Self Managed Super Fund News

Insurance under SMSF

Important tax time decision flagged for SMSF insurance

Reported in SMSFAdviser News by Miranda Brownlee 16 July 2018 https://www.smsfadviser.com/news/16751-bt-flags-important-tax-time-decision-for-smsf-insurance.

Instead of claiming tax deductions for life insurance premiums, SMSFs may want to claim a deduction for the future liability to pay death or disability benefits instead, according to a technical expert.

BT senior manager, product technical Crissy Demanuele said by claiming the future liability tax deduction, rather than deductions for the premiums paid for life insurance premiums, in some cases SMSFs can be "significantly better off". 

Ms Demanuele reminded SMSF practitioners that an SMSF will only be able to claim this deduction if the fund has paid an insurance premium in the year in which a death or disability benefit is paid, the fund had also been claiming tax deductions for the insurance premiums previously, and the member ceased work as a result of the disability or death.

“The future liability deduction may be available to funds when they pay a benefit to a member as a result of death, terminal illness, total and permanent disability or temporary disability,” she said.

“Once this election is made however, the fund cannot claim future tax deductions for the cost of insurance, so the SMSF trustees need to carefully consider which tax deduction may be more beneficial for their fund.”

Ms Demanuele used the example of David and Julia who are both aged 55 and have an SMSF. Each member is insured for $1.4 million of term life and TPD insurance cover. On 1 March 2018, David suddenly passed away. At the time of his death, he had been a member of the SMSF for 10 years, she explained.

“The SMSF received a death benefit insurance payout of $1.4 million which was added to his accumulation balance of $500,000. The SMSF paid the insurance premium of $2,000 on 1 February 2018,” she continued.

“After David’s death, Julia’s son Michael joined the fund and also became a trustee of the fund. As trustees, Julia and Michael seek tax advice and are informed that they could choose to claim the premium paid of $2,000 as a tax deduction or claim a future liability deduction instead for the 2017/18 financial year.”

If the SMSF claims a deduction for the premium paid, Ms Demanuele explained it will receive a tax deduction of $2,000.

“If instead Julia and Michael choose not to claim a deduction for insurance premiums paid by the fund in 2017/18, the fund can instead claim a tax deduction under provisions for the future liability to pay benefits,” she said.

The deduction, she explained, will be calculated as follows:

Benefit amount x Future Service Period/Total Service Period

= $1.9 million x 10 years/20 years

= $950,000

“By claiming the future liability tax deduction, an SMSF could be significantly better off,” she said.

By |July 18th, 2018|Self Managed Super Fund News|Comments Off on Insurance under SMSF

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

2018 Budget measure proposes annual audit change to once every three years

SMSF Association Media Release – 8 May 2018 – Audits.

The 2018 Budget measure that proposes a reduction in the annual audit requirement to once every three years for self-managed super funds (SMSFs) with a good compliance history has been welcomed by the SMSF Association.

SMSF Association CEO John Maroney says this proposal, which will cut red tape for the SMSF sector, is a fitting reward for trustees who strictly adhere to the regulatory regime.

However, Maroney adds that it’s a strongly held Association position that an independent audit is essential to the integrity of the sector, and as such “we keenly await the implementation details of the proposal”.

This proposed change in auditing procedure for SMSFs, when coupled with the expansion of SMSFs from four to six members and the digital rollover measure announced by the Minister for Revenue and Financial Services, Kelly O’Dwyer, at last month’s inaugural SMSF Expo, help to cut red tape and improve flexibility for SMSFs.

Maroney says these positive measures, in line with a 2018-19 Budget that largely left superannuation alone, will come as an “enormous relief” to SMSFs and their advisers.

“This continued regulatory stability for SMSFs is welcomed by the Association and is sorely needed as trustees still come to grips with the superannuation tax changes that took effect on 1 July 2017.

“We look forward to a much-needed period of stability for superannuation and working through the implementation of the superannuation changes with the Government and regulators.”

He says the Association is pleased that the Government has acted to ensure the efficiency and integrity of the broader superannuation system.

“Capping fees on low balance superannuation accounts and introducing opt-in requirements for insurance in superannuation for certain fund members are positive measures that will ensure younger superannuation fund members do not have their account balances eroded unnecessarily.”

Older Australians were also beneficiaries of the Budget via an expanded Pension Work Bonus program, the enlarging of the Pension Loans Scheme to include people on the full-age pension and self-funded retirees, and granting a one-year superannuation work test exemption for recent retirees with balances under $300,000.

“These measures are welcomed by the SMSF Association for providing more flexibility for older Australians to manage their retirement.”

