Masterclass SMSF – Borrowing in SMSF – Careful with Apartments and Car Parks!

Masterclass SMSF – Borrowing in SMSF – Careful with Apartments and Car Parks!

SMSF – Borrowing in SMSF – Careful with Apartments and Car Parks!

Last month we covered an overview of the Cans and Can’ts with Borrowing in an SMSF.

CAUTION However when it comes to apartments, be careful – get the facts BEFORE you commit!

Several clients have found that when the loan is being organised and the Custodian/Bare Trust prepared needs to specify exactly the asset by address and title, that it comes to light the apartment and car park are often separate titles! This means there must be 2 loans, because with SMSF borrowing, the Law states only ONE asset (or a group of ALIKE assets, such as a parcel of shares) can be acquired with lending, this way.

This is called Limited Recourse Borrowing Arrangement – LRBA – limited because the lender ONLY has RECOURSE in a time of default and calling in the loan, to the asset that the money was loaned for – not any other super assets/money – but the lenders cover themselves by making the Trustees PERSONALLY liable by signing as Guarantors for the SMSF!!! So understand what is involved!!

And in some cases the lender may not lend to purchase a car park!

The solution – talk to an accredited SMSF loan specialist or Real Estate professional such as Gaetano or Uwe BEFORE you sign anything!

And not just anyone (we find some brokers have little understanding of this COMPLEX area) so if you need a referral, that is what our CONNECT service provides – both for clients and non-clients – so don’t hesitate to get another opinion – 2-3 will give you peace of mind!

Another solution, is that the SMSF may buy the car park out-right, and just organise borrowing for the apartment.

Talk to someone about the property and what is potentially involved! MOST people don’t and the double loan fees and costs eat into any gains and profits!

Want to know the options and how property works in SMSF?

See our FREE slides SMSF & Property Overview

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.

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

0407 361 596, Paul

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NEWS – Super changes coming 1 July 2017! – In summary

NEWS –Super changes coming 1 July 2017! - In summary

NEWS –Super changes coming 1 July 2017! – In summary

The Budget, last year has had many reforms legalised, and many begin on 1 July 2017. Here is a summary of key changes.

SB Contributions from b4 Tax

What are your Thoughts? Comment below!

Want to learn more, know the options and what we need to retire on, the super system in Australia and what is self-managed super ? To get the answers, see our FREE slides Super & SMSF for Business owners

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

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MASTERCLASS Investment – What is PEG – Price to Earnings Growth

MASTERCLASS Investment – What is PEG – Price to Earnings Growth

Investment – What is PEG – Price to Earnings Growth

In an earlier Masterclass we covered the PE Ratio – Price to Earnings Ratio. From that, a variation of PE is the growth of the PE – ie PE growth. This takes into account the stock’s value while considering the company’s earnings per share growth.

                Price/Earnings ratio

PEG =    Annual EPS growth

It is sometimes favoured over the price-earnings ratio because it also accounts for growth of earnings. It is similar to the P/E ratio in that a lower PEG means that the stock is more undervalued. One should keep in mind that the numbers used in the calculation are considered projected and therefore are only estimates. Also, there are many variations using earnings from different time periods (e.g., one year versus five years), and whether the annual growth is projected (a future prediction) or trailing (past history), so you need to know the exact method and time-frame the source is using.

As an example, consider two companies

The first has P/E ratio 50 and annual earnings growth rate 20 = PEG ratio of 50/20 = 2.5

The other has P/E ratio 15 with annual earnings growth rate 10 = PEG ratio of 15/10 = 1.5

Comparing these two, the first doesn’t have the growth rate to justify the higher PE and the stock price is considered over-valued.

If you use future earnings figures you are looking at projected PEG.

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

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Pensions – 2017 the options from super

Pensions – 2017 the options from super

2017 the options from super

You can receive your super as a super income stream, super lump sum or a combination of both. The super withdrawal option that you choose may affect the amount of tax you pay. Here is information from the Australian Tax Office (ATO) website –

Super lump sum

If your fund allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a ‘lump sum’.

You may be able to withdraw your super in several lump sums. However, if you set up a regular payment from your super it is considered an income stream.

If you take a lump sum out of your super, the money is no longer considered to be super. If you invest the money, the money that you earn on those investments will not be taxed as super.

Super income stream

You receive a super income stream as a series of regular payments from your super fund (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum payment standards.

Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

Your super income stream will stop:

  • when there is no money left in your super account;
  • minimum annual payment is not made;
  • commutation (when you convert a super income stream into a super lump sum);
  • when you die, unless you have a dependant beneficiary who is automatically entitled to receive the income stream.

Transfer balance capNew from 1 July 2017

As part of the 2016 Budget, some changes were introduced to make superannuation fairer and more sustainable.

