retirement

2019-20 Update on Super Rates and Thresholds

2019-20 Update on Super Rates and Thresholds, in brief, the ATO on 4 March 2019 have published the super rates and thresholds for the upcoming 2019/20 financial year.

There is no change to the concessional contribution (CC) cap of $25,000. Whilst indexation from 1 July 2017 increases in $2,500 increments, the AWOTE indexation was insufficient to trigger and increase. As a result, there is no change to the non-concessional contribution (NCC) cap of $100,000.

Income year Your age at this date Concessional contribution cap
2019-20 All ages $25,000

Note that that first year of any unused concessional cap carry-forward rules commences in 2019/20 financial year and is subject to a member’s total superannuation balance (TSB) being less than $500,000 at 30 June 2019.

The low rate cap, the ETP cap for life benefit termination payments and the death benefit termination payments ETP cap for the 2018/19 income year all increase to $210,000.

The CGT cap amount and untaxed cap plan amount increases to $1,515,000.

The maximum contributions base indexes to $55,270 per quarter for the 2019/20 income year, providing an annual equivalent of $221,080.

No change occurs to the general transfer balance cap of $1,600,000 for the 2019/20 income year, nor the defined benefit income cap of $100,000.

For more on 2019-20-update-on-super-rates-and-thresholds, see ATO here.

By |July 2nd, 2019|aged care, budget, investors, retirement, Uncategorized|Comments Off on 2019-20 Update on Super Rates and Thresholds

Top budget measures impacting SMSF professionals

News from SMSFAdviser – Miranda Brownlee 03 April 2019 

Beyond the big-ticket tax cuts and cash handouts, the federal budget had important proposals and promises for SMSF professionals. SMSF Adviser rounds up the measures that matter most to the SMSF sector.

BDO partners, business services, Chris Balalovski said that the headline measures for superannuation in the 2019–20 federal budget, which were previously announced in the lead-up to budget night, were the measures allowing greater flexibility around making contributions by older individuals.

Mr Balalovski noted that they are limited to individuals who are 65 and 66, which means only an additional two years in age increment in respect of two of the measures and up to age 74 in respect of another.

“There aren’t too many individuals in Australia who will satisfy the criteria and who have the available money to be able to make the contributions at that point in their life,” he said.

“So, it’s very welcome and a step in the right direction with flexibility in super, but it only applies to a limited group.”

Mr Balalovski said that the few superannuation-related changes in this year’s budget are a reflection of where the superannuation sector has been at in the past several years, with professionals and super members fatigued by the constant changes made by both sides of politics in regard to super.

“Given the current proposals for the removal of the refund of excess imputation credits which will impact on SMSFs, it’s probably no surprise that the government is treading very cautiously and slowly in regard to any further changes to super,” he said.

“That’s welcome by the industry as well, because it gives contributors and savers a greater degree of certainty that their plans won’t be disrupted in any significant way by any further measures which has been the hallmark of the past several years with regard to super.”

Fitzpatricks Private Wealth head of strategic advice Colin Lewis agreed that, given the upcoming election, there was never going to be “wholesale changes at this late stage in the game”.

“There was only ever going to give a few favourable tweaks around the system which we’ve seen,” Mr Lewis said.

The government did propose a couple of administrative changes to ECPI to help reduce some of the complexity in this area and administrative burden in this area.

It also announced a proposal to allow superannuation funds with interests in both accumulation and retirement phases during an income year to choose their preferred method of calculating exempt current pension income (ECPI).

It also plans to remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

One of the less positive developments for the SMSF sector was a proposal to expand the SuperStream rollover, as it is expected to delay the extension of SuperStream to SMSFs till 31 March 2021, from its current commencement date of 30 November this year.

The government also announced that it will provide $42.1 million over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities.

ASIC and APRA were also provided with additional funding aimed at strengthening their effectiveness, which some fear could lead to a rise in levies and compliance costs for licensed advice firms.

By |April 3rd, 2019|Auditor, budget, investors, retirement, Self Managed Super Fund News|Comments Off on Top budget measures impacting SMSF professionals

2019 Federal Budget: What it means for Individuals

From NAB Business Research and Insights 3rd Apr 2019.
Personal income tax cuts were the headline of the 2019 Federal Budget – along with a change to super contributions and a new work test age.
By NAB Group Economics

Treasurer Josh Frydenberg’s first Budget focuses on reducing the tax burden for the majority of working Australians, greater superannuation flexibility for retirees and a one-off energy relief payment for eligible income support recipients.

