Archive for 'Super'
Bitcoin and other cryptocurrencies have become increasingly popular over the past few years. As many keen investors jump on board, the ATO is reminding SMSFs to be aware of the tax consequences.
Cryptocurrencies are classified as capital gains tax (CGT) assets, therefore, upon their disposal they may be subject to capital gains tax (CGT).
It is essential to keep records of cryptocurrency transactions within a SMSF such as acquiring and disposing a cryptocurrency.
An investment within a SMSF must:
– Be allowed under the trust deed
– Be in accordance with the investment strategy of the fund
– Comply with SISA and SISR regulatory requirements
When an SMSF invests in a cryptocurrency it must follow the same regulatory requirements that apply to investments in other assets. For example, super laws pertaining valuation, ownership and separation of assets, related party transactions, pension or benefit payments, sole-purpose test and voluntary disclosures apply to all cryptocurrency transactions.
As of 1 July 2018, the Government will introduce a new measure that allows the contribution of up to $300,000 of proceeds from downsizing a home to be added to superannuation.
The new measure will benefit those aged 65 years and over, provided they meet certain eligibility rules including:
- The amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.
- Your home was owned by you or your spouse for 10 years or more prior to the sale.
- Your home is in Australia and is not a caravan, houseboat or other mobile home.
- The proceeds from the sale of the home (capital loss or gain) are exempt or partially exempt from CGT under the main residence exemption, or would be entitled to such exemption if the home was a CGT rather than pre-CGT asset.
- You have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution.
- You make your downsizer contribution within 90 days of receiving the proceeds from the sale (usually the date of settlement).
- You have not previously made a downsizer contribution to your super from the sale of another home.
Setting up your self-managed super fund can be a daunting process; you want to ensure you are covering all legal requirements throughout the process.
The Australian Taxation Office has outlined steps to take when setting up your SMSF to ensure you are eligible for tax concessions, able to receive contributions and looked after if a trustee is unable or decides they no longer wish to be the active trustee.
When setting up your SMSF, you ought to consider the following:
- Whether you wish to appoint a professional financial advisor to help you. If you do not have any experience with super regulations, this is a wise approach. Laws and regulations are constantly changing, and it is safest to work with someone who knows what they are doing.
- Decide whether to have individual trustees or a corporate trustee. Generally, a corporate trustee structure often costs more money to set up but removes individual liability as the SMSF acts under the company’s name.
- Ensuring all SMSF members sign a trustee declaration within 21 days of becoming a trustee or director of the corporate trustee.
- Tax File Number (TFN) and an Australian Business Number (ABN). You will then need to provide the ATO with each members’ TFN so that they can receive appropriate tax concessions.
- Ensuring a trust deed is created and is a legally-recognised document signed by all SMSF members. The trust deed needs to discuss how to establish and operate the fund.
- Fund must be registered with the ATO. You should also elect the fund to be regulated by the ATO.
- Set up a bank account for the SMSF and an electronic service address.
- Prepare an exit strategy. This should include details pertaining to the process for appointing an individual as an enduring power of attorney.
Should you follow all of these steps, the SMSF you are setting up will be compliant with SMSF regulations. Once these aspects are considered, you need to make sure all SMSF trustees are compliant with super and tax laws. These laws are often being updated, so staying educated on current compliance issues is paramount to the success of the SMSF.
Running a self-managed super fund can be a great strategy for your super and your retirement, provided you manage it correctly.
To ensure you can enjoy the later stages of life and retire comfortably, you will need to be aware of common SMSF mistakes and how to avoid them.
Bad record keeping when it comes to SMSFs is very common and very problematic. If the ATO decides to look into your SMSF and your record keeping is subpar, you and the rest of the members of the fund could land themselves in hot water. Good record keeping practices are a great preventative measure for being liable for fines and penalties should the ATO choose to investigate the fund. It is also a great habit to get into as proper documentation makes all decision making regarding your fund much more legitimate.
Financial assistance or loans to members
By law, you cannot loan or offer financial assistance to a member of the self-managed super fund at any time, either directly or indirectly. Many members entertain the mindset that because it is their money, they can allocate loans to other members and to themselves, but this is not the case. Should the ATO catch a member of an SMSF doing this, they will face harsh penalties. They may also lose all concessional tax benefits, which impacts the whole fund and not just the guilty member.
According to the Australian Taxation Office, if a member of a self-managed super fund makes a contribution or their contributions in any given financial year exceed the contribution caps, they may be liable for an additional tax on the excess contributions. As of 1 July 2017, the contribution cap for all members of an SMSF regardless of age is $25,000 which is taxed at a rate of 15 per cent. If members contribute over this amount, they could be taxed at 47 per cent on additional contributions.