The transfer balance cap applies to the total amount of superannuation that has been transferred into the retirement phase. It does not matter how many accounts you hold these balances in.

The amount of the cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with CPI. The amount of indexation you will be entitled to will be calculated proportionally based on the amount of your available cap space. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.

You will be able to make multiple transfers into the retirement phase as long as you have available cap space.

Each individual with superannuation interests in the retirement phase has a personal transfer balance cap. The cap cannot be shared with any other person. To determine your position with respect to the transfer balance cap, you have a transfer balance account. This tracks the net amounts you have transferred to the retirement phase.

The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in you transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account.

The transfer balance cap will affect you if you are currently receiving a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017.

If you are currently receiving a pension or annuity, you will need to speak to your superannuation providers about the likely value of your income stream as at 30 June 2017. Check how you can reduce the value of your income stream before 1 July 2017 to ensure you do not have an excess.

If you will commence a retirement phase income stream after 1 July 2017, you will need to:

  • ensure that your account based pensions and annuities do not exceed the $1.6 million transfer balance cap
  • include income from certain lifetime pensions (usually paid from a defined benefit fund) in your income tax return if you are over 60, and may need to pay more tax
  • ensure that if you have a mix of pension types, with a total value exceeding $1.6 million, you reduce any account based pensions to reduce the total value of all your pensions below the transfer balance cap.

Although there is now a limit on the amount of assets you can transfer into a tax-free retirement phase account, this does not affect the amount of money that you can have in the accumulation phase of a superannuation fund. Any amount of superannuation you have in your fund above the $1.6 million amount can be retained in the accumulation phase and/or be taken as lump sum payments.

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.

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

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Basics about Super – Small Business Superannuation Clearing House (SBSCH) – How it can help Small Business

Basics about Super - Small Business Superannuation Clearing House (SBSCH) – How it can help Small Business

Basics about Super – Small Business Superannuation Clearing House (SBSCH) – How it can help Small Business

The Australian Tax Office (ATO) has a service called the Small Business Superannuation Clearing House, designed to help small business (with less than 19 employees) meet their super obligations as employers. Here is what the ATO site says –

The Small Business Superannuation Clearing House is a free, optional service for employers with 19 or fewer employees, as well as those businesses with an annual aggregated turnover of less than $2 million.

You can make your super guarantee (SG) contributions as a single electronic payment to the clearing house, which then distributes the payments to employees’ funds.

The clearing house is designed to reduce red tape and compliance costs for small business.

If you register to use this service:

  • Your super guarantee contributions are counted as being paid on the date the clearing house accepts them (so long as the fund does not reject the payments);
  • You have 21 days to pass an employee’s choice of fund on to the clearing house.

The page with links to Register (or Login if you have started) is HERE to use the Small Business Superannuation Clearing House.

Or Phone 1300 660 048 or email SBSCHEnquiries@sbsch.gov.au for information about the Small Business Superannuation Clearing House.

Using the Small Business Superannuation Clearing house will ensure you are SuperStream compliant (law since 1 July 2015).

For answers to questions head to  FAQs on SuperStream

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 – Borrowing in SMSF – The Cans and Cant’s

Masterclass SMSF – Borrowing in SMSF – The Cans and Cant’s

SMSF – Borrowing in SMSF – The Cans and Cant’s

Bryan Ashenden at Money Mangement writes about the cans and cant’s of borrowing in SMSF-

One of the investment opportunities available to self-managed superannuation fund (SMSF) trustees is the ability to purchase an asset using borrowed funds.

From the original Instalment Warrant arrangements introduced in 2007 through to the addition of sections 67A and 67B to the Superannuation Industry (Supervision) Act 1993 (SISA) from 7 July 2010, many … have become accustomed to the key concepts and applications of limited recourse borrowing arrangements (LRBA).

SMSF trustees continue to enter the property market for a number of reasons, including the ability to borrow, the ability to directly invest in an asset class many clients feel comfortable with, and the retirement planning and asset protection opportunities available to small-to-medium business clients who might look to hold their commercial premises through their SMSF.

Although direct property investments within … SMSF may be appropriate given their risk profile, goals, objectives and overall strategy, SMSF trustees and their advisers still need to be aware of the various requirements of establishing and maintaining LRBAs to ensure their funds remain compliant under the law.

Investing in property via an SMSF is not the same as purchasing an investment property in your own name for a number of reasons, which are discussed below.

… When structured correctly, there are a number of opportunities offered by these arrangements you may not immediately be aware of.

Standard LRBAs

A common misconception …  is the view that an SMSF can simply ‘borrow’. An SMSF is actually specifically prohibited from borrowing, subject to some small caveats/provisos, under section 67 of the SISA.

However, if certain strict criteria are met, an SMSF can borrow subject to the exemptions contained in sections 67A and 67B of the SISA.

