is one of three reports or statements that a company or business produces which shows how the business has performed. The other two reports are Profit and Loss (or Income Statement) and Cash Flow Statement.

The balance sheet (also known as the statement of financial position, is a snapshot of a company’s health at a particular period or point of time, such as end of month or end of year. By reading it, we can learn how much a company owns (assets), and how much it owes (liabilities). The difference between what it owns and what it owes is called equity, or “net assets” or “shareholders equity”.

Another way to explain, the balance sheet tells a lot about a company’s fundamentals: how much debt the company has, how much it needs to collect from customers, how much cash and equivalents it possesses and what kinds of funds the company has generated over a period.

Assets, liability and equity are the three main sections of the balance sheet. They can tell investors a lot about a company’s fundamentals especially when ratios are performed on certain parts.

Here is a simple diagram of the Balance Sheet –

Balance sheetASSETS

There are two main types/groups of assets: current assets and non-current assets or long-term assets.

Current assets are likely to be used up or converted into cash within twelve months. Three important current asset items are: cash, inventories and accounts receivables.

Cash – Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash offers protection against tough times, and it also gives companies more options for future growth. Growing cash, if watched from year to year, can signal strong company performance. A reducing cash pile could be a sign of trouble. So, if loads of cash are more or less a permanent feature of the company’s balance sheet, investors will ask why the money is not being put to use.

Inventory – Inventories are the finished product that hasn’t been yet sold. Investors want to know if a company has too much money tied up in its inventory. Companies have limited funds available to invest in inventory. To generate the cash to pay bills and return a profit, they must sell the product they have manufactured or purchased from suppliers.

Accounts Receivable – Are outstanding invoices owed by customers. The speed at which a company collects what it’s owed can tell a lot about its financial efficiency. If a company’s collection period is growing longer, it can indicate problems. The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can bring trouble later on, especially if customers face a cash crunch. Getting paid sooner is preferable to waiting for it – since some of what is owed may never get paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and most importantly, dividends and growth opportunities.

Non-Current assets – Non-current assets are all the rest that are not classified as a current asset. This includes items that are fixed assets, such as property, plant and equipment . Unless the company is in financial distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since companies are often unable to sell their fixed assets within any reasonable amount of time they are carried on the balance sheet at cost regardless of their actual value. As a result, it is possible for a company to inflate this number.

LIABILITIES

There are current liabilities and non-current liabilities.

Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers, payroll taxes, superannuation, credit cards and other short-term loans.

Non-current liabilities, are what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt.

We usually want to see a manageable amount of debt. When debt levels are falling, that’s a good sign. Generally speaking, if a company has more assets than liabilities, then it is in decent condition. By contrast, a company with a large amount of liabilities relative to assets ought to be examined with more diligence. Having too much debt is one way a company can go bankrupt.

EQUITY

Equity represents what shareholders own, so it is often called shareholder’s equity. As described above, equity is equal to total assets minus total liabilities. The two important equity items are shareholders’ funds or paid-in capital and retained earnings.

Shareholder Funds are the amount of money shareholders paid for their shares when the stock was first offered to the public. It represents how much money the firm received when it sold its shares.

Retained Earnings are profit or loss after tax accumulated over the years – it is money the company has chosen to reinvest in the business rather than pay to shareholders. Investors look closely at how a company puts retained earnings and borrowings/debt (together are called Capital) to use and how a company generates a return on it.

Want to learn the core issues of share investing?

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 Paul

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Pensions Centrelink – Am I eligible for pension?

Pensions Centrelink – Am I eligible for pension?

Pensions Centrelink – Am I eligible for pension?

Wondering if you may be eligible for Government Pension?

These are the criteria for eligibility for Age Pension at the Department of Human Services website at August 2018 – HERE

Pensions Centrelink – Am I eligible for pension?

Check to see if you’re eligible for other support:

which has theses links –

Get your FREE 5 Easy Steps to Plan Retirement One-Page planner from the Resources

Got questions? If you want experts who have years of helping others, without the hype –

then call for a FREE strategy session today

No obligation call 0407 361 596, Paul

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