By |May 12th, 2018|budget, Self Managed Super Fund News, Uncategorized|Comments Off on 2018 Budget measure proposes annual audit change to once every three years

News from the Budget 2018

BUDGET 2018

SUPERANNUATION

Big changes in superannuation in the Budget 2018 are designed to secure the retirement incomes of Australians.

A 3 per cent annual cap on fees for accounts with less than $6,000 will be applied.

Exit fees on all superannuation accounts will be banned.

In addition, all inactive super accounts with balances less than $6,000 will be transferred to the Australian Taxation Office, which will then "proactively" reunite these inactive accounts.

VACANT LAND

People who own vacant blocks of land will no longer be able to claim tax deductions against them from July next year.

The restriction won't apply to any expenses incurred after construction begins on the vacant block or any land being used by owners to carry out business, such as farmers' crops.

The Government estimates for this in Budget 2018 will save the budget $50 million over the forward estimates.

OLDER AUSTRALIANS

With Budget 2018 pensioners will be able to earn more money without impacting their pension under the Pension Work Bonus scheme. The program will be expanded to include the self-employed.

Overall, the cost to the budget is $227 million.

The Pensions Loan Scheme will be boosted to enable everyone over pension age to effectively mortgage their home to the Government to access fortnightly payments.

These payments are now as much as one-and-a-half times the pension rate.

An additional 14,000 high-level home care support packages will also be introduced over the next four years.

SMALL BUSINESS

Small businesses in Budget 2018 will have longer to write off business purchases.

The Government extended the $20,000 instant asset write-off for another 12 months to June 30, 2019.

The initiative was initially introduced in the 2015-16 budget and has been kicked along at a cost of $350 million over the forward estimates.

TAXPAYERS

Budget 2018 and the Givernment are pitching a plan to deliver tax relief to lower and middle-income Australians, which it says will benefit more than 10 million people.

The most immediate measure will be changing the low-income tax offset (LITO) — essentially a lump sum on your tax return.

From next July, those who earn up to $37,000 will see their tax bill reduce by $200.

The offset increases incrementally for those earning between $37,000 and $48,000, before the maximum offset of $530 is applied to those earning between $48,000 and $90,000.

The benefit then gradually decreases to zero at a taxable income of about $125,000.

There will also be a measure to combat bracket creep, introduced in stages.

From July next year, people earning between $87,000 and $90,000 will move back into the lower tax bracket and pay 32.5 per cent instead of 37 per cent in tax on those earnings.

In 2022, the top threshold of the lower tax bracket will be increased from $37,000 to $41,000, meaning more earners will fall inside the 19 per cent tax rate bracket.

Treasurer Scott Morrison says the plan will mean 94 per cent of Australian taxpayers will pay no more than 32.5 cents in the dollar.

 

By |May 9th, 2018|budget, Self Managed Super Fund News|Comments Off on News from the Budget 2018

Budget to be released 8th May 2018 – tipped to see aged care policy changes

Budget tipped to see aged care policy changes From SAMSFAdviser, 23 APRIL 2018 By: Miranda Brownlee

With the aged care space having undergone a number of major reviews recently, one aged care advice specialist predicts the government may introduce new policies for aged care services in the budget.

Aged Care Steps director Louise Biti said there were seven major reviews done on aged care last year, and there are still some reviews in process this year.

“The government is yet to release any policies from any of those yet because they are still formulating that,” said Ms Biti.

Ms Biti said there will be further changes in the future in this space, and some of these may appear in the upcoming May budget.

“I don't know what they're going to come up with, but there are a few changes I would take a punt on but all of them will be focused on greater contribution by the user or at least a more equitable contribution by some consumers,” she explained.

“I would bet on there being a couple of small things in this years' budget. There may be some reforms around helping the aged care sector have better visibility on how they manage their businesses and the viability of their businesses.”

Ms Biti predicts that the government will continue to shift its allocation of funds towards home care, because for every person that they fund in residential care, they can fund around two to three home care packages.

“So they can get a much better reach, it's more flexible, because you don't have to have people all in one location, they can be anywhere in Australia. There is still a lot of work to be done on the home care side,” she said.

Ms Biti said there are currently 50,000 home care packages in the market, and there’s roughly another 50,000 people on the waiting list with no packages and another 35,000 on that waiting list with a package lower than they would like and need.

“If the government was to say well we'll just throw enough money to fund all of those, they'd need over another billion dollars. There's no way they're going to do that,” she said.

“So some of the things the government will need to do is look at how do we shift more of that cost back to consumers, how do we make sure that the packages that consumers have got aren't just being stripped out with fees, and getting more competition in the space as well.”

