Self Managed Super Funds Tips & Traps
Posted on November 1st, 2011
Self Managed Super Fund (SMSF) trustees need to be aware of any issues that could impact the taxation or compliance of their fund. Here are a couple of tips and traps to consider.
Tip: Record amount and timing of indirect contributions
The Australian Taxation Office defines a contribution to include the following indirect contributions:
- paying an amount to a third party for the benefit of the superannuation fund
- forgiving a debt owed by the superannuation fund
- increasing the value of an asset owned by the fund
Trap: Fail to retain evidence of in-specie contributions
Where a member makes an in-specie contribution to a fund, for example by transferring listed shares, the contribution will be made when the fund obtains ownership of the asset. This can occur at the time the fund becomes the beneficial owner of the asset, which can be earlier than legal ownership. If there is insufficient evidence to identify precisely when the fund obtained beneficial ownership, the in-specie contribution will be taken to have been made when legal ownership is acquired. This could then impact the contributor’s ability to claim a tax deduction for the contribution in a particular year.
Tip: Acknowledge receipt of valid deduction notice
For a member to be eligible to claim a tax deduction on a personal contribution, the member must provide a valid notice to the trustee of their intention to do so and the trustee must acknowledge that notice. The member should ensure they receive and keep this confirmation notice before they lodge their tax return, to ensure their eligibility to claim the deduction.
Trap: Failing the residency test when members move overseas
An SMSF needs to satisfy the definition of an Australian superannuation fund at all times during the income year. When a fund is no longer an Australian superannuation fund it becomes a non-complying fund taxed at 45% on the market value of the fund’s assets less any contributions it has received that are not subject to tax. Then, for every year that the fund remains non-complying, its assessable income is taxed at 45%. SMSF members can go overseas for up to two years and still maintain for residency purposes. However, if the members become non-residents for tax purposes, they must generally cease contributing to their SMSF if it is to remain an Australian superannuation fund.
Tip: Value assets at market value
SMSF trustees are required to value fund assets at market value on an annual basis. Market value is defined as an amount an arm’s length buyer of an asset could reasonably be expected to pay a willing seller to acquire the asset.
Tip: Assess the fund’s in-house asset levels
Where an SMSF has in-house assets it should regularly monitor the value of those assets against the 5% in-house asset limit. If changing asset values mean the fund will be close to or exceed the 5% in-house asset limit, the members may consider making additional personal contributions to dilute the level of the fund’s in-house assets. Otherwise, if the 5% asset limit is exceeded at the end of the financial year, it will be too late to make any additional contributions.
Trap: Allocations from fund reserves can count towards concessional contribution caps
An allocation from a SMSF reserve will be counted towards a member’s concessional contribution cap unless:
- the amount allocated is used by the fund to discharge its pension liabilities, or
- it is allocated on a fair and reasonable basis to every member, and
- the amount allocated is less than 5% of the value of the members’ balance at the time.
The information contained in this document is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 has of the relevant Australian laws as at 1 September 2011. As these laws are subject to change you should refer to our website at colonialfirststate.com.au or talk to a professional adviser for the most up-to-date information. The information is for adviser use only and is not a substitute for investors seeking advice. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Colonial First State or any other member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This document is not financial product advice and does not take into account any individual’s objectives, financial situation or needs.
Source | Colonial First State
Get set for a rate cut
Posted on October 31st, 2011
While most of the nation punts their hard-earned cash on Australia’s biggest horse race tomorrow, the Reserve Bank of Australia is tipped to announce an interest rate cut.
With domestic inflation risks easing and the global economy looking perilously unstable, there is an increased likelihood the Reserve Bank will cut the cash rate by 0.25 percent when it meets for the second last time this year on Melbourne Cup day. The cash rate has sat at 4.75 percent for almost a year.
Speaking at an investment conference last week, RBA deputy governor Ric Battellino left the possibility of a rate cut wide open. “The downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope for monetary policy to be supportive of economic activity, if needed,” he said.
RateCity CEO Damian Smith said there was a 50 percent chance of a cut. “It’s still genuinely 50/50 as to whether rates will stay unchanged or fall,” he said. “But for the first time since 2009, the Reserve Bank has explicitly opened the door to rate cuts.”
If the RBA goes ahead with a rate cut to 4.5 percent, Smith predicted most lenders would pass on the 0.25 percent cut in full almost immediately in a bid to kickstart the market. “Remember, there were around 40,000 fewer first home buyers in the 12 months to September compared to the average of the last few years. That’s over $11 billion in borrowing that’s not happening.”
For the average homeowner with a mortgage of $288,300 and a variable rate of 7.11 percent, a 0.25 percent drop in interest rates would mean a saving of $46 a month, or $552 per year.
