Masterclass SMSF – How super death benefit nominations work and how binding applies

Masterclass SMSF – How super death benefit nominations work and how binding applies

SMSF – How super death benefit nominations work and how binding applies

When an SMSF member has died, your super (applies whether in commercial fund or SMSF), is NOT controlled by your WILL. It is controlled by a nomination and the surviving SMSF trustees must comply with the applicable super and tax laws for paying out death benefits. A death benefit payment is generally made by the SMSF to another person after the death of a member of the fund.

For a dependant of the deceased, the death benefit can be paid as either a lump sum or income stream. Income streams (super pension) are usually either a new income stream that is paid to a dependant, or a reversionary income stream that is the continuation of an existing income stream and paid to a dependant.

For those not a dependant of the deceased the death benefit must be paid as a lump sum.

You can nominate the beneficiary for your super with your super fund (a death benefit nomination) instead of leaving the trustees to decide. If you have NOT nominated a beneficiary then the estate can access your super and distribute it (now as part of your estate), according to the instructions in your will. Note a will does not control your super directly – super is outside your estate, and is BEST controlled by death benefit nominations or agreements.

A death benefit nomination is a statement by a member of a super fund to the trustees of the super fund directing them on how to deal with their super account when they die. A death benefit nomination is supplied to the trustee of the SMSF by the member requesting the fund pay their benefits to a nominated beneficiary/ies. It is either:

  • binding – it directs the trustees to pay the member’s death benefit to a legal personal representative or dependant;
  • non-binding – it notifies the trustees of the member’s preferred beneficiaries, leaving the trustees to make the final decision.

Super law does not require an SMSF member to have a death benefit nomination to pay out death benefits. But, if an SMSF does have one, it will need to first follow the rules of the SMSF’s trust deed (the deed must allow them) and the rules of super law. For more refer to the ATO site HERE as well as – SMSFD 2008/3: Binding death nominations

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 Youtop right hand side above.

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CASE STUDY – Brian and Stephanie working the business as well as preparing for retirement

CASE STUDY – Brian and Stephanie working the business as well as preparing for retirement

Brian and Stephanie working the business as well as preparing for retirement

Brian and Stephanie had lovely children in Primary school and a busy consulting business they had started from scratch, which was growing well. They loved property and had explored how super could be used to invest in property and wanted to know if that could work for them.

(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 retire self-funded as much as possible.
  3. COST of that lifestyle Estimated in today’s values, the annual income to retire that she desired would be at least $70-90,000. That would be well over the ASFA definition of “Comfortable” and allow dinning 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. $1,600,000 – 1,800,000 of income-producing assets other than the family home. They already had approx. $250,000 in 2 super funds. The value of the business was considered to a bonus and would hopefully be sold as a going concern. Leveraging by borrowing via an SMSF was an option to help boost their super over regular 5-12% returns the average commercial superfund achieves.
  5. NOW what to do After meeting their advisor and Gaetano Fina, a Property Advisor and Real Estate Agent (one of our core property experts we can recommend), who explained the Pros and Cons of SMSF, then met 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! 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 –Company Health Ratios – Profit Margins

MASTERCLASS Investment – Company Health Ratios – Profit Margins

Investment – Company Health Ratios – Profit Margins

In the Profit & Loss Statement or Income Statement, (one of the 3 Financial Reports Companies issue) there are four levels of profit or profit margins

Gross profit (after cost of sales deducted from sales/revenue),

Operating profit (after expenses deducted),

Pretax profit (before tax and other non-regular items) and

Net profit (Final).

Note that “profit”, “earnings” and “income” are all used interchangeably, and mean the same thing.

When the term “margin” is stated, it can apply to the absolute/actual number for a given profit level and/or the number as a percentage of net sales/revenues, taken as 100%.

The absolute amount, the dollar amount, is on the Profit & Loss. The profit margin uses the percentage calculation to provide a better comparison of a company’s profitability compared to prior periods (months and year to date) and in comparison to peer companies and industry benchmarks. The margin is the amount of profit (at the gross, operating, pretax or net level) as a percent of the total sales generated.

So the formulas are –

Gross Profit margin is Gross Profit / Sales (GP divided by sales).

Operating Margin is Operating Profit / Sales (OP divided by sales),

and so on.

Monitoring the profit ratios / margins over months and years can detect consistency or positive/negative trends in a company’s earnings. Positive profit margin analysis translates into positive investment quality. To a large degree, it is the quality, and growth, of a company’s earnings that ideally should see a rising Earnings per Share and Return on Equity these ultimately drive a stock price up.

