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While there is a large list of options, there are also many restrictions to protect SMSF members from undue risk. This is done to ensure that investment decisions are being made with the primary purpose of generating retirement benefits for members and not providing current day benefits. For example, any property owned by the fund cannot be used by the fund members or their families, even if rented out as a market rental. The Superannuation Industry Supervision Act prohibits certain types of investments.
What is the Sole purpose test? This test is one of the most important issues that Fund Trustees need to address. The regulators have stated that this test is of high importance, to determine if a SMSF is a complying fund i.
The Trustees must comply with the Sole Purpose Test to be eligible for the taxation concessions available to a complying superannuation fund. The Sole Purpose Test is divided into core and ancillary purposes. A regulated fund must be maintained for at least one core purpose OR at least one core purpose and one or more ancillary purposes.
However a fund cannot be maintained for one or more ancillary purposes only. What is a Core purpose? An Ancillary purpose includes the provision of benefits to members in the following circumstances:. For example investments cannot be made for the purpose of providing financial assistance to another party who is not a member or beneficiary of the fund.
The ATO has stated that in their experience, where a large proportion of fund assets are used to conduct a business within a SMSF, the fund will almost inevitably contravene the sole purpose test. This is because generally the purpose for which the investment is made, is not to generate retirement benefits but rather to enable the Trustees to operate the business. Each investment needs to be examined properly in light of the sole purpose test, to ensure your fund remains compliant and can benefit from the tax concessions available.
What are the Auditing Obligations? There are annual reporting obligations for every SMSF. It is your responsibility to have your SMSF independently audited annually by an approved auditor, who will provide you with a report on your SMSF and in turn report to the ATO, if your fund has breached any super rules.
How do I transfer money into a SMSF? Once established, your SMSF may accept contributions and rollovers. Each member account will record: In addition to contributions, members may wish to transfer their existing superannuation entitlements by rolling them into the SMSF vehicle.
Transferring money into your SMSF requires completing a portability form. This will allow you to request the transfer of your super balance from a super fund into your SMSF. You must complete a separate portability form for each transfer. Completed and signed forms, together with certified copies of proof of identity documents, must be sent to your fund.
What about insurance and a SMSF? This means overAustralians do not have life insurance in their fund. These insurance figures highlight how many Australians would benefit by reviewing the ownership structure and tax effectiveness of their current arrangements. Trustees are not required by law to have any insurance cover in their fund, but parts of the Stronger Super reforms implemented by the Government means that Trustees must at least consider insurance options for their members.
The types of insurance to be considered include Life, Total and Permanent Disability TPDTrauma and Income Protection IP. Although the Trustees do not have an obligation to take insurance cover, they must at least consider different types and levels of insurance for its members. To satisfy their responsibilities, Trustees must document the process they have undertaken to decide if insurance is necessary and the reasons behind that decision.
When would insurance be considered unnecessary? There are situations where insurance would not be required. Some examples would be where the member has:. How does insurance in a SMSF work? Insurance in a SMSF is owned by the Trustee ie not owned personally.
So when you apply for cover, it is important to ensure the owner is identified as the Trustee of the SMSF ie John Black as Trustee of The John Black Super Fund.
Insurance premiums can be funded by super balances or existing member balances. All assets of a SMSF must be held separate from personal or business assets Can I transfer a personally owned policy into a SMSF? No, a SMSF cannot acquire an insurance policy from a member, or a relative of a member. A personally owned policy can be terminated and re-issued on similar terms to be owned by the SMSF, provided there are no underwriting issues.
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This would require an individual to cease ownership of their current policy in their own name and have the SMSF commence a new policy with the same insurance company. If the insurer is not prepared to issue a new policy on the same terms, the above strategy may not be worthwhile as new medical tests would need to be undertaken.
In turn, this could lead to higher premiums for the member. Are there any tax concessions? Super contribution strategies like salary sacrifice can reduce the effective cost of insurance by using pre-tax dollars. In addition to this, the SMSF Trustee can also claim a tax deduction on the premium, excluding trauma and certain types of TPD cover. Please contact the ATO to find out what percentage of your premiums can be deducted.
How can proceeds be accessed? In the event of a successful insurance claim, the proceeds from the claim are received by the SMSF Trustee. A payment can only be made if a condition ato forex rates 2012 release is met.
The SMSF Trustee is bound best way to get coins in madden ultimate team 13 the same conditions of release as all other fund Trustees. If a condition of release is met, the benefit can be paid as either a lump sum or an income stream.
An income stream can be a tax-effective option for eligible dependants, and it allows funds to remain within the SMSF environment. Trauma cover This ato forex rates 2012 of cover can be held in an SMSF, however the benefits are paid to the fund, rather than directly to the member.
The premium for Trauma protection cannot be claimed as a tax deduction by the SMSF. There are still advantages though, as fund assets are used to pay the premium rather than after-tax income.
A key concern is the potential for trauma proceeds to remain trapped within the fund, as generally there is no available condition for release. If a condition of release is not met, the member must wait until preservation age prompt how to trade binary options youtube receive any benefit.
