SELF MANAGED SUPERANNUATION

Transcription

1 SELF MANAGED SUPERANNUATION Position Yourself INFORMATION PACK INFORMATION PACK SELF MANAGED SUPERANNUATION FUNDS SMSF INFORMATION SHEET MAKING THE MOST OF YOUR SUPERANNUATION

2 Self Managed Superannuation Funds TAG s super expertise helping to secure your future Over 800,000 Australians are now Self Managed Superannuation Fund (SMSF) members and enjoy the advantages of running their own fund, which can include: greater investment freedom; greater control of monies being invested by them as trustees; active participation in the management of the fund; and more flexible retirement planning and estate planning options available. Our Comprehensive SMSF Service TAG provides a complete SMSF establishment and administration service that is customised to your individual needs: SMSF Assessment At TAG we realise that setting up a SMSF is not for everyone. For this reason, we provide you with a no obligation, 1 hour appointment to discuss your needs and whether a SMSF is right for you. SMSF Establishment Our comprehensive SMSF establishment service ensures you can access a wide range of exciting superannuation strategies. The TAG team can recommend the most effective form of fund, with consideration to your family, your business and you as an individual. SMSF Administration & Compliance Our SMSF administration service aims to take all the worry out of running a SMSF. Our service covers all compliance obligations including: end of year accounts, preparation and lodgement of income tax returns, IAS statements, PAYG summaries, independent audits, deed amendments to keep your fund up to date and an annual fund performance summary. We even deal with ASIC or the ATO if your fund is selected for audit. Maximising Your SMSF Our advisers understand that it s more than just setting up a fund that can make the real difference toward financial success. At TAG we focus on co-ordinating our Superannuation Advisory, Business Advisory & Taxation and Investment Advisory & Wealth divisions to maximise the benefit to you. Superannuation & Advisory Investment Advisory & Wealth Business Advisory & Taxation

3 Your Financial Success TAG Financial Services has been providing specialist superannuation advice since Our qualified advisers have expertise in superannuation, business services, taxation and wealth management. This knowledge means that TAG can help you maximise your SMSF with a wide range of superannuation strategies. Superannuation Strategies Asset Protection Retirement Planning Retirement Income Streams Your Financial Success Tax Effective Structures Estate Planning Investment Strategies Using the Industry Experts TAG is committed to maintaining the highest standard of superannuation expertise and is seen as one of the leading superannuation technical firms to the accounting profession. We run an annual Superannuation Update Seminar, advise accountants on superannuation technical issues, we are involved in the CPA retirement centre of excellence and regularly lead industry discussion groups and training sessions. As a result, when you use TAG you know that we provide highly technical SMSF strategies that make your superannuation work harder. Commitment to Quality At TAG we guarantee the quality of our work by keeping it all in-house. This means that there is no outsourcing overseas which not only protects the quality of our work but also ensures your privacy is protected. The Next Step If you are interested in finding out what our advice can do for you, we offer a complimentary 1 hour consultation to discuss your specific needs. If you would like to set up a time to meet or have any questions, please contact Brenda. Brenda Hutchinson, CPA Partner Superannuation Advisory and Audit Ph.: Fax: brendah@tagfinancial.com.au S u p e r a n n u a t i o n F i n a n c i a l & R e t i r e m e n t S o l u t i o n s A s s e t P r o t e c t i o n T A G F I N A N C I A L S E R V I C E S P T Y L T D A B N P O B o x 1 2 5, D a r l i n g, ( L e v e l 1, M a l v e r n R o a d, M a l v e r n E a s t ) V I C, e m a i l : t e a t a g f i n a n c i a l. c o m. a u w e b s i t e : w w w. t a g f i n a n c i a l. c o m. a u P h : F a x : L:\Marketing\+Forms\MF209 SAA smsf flyer(lh).docx Liability limited by a scheme approved under Professional Standards Legislation TAG Financial Services is a CPA business

