Transcript Document

DISCLAIMER AND COPYRIGHT
DISCLAIMER
This information is for general information only. It should not be used as a substitute for specific and
professional advice. Responsibility is disclaimed for any inaccuracies, errors or omissions. All
expressions of opinion or advice are published on the basis that they are not to regarded as expressing
the official opinion of Rose Guerin Chartered Accountants ( RGCA) unless expressly stated. RGCA
accepts no responsibility for the accuracy of the opinions of information contained in this presentation.
COPYRIGHT
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may, in any form, or by any means ( electronic, mechanical, microcopying, photocopying, recording or
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should be addressed to Rose Guerin Chartered Accountants, PO Box 622 Rose Bay 2029. © Rose
Guerin Chartered Accountants A CN 103 081 456
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WHAT IS A SELF MANAGED SUPER FUND?
LEARNING OBJECTIVES

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Superannuation is compulsory savings
The different ways of saving your super
Deciding if a self managed superannuation fund is for you
Understanding the requirements of setting up a SMSF
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INTRODUCTION
SMSF POPULATION TABLE - ANNUAL DATA[1]
•
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Establishments
30,239
22,547
24,191
44,584
32,498
28,995
Wind ups
4,849
5,088
4,923
3,862
4,558
2,310
Net establishments
25,390
17,459
19,268
40,722
27,940
26,685
Total number of SMSFs
278,244
295,703
314,971
355,693
383,633
410,318
Total members of SMSFs
534,941
568,285
604,333
680,154
721,469
772,299
[1] http://www.ato.gov.au/superfunds/content.asp?doc=/content/00214157.htm&page=6&H6
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AVERAGE ASSETS TABLE ($)
This table approximates the average assets per SMSF by:


Member; and
At the end of each financial year.
These figures are estimates based on SMSF income tax and regulatory
return form data, extracted on 7 July 2009.
2003–04
2004–05
2005–06
2006–07
2007-08
Average assets per member
247,482
292,086
348,405
480,303
456,467
Average assets per SMSF
476,074
561,568
668,722
918,616
858,259
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Super is the way most Australians save money to retire. Usually, you start
saving for your retirement when you start work and your employer pays
super for you – the ‘super guarantee’.
Generally, there are three ways you can save your super:
1.
Australian Prudential Regulation Authority (APRA) regulated super funds - your super is
pooled together with large numbers of other members and the fund professionally managed by
trustees in compliance with super law. This is where most people have their employer paid super.
2.
Retirement savings accounts ( RSA’s) - you have your own special deposit account
with a bank or other deposit-taking institution. These are not commonly held.
3.
Self-Managed Super Funds (SMSF’s) - you are responsible and the trustee of your own
fund and need to comply with super law and make your own investment decisions. The Australian
Taxation Office is the regulator of SMSF’s.
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IS A SMSF FOR ME?
You should carefully consider which option is best to provide for your retirement.
If you’re thinking about setting up an SMSF, there are six points to consider to
work out:


If this type of fund is right for you
The things you will need to do to set it up and run it successfully.
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POINT 1:
CONSIDER YOUR OPTIONS AND SEEK PROFESSIONAL ADVICE
There are many professionals who specialise in SMSFs. They can provide advice to
help you understand:
■ What an SMSF is
■ The requirements for and the costs of setting one up and keeping one going
■ Your investment options and risks. They can also help you set up and run your
fund if this type of fund is right for you.
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FINANCIAL ADVISERS AND FINANCIAL PLANNERS