By |May 1st, 2018|aged care, budget, Self Managed Super Fund News|Comments Off on Budget to be released 8th May 2018 – tipped to see aged care policy changes

Total super balance key transfer balance account report (TBAR) timing factor

Total super balance key to transfer balance account report (TBAR) timing factorSelf Managed Super Magazine – 16 Jan 2018 By Darin Tyson-Chan

The total super balance of the individual members of an SMSF is the determining factor of how often a particular fund will have to complete a transfer balance account report (TBAR), rather than the total super balance of the member who is drawing a pension.

“So if you had mum and dad in a fund and they’re both in accumulation phase but then dad decides to start a pension, and he’s the first one to start, then you have to determine what the total super balance of each member in that fund at 30 June prior to the commencement of that pension is,” SuperConcepts technical services executive manager Mark Ellem said.

“Does one member at least have a total super balance of $1 million? If yes, the SMSF’s TBAR will be done quarterly, if no, then the SMSF’s TBAR will be done annually.

“Importantly, it’s not about looking at the total super balance of the member starting the pension. 

So if dad starts the pension, and he’s only got a total super balance of $600,000, but mum doesn’t start a pension but she’s got a total super balance of $1.2 million, that fund will be a quarterly reporter.”

Ellem pointed out the initial determination of the TBAR frequency will never change.

“Once an SMSF is determined to be an annual or quarterly reporter, it will forever be an annual or quarterly reporter no matter what happens after that,” he noted.

“You will not have to reassess the reporting status and you can’t change.”

Late last year the ATO announced SMSFs with at least one member in pension phase but with all members having a total super balance of less than $1 million would be able to report events affecting their transfer balance accounts as part of the fund’s annual return.

The regulator also stipulated funds with at least one member drawing a pension and at least one member with a total super balance of $1 million or more would have to report any transfer balance account event within 28 days of the end of the quarter in which the event took place.

By |February 6th, 2018|Self Managed Super Fund News|Comments Off on Total super balance key transfer balance account report (TBAR) timing factor

Asset test changes hit middle-income earners

Asset test changes – Self Managed Super Magazine – 15 Jan 2018 By Malavika Santhebennur

Changes to the asset test rules for the age pension have had “significantly adverse and presumably unintended consequences” and dissuade middle-income wage earners from saving, according to the SMSF Association.

Chief executive John Maroney said changes to the means test taper rate and thresholds, which decrease the entitlement to the age pension as a person or couple’s assets increase and which took effect from 1 January, were not appropriately aligned with the larger retirement income system.

“We believe having the superannuation and social security systems properly integrated is a key facet to achieve an efficient and sustainable retirement income system, and that the current siloed approach to policy-making in these areas is creating perverse outcomes for individuals and couples,” Maroney said.

He added changes to the taper rate for the age pension assets means test hit middle-income earners who had moderate superannuation balances and benefited from a part age pension payment that supplemented their superannuation income.

“For home-owning couples who have a superannuation balance between $500,000 and $800,000, the increased taper rate creates a ‘black hole’ where their assets above the asset test free amount cause them to be worse off in terms of income,” he said.

“This is caused by the taper rate of the equivalent of 7.8 per cent a year, reducing their pension entitlement at a rate exceeding the income they earn from their superannuation balance above the asset-free area. This is especially so in a low interest rate and investment return environment.”

This leads to harmful behavioural effects, including encouraging middle-income earners to move investments from assets that are included in the means test, such as superannuation, to those that are excluded, such as the family home.

A simpler method to integrate superannuation and the age pension means test would be to shift to a single means test that applies a deeming rate to financial and non-financial assets, removing the assets test.

“The Australia’s Future Tax System Review recommended that a single comprehensive means test should be pursued to ensure that assets are fairly accounted for to remove distortions based on the form of savings and to ensure that appropriate incentives to save and use savings effectively remain, and the association concurs,” Maroney said.

 

Self Managed Super Fund Magazine Welcome 2018

By |January 16th, 2018|Self Managed Super Fund News|Comments Off on Asset test changes hit middle-income earners

Event-based reporting webinar Nov 2017

Watch a video from a ATO webinar for SMSF's about Event-based reporting, November 2017.

Topics

  • Consultation with industry and frequency of SMSF reporting from 1 July 2018
  • What is event based reporting?
  • Why do we need event based reporting?
  • What are the impacts for SMSFs?
  • The reporting framework
  • Transitional concession for event based reporting
  • What events should be reported?
  • Frequency of SMSF reporting – case studies
  • Consequences of exceeding the transfer balance cap
  • Understanding some possible impacts of deferred reporting
  • Case studies

You may find some of the slides are a little difficult to read so here is a link to the ATO webinar slides.