4 Self Managed Superannuation Funds What is Superannuation? Superannuation is a long-term savings arrangement that operates primarily to provide income for retirement. Superannuation involves employers, the self-employed and employees making contributions over a period of time to a superannuation fund. The superannuation fund holds the contributions in trust for the member and invests them to increase the fund s assets. These assets are then used to provide benefits to members when they retire or suffer a serious disability or to member's families if the member dies. The Government taxes superannuation savings at lower rates than normal savings if the superannuation fund complies with certain conditions. This aspect along with the accumulation of fund earnings from investment, combine to produce a larger benefit for retirement. What is a Self Managed Superannuation Fund? A superannuation fund is a self-managed superannuation fund (SMSF) if it meets the following conditions: Has less than 5 members; Each individual trustee of the fund is a fund member; Each member of the fund is a trustee; No member of the fund is an employee of another member of the fund, unless those members are related; No trustee of the fund receives any remuneration for his or her services as a trustee. A SMSF can also have a company as a trustee (known as a corporate trustee) if: Each director of the company is a member of the fund; Each member of the fund is a director of the company; and The fund has less than 5 members, no member is an employee of another member (unless related) and the trustee does not receive remuneration for their services as a trustee. The requirement that all members be trustees ensures that each member is fully involved and has the opportunity to participate in the decision-making processes of the fund. This promotes true self-management. The Australian Taxation Office (ATO) regulate funds that meet the definition of SMSF. Special rules apply to single member funds, members who are minors and funds when a member has died. Remuneration /Reimbursement of Trustees The definition of a SMSF requires that trustees cannot be remunerated for their services as a trustee. That is, trustees cannot be paid any amount for carrying out normal activities of a trustee (eg: participating in trustee decision making, attending meetings etc). Trustees can however be reimbursed by the fund for costs incurred on behalf of the fund. What if the Fund ceases to be a SMSF? If a fund no longer meets the definition of a SMSF, it will remain a SMSF until the earlier of: The appointment of an approved trustee; or 6 months from the event that caused the fund to fail the definition. This 6 month timeframe allows the fund time to restructure (for example, by transferring the member/s out of the fund) if it wishes to remain within the SMSF definition. However, this extension does not apply if the reason for ceasing to be a SMSF is the admission of one or more new members.

5 Advantages of Setting Up a Self Managed Superannuation Fund Some of the advantages people see in running their own superannuation fund are: They can have greater investment freedom; They feel the monies are safer being invested by them as trustees; They can actively participate in the management of the fund; There are reduced formal reporting requirements; and Often more flexible retirement planning and estate planning options available. However, setting up a SMSF is not for everyone. It does require at least a basic knowledge of the legislation that they as Trustees must comply with and the use of an experienced superannuation adviser. Duties of Trustees (Self Managed Superannuation Funds) Trustees of SMSF's are the ones who are ultimately responsible for the running of their fund. It is imperative that each trustee understands the duties, responsibilities and obligations of being a trustee. Rules exist to ensure the protection of the assets in the fund until they are needed at retirement. There are significant penalties imposed on trustees who fail to perform their duties. Key Responsibilities A trustee of a SMSF must act in accordance with: The clauses of the superannuation fund trust deed; The provisions of the Superannuation Industry (Supervision) Act 1993 (SIS); and Other general rules, for example those imposed under tax law and trust law. The SIS Covenants The SIS Act contains covenants or rules that impose certain requirements on trustees and are deemed to be included in the trust deed of every regulated fund. These covenants set out the duties imposed on a trustee under trust law in general. They require trustees to: Act honestly in all matters; Exercise the same degree of care, skill and diligence as an ordinary prudent person; Act in the best interest of the fund members; Keep the assets of the fund separate from other assets (e.g. the trustee s personal assets); Retain control over the fund; Develop and implement an investment strategy; Allow members access to certain information. Delegating Certain Responsibilities to a Service Provider Whilst trustees are not prevented from engaging or authorising other persons to do certain acts or things on their behalf (e.g. engaging the services of an investment adviser), they are bound to retain control over the fund. Ultimate responsibility and accountability for running the fund in a prudent manner lies with the trustees. Keeping Superannuation Money and Other Assets Separate Trustees of SMSFs must keep money and other assets of the superannuation fund separate from their own personal assets. Similarly, the assets of the superannuation fund must also be kept separate from those belonging to a business (e.g. a business run by two partners who decide to set up a SMSF). Money belonging to the fund must not, under any circumstances, be used for personal or business purposes. This money is for retirement purposes and generally cannot be accessed until retirement. The fund s assets must not be viewed as a form of credit or emergency reserve when faced with a sudden need.