A licensed financial adviser will consider your personal situation and recommend a suitable
product for you. By using a financial adviser, you get extra protection if anything goes
wrong.
TAX AGENTS AND QUALIFIED ACCOUNTANTS
Tax agents or accountants can help you set up an SMSF and advise you on the
establishment, operation, structuring and valuation of an SMSF. However, they cannot
advise you about which super fund best suits you or which investments should be in
your fund, unless they are also a licensed financial advisory business.
Remember, if you decide to set up an SMSF, you will either be a trustee of the
fund or a director of the company that is a corporate trustee for the fund.
Therefore, you are legally responsible for all the decisions made even if you get
help. A professional can provide advice and assistance but you’re ultimately
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you are responsible.
SMSF CAN BE USED STRATEGICALLY FOR
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
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Estate Planning/intergenerational business succession planning
Asset protection
Strategies to minimize tax on death
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POINT 2
MAKE SURE YOU HAVE ENOUGH ASSETS, TIME AND SKILLS
Consider the amount of time, money and skill you’ll need to
devote to managing your own super fund and whether it’s
worth your while.
Operating an SMSF means you’re responsible for the fund. You need to make sure you
have enough assets, time and appropriate skills to:
■ Make the best investment decisions
■ Meet all your obligations as a trustee of your fund. As a trustee of an SMSF, your primary
responsibility is to ensure you have invested your fund’s money appropriately, so ask
yourself the following questions
■ Am I a confident and knowledgeable investor?
■ Will an SMSF do as well as or better than other super funds after I pay all the costs?
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OTHER COSTS
All SMSFs are subject to an annual supervisory levy designed to fund the
regulatory costs of making sure funds comply with their super obligations.
An annual levy of $150 is currently payable as part of the fund’s income tax
liability. If you set up or join an SMSF, you need to make sure you have
adequate life insurance in case you die or you’re unable to work because of
an illness or accident. You should also consider the amount of time you will
need to devote to managing your own super.
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POINT 3
UNDERSTAND THE RISKS AND LAWS
All financial decisions carry risk, so it is important to think carefully about how you
choose your investment options to balance the level of risk against the level of
financial return. You also need to be sure your super investments are legal.
It’s important to think carefully about how you choose your investment options when
thinking about how to manage the risks associated with your investment options, we
recommend you also consider:
■
Your age
■ What level of risk you are comfortable with
■ The objectives you have for your fund
A QUALIFIED FINANCIAL PLANNER CAN PROVIDE ADVICE ON INVESTMENT OPTIONS
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SPREADING THE RISK
Avoid risking all your retirement savings in one or a few investments. By spreading your
investments (diversifying) you can help control the total risk of your investment portfolio. If
one or more of your investments perform poorly or fail, the other investments may be
performing better to help cover the loss.
Effectively spreading your risk means investing not just in different companies or different
sectors of the market, but in different sectors of the economy.
A QUALIFIED FINANCIAL PLANNER CAN PROVIDE ADVICE ON DIVERSIFYING YOUR
INVESTMENTS
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COMPLIANCE WITH TAX AND SUPERFUND LAWS

Super funds, including SMSFs, receive significant tax concessions as an incentive for
members to save for their retirement. However, you need to follow the tax and superfund
laws to receive these concessions.

The assets and money in your fund are solely for your retirement benefits, and are not to
benefit you or anyone else outside your fund. This means that the personal use of funds for
holiday homes, art to decorate your house, and your golf club membership almost certainly
will not comply.
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HIGH TAX RATE FOR NON-COMPLYING FUNDS
A recent case[1] at the Administrative Appeals Tribunal found against a couple who ran
their own SMSF. The couple borrowed money from their superfund to finance their small
business. This loan breached the “ in-house assets rule” and were fined the maximum
45% which is assessed on the funds income of the year, excluding any un-deducted
contributions.
A superfund asset will have an In-house asset (IHA) if it has any of the following with a
related party:
1.
2.
3.
4.
A loan
An investment in the related party including a related trust
A fund asset subject to a lease or lease arrangement
Regulator decides that asset should be IHA
There are a number of exemptions to this rule, including business real property and
trusts set up for installment warrants.
[1] http://www.smh.com.au/small-business/finance/ruling-sends-reminder-to-selfmanaged-super-funds15
20090727-dy1v.html
FRAUDULENT SCHEMES
Schemes that try to get your super money out of existing funds early
are usually illegal and fraudulent. Because of this, if you are caught in
one of these schemes you will pay heavy tax and legal penalties.
IT IS RECOMMENDED THAT YOU SPEAK TO YOUR ACCOUNTANT AND
FINANCIAL ADVISOR BEFORE JOINING SUCH SCHEMES
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POINT 4
MAKE SURE YOUR TRUST DEED AND INVESTMENT
STRATEGY ARE TAILORED TO SUIT THE MEMBERS OF
YOUR SMSF
Regularly review whether the trust deed and investment
strategy still meet the needs of your fund and update them
when required.
A QUALIFIED ACCOUNTANT CAN ASSIST YOU WITH ALL SMSF
ADMINISTRATION AND A FINANCIAL PLANNER CAN ASSIST YOU WITH
YOUR INVESTMENT STRATEGY.
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TRUST DEEDS
A trust deed is a legal document that sets out the rules for establishing and operating your
fund. Together with the super laws, they form the fund’s governing rules. The trust deed
needs to be:
•
Tailored to your fund
•
Correctly drafted to meet:
•
•
•
Legal requirements
The fund’s objectives
The members’ needs
AN ACCOUNTANT CAN ASSIST YOU WITH YOUR TRUST DEEDS
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INVESTMENT STRATEGIES
An investment strategy sets out the fund’s investment objectives and your plan to achieve them. It
provides you and the other trustees with a framework for making investment decisions to increase
member benefits for their retirement. Your investment strategy needs to take into account the
personal circumstances of all the fund members including:
■
Risk tolerance and attitudes to risk
■
Age
One strategy may not suit every member, especially where the fund consists of people at different
stages of life. In these situations you need to select and manage investments well enough so they
grow in value and meet the investment objectives of all members. A financial planner can advise
you on how to make asset allocation decisions by choosing from a range of investment assets
including:
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Cash
Bonds
Property
Shares.
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“DEFENSIVE” INVESTMENTS
Often described as “defensive investments” Cash and bonds are
investments, with practically no risk of losing money, and the returns may
seem reasonably high. However, you will lose some of the return in taxes
and some to the effect of inflation. These safer (defensive) investments
don’t provide long-term capital growth.
A FINANCIAL PLANNER WILL PROVIDE FURTHER ADVICE ON THIS FORM
OF INVESTMENT
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CAPITAL GROWTH INVESTMENTS
Property and shares are capital growth investments and tend to be more tax effective.
This means the value of your investment should grow faster than inflation, creating
real wealth. However, capital growth is not guaranteed and there can be a lot of ups
and downs over the investment time period. Each year, the amount and frequency of
your gains or losses will be uncertain and could differ, perhaps significantly, from
reasonable long-term estimates. Specific assets may lose value and never regain it.
A FINANCIAL PLANNER AND A PROPERTY INVESTOR SPECIALIST CAN PROVIDE
ADVICE AND ASSIST YOU ON THIS FORM OF INVESTMENT
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BORROWING STRATEGIES TO PURCHASE A PROPERTY IN
YOUR SMSF

