Jenny is a Senior Accountant and SMSF Specialist Advisor� for Core Business & Management Advice. Having worked in commerce for over 16 years, her expertise in people and systems management are a great asset to Core. As a result of Jenny�s special interest in self-managed superannuation funds, she is responsible for the management of all the superannuation funds Core advises and is an accredited SMSF Specialist Advisor� by 'Self-Managed Super Fund Professionals' Association of Australia' (SPAA).
General Advice From Jenny
Self Managed Super Funds
Jenny has not provided any general advice.
Questions to Jenny
From TopStocks Members
ATO's attitude to share trading
At what point does the ATO claim that a SMSF is a trader and not an investor? Of course some shares get bought and sold over a short period.
There is no magic number. According to the ATO it's a subjective view that looks at the volume and frequency of trades and this is the case for all taxpayers. It must be said that I know of no review of an SMSF by the ATO where the ATO ruled that the SMSF was conducting a business of share trading that breached the Sole Purpose Test which is the only consideration. The ATO will look at the Investment Strategy of the Fund ensuring that the Sole Purpose Test is satisfied and providing these trades are part of the strategy, it's unlikely to cause any problem.
Lump sum payments to SMSF
Q. I am 71 this year and want to start my own SMSF. Can I start it with a tax free lump sum payment of $3.5m?
As you are 71, you are not permitted to contribute more than $25,000 ($35,000 in 2014) in concession contributions and $150,000 in non-concessional contributions in the year - and then only if you pass the work test. If you haven't worked at paid employement for more than 40 Hours in a 30 day period, then you cannot make a contribution to super during that year.
If you are talking about rolling over $3.5m from an existing super fund into an SMSF, then yes, it's allowable. However, you need to consider the following:
- Are the funds currently in cash or will you need to sell the assets before rolling the cash over? It's not possible to roll the assets themselves over (except for rare cases)
- If so, what are the disadvantages of realising these assets at this time
- Are there existing insurance policies which will be lost upon closing your existing superannuation account?
If you have a Financial Advisor, I strongly suggest that you discuss this with them, as well as your existing Fund, and make sure that you have all of the information before closing your existing superannuation and setting up an SMSF.
standard SMSF or use AMP's Ascend?
I am 56 and like a lot of people, I am contemplating a SMSF and will probably allocate around 50/50 for interest bearing deposits/investment stocks. I am stuck between choosing a conventional SMSF set up, i.e. using an accountant, which entails getting statements together each year on top of normal SMSF responsibilities, or going with AMP's Ascend product, a portal that seems to have it all on one site, doing all the bookkeeping and reminders for you. They seem about the same cost to setup. run and wind up. Do you have any insights or opinions that would help me choose?
Sorry Gordon, but Ascend is a Financial Product and I can't provide Financial Product Advice. I would just suggest that you do your research as far as:
What are the set up costs for Ascend v SMSF?
How are the ongoing costs calculated - are they transaction based (the more buys & sells you do the higher the fee) or based on the balance of the Fund?
What are the Audit costs?
How often will you receive updated information on the status of your Fund?
What costs would change if you were to go into pension mode?
Are there any restrictions on assets you can invest in via Ascend?
Do you have significant income or assets outside of Super - if so, would an accountant who can look at your entire estate be an advantage?
Do you have an existing relationship with an accountant who has a speciality in SMSF as not all accountants are in this space?
Will one give you greater peace of mind than the other?
I think if you can answer these questions, you'll be well on the way to the right choice for you.
Co-contribution and SMSF
Q. Can a transfer of shares into my SMSF count as a personal contribution and attract the government co-contribution?
Yes, if you would have been eligible for a co-contribution payment had the non-concessional contribution been made in cash, then you are still eligible on an in specie contribution.
accessing super money
Q. I am 56 in march '13 and have about $1million in my smsf. im not working, effectivly retired and living off about $250,000 in savings, which is in the share market, and $1500 gross/month rent. im trying to make the $250k last until im 60 when I can get access to super funds tax free. my question is, when or is getting a pension the best option. im single, and half my time is spent in thailand
Without knowing a lot more detail regarding your current taxable income, and the current income of your Super Fund, it's impossible to provide an answer here.
However, your accountant/advisor can investigate whether it's tax effective to start a Transition to Retirement Income Stream (TRIS). A TRIS is a type of pension you can access once you turn 55 whether or not you have retired. A TRIS is taxable in your own name but carries a 15% rebate and would make your SMSF tax free. Once you turn 60 you could then revert to a tax free pension. Your advisor can crunch the numbers to maximise your income and minimise your tax.
Do I convert to pension
Q. I have about $1.7m in my SMSF account (my share), and $1.223m (72%) of that amount is undeducted withe the remaining $0.464m (28%)being deducted. If I convert to a pension I understand that the min take being 4%, would be about $68k. As I'm under 60, am I correct that only $18.6k is taxable.