Personal tax savings

• Immediate tax relief: Low and middle income earners will receive a tax saving of up to $1,080 per person. This can be claimed in the 2018/19 tax return.

• Preservation of tax relief for low and middle income earners: From 1 July 2022, the 19 per cent tax bracket will increase from $41,000 to $45,000, with an increase in the low income tax offset from $645 to $700.

• Reduction in key marginal tax rate: From 1 July 2024, the current 32.5 per cent marginal tax rate will drop to 30 per cent for income between $45,000 and $200,000.

• Minimisation of bracket creep: The Government estimates that from 1 July 2024, 94 per cent of taxpayers will have a marginal tax rate of no more than 30 per cent.

Greater superannuation flexibility for retirees

• Changes to voluntary super contributions: Australians aged 65 and 66 will be able to make voluntary super contributions without meeting the work test – removing the need for people of this age to work a minimum 40 hours over a 30 day period.

• Increasing age limit for spouse contributions: The age limit for people to receive contributions made by their spouse on their behalf increases from 69 to 74 years.

• Extended access to bring-forward arrangements: People aged 66 and under will now be able to make three years’ worth of non-concessional contributions to their super in a single year, capped at $100,000 a year.

Small to medium business

• Increase in instant asset write-off: The threshold for the instant asset write-off increases to $30,000 from $20,000. It has also been broadened to include businesses with up to $50 million in turnover, making it available to around 3.4 million Australian businesses.

Pensioners and welfare recipients

• Energy Assistance Payment: Over 3.9 million eligible Australians will automatically receive a one-off payment of $75 for singles and $125 for couples (combined) to assist with their energy bills. This payment will be exempt from income tax and not counted as income for social security purposes.

Note: These changes are proposals only and may or may not be made law.

For more insights about what the federal budget means for you visit mlc.com.au/eofy.

By |April 3rd, 2019|budget, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on 2019 Federal Budget: What it means for Individuals

Why investors need to be wary in 2019

Why investors need to be wary in 2019

By Ben McCaw, MLC,  SMSFAdviser 22 February 2019 

The rise in share market volatility is a reminder of vulnerabilities that have accumulated in the financial system.

The fragilities underlying the prolonged strong returns of the past few years became more apparent in the final quarter of 2018. 

Returns have been generated on the foundation of ultra-low interest rates and central bank asset purchases since the global financial crisis.

The key fundamental change has been tightening liquidity. During the March quarter of 2018, we saw the first challenge to the perception that the strong return environment will persist.

The stronger US wages data resulted in a sharp interruption to the US share market’s relentless rise.

The surge in equity volatility was a reminder of these fragilities that have accumulated in the financial system.

Investor behaviour has, to some extent, shifted towards “selling the rally”. This is in contrast to what has been a perennial “buy the dip” mentality over the past decade.

However, a sustained shift in investor expectations requires repeated confirmations that the future is not as rosy as previously presumed.

In the final December quarter of 2018, monetary policy, global trade and related concerns about global and Chinese economic growth, as well as the US budget impasse, all combined to more clearly shift investor expectations.

This resulted in the worst year since 2008 for share markets.

Bond villains

However, in contrast to 2008, when government bond yields fell and their returns surged, bonds have mostly not been effective diversifiers of risk during 2018.

During 2018, both bonds and shares declined in value at the same time. This means that the only reliable way to limit downside risk has been to accept lower returns.

Our understanding of this reality is the reason why our real-return portfolios have been positioned so defensively.

What does the future hold?

While it can take a long time, the fundamentals will ultimately drive investment outcomes. Asset prices that are high suggest low future return potential.

While there are some exceptions such as emerging market shares, our assessment is that asset prices are mostly not cheap and, in some cases, as with US shares and nominal bonds, are still high.

However, the path of returns will depend on how investor expectations change. A trade deal between the US and China that is favourable for economic growth is still possible. The argument over the Mexico border wall can be resolved.

We also know that the US Federal Reserve (Fed) is “data dependent” and that US economic growth is still robust.

So, a positive mindset could resume across global financial markets, and we have seen some of that during January in response to soothing words from the Fed and hopes for a US-China trade deal.

A new direction for the Fed

However, liquidity is tightening and has turned into a headwind. The rise in share market volatility is a reminder of vulnerabilities that have accumulated in the financial system.

We also know that the Fed understands the imperative to build policy options for the next economic downturn.

Indeed, the Fed, under the leadership of Jerome Powell, has partly removed the “lower for longer” bias that distorted the outlook for US interest rates. This is a very important change for all risk asset markets.

