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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

Super reforms

Super reforms get SMSF Association tick of approval – from Self Managed Super Fund Association 17 September 2017

The SMSF Association has thrown its weight behind the superannuation reforms introduced into the Parliament last week, believing they will improve accountability and member outcomes.

The Minister for Revenue and Financial Services, Kelly O’Dwyer, introduced a raft of changes that include establishing the Australian Financial Complaints Authority (AFCA), closing a salary sacrificing loophole, implementing the Superannuation Accountability and Transparency package, and allowing employees to choose their own superannuation fund.

SMSF Association CEO John Maroney says these reforms are a welcome step to ensure the superannuation system delivers better retirement outcomes for all Australians.

“We commend the Government for introducing these reforms into the Parliament, all of which have long been advocated by the Association.

“In particular, giving employees their choice of fund is a long-held policy position of the Association on the basis it introduces an element of competition into the $2.3 trillion superannuation industry.

“All employees should have the right to enter the fund of their choice, including a self-managed super fund, when starting new employment, and should not be forced into a fund because of an enterprise agreement or industry award.

“We have also been highly supportive of the move to close the legal loophole whereby employers have been able to short-change their employees of their Superannuation Guarantee entitlements.”

Maroney says the ACFA, which will combine the activities of three complaint schemes, should prove far more effective in facilitating the resolving of financial disputes.

“From our perspective, we welcome the fact that the ACFA will incorporate the key features of the Superannuation Complaints Tribunal, the Financial Ombudsman Scheme and the Credit and Insurance Ombudsman, thus providing certainty to all stakeholders.”

He says it’s imperative that the superannuation system engage, as far as possible, with all fund members, and this legislative package should prove another step along the way to achieving this outcome.

By |October 24th, 2017|Self Managed Super Fund News|Comments Off on Super reforms

Super Changes Reshape Succession Planning

From 1 July 2017, the need for specialist advice is as important as ever, with the introduction of the transfer balance cap (TBC) impacting on the amount of death benefits that a beneficiary can receive as an income stream. Clients who have already put plans in place to direct their superannuation where they want it to go on their death will have to redesign those plans. Advisers talking to clients about putting such plans in place will need to refresh their thinking around the relevant considerations to be addressed in the advice they provide.

Where the recipient of a death benefit pension exceeds their own TBC, they will need to take any excess as a lump sum death benefit. Different rules apply to modify the TBC rules for a child beneficiary and for a reversionary beneficiary. The amount of money that can now be retained within the superannuation environment upon the death of a member as either a pension account or an accumulation account of the recipient member has been materially curtailed.

This is a significant shift in relation to superannuation death benefits and estate planning, making it paramount to review all succession plans involving superannuation benefits.

Join Peter Hogan, the Head of Technical and Education in our November Masterclass.

The Masterclass workshop will provide you with specialised knowledge and skills to analyse your client’s information and provide solutions to their complex situations.

Get hands-on practice at determining the best course of action and subsequent outcomes for particular clients through the interactive discussion, activities and examples.

To ensure that you get the most out of the Masterclass, we will be providing

• A pre-course quiz to help us develop the Masterclass to suit your needs
• A webinar which will acquaint you and fellow participants with the course format and content as well as introducing content to be covered that we will later build on.
• A pre-course assignment which embeds the themes introduced in the webinar. It includes pre-reading material and a case study to analyse.
• A 3-hour intensive face-to-face course where you will explore and discuss all aspects. For most of the course we will look at some strategies you can use to get the best outcomes for your clients, and tackle some tricky real-life situations which will get you thinking outside the box.

Take advantage of an exclusive membership + Masterclass bundle by following this link for further instructions:
https://www.smsfassociation.com/masterclass-membership-bundle/
This event will be held at Cooper Grace Ward

Details

Date: 14 Nov 2017
9:30 am AEST – 12:30 pm AEST

Knowledge Area:

Managing Investment, SMSF Administration, Taxation

CPD Points: 6

Venue:

Cooper Grace Ward
Level 21 / 400 George Street
Brisbane, QLD 4000

$440

Price for Members Self Managed Super Fund Association

$575

Price for Non-Members

To book : https://www.smsfassociation.com/product/super-changes-reshape-succession-planning-bris/

By |October 16th, 2017|Uncategorized|Comments Off on Super Changes Reshape Succession Planning

ATO set to release further guidance outlining circumstances for SMSF to establish and maintain a reserve.