Section 67A provides an exemption to the general borrowing prohibition so long as the SMSF complies with the prescribed requirements of the section.

In short,

  • An SMSF can enter into an LRBA if the loan taken is used to acquire a single acquirable asset, or a collection of identical assets.
  • The asset must be held on trust for the SMSF and be able to be transferred to the SMSF once one or more loan repayments have been made.
  • Any rental or investment returns are paid to the SMSF, with the SMSF being responsible for establishing the loan, as well as meeting the interest and loan repayments.

In the event of a default, the only recourse the lender will have, is against the single acquirable asset held on trust — hence the limited recourse in limited recourse borrowing arrangement.

Then comes the question of what can we do with the property while it is in the holding trust?

Understandably, it is not quite the same as holding an investment property as an individual.

While the loan is outstanding, the SMSF can undertake repairs and maintenance to the property using either the existing cash resources of the fund or a portion of the borrowed funds.

When it comes to improving the property, things are a little different. While the existing cash resources of the SMSF can be used to improve the property, borrowed funds cannot.

In addition, and most importantly, when a trustee is looking to improve a property under an LRBA, the improvements cannot result in the single acquirable asset becoming a different asset; otherwise the borrowing exemption under section 67A will be in breach.

So what’s the difference between a repair and an improvement and when would an asset become a different asset?

Fortunately, we have received guidance from the Australian Taxation Office (ATO) on this issue in SMSFR 2012/1.

While improving a residential property by adding a garage, swimming pool, or even a second storey is classed as an improvement, the improvement would not result in the property becoming a different asset — i.e. it is still a residential property.

Alternatively, if you purchase a vacant block of land and subsequently build a residential house on that land you will have a different asset (land plus house, opposed to just land).

Alternatively again, if you had a residential house and land, then demolished the house and replaced it with strata title units, you would also now have a different asset (strata units, opposed to a residential house).

So why does all this matter? Well, when we replace the single acquirable asset with a different asset and the replacement asset it not covered by an exemption in section 67B, then the exemption allowing the SMSF to borrow under section 67A ceases to apply.

As a result, the SMSF would be in breach and the arrangement would need to be reviewed with the most likely course of action being to wind it up, possibly at an inopportune time.

So is there a better way? There might be, depending on what your client is trying to achieve. For more, go HERE

Want to know the options and how property works in SMSF?

See our Free slides SMSF & Property Overview

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

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NEWS –Super Changes Passed in Parliament April 2017

Reporting at Advisor Voice

NEWS –Super Changes Passed in Parliament April 2017

NEWS –Super Changes Passed in Parliament April 2017

After receiving feedback from industry, the federal parliament has passed amendments giving effect to regulatory change, continuing the implementation of changes to superannuation that were announced by the Turnbull government in the 2016 federal budget.

Martin Breckon, IOOF’s Head of Technical Services said “We are pleased to see the Government continuing to refine the operation of its super reforms through passing changes that are fair and sustainable.

“While providing increased certainty, ongoing changes to superannuation have made it incredibly complex. In turn, this has made it incredibly difficult for individuals to manage their superannuation themselves, driving an increased need for them to seek advice.”

The regulatory changes confirmed by the passing of the amendments are effective from 1 July 2017 and include:

  • Retail super funds will be able to establish a new accumulation interest for the payment of a super lump sum as a result of a commutation authority issued under the transfer balance cap system, without requiring an application form at the time of commutation. This provides a ‘safety net’ for individuals who do not have an existing super benefit and do not take action before the ATO issue their super provider with a commutation authority as the provider can simply transfer the commutation into an accumulation account, keeping it in the super system.
  • Fund-capped contribution limits are to be removed, reflecting the increased complexity with administering this arrangement under the new non-concessional contributions cap, particularly around overseas transfers with a sizable applicable fund earnings component.
  • Commutations from income streams will not count towards a pension’s minimum drawdown requirement, and similarly it will not be possible to elect a pension payment to be taxed as a lump sum withdrawal. Going forward a lump sum withdrawal will reduce a person’s transfer balance account, whilst a pension payment will count towards the minimum payment required from an income stream.
  • Certain defined benefit funds can elect out of offering personal deductible contributions to their members. These schemes may not have the ability to adjust their benefits based on additional personal contributions, or may simply not be able to handle the administrative complexity in dealing with these contributions.
  • A death benefit is only considered a roll-over super benefit so long as it is paid as to a dependant entitled to receive a death benefit income stream. This will allow the ability to rollover a death benefit from one provider (who may not offer a death benefit income stream) to a different provider who is able to pay a death benefit income stream.
  • Death benefit income streams, by definition, must be cashed as ‘retirement phase’ income streams to meet the requirements under the Superannuation Industry (Supervision) Act.

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 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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