Basics about Super – What is Salary Sacrifice Super?

Basics about Super – What is Salary Sacrifice Super?

Basics about Super – What is Salary Sacrifice Super?

The Australian Tax Office (ATO) tells what is Salary Sacrifice Super–

Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value.

If you make voluntary super contributions through a salary sacrifice agreement you should be aware of how your contributions will affect your super balance. You can agree with your employer for your voluntary contribution to be in addition to your employer’s compulsory super contribution.

If you are deciding whether you should salary sacrifice some of your income into your super or you are already salary sacrificing, you may want to find more information or check your entitlements under the Fair Work Act 2009.

One example of a salary sacrifice arrangement is to have some of your salary or wages paid into your super fund instead of to you.

Salary sacrificed super contributions are classified as employer super contributions, rather than employee contributions. This reduces the amount of super guarantee contributions that your employer is required to make for you, unless the terms of the agreement between you and your employer specify that they continue to pay the minimum super guarantee amount. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this tax rate is less than your marginal tax rate.

The sacrificed component of your total salary package is not counted as assessable income for tax purposes. This means that it is not subject to pay as you go (PAYG) withholding tax.

If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit.

Find out MORE.

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.

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Masterclass SMSF – Who can be Trustee, special notes & Changing Trustee

Masterclass SMSF – Who can be Trustee, special notes & Changing Trustee

SMSF – Who can be Trustee, special notes & Changing Trustee

All self-managed super fund (SMSF) members must be trustees of the fund, but a trustee need not be a member, however there are some exceptions such as:

  • Minors, being too ill or old, mental incapacity or travel overseas for an extended period, they can become (or remain) a member of an SMSF if another person is appointed to act as trustee on their behalf;
  • If a fund member dies, their legal personal representative (LPR) will normally act on their behalf until a decision has been made to make a death benefit payable; and
  • If a person becomes the last remaining fund member, they can keep the fund running if another person is appointed as trustee or implements other solutions.

All members of an SMSF should be aware that failing to meet the trustee rules and requirements could render the fund non-compliant.

Notes for some specific situations and solutions:

Minors

Minors are not able to be SMSF trustees because they are classed as being “under a legal disability” and are not permitted to enter into contracts, but can be a member of an SMSF if a parent (who may also be a member of the fund), a guardian or a LPR is prepared to act as trustee on their behalf. Once the minor reaches the age of 18, the parent, guardian, or LPR must resign as trustee and the minor is then appointed as trustee if they want to remain a member.

Mental incapacity

Having a mental incapacity is also considered to be under a legal disability and means a person cannot be an SMSF trustee, but they can be an SMSF member if a person who holds an enduring power of attorney (EPOA) is appointed to act as trustee on their behalf.

Situations where a trustee becomes mentally incapacitated without an EPOA can be problematic.

An eligible person(s) eg family member, needs to be court-appointed to act on that person’s behalf (ie, become the person’s LPR) and then are they able to become trustee of the SMSF in place of the disabled member.

Members going overseas for an extended period

Be careful if a fund member plans to go overseas permanently and in some cases, even temporarily, as the Australian Tax Office (ATO) may deem that the ‘central management and control’ of the fund has not remained in Australia and the fund will not meet the definitions of ‘resident Australian superannuation fund’ and will lose access to the tax concessions. The solution is to appoint an EPOA to a resident of Australia, or rolling over the departing member’s benefits to a public offer fund or converting the fund to a small Australian Prudential Regulation Authority (APRA) fund (SAF).

Older members

In time a member of an SMSF will age and/or suffer from some sort of illness that will impact their ability for continuing to act as trustee or a director of a corporate trustee of their SMSF. Some actions are  – they have a choice of winding up the SMSF, or choosing to continue to run the SMSF by appointing a LPR who holds an EPOA on their behalf to take their place as trustee of the SMSF.

Deceased members

When a member dies, they are no longer a trustee of the SMSF and an LPR will act as trustee until a death benefit can be paid.

The Trust Deed rules become the guide and may allow the remaining trustee/member to appoint someone else to act as trustee until a decision has been made to make a death benefit payable. Binding Death Nominations can assist with directing benefits as per the member’s wishes but to be valid, the nomination must also be consistent with the requirements set out in the trust deed rules.

The person appointed as trustee for the deceased member remains in this role until a decision has been made to make a death benefit payable, either in part or in full, and then usually they step down from trustee

Also note that if a part payment is made, the person must step down as trustee when a decision has been made to pay a death benefit, and the subsequent payments are determined by the remaining trustee(s).