In light of the 1 July changes, regarding the new transfer balance cap of $1.6 million the ATO has updated its frequently asked questions page for SMSF trustees including information about the use of reserves by SMSFs.

The ATO said it is currently monitoring the use of reserves by SMSFs following the introduction of new limits and restrictions including the transfer balance cap and the total super balance.

“While the establishment of a reserve is not specifically prohibited, we would consider that there are very limited circumstances when it is appropriate for a reserve to be established and be maintained in an SMSF,” the ATO said.

“The use of reserves beyond these circumstances may suggest to us that they are being used as part of a broader strategy to circumvent the new limits and restrictions.”

The ATO also warned that any unexplained increases in the creation of new reserves or in the balances of existing reserves maintained by SMSFs is “likely to attract close scrutiny”.

The tax office has also announced that it will issue further guidance on when it may be appropriate for an SMSF to establish and maintain a reserve.

“In the meantime, if you are considering using reserves in your SMSF, we strongly encourage you to seek independent professional advice or approach us for advice before doing so,” the ATO cautioned.

It is thought that this update from the ATO is likely aimed at SMSF trustees attempting to use reserves to get around the $1.6 million cap so that they can contribute another $100,000 or so.

You have a reserve in an SMSF either because you're running a complying pension or because for the last five or six years you've adopted a strategy of trying to finance anti-detriment payments, and that strategy is now redundant.

By |September 26th, 2017|Self Managed Super Fund News|Comments Off on ATO set to release further guidance outlining circumstances for SMSF to establish and maintain a reserve.

CGT Relief Segregated & Proportionate Method

What is the CGT relief all about?
Superannuation funds that are paying pensions currently receive a very valuable tax break. They pay no income tax on rent, interest, dividends, capital gains etc. they earn on the assets they have invested to support pensions. What CGT relief do you get and what are the Segregated & Proportionate method? Read on:
If an asset is supporting a mixture of pension and non-pension (accumulation) benefits, some of this investment income is free of tax.

For some people this tax break will be wound back a lot from 1 July 2017.
1. If you are receiving a “transaction to retirement” pension this will stop being classified as a pension when it comes to working out how much of your fund’s investment income is free of tax; and
2. If you are receiving a “full” pension (ie. not a transition to retirement pension), you must make sure it’s not worth more than $1.6m at 1 July 2017. If your pension is bigger, you will need to reduce if beforehand. If you do that my taking money out of your pension but leave it in your super fund, that will mean some of your fund (the part that’s not in a pension any more) isn’t entitled to this special tax treatment. Overall, a similar portion of your fund will be devoted to paying pensions and so this reduced the amount of your fund’s investment that is free of tax.

This is a particularly big deal if you have assets that grown over time and you are expecting to sell them at profit (i.e realise a capital gain) in the future. The way the law works is that the amount of that profit or capital gain that is taxable depends on how much of the fund is in pension phase when the assets is sold, not what the fund looked like when the assets was bought or when it grew in value.

And this is the problem – if you have a transition to retirement pension or if you have a full pension but are winding it back a bit in preparation for 1 July 2017, less of your fund will be in pension phase in future. That means more your fund’s capital gains will be taxed at the time you sell an asset and realised a capital gain.

To ease the transition, the Government has specifically factored in some capital gains tax relief for people affected by the changes.

The idea is that the CGT relief will make sure that when an assets is sold after 1 July 2017:

1. Capital gains that built up after a changeover date in 2016/17 (open 30 June 2017)will be taxed based on how much of the fund is in pension phase at the time; while

2. Gains that built up beforehand will get special treatment to reflect the fact that they would have been partly or even entirely free of tax if the new rules hadn’t come in.

The CGT relief does this by allowing funds to change the amount of treated as an asset’s purchase price (or cost base) for capital gains tax purposes to whatever it was worth on the changeover date in 2016.17. This is called “resetting the cost base”. Unfortunately, it also re-sets the date on which the asset is treated as having been bought. This is important because your fund gets a special capital gains tax discount when it sells assets it has held for more than 12 months. So, if your changeover date is 30th June 2017, and you’re eligible for the CGT relief, you”ll be able to res-set your cost base to whatever your assets are worth on 30 June 2017 but you’ll have to hold them until 1 July 2018 before you get the discount.