For the most part, most mistakes or errors surrounding your SMSF and the management of the fund can be avoided if you and the other members in the fund educate themselves on rules, regulations and strategies to remain compliant. With the internet available virtually everywhere, you can always read up on and stay up to date with ways to run the SMSF effectively. Just beware of where you are getting your information from and ensure it is a trustworthy site. You can also always speak to your financial advisor for guidance and advice.
Deciding where to allocate your assets can be confusing and even daunting, particularly if you aren’t confident in your knowledge of the current financial sphere.
Consider the following in’s and out’s of asset allocation to make the process much easier:
Goal-setting is extremely important, particularly when it comes to your money. When deciding out where to allocate assets, you should set both short-term and long-term goals. If you are planning to save for a vacation or a new car, this would be a short-term goal, a mortgage would be a medium-term goal and your nest egg would be a long-term financial goal. The goals you set should be SMART; specific, measurable, achievable, realistic and timely. You should also revisit your SMART goals and assess how well you are doing, thus allowing you to make appropriate adjustments if need be.
The more open an individual is to risk, the greater the opportunities for where they allocate their assets. If an individual is open to investing in higher-risk assets, they can consider options such as investing in shares. If they are more attracted to low-risk assets, options such as a term deposit are more suitable.
Speak to a professional
If you make it known to friends and family that you are deciding where to allocate your assets, you will become inundated with tips and advice of what and where you need to invest. This can become overwhelming and more of a hindrance than a help. The best person you can talk to is a professional you trust, such as your financial advisor. They will be able to give you all the information you need, they will be able to answer all your questions, and they will be unbiased.
No matter the kind of superfund you opt for, you will be subject to super fees. Understanding how these fees work and the difference they can make to your next egg is vital.
When it comes to superfund fees, there are two factors you need to get your head around; the kinds of fees you are being charged and the rate of fees you pay. Opting for a superfund based on these two factors can see you retire with hundreds of thousands more money.
You should be aware of the various types of fees you are being charged. If you would like to find out the fees you are being charged, you should do two things. Firstly, Google your fund’s product disclosure statement and scroll through to the fees section. You should see a list of different types of fees, with an explanation of what they are, how they are applied, and how often they will be incurred. Secondly, you should log in to your superfund account and take note of all the fees being charged to you. Investigate how closely these correspond and correlate with the product disclosure statement.
If you feel there are discrepancies, do not hesitate to contact your superfund or financial advisor and ask for clarification. It is worthwhile doing your research and comparing the fees you are being charged against other super funds and what they charge. Being complacent and not paying attention to your super is extremely irresponsible; the dividends you will receive later in life for being diligent now outweighs the burden of taking time to be informed today.
Some of the common super fees across the board include:
- Administration fees: fees covering the costs of operating and managing your super fund account.
- Exit fees: fees incurred for leaving or switching super funds. While this is a common fee, not all funds charge it.
- Investment fees: fees incurred due to the cost of managing where your money is invested. These fees can fluctuate, depending on where your money is invested.
- Activity-based fees: fees incurred for any activity you require your super fund to perform outside of the ordinary management of your account, such as a family law split fee.
Another major factor contributing to how much you accumulate in your super account throughout your working life is the rate of fees you pay. Plain and simple, some funds offer much lower fees than other, creating a difference of hundreds of thousands of dollars when it comes time to retire.
Generally, funds are categorised into three groups; low super fees, medium super fees and high super fees. Ultimately, you want to be in a fund that charges low super fees. In saying this, it’s not only about super fees, as some funds have medium-high super fees but also perform better based on investment strategy, meaning you will get more back from your investments.
With much controversial discussion surrounding the First Home Super Saver Scheme, understanding exactly what the Scheme entails is necessary.
The scheme was announced in the 2017-18 Federal Budget as a means to reduce the pressure surrounding housing affordability across Australia.
The formalities of the scheme are as follows:
As of 1 July 2017, individuals can make voluntary contributions, both concessional and non-concessional, into their super fund. As of 1 July 2018, individuals can release these contributions, as well as their associated earnings, and use this money to help purchase their first home. Individuals eligible for this scheme are able to use up to $15,000 per financial year, with a total maximum of $30,000 for all years you have earned super.
To be eligible for the First Home Super Saver Scheme, individuals must meet the following criteria:
- Must be at least 18 years of age.
- Must not have previously owned property in Australia, or have previously released First Home Super Saver funds.
- Must have the intend to live in the property you use the funds to purchase as soon as practicable, for at least the first 6 of the 12 months of owning the property.