Becoming a single member fund

If a fund that has two or more (but less than five) members it will eventually become a single-member fund and then that member can appoint a second trustee to the fund. They do not have to be or become a member of the fund as well, and cannot be an employee of the remaining SMSF member (unless a relative). Alternatively, the fund could appoint a corporate trustee, and meet certain other conditions.

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 are “Share Market Indices/indexes”?

Investment – What are “Share Market Indices/indexes”?

Investment – What are “Share Market Indices/indexes”?

This month Masterclass Investment looks at what is a share market index (indices plural) – these are values or broad measure summaries of a group of shares, which may be over the whole market in Australia (ASX), or sectors (eg Industrial) and are a means to track changes in stock prices for companies that are in the index/group. So indices frequently provide information about how a group of stocks have performed (of which that index is made up of) – eg S&P 200 is the top 200 stocks by market capitalisation.

Investors use them to provide a benchmark to compare a stock or industry or sector other periods or sectors. Standard & Poor are one of the largest providers of indices which started in USA, but also have offices in 23 countries and create the Australian Stock Exchange Indices. They are calculated to provide investment managers something to measure their portfolio’s performance against – a measure that covers a broad range of Australian shares and includes only shares that are traded in high volume. High volume (liquidity) is important to allow less price distortions arising from a lack of participants in the stock.

The general method of calculation is –

Share Index = Total Market Value of all Companies (in group/sector) / Base Value

Where –

Total market value of all companies = Stock Price x Number of shares available (adjusted)

Base Value = the amount of capital that all the companies had at the time the index was started. The base capital figure is adjusted over time due to changes in the companies in the index.

So the base capital is adjusted when companies in the index;

  • Are removed or added;
  • Issue more shares;
  • Buyback shares;
  • Spin-off.

This ensures that the index figure is exactly the same before and after an adjustment above is made in the base capital figure.

Example

BHP is the largest stock in the S&P/ASX200 index. It makes approximately 13.6% of the index.[1]

Imagine if BHP decided to split into many small companies and was no longer allowed to be in the S&P/ASX 200.

Capitalisation alone is not used as it will be a large number and an indexed number is easier to work with and track/graph.

A rise in the share index reveals that the total value of companies in the index rose and a fall in the share index signifies that the total value of companies in the index fell. The index producers also adjust for price changes that usually occur when shares go ex-dividend so that the index figure isn’t affected.

The criteria for when a stock will be included require that it be:

  • Listed on the ASX;
  • Must be a public float of at least 30%;
  • Must be actively and regularly traded (liquidity).

Then the market capitalisation of a company is assessed and an average of 6 previous months end-of-day adjusted market capitalisation figures are used. Companies may be removed from an index if they no longer meet these criteria such as when a company significantly changes its structure e.g. merger or acquisition.

In Australia the S&P Australian Index Committee is responsible for maintaining the S&P/ASX indices.

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

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

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

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

(a)   Administration tasks

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

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

(b)   Investment Strategy and Limitations

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

(c) Compliance, Trustee Responsibilities, Disputes

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

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

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

(d)   Insurance in your SMSF

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

(e)   Paying Benefits & Income Streams (Pension)

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

Date of Birth from

To

Preservation Age

 

30 June 1960

55

1 July 1960

30 June 1961

56

1 July 1961

30 une 1962

57

1 July 1962

30 June 1963

58

1 July 1963

30 June 1964

59

1 July 1964

And later

60

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

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

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

11032    Running a self-managed super fund

71454    How your self-managed super fund is regulated

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

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.

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 Accrued Revenue / Sales / Income?

MASTERCLASS Investment – What is Accrued Revenue / Sales / Income?

Investment – What is Accrued Revenue / Sales / Income?

Revenue is the amount of sales a company actually makes over a specific period, including discounts and deductions for returned sales, etc. It is the “top line” or “gross income” figure from which costs of goods are subtracted to determine gross profit.

Accrued revenue is revenue for goods or services that have been sold or completed but may have not yet been billed (sometimes) and/or paid for. Accrued revenue is income that has been raised but not received, for example billing for monthly rent that is due in arrears, or following the monthly rental period. The income has been earned and accrued (since an individual or company rented the item) but the revenue has not been received.

It is recorded on the Balance Sheet as an asset account.

This is important to the valuation of a company, particularly in the service industry, where invoicing/billing typically occurs after the work or service is complete. Without this on financial reports, the company would appear to have much lower revenues, and may not have a fair method to balance expenses associated with the revenue accrued.