What are the conditions of software forex made easy Below are the Federal Government rules about accessing your super. You can access the preserved money in your Super account if you: Benefits can be paid if the Trustee is reasonably satisfied that you are unlikely to engage in gainful employment for which you are reasonably qualified by education, training and experience due to physical or mental ill-health.
A terminal medical condition forex nicosia if: Benefits paid to terminally ill members with a life expectancy of less than 12 months are paid tax free. ATO figures show in the past 4 years, residential property grew faster than any other SMSF investments.
There is currently a huge difference in taxation rates between the way super laws tax property, and the way individuals are taxed on property outside the super system. For example, an investor selling a property would pay CGT on some or all of any gain made at their marginal tax rate. Under super laws, provided the investment property is sold after the investor turns 60, little or no tax will be paid on capital gains.
There are challenges associated with purchasing property via a SMSF including: The SMSF must be set up properly for property investment before any property investment can occur. The Trust Deed must be amended to allow for borrowing. The ATO defines this below: You can however set up a separate company to act as Trustee. The SMSF forex brokers with best rollover rates have beneficial ownership over the asset while the Trust has legal ownership of the asset.
Archer binary options signals bullet 1 1 vs 2 2 the asset is fully paid off, legal ownership can be transferred to the SMSF.
How do I borrow money to invest in property via my SMSF? Once the structure of the SMSF is set up correctly, the SMSF can approach lenders for finance.
SMSF loans are totally different to mortgage products, due to their limited recourse criteria. The recourse of the lender will be limited to the asset that is being funded including rights to income generated by the asset.
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This arrangement protects Trustees from being personally pursued for debt or other liabilities generated by the SMSF. A Limited Recourse Borrowing Arrangement LBRA significantly increases the amount of paperwork to set up a loan. It also means banks and other lenders will be very thorough with due diligence, to minimise their exposure to excessive risk.
Banks have the following exclusions to this type of loan: What is the difference between maintenance and improvement for my SMSF property? Under Superannuation legislation, SMSF Trustees can borrow funds to maintain or repair an asset. This is quite a grey area as Trustees need to differentiate between maintenance and an improvement for the property. According to the ruling, maintenance of an asset involves actions to prevent damage or deterioration to ensure that the asset can continue to fulfil its main function.
Trustees cannot borrow to fund activities that will increase either the functional efficiency or the value of the asset by adding new features. The ATO gave the following example in their draft ruling. If however, Trustees decide to extend the kitchen at the same time, this will be deemed an improvement and will not be allowed under SMSF rules. SMSF Trustees are allowed to use their existing resources but not borrowed funds to improve assets.
Trustees have to be careful to ensure that improvements to the asset are not so great that it creates an asset that is substantially different to the original. In the above scenarios, the ATO deems that the character of the asset was changed so fundamentally that is would now be defined as a replacement asset.
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This would make the SMSF non-compliant. ATO Draft Rulings like the above are fairly common, so it is important that Trustees keep up to date as they are introduced. How much does is cost to set up a SMSF? Many Trustees can save money by running their own fund, as there are potentially no investment manager fees, administration fees etc. There are of course costs associated with running your own SMSF and not all Trustees save money. There are also considerable obligations regarding administration and compliance.
Once your SMSF has been set up, you can choose to manage it yourself or outsource tasks to your choice of service providers. How much you decide to take on yourself is really up to you. What are the costs associated with a SMSF?
It is important to note that you can administer your fund yourself, but will need to ensure you have the time and resources available to meet all the obligations of running the fund. The main reason they suggest a figure in this vicinity is based on their view of the average fee a Trustee will end up paying, and how this compares to the fees and charges that are charged by many superannuation funds for a similar account balance.
Suggesting an amount you need to set up a SMSF will be dependant on your personal situation and needs to be looked at on an individual basis. There is a growing trend for people to accumulate their savings within a managed fund and then withdraw their balance near retirement and set up an SMSF. What are the differences between an Individual and Corporate Trustee? When setting up a SMSF, you have the option of how to appoint a Trustee to your super fund.
Individual Trustees; or 2. A Company Trustee with members acting as Directors. When setting up an SMSF, new members have the choice of using a corporate structure, where they all become Directors of the Trustee company, or nominate for the members to act jointly as Individual Trustees. Using Individual Trustees is a cheaper option in terms of set-up costs and often simpler if there are likely to be no changes to members.
Where changes to members are likely, using individual Trustees can be an administrative headache. A Corporate Trustee will have costs associated with it in terms of establishing the company and organising ASIC registration. Members in this situation will use a Proprietary Limited company as Trustee and appoint themselves as Directors of the Company.
On an on-going basis, a Corporate Trustee is more efficient than an Individual Trustee structure. Assets are held in the name of the Company as Trustee for the fund.
This means that no name change to asset holdings is required where there are changes to members including name changes, members leaving or in relation to the death of a member. Disclaimer Terms of Use Privacy Policy. Super Ratings Pension Ratings Top Tens Super Changes Media room Contact Us.