The second part of the Q is this - once I start the pension based on the above values, do these percentages carry through upon transfer to non-Dependants at death. E.G. if my fund were to be worth say $10 upon death would be non Dependants be taxable on only $2.8m (28%) of any distribution. This is the critical aspect of taking my pension now rather than in a couple of years time.
You are correct that the percentage between concessional (taxed) and non-concessional (tax free) remains constant, and in general terms this applies whether you are in pension mode or not unto death. However, you should really seek advice from a pension expert so that a structure can be set up for your personal situation. This should include advice regarding the number and type of pensions and when they should commence.
SMSF Adminstration Fees
Q. As technology improves in this area, why is the fees still so high for tax return and audit. Are the accountants and auditors trying to have a monopoly over this sector. There are claims by software providers of automation and efficiency? Where is the savings.
As with everything in life, you get what you pay for. I can't comment on what other accounting firms charge, but I know that there's no magic software that does everything regardless of the hype. To use any software you still need to know all of the SIS Act and Tax regs otherwise it's garbage in/garbage out. There's another important factor - the advice provided by your accountant. If you're not getting pro-active advice and discussions from your accountant/advisor as part of the administration of your Fund, then perhaps you need to look elsewhere.
Notes, Debentures, Securities etc.
Q. Hello Jenny.
Can you please recommend where I can find information on what securities are being traded on the ASX?
I'm looking at the Woolworths II Notes and wondering where I can compare others that are similar, thank you, L.
No. Apart from funds borrowed by a Super Fund under a special limited recourse borrowing arrangement where the property is held in trust until the loan is extinguished, property owned by a superannuation fund cannot be security for any loan.
With regard to your second question, it's not clear whether you have already signed a contract in your own name. If you have, the vendor would need to allow the contract to be changed so that the correct party was the purchaser. Unless it's business real property, you can't buy it and then transfer it to the Super Fund.
Expenses prior to establishing fund.
Q. Hi Jenny.
Am I able to claim or get reimbursed for expenses prior to establishing my SMSF? For example I personally paid for a share trading course prior to establishing my SMSF. Whilst doing the course I set up my SMSF. The invoice is under the SMSF name.
Your help is very much appreciated.
It's perfectly acceptable for the Trustees of an SMSF to have the SMSF pay for education in order that they can execute their duties more effectively. However, if the date on the invoice is prior to the set-up of your SMSF then you weren't the trustee at the time, and it would be difficult to convince the ATO that the course only related to an SMSF not yet set up. You should check with your accountant, as share courses are often tax deductible in your own name.
Paying benefits from an SMSF
Q. Is there any rule which prevents a retiree, over 65 and not working, taking benefits whenever they are needed and in the amount needed?
For those who are over 65 and permanently retired, there is only a minimum pension that must be taken each year, not a maximum. I assume that you currently receive a pension and would like to be able to take additional amounts as required - there is no problem doing this, although the appropriate documentantion (minutes etc) will need to be prepared.
Residential property in SMSF
My wife & I have been advised that we can have commercial property in a SMSF
but we are unsure if we can acquire residential property[as an investment property] /
No, it is not likely that the Government will change it's stance on personal contributions for over 75's. However, they have relaxed the limitations for Super Guarantee so that employers can pay 9% superannuation for all their employees regardless of age.
SMSF trading and share registries...
Q. When trading inside a SMSF do you have to provide your SMSF's details with the share registry that the companies you are trading are aligned with?
I'm far from retired, and just wanted to know if you still have to deal with this.
In short yes - as you are the trustee or director of the trustee company of your smsf, the same rules apply as if you owned the shares directly, and the SMSF's details need to be provided to the share registries.
Politicians calling for SMSF's to rebalance with lower exposure to shares
Could you share your views on recent statements by people like Paulk Keating on the need to rebalance SMSF's away from shares. In light of the timing of these statements, is Paul offering some sage advice for all those who find themselves looking at a significant drop in asset value or would it have been more timely to have mentioned this before we got ambushed by the political impasse on the G20 nations. How do you recommend that we go about rebalancing in light of the current position?
Unfortunately, as an accountant, and not a licensed Financial Planner, I'm precluded from giving investment advice by statute. As a personal opinion, it is always prudent to spread any investment strategy across equities, cash, property etc to mitigate any losses in one sector.
How do I start an SMSF?
Q. I want to start a self manage superfund How do I go About it?
This question is too broad to answer in this forum. You will need expert assistance, and your first port of call should be to an accountant who has expertise in establishing and administering Self Managed Super Funds. A good accountant will also suggest that you discuss your plans with a financial planner and/or your solicitor to ensure the outcome is appropriate to your particular needs.
Valid SMSF Expenses
Q. Hi Jenny,
Just wanting to know what are some common tax deductible expenses allowed within your SMSF.
For example can one claim education, training, software, membership fees etc expenses if these are used to select assets (shares)?