6 Sole Purpose Test It is the trustee s responsibility to ensure that a SMSF is operated for the sole purpose of providing retirement benefits for members or member s dependants. The core purpose of superannuation is to supply benefits to a member when the following events occur: On or after retirement from gainful employment, or Attaining a prescribed age, and On the member s death. The ancillary purposes cover the provision of benefits for members in the following circumstances: Termination of the member s employment with an employer who, at any time, had made contributions to the fund for that member; Cessation of employment due to ill-health (whether physical or mental); Death of the member after retirement where the benefits are paid to the member s dependants or legal representative or both; Death of the member after attaining the age of 65 where the benefits are paid to the member s dependants or legal representative or both; Other ancillary purposes approved in writing by the Australian Prudential Regulation Authority. This last ancillary purpose allows a fund to provide benefits in situations of financial hardship and / or on compassionate grounds. Breach of the Sole Purpose Test One of the main ways to determine if a fund has breached the sole purpose test is to examine the character and purpose of the fund s investments. One example is where the investment arrangement indicates that the purpose of the fund is to provide financial assistance to another party who is not a member or beneficiary of the fund itself. Another indication that a breach of the sole purpose test may have occurred is when a fund is running a business as part of its investment strategy. Our experience is that where a large proportion of fund assets are used to conduct a business within a SMSF, there is a real risk that the trustees of the fund may lose sight of their obligation to comply with the sole purpose test (and/or other provisions of SIS) at all times. This is because other purposes may come to the fore in operating the business. Trustees who breach the sole purpose test face civil and criminal penalties. A breach of the sole purpose test is a most serious breach. It can result in a fine of up to $220,000 on individual trustees and 5 years imprisonment. Higher penalties apply to corporate trustees. Managing Investments In making investment decisions the trustees must act in accordance with the fund s trust deed, investment strategy and the provisions of SIS. Some of the more important issues to consider when investing a SMSF s assets include: Investment Strategy Under SIS all SMSFs are required to have an investment strategy. The trustees are responsible for formulating an appropriate investment strategy and it is strongly recommended that the strategy be in writing. All investments must be made in accordance with the investment strategy of the fund. Investment Restrictions SIS sets out various rules and restrictions on investments. These include: Lending to members and their relatives. Acquisition of assets from related parties of the fund. Borrowing by superannuation funds. In-house assets. Investments must be made and maintained on an arms length basis. These rules are quite complex and professional advice should be sought if a Trustee is uncertain as to the legality of a proposed investment transaction.

7 Other than the rules discussed above, superannuation funds can generally invest in: Shares (domestic and international). Managed funds. Property (domestic and commercial). Certain related unit trusts. Changes to the Borrowing rules From 24 September 2007, changes to superannuation rules mean that super funds can, within quite specific constraints, invest in some instalment warrants or enter into a similarly structured arrangement involving borrowing money to acquire a permitted asset. Very specific conditions apply, so please seek advice if you intend to enter into a borrowing arrangement with your super fund. Rolling Over Existing Superannuation Issues to be considered when rolling over an existing superannuation fund to a SMSF include (but are not limited to): Is insurance cover provided by the existing fund and do you need/want to remain covered? Are there any exit fees? What are the fees and charges of the existing fund versus the SMSF? Will my employer contribute to the SMSF for me? Are there any tax issues associated with rollover between funds? What other ancillary benefits does my existing fund offer that a SMSF does not? (e.g. discounted home loans) More Information TAG Financial Services provides specialist superannuation services, including fund administration-structuring advice on issues such as pension payments and asset allocation. Should you have any questions on Self Managed Superannuation, please do not hesitate to contact one of our advisers on (03) or via . Brenda Hutchinson, CPA Partner Superannuation Advisory & Audit brendah@tagfinancial.com.au Disclaimer: The information contained in this document is general in nature only. Professional advice should be sought before acting on any aspect of this document. Liability limited by a scheme approved under Professional Standards Legislation. Copyright TAG Financial Services (Sept 2009) TAG Financial Services Pty Ltd ABN L:\Marketing\+Forms\MF013 SMSF.docx

8 Making the Most of Your Superannuation What is superannuation? Superannuation is simply an investment structure that is specifically designed for your retirement savings. Through superannuation you can invest in a wide range of asset classes including shares, property, managed funds and cash. In fact, you can access almost all of the same investments that are available outside super however, super has two key advantages over other types of investments: 1. Tax advantages: Super is one of the most tax advantaged investment vehicles, as income earned in your super fund is taxed at a maximum rate of 15%. Whereas the income you earn from other (non-super) investments is taxed at your marginal tax rate (up to 46.5%). 2. Compounding interest: Because access to your super is restricted until later in life, your super savings will be preserved for their intended purpose, plus they will gain the powerful effect of compounding interest. Your contributions and overall nest egg will keep earning interest over time, which will then be reinvested. The following table shows the different outcomes of investing $10,000 each into superannuation and a non-super investment. Even though both investments gain the benefits of compounding interest, the favourable tax treatment within the super environment means that after 20 years the super investment provides a much greater return. Super and non-super investments Balance $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10, Years Assumptions: $10,000 initially invested into each of a managed fund outside the super environment and a managed fund within the super environment. Both earning 7%pa (3% income and 4% growth) with returns reinvested. Assumes a Marginal Tax Rate (MTR) of 46.5% including Medicare. Non super balance Super balance How much do I need for retirement? A good rule of thumb in determining your retirement needs is 60-70% of your pre-retirement income. The table below shows the level of capital required, assuming a retirement age of 65 with income being paid for approximately 22 years after this: Desired annual income* Capital required if earning 6% per annum Capital required if earning 8% per annum $60,000 $964,639 $808,144 $50,000 $803,866 $673,453 $40,000 $643,093 $538,762 $30,000 $482,320 $404,072 $20,000 $321,546 $269,381 * Figures are indexed at 3% pa to reflect the effects of inflation. Centrelink entitlements and tax are excluded from the calculations. How can I build up my super? Think you might fall short of funding for retirement? Then it s essential to start building up your super now so that it has time to compound. Here we outline a few options available to you: 1. Salary sacrifice: Employers are required by law to contribute 9% of your salary into your super fund (called Super Guarantee), however, you may be able to elect to contribute a greater amount of your salary to build up your nest egg faster. When you enter into a salary sacrifice arrangement, you forgo some of your take-home pay (which would be taxed at your marginal tax rate) and divert it into super where it is taxed at a maximum of 15%. Salary sacrificing can also reduce your overall taxable income, pushing you into a lower income tax bracket. This type of super contribution is known as a deductible contribution, as it is made with pre-taxed dollars.