Is my fund eligible for the CGT relief?
Firstly, to be eligible for the CGT relief you will need to be affected by the new super rules that are coming in from 1 July 2017. This means you must either:

1. Be receiving a transition to retirement pension; or

2. Have more than $1.6 m in “full” super pensions overall and need to wind some of them back in the fund in which you’re claiming the CGT relief.

You can’t claim CGT relief if, for example, you and your spouse are retired (so receiving full pensions) and you both have less than $1.6m in super pensions. (The Government’s argument is that you don’t need the CGT relief – your fund can keep all its pensions in place and so will continue to pay no tax n its investment income). If even just one of you has more than $1.6m in a full pension, you’re fine – your funds meets this first test.

Secondly, your fund needs to meet some specific conditions.

These specific conditions provide two methods (or pathways) for being eligible for the CGT relief – called the ‘segregated” method and the “proportionate” method. In theory, different assets in your fund could be eligible for the CGT relief under different methods. Mostly though, its the same method for the whole fund.

By |May 23rd, 2017|Self Managed Super Fund News|Comments Off on CGT Relief Segregated & Proportionate Method

Government Budget May 2014 Superannuation Commentary

Government delivers tough 2014-15 Federal Budget

Refunds of excess non-concessional contributions, changes to the Super Guarantee and tighter rules on qualifying social security benefits were the main Budget announcements to impact on superannuation this year.  These changes, along with others, should provide a Budget deficit of just under $30 billion in 2014-15 with no surplus due anytime soon.

The key changes proposed for superannuation and social security are:
 

  1. Excess Non-Concessional Contribution Refunding

For any excess contributions made after 1 July 2013 that are over the non-concessional contribution (NCC) cap, the Government will allow withdrawal of the excess NCCs and any associated earnings from super.  Earnings withdrawn from the fund will be taxed at personal tax rates.  If the excess NCCsare left in the fund, tax will be paid on the excess at the top marginal tax rate.

  1. Rephasing Superannuation Guarantee

The Superannuation Guarantee (SG) Rate will increase to 9.5% from 1 July 2014, instead of remaining at 9.25% as the Government has previously indicated would occur as part of its mining tax repeal.  The Superannuation Guarantee rate will then be maintained at 9.5% until 30 June 2018, and on 1 July 2018 it will resume increasing by 0.5% increments until it reaches 12% in 2022-23.

  1. Increasing of Age Pension Age to 70 from 2035

The Age Pension age is to be lifted to 70 from 2035.  From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035.  People born before 1 July 1958 will not be affected by this change. Also, there has been no change to the preservation age for accessingpreserved superannuation benefits.

  1. Indexing the Age Pension by the Consumer Price Index

The Age Pension is to be indexed to the Consumer Price Index (CPI) from 1 September 2017.  Currently, pension payments are indexed in line with the higher of the increases in the CPI, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index.  This change will likely result in lower future pension increases.

  1. Resetting the Pension Deeming Rate Thresholds

The income deeming thresholds used in the pension income test will be reset to $30,000 for singles (currently $46,600) and $50,000 for couples (currently $77,400) from 20 September 2017. The deeming rules assume financial assets are earning a certain amount of income, regardless of the income actually earnedfor the purpose of determining eligibility to social security payments.  The Government is making this change to better target pension payments, by tightening the income test.

  1. Maintaining Eligibility Thresholds for Australian Government Payments for Three Years

Eligibility test thresholds for pension and pension related payments will be maintained for three years from 1 July 2017. Major pension related payments include the Aged Pension, Carer Payment, Disability Support Pension and the Veterans’ Service Pension.

  1. Commonwealth Seniors Health Card Changes

There are proposed to be a number of changes to the CSHC.  These changes are:

  • Indexing the current income limits for the CSHC by the CPI in line with its election commitment to do so.
  • Including untaxed superannuation income in the eligibility assessment for the CSHC from 1 January 2015.  All superannuation account-based income streams held by CSHC holders before the 1 January 2015 will be grandfathered under the existing rules.
  • The Government will achieve savings of $1.1 billion over five years from 2013-14 by ceasing the Seniors Supplement for holders of the CSHC from 20 September 2014.

How can we help?

If you would like some assistance with identifying how these recent changes are likely to affect your own retirement income planning, please feel free to give me a call to arrange a time to meet so that we can discuss their impact on your particular circumstances. We can then determine whether you need to make any changes to your existing arrangements.

By |May 16th, 2014|Self Managed Super Fund News|0 Comments

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