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In today’s competitive marketplace where businesses compete for customers; customer satisfaction is seen as a key differentiator.
Self Managed Super Funds (S.M.S.F) have become a popular and established means for saving for your retirement.
However, starting up your very own super fund can be a little overwhelming. At NovaBP, we will take you through the steps required to setup your new super fund and the steps to rollover from industry funds or record your employer or personal contributions.
The responsibilities of the trustees of the S.M.S.F are complicated. If you have decided to buy art, collectables or property with your super fund, we can take you through the setup process and legal requirements. We can help you set up your bare trust (for property) and application for a limited recourse loan and advice you on how best to keep your SMSF compliant.
Each year your super fund will need to be independently audited. We will prepare and organize your accounts and taxation return and liaise with the auditor sorting out (as best we can) any problems that may arise. You will find that our fees are competitive and our service both friendly and professional.
I have used Nova Business Professionals for over a decade and continue to be impressed by their professional and friendly service. I have found Scott, Ashleigh and the team to be up to date on all tax and self-managed super fund issues, are prompt in returning my calls and have always provided sound and accurate advice. I have no hesitation in recommending them to anyone wanting a similar level of service.Stephen Moxham
Is an S.M.S.F for me?
The purpose of setting up a self managed super fund (S.M.S.F) is to fund and support members in their retirement. (sole purpose test)The big advantage of a SMSF is that it provides maximum control in how you want to allocate your super fund assets in the accumulation and retirement stages.
After developing your investment strategy your investment choice can be structured to meet the specific needs of its members. Investments are usually made into term deposits (cash) , shares, property (limited gearing), artworks or other assets that suit the investment objectives of your SMSF.
The biggest advantage in investing into a SMSF is the tax advantages make superannuation a great way to create wealth for your retirement.
The concessional tax rate is 15% (in most circumstances) so employer contributions, and business contributions that you wish to claim as a tax deduction and this tax is paid by the SMSF itself. There are limits/caps (yearly or lifetime) in place as to how much can be contributed.
Capital gains on asset sold (realized) longer on investments held for longer than 12 months are taxed at an effective rate of 10%. Utilizing franking credits from dividends and the offsetting of capital losses can lower tax.
Once retired , if you draw down the correct pension there is usually no tax owing on this,providing you hold assets under $1.5 million.
Setting up my Self-Managed Super Fund….
Setting up your S.M.S.F is usually a straight forward process although the background rules and regulations are very complicated (refer the S.I.S Act 1993). We can ensure that your SMSF setup, investment strategy and ongoing administration is suited to your needs and your fund remains legally compliant.
The first question to be asked is whether a SMSF is the right form of structure for you to take you into your retirement. This will depend on a variety of factors including your retirement goals, current amount held in industry super funds, your current work situation, whether you want to invest in property, shares, gold, artwork etc.
If operating a SMSF is a good retirement strategy, we would need to discuss whether you would benefit more from having a corporate trustee or individual trustees.
What are the steps?
- The first step is to come up with a name for your SMSF.
- We would then organise a trust deed and appoint the trustees and members.
- We would follow this up with an application for your ABN and TFN and all necessary registrations with the ATO.
- Once this is completed you can then open your SMSF bank account.
- You may wish to transfer or rollover any industry held funds into your SMSF.
- We would the assist you in developing your investment strategy, and outline the yearly audit requirements and overall responsibilities as the trustee.
- You may need a hand with opening an online share trading platform or a limited recourse loan if you intend to buy property.