9 2. Super splitting: If your spouse has minimal super, splitting your own super contributions with them can help build up their own account. More importantly, it may assist you to increase the amount of tax-free super you can receive as a couple once you retire. Upon retirement, each individual can withdraw a portion of his or her super tax-free (depending on their actual super components). For 2010/11, the maximum tax-free threshold is $160,000. If one spouse has more super saved up than the other, they can begin to split contributions with their spouse to balance out both of their super savings. By doing this, they may be able to withdraw up to two tax-free threshold amounts. 3. Make non-concessional contributions: Non-concessional contributions refer to those which are made from your after-tax salary. Because this money has already been taxed, it does not incur the 15% contributions tax that deductible contributions (such as salary sacrifice) incur. If you make a non-concessional contribution, you may be eligible to receive a co-contribution from the Government, whereby the Government will match your non-concessional contributions by up to 100%, with a maximum co-contribution of $1,000. What is the Government Co-contribution? The Government Co-contribution scheme was introduced in 2003 to help low to mid income earners build up their superannuation savings for retirement. Essentially, the Government will now match eligible income earners personal super contributions by up to 100%. If you earn $31,920 or less and make a personal contribution to your super fund, the Government will match each dollar by $1.00, with a maximum co-contribution of $1,000. This means that if you make a $1,000 contribution, you will receive the maximum $1,000 from the Government. For every dollar you earn above $31,920, the co-contribution reduces and phases out completely once your income reaches $61,920. The table to the left shows the different co-contributions you can receive depending on your income level and your own contribution amount. Am I eligible to receive the co-contribution? Your total income must be less than $61,920 (this refers to your assessable income + any fringe benefits). You must earn at least 10% from eligible employment. You must make at least one personal un-deducted contribution into a complying super fund or Retirement Savings Account (RSA). Personal un-deducted contributions are those which are made from your after-tax income. You must not hold an eligible temporary resident visa at any time during the year. You must be less than 71 years old. You must lodge an income tax return for the year. How much can I receive? If you personal super contribution is: $1,000 $800 $500 $200 Your income: The Government Co-contribution will be: $31,920 or less $1,000 $800 $500 $200 $34,921 $900 $800 $500 $200 $49,922 $400 $400 $400 $200 $55,923 $200 $200 $200 $200 $61,920 $0 $0 $0 $0 Source: Australian Tax Office, for More Information Superannuation can be complex and planning your retirement is not always straightforward. We can recommend a suitable strategy, which will take into account your personal circumstances but also will ensure you can maximise our retirement income and enjoy the lifestyle you deserve. The sooner you start planning and saving, the better lifestyle you can achieve later on. If you want more information or simply want to take advantage of the options available speak to your TAG Financial Services adviser on (03) or via . Superannuation, Advisory & Audit Brenda Hutchinson brendah@tagfinancial.com.au Investment Advisory & Wealth Leigh Jobling leighj@tagfinancial.com.au Michelle Griffiths michelleg@tagfinancial.com.au Business Advisory & Tax Tony Rule tonyr@tagfinancial.com.au Disclaimer: The information contained in this document is general in nature only. Professional advice should be sought before acting on any aspect of this document. Liability limited by a scheme approved under Professional Standards Legislation. Copyright TAG Financial Services (Feb 2011) TAG Financial Services Pty Ltd ABN L:\Marketing\+Forms\MF008 Making the Most of Super.docx