Restrictions on superfunds borrowing have been in place for over 20 years,
however, in recent years these restrictions have been relaxed.
PROHIBITED

Superfunds must not borrow or maintain existing borrowings ( there are some
exemptions).
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INSTALMENT WARRANTS – HISTORY
Instalment receipts first appeared in Australia with privatizations of the
CBA and Telstra 2 and 3:
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Two instalments
If 2nd not paid, government could take other assets to pay debt
Superfunds allowed to participate
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INSTALMENT WARRANTS THE NEW RULES
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Trustee may borrow money ( or maintain borrowing)
Purpose to acquire asset allowed to be purchased under SIS ACT
Asset is held on trust and trustee has beneficial interest
Trustee has the right to acquire legal ownership if one or two payments
made after acquiring beneficial interest
Lender rights against trustee for default on borrowing and related charges
is limited to rights relating to asset ( non-recourse loans)
AN ACCOUNTANT CAN ASSIST YOU WITH SETTING UP THE NECESSARY
STRUCTURE FOR AN INSTALMENT WARRANT. A SPECIALIST BROKER
AND LENDER CAN ARRANGE FOR SMSF FINANCE.
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POINT 5
MAKE SURE YOU CAN MEET YOUR RECORD KEEPING AND
REPORTING OBLIGATIONS
One of your responsibilities as a trustee of an SMSF is to keep
proper and accurate tax and super records to manage your
fund efficiently
It’s a good idea to take minutes of all investment decisions, including:
■
Why a particular investment was chosen
■
Whether all trustees agreed with the decision
AN ACCOUNTANT CAN ASSIST YOU WITH ENSURING THAT YOUR RECORD KEEPING
AND REPORTING REQUIREMENTS ARE COMPLIANT
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MAKE SURE YOU CAN MEET YOUR RECORD KEEPING AND
REPORTING OBLIGATIONS



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If, as one of the fund’s trustees, you invest the SMSF’s money in an investment that fails, the
other trustee(s) could take action against you for failing to be diligent in your duties.
However, if your investment decision was recorded in meeting minutes that were signed by
the other trustees, you will have a record to show the other trustees agreed with your
actions
You need to make certain records available to your fund’s approved auditor when they audit
your fund each year
You may also need to provide accurate records to the Tax Office if they ask to see them
You need to report changes in certain aspects of your fund to the Tax Office when they
happen and you also have annual reporting obligations.
AN ACCOUNTANT CAN ASSIST YOU WITH THE ABOVE
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POINT 6
• MAKE SURE YOU UNDERSTAND THE AUDITING OBLIGATIONS
You have a legal obligation to have your SMSF
independently audited annually.
You need to appoint an approved auditor, who will:
■
Provide you with a report on your SMSF
■
Report to the Tax Office if your fund has breached any super rules
Approved auditors play an important role in maintaining the health of SMSF’s
ROSE GUERIN CHARTERED ACCOUNTANTS IS QUALIFIED TO UNDERTAKE
SMSF AUDITS.
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