Scott set up my SMSF and arranges audits and keeps it simple for me. I also use him and highly recommend him and the NovaBP team for small business bas and tax. He set up my MYOB logically and encouraged me to be a good financial self manager.Ann Giffard
Should we have a corporate trustee or and individual trustee?
|Provides Greater Asset Protection
As companies operate with “limited liability” a corporate trustee will provide greater protection where a party sues the trustee for any damages.
|Gives Continuous Succession
Because a company has an indefinite life and therefore “cannot die” the control of the SMSF is more certain in the circumstances of the death or the incapacity of a member.
| Less Administration Costs
All assets should be held in the corporate trustees name . Therefore, a person is either appointed or ceases to be a director of the corporate trustee. (the corporate trustee does not change as a result.
|Estate Planning Flexibility
Having a corporate trustee ensures greater flexibility for estate planning because the trustee will not change in the event of the death of a member. Also the director has the flexibility by passing on their shares in the corporate trustee.
The administrative penalty typically will only apply to a company once for each contravention
|Sole member SMSF
With a corporate trustee one individual can be the sole member and sole director.
| Less Asset Protection
If an individual trustee within the SMSF suffers any liability the trustees personal assets may be exposed.
|Ceases upon Death
SMSF rules don’t allow for a sole individual trustee/member. So if one person dies the surviving spouse must appoint a co-trustee in a timely manner to ensure the trustee/member rules are satisfied.
|More Administration Costs
If a person joins the SMSF, they must become a individual trustee. As trust assets must be held in the name of the trustees this will mean that the title of all assets have to be changed. This will need to happen whenever a new member is admitted or an old member exits the SMSF.
|Less Administrative Flexibility
When a member dies there is considerably more administrative work and costs needed to change the trustee (usually at a difficult time).
A penalty will be imposed on each individual trustee for each contravention, so you could end up with twice the penalties.
|Sole member SMSF
A sole member SMSF must have two individual trustees.
Property within the S.M.S.F…
You may be able to borrow money through your SMSF in order to buy an investment property.
This would depend on your investment strategy and the risk profile of the members.
Borrowing can be done under strict borrowing conditions called a “limited recourse borrowing arrangement” (LRBA)
A limited recourse borrowing arrangement can only be used to purchase a single asset (usually held by a bare trust).
What are the steps?
- Determine if purchasing a property is the right type of investment and that borrowing is reflecting the super fund investment strategy.
- Check that the trust deed allows for the acquisition of property (the power to borrow, be granted security and allows property to be held by custodians or nominees for the trust). If this is not the case, the trust deed will need amending.
- Contact a lending institution to get an in-principle loan and discuss their requirements (they usually require a corporate trustee and a the property asset to be held in a separate bare trust).
- Source the property and determine who will be the custodian. The custodian (usually a company) will put in writing that it will act as custodian for the SMSF trustee in acquiring the property.
- The custodian holds the property using a bare trust structure.
- The deposit for the property must be transferred from the super fund and the loan linked by the lender to the super fund account.
- Stamp duty is then paid and then check the bare trust deed is signed before settlement.
- Once the loan is repaid the ownership of the property is transferred from the custodian to the super fund.
Administering and Audit of my S.M.S.F
Keeping your SMSF compliant within tax and super laws is crucial.
Some of our clients take a hands-on approach tending to the data processing throughout the year.
However, if your super fund has a larger volume of transactions, we use the software “Handisoft” by Sage which will enable us to prepare your accounts faster and more efficiently.
The three main cost components within the administration of an S.M.S.F are:
- technical support during the year
- processing the data for accounts, the member statements and taxation,
- Reviewing and rectifying the compliance, accounting and tax issues as they arise and managing the audit process.
Completing your yearly audit!
We outsource the audit process to Joel Curry of Trisuper Auditors in Newcastle, who are a specialist, independent SMSF auditing business. That is all they do, and they are ranked by the A.T.O within the top 4% of all SMSF auditors nationwide. Their pricing, like ours, is very reasonable.
Trisuper are happy to field any questions relating to the audit to ensure your fund is complaint going forwards. :http://trisuperauditors.com.au/
In the event an actuarial certificate is necessary to complete the audit we use Heffron Consulting at Maitland.
In order to complete your Self Managed Superannuation Fund taxation return, financials and the audit process for the financial year, we ask you provide us with the following documents
- A copy of the signed SMSF Trust Deed/Trust Deed Amendment/Trustee Declarations.