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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Basics about Super – Choice of Super Fund for your staff – Know what to do

Basics about Super – Choice of Super Fund for your staff – Know what to do

Basics about Super – Choice of Super Fund for your staff – Know what to do

Employers should be aware that employees who are eligible for super, in many cases are also eligible to choose the super fund you pay into for them. But if they aren’t eligible to choose or don’t make a choice, you must pay their contributions into your employer-nominated or default fund.

The ATO website explains further, as repeated here –

Step 1: Identify employees who are eligible to choose

When you employ new staff, check if they’re eligible to choose a super fund.

Your new employee is eligible to choose their super fund if they are:

  • Employed under a federal award;
  • Employed under a former state award, now known as a notional agreement preserving state award (NAPSA);
  • Employed under an award or industrial agreement that does not require super contributions;
  • Not employed under any state award or industrial agreement (including contractors who are regarded as eligible employees for super purposes).

If you’re not sure what, if any, award or industrial agreement covers your employee:

  • Visit the Fair Work website at fairwork.gov.au;
  • Phone the workplace relations department in your state or territory;
  • Check with your employer association.

From 1 July 2015:

  • You don’t need to offer choice to employees on temporary working visas. Your employee retains the right to request a standard choice form from you;
  • You no longer have to provide a standard choice form to employees whose superannuation fund undergoes a merger or acquisition. Employees retain the right to request a choice form from their employer should they not wish to be placed in the successor fund.

Step 2: Provide a standard choice form

You must provide employees who are eligible to choose a super fund with a Standard choice form (or equivalent) within 28 days of their start date, unless they give you details of their chosen fund first.

You don’t have to use the Standard choice form, but any alternative document must cover all the information that the Standard choice form covers.

Existing eligible employees are entitled to change their choice of fund as often as they want to, but you have to accept a new choice from them only once in any 12-month period. If your employee asks for a choice form you have 28 days to provide it.

You need to keep a copy of the completed Standard choice form for your own records for five years. You don’t have to send a copy to us or to your employee’s chosen super fund.

You also have to give an employee a Standard choice form within 28 days if you:

  • Can’t contribute to their chosen fund or it’s no longer a complying fund;
  • Change your employer-nominated fund and you’re paying the employee’s contributions into that fund.

Step 3: Pay into your employer default fund until the choice form is returned

If your employees don’t choose a fund or haven’t provided the necessary information, and a super contribution is due, you must make the payment for them into your employer-nominated fund by the due date.

Step 4: Act on your employee’s choice

Once an employee advises you of their choice of super fund, you have two months to start paying contributions into that fund.

You may be penalised if you don’t offer your eligible employees a choice of fund or you don’t pay their super to their chosen fund.

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

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

No obligation. 0407 361 596, Paul.

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Masterclass SMSF – Acquiring assets from related parties – a possible solution for property?

Masterclass SMSF – Acquiring assets from related parties – a possible solution for property?

SMSF – Acquiring assets from related parties – a possible solution for property?

Property – when the SMSF hasn’t enough to borrow itself – acquiring assets from related parties may be possible using a non-geared related unit trust or company.

From August 1999, the only other alternative for your SMSF to invest in a related party unit trust or company (holding greater than the 5% in-house asset limit) is via the non-geared exemption under SIS regulation 13.22B and 13.22C. A SMSF investment using these provisions is not considered an in-house asset.

One of the benefits of the non-geared unit trust or company holding business real property, is it can provide flexibility of ownership between your SMSF and other related parties  compared to direct ownership via tenants in common. Of course, you will need to consider the potential impact capital gains and stamp duty may have when transferring units or shares between parties.

However, these non-geared unit trusts and companies are significantly limited to what assets they can hold or activities they can undertake. The restrictions include not being able to:

  • Borrow or allow a charge over any assets;
  • Run a business;
  • Hold an interest in another entity (e.g. can’t hold shares in company);
  • Loan money to another entity;
  • Lease an asset to a related party, except if the asset is business real property;
  • Acquire an asset from a related party of the SMSF after 11 August 1999 except if business real property;
  • Acquire an asset that has previously been owned by a related party since the later of 11 August 1999, and three years before the SMSF first invests in the non-geared entity.

Most importantly, if the non-geared unit trust or company breaches any one of the above provisions, then the exemptions under SIS regulation 13.22B and 13.22C ceases immediately; resulting in your SMSF’s investment in the non-geared unit trust or company being classified an in-house asset. This is regardless if the breach is rectified during the current or future financial years.

For a good explanation, see The SMSF Coach article and consult your advisor, or ask us to refer one for you – best to seek advice BEFORE a costly mistake is made!

Want to know the options and how property works in SMSF? See our FREE slides SMSF & Property Overview

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 – 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.

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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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.

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

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