By |January 9th, 2018|Self Managed Super Fund News, Uncategorized|Comments Off on Event-based reporting webinar Nov 2017

CGT relief not for all assets

CGT relief provisions do not apply to all assets that the SMSF owns.

20 Dec 2017 from www.smsmagazine.com.au by Darin Tyson-Chan

SMSF advisers and trustees must be aware the capital gains tax (CGT) relief provisions contained in the super reforms do not apply to all assets the fund owns, a technical expert has said.

Speaking at the Institute of Public Accountants 2017 National Congress on the Gold Coast last month, SuperConcepts technical services executive manager Mark Ellem told delegates cash and fixed income products are not eligible for CGT relief and nor are traditional securities.

“The best example of a traditional security is debenture notes, floating notes where your return is based on interest rates and they go up and down in value depending on what interest rates are doing, unsecured loans, they’re traditional securities,” Ellem said.

“A gain or loss on a traditional security is not assessed under the CGT provisions – it’s on revenue account.

“So it’s not a capital gain or loss and you can’t reset the cost base because they don’t have a cost base. So have a look if you’ve got funds that invest in these interest-type securities.”

He noted in certain circumstances it was not as easy to determine if an asset is a traditional security just on the surface alone.

“We saw an asset that looked like a traditional security, but a lot of these items have class rulings. In this case we found a class ruling and it specifically said the asset was not a traditional security, therefore it came under the CGT provisions, therefore we could reset the cost base,” he said.

In addition to class rulings, advisers and their clients can also refer to product disclosure statements to help determine if an asset is a traditional security.

“Normally, but not always, the product disclosure statement will have a tax opinion in it about how a traditional security is assessed from an income perspective and also when it is sold,” Ellem noted.

“Even if it has that tax opinion, you should still see if there is a class ruling for the asset as well that is going to specifically say if it’s on revenue account or on capital account.”

 

By |January 8th, 2018|Self Managed Super Fund News, Uncategorized|Comments Off on CGT relief not for all assets

Strategies To Maximise Retirement Income

Four Strategies To Maximize Your Retirement Income

Joel Johnson, CONTRIBUTOR. From www.forbes.com – Opinions expressed by Forbes Contributors are their own.

The main concern that people have in or near retirement is running out of money. There are many strategies people can employ to ensure a successful retirement. Here are four of the strategies you can take to maximize your retirement income.

Strategy #1- Lower your taxes.

Instead of looking at your investments first, begin by taking a look at your taxes and figure out the best way to minimize them. This is not “cheating”, but rather, making sure you are not paying more than you need to at tax time. For example, many people own mutual funds that unbeknownst to them, spin off distributions which cause them to pay taxes. By simply changing your portfolio’s funds to more tax efficient funds, these distributions won’t hit your taxes and negatively impact your bottom line, leaving  more money in your retirement fund.

Strategy #2 – Invest with a bias towards Income-Producing Securities and Products

When we think retirement income it is important to think along the lines of pension funds. Pension funds are ideal for investing to produce income and preserve principal. When planning for a successful retirement, you ideally want to move from growth-type investments (a good choice for people in their 30's and 40's) to income producing investments (such as preferred stocks, bonds). Income producing assets produce a steady stream of income, and while there is some opportunity for growth, you have peace of mind with your income, should the stock market take a dip.

Strategy #3- Protect against inflation

This is by far the biggest risk that many people face in retirement! Consider this: If you retire today at age 65, there is a high probability you will live to age 90.  This means you may need to triple your monthly income, just to keep up with inflation. Many people do not plan for inflation or an increased life span, thinking that the money they have saved will be more than adequate. Consider planning for retirement as giving yourself a ‘yearly raise.’

Strategy # 4 – Get a Retirement Income Plan

The first thing to do when contemplating retirement is to develop a retirement income plan.  This is where you need to envision how you see your retirement and what your savings will need to be in order to satisfy the lifestyle you desire. Many retirees spend the first ten years of their retirement traveling and taking advantage of their hobbies. Some retirees will also want to have the ability to help pay for their grandchildren’s education or help their own child purchase a home. These things all cost money and the pre-retiree will need to factor that into their retirement plan.

Figuring out how much money you will need to retire comfortably and whether you are on track (i.e. are you saving enough?) are two critical questions to ask in the planning process. You might want to consider joining forces with a trusted financial advisor who can deliver a complete picture of your assets and assist you with your retirement plan.

With these four strategies in place, you can maximize your retirement income and ensure that your retirement is designed the way you want it to be!

By |December 5th, 2017|Self Managed Super Fund News|Comments Off on Strategies To Maximise Retirement Income

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