- A copy of your investment strategy for the current financial year (We can provide this).
- The Bank statements for all accounts from 1st July to 30th
- The Market Values of all shares/cash securities held at the 30th
- Information (including dates) on any sale of shares including the cost base of those shares.
- Evidence of all Pensions paid throughout this financial year.
- The supporting Documents for all Dividends, Interest and/or Rental Income for this year.
Please provide any Trust income Statements/Summaries for this financial year.
Prior financial year end Tax Return, Audit Report and Financials – new clients.
Caps apply to the amount of concessional contributions (CCs) and non-concessional contributions (NCCs) that can be made each year. Individuals exceeding the CC or NCC cap are liable for additional tax.
Concessional Contributions Cap (2016/17)
- 48 or under on 30 June of the previous year $30,000
- 49 or over on 30 June of the previous year $35,000
From 1st July 2017 the Concessional Contributions Cap is $25,000 for all Australians. This would apply to all individuals regardless of age. ITAA97 s291–20, Subdiv 960M, SISR 7.04.
Non Concessional Caps (2016/17)
- < 65 $180,000 or a three-year limit of $540,000
- 65 <75 $180,000
- 75+ NCCs cannot be accepted
This three- year limit figure is six times the standard CC cap above. Once triggered (by exceeding the annual cap), the ‘three-year’ NCC cap is not indexed. Once the three-year NCC cap is triggered, the unused amount can be used in the subsequent two years, even if age 65 or over.
If at the time a contribution is made, the person is aged 65+, a work test will need to be met for the fund to accept the contribution.
Note: The 2016/17 Federal Budget proposed to abolish the current NCC cap and to replace it with a lifetime NCC cap of $500,000 for all individuals. This would apply from 7.30pm EST on 3 May 2016. All NCCs made since 1 July 2007 would count towards the lifetime cap. Significant tax penalties may apply to contributions made after commencement if the proposed lifetime cap is exceeded. Fact Sheets released by the Government indicate that the penalty regime will mirror the existing NCC excess penalty rules.
Additional tax for high income earners (Division 293 Tax)
From 1st July 2017, Individuals with income above $250,000 will pay 15% tax on concessional contributions that are not excess contributions. This is in addition to contributions tax and applies to contributions to both taxed and untaxed funds. If the $250,000 limit is exceeded by the inclusion of concessional contributions, only the contribution amount that exceeds the limit is subject to tax. The tax is assessed to the individual, not the fund. The individual can give a release authority to the fund to pay the tax.
Account based income streams
A minimum payment applies each year calculated by reference to age and a specified percentage of the account balance (see table below). Only those account based pensions that are commenced under the ‘transition to retirement’ (TTR) condition of release are subject to a maximum payment limit of 10% of the account balance each year.
Age: Under 65 4%
Note: A minimum annual payment does not need to be made where an account based income stream is commenced from 1 June to 30 June. A pro‑rata minimum payment is required if it is commenced before 1 June. However, the maximum 10% payment requirement for a TTR income stream does not need to be pro-rated. Investors may have the option to elect that a particular income payment be treated as a lump sum for tax purposes.
The Balance Cap of $1.6 million…
Effective from July 1, 2017, the government intends to place a $1.6 million cap on the amount of superannuation that you can retain in, or transfer to, a super pension account.
The direct financial consequence of the introduction of a $1.6 million pension cap is that it limits the amount of pension assets that can enjoy a tax exemption on investment earnings. If a fund member has more than $1.6 million in pension phase, then he or she needs to take action (subject to legislation) before July 1, 2017. A fund member in this position has two options:
- Move the excess super savings into an accumulation account, and investment earnings will be subject to 15 per cent tax, or
- Withdraw the amount that is above $1.6 million from the super system.
According to the government, any excess held in pension phase on or after July 1, 2017, will be subject to penalty tax, and earnings on the excess amount will be subject to tax of 15 per cent.