The SMSF can claim deductions for items that will assist you in improving the returns in the Fund. Therefore expenses such as subscriptions to a sharemarket forum (like Topstocks)or magazine, training, seminars, computers and software are deductible but only to the extent that they are used exclusively for the Super Fund. If you also had an investment portfolio in your own name then the costs would need to be apportioned between you and the SMSF.
Art for my sake
Q. I see that there are amendments in the pipeline for art belonging to SMSF ... we can no longer have those pieces owned by the SMSF in our homes (Q.1. can we have them in our offices?)
Supplementary Q.2 If I set up a SMSF can I transfer the ownership of various pieces of art, collectibles and antiques over from me personally to the SMSF?
Supplementary Q.3 Do I have to setup a seperate account with my broker (Commsec) under the SMSF entity to purchase shares for the fund?
Q1. Strictly speaking, artwork was never permitted in your home as it "provides a benefit to a member". The new regulations mean that even where artwork is leased by the Fund to a related entity, you have until 30 June 2016 before this too becomes prohibited. You may retain artwork in the Fund if it's leased to an unrelated entity at commercial terms, is stored at an appropriate facilty (not your premises), is fully insured at market value, and a written valuation is obtained every year.
Q2. An SMSF is prohibited from acquiring any asset from a member other than listed shares or business real property, so none of the items you mention can be transferred to your SMSF.
Q3. You'll need to confirm this with Commsec, but I would think a separate account would be required to ensure the shares are purchased in the correct name.
Do I qualify for a SMSF?
Q. Hi Jenny,
I am 43yrs old and employed by a large company.. I currently have my super (only about $75k) invested with ING (in a balanced fund) and wondering if I qualify or am able to set up my own super fund (either to manage this myself or through a fund manager)as I would rather take on more risk (as am confident in doing so)in chasing much higher returns (as opposed to balanced fund with single digit returns at best) Appreciate your advice on this and how I go about it so look forward to your reply.. many thanks. kind regards, Telmo
Great question Telmo.
There is no minimum amount required to set up your own Self Managed Super Fund (SMSF). However, the first question to ask is whether you would be prepared for the responsibilities of being a Trustee of an SMSF. There's a link below to the Tax Office publication on running an SMSF which should be compulsory reading for anyone considering going down this track.
You have other options and could talk to your Fund about changing your investment strategy. You could talk to a Financial Advisor about an SMSF or moving to another Fund that allows you to be more flexible in your investments (there are new Funds on the market that allow you much greater control).
Q. We are a retired couple aged 62&64 running own SMSF have been accumulating and wish to start making regular lump sum minimum withdrawals. We have been quoted $600 ea to set this up ,but is it that complicated? We currently pay about $6.5k pa tax on funds earnings which we are told will be saved by setting this up. Whats involved? Are there any disadvantages versus the tax savings. Kind regards Michael
Hi Michael - lucky you!
As you are retired and over 60, your SMSF can pay you both a regular pension which is tax-free in your hands. If you are the only 2 members of your SMSF then the entire income of the Fund also becomes tax free.
To set up a pension requires calculating the allowable minimum and maximum pension amounts based on your ages and balances in your Fund. There is a large amount of documentation to be completed. Rather than looking at the cost, look at the benefit. If you were offered an investment with a one-off cost of $1,200 for a return of $6,500 per year would you take it? Also, the cost of $1,200 is comparable to what our firm would charge for this very thing.
Costs for setting up a SMSF
Q. Hi Jenny, Thanks for your time - I was wondering what the approximate costs are for setting up and then running costs per year for a SMSF are - just ballpark numbers.
Please refer to my previous response regarding the responsibilities of running your own Fund.
The initial costs could be anywhere from $2,000 upwards but this depends on a number of factors as to how it's set up.
As far as on-going costs, the Administration(Financial Statements, Tax Returns, Members Balances, Trustee Minutes etc) & Audit costs vary greatly and the more transactions in the Fund, the higher the costs. The ATO also charges a supervisory levy of $180 each year. We generally charge a minimum of $3,000 per year.
adding new money to a pension
Q. Adding money to an account based pension is a very labourious and expensive process.
We need to roll back the pension to accumulation , add the new money and then restart a second pension.
Ideally I would like all new contributions to be added to the pension instantly and the accumulation fund would always be zero -With a massive reduction in paperwork and fees.
This would also help with all the ambiguities of needing an actuary that seem to float around.
My question is why doesnt the government simplify this so we can add directly to the pension?
I know we still have the taxable/non taxable and minimum pension payments to work out - but we have to do those anyway.
So I was wondering whether there was some philosophical reason the govenment hasnt acted or are they just being inept as usual?
No one Ive asked so far seems to know why??
Philosphically, the aim is for the amount of superannuation in your account to last your lifetime and this is the method that the Tax Office employs for the calculation. It's unlikely that this will change in the future and overall it's a small price to pay to access tax free money.
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