However, savvy homeowners who choose not to pocket the extra $46 can shave thousands off their mortgage in the long term. For homeowners currently paying the minimum on a $288,300 home loan ($2058 per month), maintaining their repayments at the same level could save them over $21,000 in interest over the life of their loan.
Borrowers looking for a fixed rate mortgage also stand to benefit, according to Smith.
“Since August 1, almost 90 percent of lenders have cut some of their fixed rates. Average three-year fixed rates are now 6.56 percent, and start at just 5.99 percent. Borrowers should be able to find fixed rates well below the average standard variable rates,” he said.
“Even if the benchmark basic variable rate goes down by 0.25 percent to 6.68 percent, there will still be 75 three-year fixed rate loans below that average.”
Tax Time
Posted on September 15th, 2011
Don’t panic, say the experts. There’s nothing taxing about this time of year. It’s just a matter of being organised, well prepared and relying on those experts for their professional advice.
Consensus among the PIS network is that the most important aspect of Tax Time is record keeping.
Keep all your receipts in a folder, rather than scrunched up in a shoe box. It doesn’t matter if you’re not sure if you can claim a deduction on something.
Take it to your tax specialist and let them decide. You may be eligible for more than you realise.
Thresholds and claimable criteria change almost annually, so in order to minimise the amount of tax payable or maximise the refund due, accurate reporting is also crucial.
Remember, the ATO receives reports from financial institutions about dividends and interest, as well as income on wages and alaries and any Centrelink benefits. They are capable of very deep data matching, so it pays to report it as accurately as you can.
There are many changes to tax each year, as well as some deductibles that a surprising number of people remain unaware of. Medical expenses is one example. From July 2010, the threshold rose to $2,000. Any out of pocket expenses you incur over $2,000 could see you receive a rebate on medical, dental, optical and even prescription pharmaceuticals. There can also be rebates on costs associated with nursing home fees for a spouse, so it pays to consult the tax experts. Superannuation is another potentially ricky realm.
People need to report correctly to their super funds the amount of any contributions they are claiming in their tax return. contributions must be received before 30 June or they will not be recognised for this financial year.
Rental property claims can cause consternation, with owners frequently mistaking “repairs” for “improvements”. Improvements increase the value of a property, whereas repairs return something to its original state. Take your receipts to your tax specialist and they can determine which category they fall into.
Work-related vehicle use is another grey area for some people. If you use your car for business, you need to record details in a log book over a consecutive 12 week period. You must also retain the log book details for five years, as the ATO can call back on that duration. Travel between home and work is not eligible, unless you are required to work and travel between many offices. If your job or your motor vehicle usage changes, you need to point that out too.
Much of the information you need to prepare for Tax Time is available at www.ato.gov.au including informative industry benchmarks.
Since GST was introduced, the ATO has access to a lot of data from which they devised industry benchmarks to deter a cash economy. A lot of audit activity has resulted from this, so it’s a good idea to compare your business with industry norms.
Jeni Bone
Reference | Sue McKeen, Principal,
PGA Accountants and Advisers Pty Ltd
Prepare For Life- Hangover 2
Posted on August 1st, 2011
Avoiding a Financial Hangover
Prepare For Life Special Edition Hangover 2
Budget Booster June 2011
Posted on August 1st, 2011
Is debt ruling your life?
Budget Booster Newsletter – Issue 2, 2011
Posted on March 3rd, 2011
Get healthy and save! Improving your lifestyle can reduce the cost of your insurances…
Budget_Booster Newsletter Issue 2 – 2011
Budget Booster Newsletter – Issue 1, 2011
Posted on March 3rd, 2011
Saving is great but investing is even better! Find out how…
Budget Booster Newsletter Issue 1 – 2011
Newsletter (Retirement and Investment Advice) – Summer 2011
Posted on February 11th, 2011
In this quarter’s issue:
- Economic Update
- Your Health: A Long-Term Investment
- Successful Aging
- Zumba Gold @ Manderson’s Dance Centre
- Bircher Muesli Recipe
Successful Investing Newsletter – Issue 4, 2010
Posted on November 12th, 2010
In this Issue:
- Economic Update
- The easy way to consolidate your Super
- There’s more to Income Protection Insurance than you may think
- Avoiding your own “Credit Crunch”
- The superannuation gender gap
- Trivia
PIS Successful Investing Issue 4 2010
Christmas Seminar Coffee Challenge for our Clients
Posted on November 8th, 2010
This year, Chester is giving a Coffee Club voucher to our clients who bring along a friend with them to our Christmas Seminar! Please refer to the Summer Newsletter for more details! (Let’s see how many coffee vouchers we can make Chester shout us!!!)