The presumption of interest rates remaining “lower for longer” has been a core driver of stretched valuations across asset classes

Even small movements in long- term discount (interest) rates can have a profound effect on the periods when inflation is volatile valuation of all assets. Share prices, for example, can move significantly if the market revises its cost of capital assumption.

Further interest rate rises by central banks would likely drive the market’s perception of the “natural” interest rate higher again. 

Yet, even if the real economy remains strong enough for interest rates to normalise, a strong economy by itself will not drive a strong share market.

Taking risk may not reward investors during periods when inflation is volatile or stubbornly low.

In this vein

In this vein, perhaps the most threatening aspect for shares of a strong US economy is that higher inflation could lead to the erosion of the high corporate profit margins across most industry sectors.

Tight labour markets continue to threaten wage growth, while higher borrowing costs will eventually dampen net profit margins.

Thus, while corporate sales revenue growth may persist given a strong US economy, there is no guarantee that profit growth will keep up with expectations.

This leaves investors potentially facing the double penalty of a rising cost of capital and declining profit growth.

Taking risk may well reward investors over the coming year, but this may prove unwise if one chooses to ignore elevated share valuations and global political risks.

We believe that focusing tightly on risk control while taking opportunities when they present themselves will be beneficial. This is a challenging period that will test all investors.

Dr Ben McCaw, portfolio manager, capital markets research, MLC

By |February 27th, 2019|investors, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on Why investors need to be wary in 2019

Quality controls flagged for auditors as regulator clamps down

Quality controls flagged for auditors as regulator clamps down

SMSF auditors should consider new quality controls in 2019, given the regulator’s ongoing focus and recent court battles holding auditors liable for investment losses. – Accountantsdaily, SMSF Miranda Brownlee 17 January 2019

Speaking in a webinar, DBA Lawyers special counsel Bryce Figot said that recent court cases, such as Cam & Bear Pty Ltd v McGoldrick and Ryan Wealth Holdings Pty Ltd v Baumgartner, have prompted SMSF audit firms to consider how to bolster their internal quality controls and protect their business from litigation risk.

Asking the right questions

One of the key questions that SMSF auditors should be asking when they take on clients is whether there are any loans in the SMSF, and whether there are any investments in entities associated with the accountant or financial adviser who looks after the member, Mr Figot said.

The presence of loans or these types of assets can be an indicator that there are higher risks for that particular SMSF.

If there are indicators that point to high investments, then the SMSF auditor may want to contact the trustee or directors of the SMSF and alert them to the risks of the investment and flag that it may not be fully recoverable, Mr Figot explained.

The auditor should keep following up with the trustees or directors of the SMSF, he said, until they receive confirmation from all the trustees if there are individual trustees, or at least two directors where it is a corporate trustee.

The engagement letter

Best practice is to ensure that the client for whom the audit is being conducted signs the audit engagement letter, Mr Figot said.

“It doesn’t always happen that way, however. In the Ryan Wealth Holdings v Baumgartner case, the engagement letter hadn’t been signed by the trustee,” he noted.

“The letter of engagement had a formal closing of ‘Yours Faithfully, Baumgartner Partners’ and provided a space for signature above the typed words ‘David Baumgartner’ and the letter was signed by Christopher Moylan, a financial adviser and accountant to the plaintiff.”

Still an agreement
It was still considered to be an agreement that was entered into, though, with the auditor retained to perform duties under the audit contract, he explained.

In order to address situations where the letter is unsigned, he recommended that audit firms address this by having a clause in the letter that states ‘you may accept this offer by continuing to give us instructions in this matter’.

“I would say you are the client, attached is the terms governing our engagement, if you want to bill someone else, get them to sign it and return it, but until they do it, you are client,” Mr Figot explained.

“Best practice is, of course, to get it signed, but this gives you a leg to stand on. So, I think you should have that line in your engagement letter.”

Mr Figot acknowledged that while there is a lot of case law that suggests a clause like this would be adequate in the context of a lawyer providing services, there isn’t really any case law which sheds light on whether it would stand up in court for auditors.

Scope
SMSF auditors should also be aware that accountants in their engagement letter will often make it clear that the scope of their retainer is merely to act as a supplier of information.

This means that the auditor may be found liable for the accuracy of financial statements.

“This is essentially how the accountant in Cam & Bear got off scot-free, whereas the auditor was found to be 90 per cent liable,” he cautioned.

Contact Trustees
The auditor should also make it clear that they may contact the trustees and directors directly and any additional fees or hourly rates that may apply if they do contact the trustees or directors and the correspondence exceeds a certain time limit.