Many Australians opt for a self-managed super fund but fail to understand how to truly make it perform optimally.
If you have an SMSF and are serious about maximising your returns, consider the following:
Without taking risks, you won’t be able to experience great profit. However, there you still need to be cautious of where you invest your money. After taxes, at the moment, property and real estate are not the best of investments, but this hasn’t always been the case. Many individuals with a SMSF are interested in cryptocurrencies. At the end of 2017, they were performing extremely well, however at the beginning of 2018; there was a significant drop in the worth of this currency.
Do your research
Knowing what kind of risk-taking will work for you will come down to you doing your research and investigating what options are best. Subscribing to mailing lists where investment trends are discussed, as well as keeping up to date with technical and compliance news relating to SMSF are great strategies for maximising SMSF returns.
Speak to a professional
If in doubt, it’s always best to speak to a professional. They can assist you in making the right decision regarding your SMSF and give you personalised advice. A financial advisor can also assist you in managing your fund, organising and strengthening your portfolio and advise on technical issues.
It’s never too early
No one in their retirement reflects on their life and wishes they had of started worrying about their nest egg later in life rather than earlier. Paying attention to your super and retirement options from a young age is important if you want to be comfortable in your retirement phase.
The superannuation transfer balance caps have been problematic for SMSF members who don’t take careful consideration when succession planning.
Failure to understand the impact of these transfer balance cap changes can have on your finances may force you to transfer large amounts of money out of your super.
The transfer balance cap of $1.6 million that was introduced as of 1 July 2017 limits the amount of superannuation that can be transferred into an individual’s retirement phase. The cap incorporates all accounts the individual holds balances in.
SMSF members ought be weary of the scenario in which a SMSF is paying two pensions, one to each party of a couple where both parties are receiving money under the transfer balance cap. When one of the spouses die, the remaining spouse could be in breach of the transfer balance cap because now they are the sole beneficiary of more than $1.6 million.
Luckily, if you take time to plan carefully how to avoid the above limitations, you can have control over where (and to who) your super will go to when you pass.
Consider the following:
Accumulation vs pension phase
The new transfer balance cap rules state that, at any given time, individuals cannot have more than $1.6 million in their pension phase. The money in the pension phase is taxed at zero percent; the money in the accumulation phase is taxed at 15 per cent. If you are already in the pension phase, and are with a spouse also in the pension phase, it is fruitful to think ahead as to what will happen to the money when one of you passes. Perhaps looking into what investments you can make now would be wise, particularly given that investment properties held for a period of longer than 12 months are taxed at a rate of 10 per cent.
One option is to execute a binding death benefit nomination, which allows an individual to nominate who they would like their death benefits to be paid to. When preparing the BDBN, an individual can elect where their money goes and the trustee of their estate is bound to carry out these wishes. The other option is to execute a non-binding death benefit nomination, which allows the trustee some flexibility as to where they place your money. This is a good option if your wishes for your money are not as tax effective as possible; the trustee has the option to vary where you wanted the money to be placed.
In addition, when succession planning, it is important to remember that superannuation is not an asset that forms part of an individual’s estate; there are limitations as to who is a beneficiary of another’s superannuation. An individual must be a dependent of the deceased or a legal personal representative. If an individual fits this criteria, there are only two ways that they can be paid the benefit; through an income stream or via a lump sum.
To ensure you are not leaving your spouse or children the stress of the repercussions of breaching the transfer balance cap when you pass, speak to one of our accountants to establish the best possible plan for your estate.
Opting for a self-managed super fund (SMSF) can be a clever financial decision, but it’s not for everyone.
If you aren’t prepared to adhere to the following tips, your SMSF will most likely fail to perform as well as you would of hoped it to.
You can’t expect your SMSF balance to be the most profitable for you in your retirement phase if you don’t remain educated on the vastly changing compliance laws. Remaining up-to-date with these changes, and how they impact upon your nest egg is an essential aspect of making your SMSF work for you, your spouse and your children.
The ultimate long-term goal of your SMSF is to allow you to retire comfortably, maintaining the life you have become accustomed to throughout your working years. To do this, you need to have a strategy; the decisions you make regarding your SMSF should be part of this strategy, not just transfers here and there because your financial advisor told you to. Your strategy should be reviewed at least annually. You need to be aware of how each decision will impact upon and ultimately lead you towards the financial security you work so hard to achieve for your later years.
Running a self-managed super fund doesn’t involve having all the answers, but it does require understanding when it’s time to talk to a professional to get the best advice on your SMSF. You can never ask too many questions when it comes to your future financial security.