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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CASE STUDY – Peter over 50yo – Wanted to control his super

CASE STUDY – Peter over 50yo – Wanted to control his super

Peter over 50yo – Wanted to control his super

Peter ran his own business for many years and enjoyed the rush and buzz – like any business there were challenges and ups and downs. His children were grown up and married and supporting themselves – he chuckled as many friends still had their adult children at home – and wondered why things had changed in the world this way. Was society encouraging less risk in our children to get out and make it work?

His possible close retirement meant he wanted to use SMSF to control and manage their super by using direct investment expertise. This was part of their Retirement Plan.

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).

WHERE he was at – Peter was a successful business owner, but at times some years were not as good … as happens in life. He had worked hard and knew that he needed to combine a couple of super funds, and also there was some unrestricted non-preserved part that he could access (need to ensure you get advice about this – it is very RARE!). that could help finance a difficult period.

WANT to have – Peter’s aim was to be self-sufficient and comfortable in retirement and he was not wanting to rely on the Government Pension.

COST of that lifestyle Estimated in today’s values, the annual income to retire that he desired would be at least $75-90,000 in today’s money. That would be close to the ASFA definition of “Comfortable” and allow meals out and occasional trips overseas.

NEED investment to return the costTo 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 rounded to approx. $1.5-1,800,000 of income-producing assets other than the family home.

NOW what to do After meeting the advisor who explained the Pros and Cons of SMSF, he 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 paying super to the new SMSF.

What was liked best of all – that the SuperBenefit Programme handled all the set up and documents, storage of records electronically and additionally, had a CONNECT/ASSIST service which provides co-ordination as well as help with who to talk to for advice and other help besides the financial advisor. He also saw value in our private-client share broker who supplied 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.  He thought this would work alongside his own analysis and choices.

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).

They now had the components in place –

Strategy – to take control of the retirement plan, and build super;

Structure – use an SMSF using SuperBenefit administration service where ALL is taken care of;

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 – We recommend asking for a FREE consultation and/or seeking further professional advice with our recommended advisors or your own.

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

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

No obligation. 0407 361 596, Paul.

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Masterclass SMSF – End of Financial Year Review – Ensure the records and tasks are in order!

Masterclass SMSF – End of Financial Year Review – Ensure the records and tasks are in order!

SMSF – End of Financial Year Review – Ensure the records and tasks are in order!

With only weeks to the End of Financial Year (EOFY) left, it’s time to have a review to ensure all is in order and all papers documenting all transactions during the year, are in hand and ready for auditor and accountant verification. Here are some other tips to consider –

1.      Contribution Caps

The concessional contribution (tax deductible / employer) cap for 2016/17 is $30,000, or $35,000 for 49+ years or over. If you have more than one fund, ALL concessional contributions made to ALL your funds are added together and counted towards the cap. This cap was not indexed. MORE HERE

2.     Minimum Pension taken

If there are members in the pension phase, ensure they have received the required minimum pension amount by 30 June. Failure can result in the investment income derived from your assets supporting that pension no longer being exempt from tax and other penalties could apply. MORE HERE

3.     Claim Tax Deductions for Personal Contributions (Non-Concessional)

If you are claiming a tax deduction for your superannuation contributions, make sure you are eligible to claim the tax deduction – seek advice if you’re unsure. An error in over-contributing or claiming a tax deduction for personal superannuation contributions could have excess tax consequences.

4.     Off-Market Transfers

You are still eligible to conduct in specie contributions of shares to your fund. Listed stock held in your personal name can be transferred to your fund as non-concessional or concessional contributions (if eligible) to your SMSF. Consideration should be given to capital gains tax, contribution caps and the off market transfer procedures.

5.     Government Co-Contribution

Remember to take advantage of the Government co-contribution by making a non-concessional (after tax) super contribution before the end of the financial year. For every dollar of eligible contributions, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. The maximum government co-contribution (scaled as income rises) is payable is for income between $36,021 to max $51,021.  See Co-Contribution

6.     Investment Strategy was followed

Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members.

7.     Insurance Policies

From 1 July 2014, new rules came into effect that will prohibit superannuation fund trustees from providing an “insured benefit” in relation to a member unless the insured event is entirely consistent with a superannuation condition of release. This means that trauma policies and own occupation Total and Permanent Disability (TPD) policies will not be permitted. However, it is important to note these new rules will not apply to policies taken out prior to 1 July 2014.

8.     In-House Assets

If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanors ranging from $820 to $10,200 per breach, per trustee!

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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