One of the other items that should be explained, he said, is that if the auditor decides to engage another professional such as a lawyer or an actuary, whether they will provide that advice to the client or keep that advice confidential.

“You may want to have that eventuality covered off in your engagement letter,” he said.

Auditors may also want to make it clear that if the client decides to terminate their engagement, that the auditor may still feel obligated to lodge an audit contravention report and charge for their time.

By |January 29th, 2019|Auditor, retirement, Self Managed Super Fund News|Comments Off on Quality controls flagged for auditors as regulator clamps down

Three-year SMSF audits: how auditors will be affected

Three-year SMSF audits: how auditors will be affected – By Alexandra Cain, – 26 Jun 2018, INTHEBLACK magazine – 26 Jun 2018 https://www.intheblack.com/articles/2018/06/26/three-year-smsf-audits

Trustees will still have every year audited, but this would be completed once every three years.

Experts says cutting audits of self-managed super funds (SMSFs) to once every three years instead of annually is unlikely to cut either costs or red tape and could have serious consequences for the SMSF audit sector.

The 2018 Federal Budget proposed allowing SMSFs to be audited every three years, rather than annually as currently required. It is not a one-year-in-every-three proposal, rather trustees would still have every year audited, but this would be completed once every three years.

“Trustees still have to verify the opening balance and reconcile and verify audit evidence over the three-year period, which may end up costing more. Any auditor will tell you it can be difficult getting clients to submit their material annually. This will be even tougher if they only have to do it every three years,” says Paul Drum, head of policy at CPA Australia.

Drum says that if trustees have made mistakes or inadvertently contravened regulations, the problem will only compound over three years. It is likely it will take more time and money to fix than if the issue had been picked up after a year.

Costs to rise for fewer SMSF audits?

There will be savings for some funds, but for many there won’t be any cost reduction at all, and for some an increase in costs is likely, says Richard Smith, managing director, ASF Audits. Smith says three-year audits may work for very simple funds, for instance those that only hold cash or managed funds.

“But even with simple funds, trustees can easily make errors with contributions and pensions,” he says.

Tenuous benefits aside, Drum argues moving to a three-year audit could threaten the integrity of the SMSF ecosystem.

“There will be an element who will take the opportunity to game the system. If you don’t regularly police it, you run the risk people will find loopholes. Trustees are also less likely to implement risky strategies in the existing annual audit system, in the knowledge the fund is regularly monitored.

“The extra checks auditors perform, especially around record-keeping for property investments and limited recourse borrowing arrangements, help support the regulator’s role,” he says.

Audit as checks for good administration

Drum says that rather than view the audit as an impost, a better approach is to see it as a useful tool to help ensure the smooth running of the fund.

“The audit gives trustees an invaluable check they are administering the fund appropriately. SMSFs are complex, so instead of looking at the annual audit as a burden they should be looking at it as a tool that supports their role.”

There are many details to be worked out should three-year audits be introduced, such as which SMSFs would be allowed to have their audits completed once every three years.

The Federal Government’s initial indication is that only funds with a good compliance and lodgement track record would be eligible, but no detail has been released about what constitutes a fund with a good record.

Serious consequences for SMSF auditors

If the proposal goes ahead it is likely to have serious consequences for the SMSF audit sector.

Smith says managing fluctuating workflows will be a concern, particularly if a large number of funds will be eligible to be audited in the same year, while a much smaller number will be audited in the other two years.

“That is going to create serious resourcing issues, which may increase costs for us and for our SMSF clients. One reason is because we may have to employ more casual staff, which comes at a higher cost compared to full-time staff.”

ASF has never outsourced any of its services, “but I am sure many firms are starting to think outsourcing is suddenly an option,” Smith says.

Who will decide audit timing?

A potential problem may be keeping auditors’ skills up-to-date and relevant in a three-year environment. Another issue is which party will drive the timing of the audit – the trustee, the auditor or the Australian Taxation Office?

CPA Australia is in discussions with Treasury about how three-year audits would work in practice.

“If the government can demonstrate this measure will meet its objectives, and it is able to be implemented, we would support it. But at the moment we have a lot of questions about how to make this work,” Drum says.

A Treasury spokesman confirms the Federal Government has started consultations with stakeholders on the proposal.

“Consultation to date has been constructive. The government will continue to progress consultation with industry and ensure stakeholder views are taken on board in the design of the measure,” he said.

Meanwhile, the SMSF audit industry is awaiting details of the proposal that has many businesses in the sector seriously concerned about how this will play out.

Says Smith, “When more details are released we will be able to make a better assessment of any potential savings or costs. Until then, we can’t work out what the real impact will be.”

 

By |August 21st, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Three-year SMSF audits: how auditors will be affected

Pension Loan Scheme

The pension loans scheme, From Tax & Super Australia Newsroom – https://taxandsupernewsroom.com.au/pension-loans-scheme/

To help pensioners who are asset rich but income poor, the government launched its own version of a financial product that has been commercially available for some time, the reverse mortgage.

A reverse mortgage is a type of home loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

Interest is charged like any other loan, except you don't have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.

You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.

While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan.

The government’s answer is its pension loans scheme (PLS), whereby a pensioner can apply for a non-taxable loan using some form of real property as security. The PLS does not provide a lump sum, but a regular fortnightly payment.

The scheme is administered by the Department of Human Services (DHS).

At present the scheme is only open to those on a full pension, but the 2018 Federal Budget announced the government intends to open the PLS to all pension-age retirees (not just those who qualify for the Age Pension). A date has not been set for this yet.

Also (from 1 July 2019) the maximum allowable income stream (combined Age Pension and PLS) will increase to be 50% higher than the full pension, including supplements.

A full age pensioner may be able to apply if:

  • they or their partner are of Age Pension age
  • they own real estate in Australia that can be used as security for the loan (home or investment)
  • they or their partner receive a rate of payment that is less than the maximum pension amount or nothing (due to either the income or assets test, but not both)
  • they meet Age Pension residence rules.

There are costs associated with the scheme, which DHS will determine and send to the person seeking the loan. The current rate of interest is 5.25%, which DHS adds to the outstanding loan balance each fortnight until the loan is repaid.

The loan recipient can repay the PLS loan in part or in full at any time. If the loan recipient wants to sell a property they need to inform DHS, and they can either transfer the loan to another property including a new home or they can repay the loan on the date of settlement.

If there is an outstanding amount upon the loan recipient’s death, the estate or in some cases the surviving partner’s estate can make repayments.

The total loan available depends on the:

  • equity in the property offered as security
  • equity kept in the property, and
  • the age of the recipient or their partner, whoever is younger.

Applicants can get a loan up to the maximum rate of income support payment they qualify for. Loan recipients may also use real estate owned by a private company or trust as security for the loan, if they are a controller of that company or trust. If there is more than one property, they can choose which to use as security for the loan.

DHS will register a charge with the Land Titles Office on the title deed of the property used as security, with recipients paying any costs associated with this charge. A licensed valuer will value the property; however this is done at no cost to the loan recipient.

Any person seeking a PLS should contact the DHS first to ensure they are eligible and to confirm the amount they can seek.

By |August 20th, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Pension Loan Scheme

SMSFs to be required to have Retirement Income Strategy

SMSFs to be required to have Retirement Income Strategy from www.solepurposetest.com/news MAY 21, 2018 BY LUKE SMITH

SMSFs would be required to develop a Retirement Income Strategy under changes to superannuation being developed by the Government.

The Government has released a position paper on the Retirement Income Covenant, which would require super funds – including SMSFs – to develop a Retirement Income Strategy for members.

“For too long superannuation has been focused only on accumulating savings. A retirement income framework is a pivotal part of the Government’s reform agenda for superannuation – an agenda squarely focused on protecting and improving outcomes for superannuation members,” said Minister for Revenue and Financial Services Kelly O’Dwyer.

“To fulfil the overarching purpose of superannuation, it is essential that trustees develop a retirement income strategy and consider the retirement income needs of their members.” 

This follows from an announcement in the 2018 Budget that the Government intends to amend the SIS Act to “introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members”.

The Retirement Income Covenant is part of the Comprehensive Income Product for Retirement (CIPR), which was a recommendation of the Financial System Inquiry (FSI) to require super funds to pre-select a retirement income option for members. The Government has been slowly progressing CIPR since it was recommended by the FSI in 2014.

According to the position paper the only part of the Retirement Income Covenant that would apply to SMSFs is the requirement for a Retirement Income Strategy.

In terms of the broader Retirement Income Framework, the Government plans to prioritise progress of the Retirement Income Covenant, followed by simplified and standardised disclosures for retirement products, then retirement income projections and finally the regulatory framework.

The superannuation industry has criticised CIPR as “neither necessary nor sufficient”, as currently designed, to meet its goals.

 

By |May 22nd, 2018|budget, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on SMSFs to be required to have Retirement Income Strategy

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