A Happy New Year to all my readers.
The New Year provides us with time to think about and assess goals for the coming year. Whether we actually achieve them or not, well that’s a whole different matter…
I have provide below 12 resolutions that you may with to consider in either setting up or running a Self Managed Super Fund:
1. Join more than 850,000 Australian’s already taking control of their retirement using a SMSF
Call me biased, but I truly believe SMSFs are the best superannuation vehicle in Australia as they provides you with a real sense of ownership in making decisions about your retirement savings. SMSFs also provide you with greater choice in how you can invest, whether it be via property, shares, cash, fixed interest or even artwork and collectables. It’s not about thinking you can “do it better yourself”, but in my view it is more about the greater engagement that you have with building your retirement nest egg. Watch my videos on Thinking about Self Managed Super and Setting up a SMSF to understand more about the benefits of SMSFs.
2. Does my trust deed need to be updated?
It never ceases to amaze me about the lack of education that is provided around the importance of the fund’s deed (I commonly refer to the trust deed as the ‘book of rules’). Far too often I see SMSFs with trust deeds that are not only out of date, but in some circumstances mean that the fund is not a Self Managed Super Fund (as the rules haven’t been updated to align with changes to superannuation law). Only last year I saw a fund which had not been updated since it started in 1982!!
Your SMSF is no different to your car – to run at its optimum, it needs be serviced. As super and tax laws change, your trust deed needs to be serviced to accommodate these amendments and take advantage of strategies.
Your resolution may be to speak to a SMSF Specialist about whether your deed needs an update!!
3. Should I really have a corporate trustee instead of individual trustees?
With only 1 in 10 SMSFs over the last couple of years being setup with a corporate trustee, many people will probably ask “why would I have a corporate trustee instead of individual trustees”? Whilst having a company act as trustee can be more costly, it can provide a range of administrative and estate planning benefits, including the ability to run a single member fund (as a sole director). Further details of some of these important considerations can be found on the ATO website.
I’m obviously not the only SMSF professional within the industry with this view… take a look at the results of the current poll on the SMSF Professionals page on LinkedIn:
It was also acknowledged within the Super System Review that corporate trustees were a superior trustee structure, however the choice of trustee should always rest with the individuals. You should think about your own circumstances as to when a corporate trustee may be a more suitable option for you.
4. The year of the property gear?
With clarification of the limited recourse borrowing rules (section 67A & B, SIS Act) by the ATO in September 2011 (SMSFR 2011/D1), there now appears to be greater scope for SMSF trustees to consider the use of borrowing to acquire property. I use the words “year of the property gear” because I expect this area to grow significantly in 2012 as the ATO ruling provides some much-needed clarity on the ability for a SMSF to make improvements to an asset where the fund uses its own resources. Add to this the clarification on what qualifies as a single acquirable asset, we will see a much broader range of investors looking to acquire property through a SMSF.
The benefits of property in super can be significant, in particular the tax exemption that can be obtained on any capital gains once you reach retirement (or transition to retirement). With the ability to use two sources or inflows to meet repayments (1. rent and other fund income; and 2. contributions), it can allow for an accelerated repayment strategy to maximise the return you can achieve from the investment.
Refer to my example presentation on Slideshare to understand the analysis further about whether property investing within a SMSF is a suitable strategy for you?
5. Should I maximise my concessional contributions for the current year?
The 2012 financial year is the last year of the 5 year transitional concessional contribution cap that was introduced with the Simpler Super reforms from 1 July 2007. Whilst the Labor Government halved the contribution cap in 2010, we still await details of the proposed law changes to extend this cap beyond 1 July 2012 for those over 50 with account balances under $500,000.
From 1 July 2012, the current concessional contribution cap will reduce to $25,000 for everybody regardless of age. This is a reduction from $100,000 that was available only 3 years ago.
You can only presume that the Labor Government will look to increase contribution caps once they have delivered on their commitment to bring the budget back to surplus in 2013. The cynic in me says we see announcements in the lead up to the next election!!
6. I might need to review my contributions to ensure you don’t get caught with ECT??
Excess contributions tax (ECT) has been a growing issue as people look to maximise on the benefits of superannuation. With many cases of inadvertent breaches falling on deaf ears with the ATO, it is absolutely critical that you appropriately manage your contribution levels each financial year.
We have seen an announcement by Government to allow a ‘once-off’ refund of up to $10,000 for breaches of the concessional contribution cap, but I wouldn’t be relying on that as a management tool to deal with excessive contributions. Take an active role in tracking yours (or your clients) contributions.
7. I’m thinking about transferring listed shares into my SMSF? You need to do so before 30 June 2012!!
One of the recommendations from the Super System Review was to prohibit the ability for individuals to be able to transfer existing shares held personally into a SMSF (by way of off-market transfer). This recommendation was ultimately supported by Government within the Stronger Super reforms and is intended to become law from 1 July 2012.
Therefore, you have a small window remaining to look at this strategy to transfer listed shares you own into a SMSF.
8. Do I qualify for the co-contribution this year?
The Government within their Mid-year economic and fiscal outlook (MYEFO) 2011-12 announced changes to reduce matching entitlement from $1 for $1 (100%) up to $1,000 to 50% for the 2012-13 financial year.
For income earners between $31,920 and $61,920 for 2012, you can receive a matched amount from the Government based on your qualifying entitlement. See the ATO website for further details of eligibility.
9. How much pension can I draw this financial year?
With financial markets still languishing, individuals drawing an income stream have the ability to draw down a 25% reduced minimum pension for the 2012 financial year. This means that if you minimum pension is ordinarily 4% (55-64), your minimum pension for 2012 is only 3%. In the MYEFO, the government recently extended the minimum pension draw down relief for the 2013 financial year as well.
These rules apply to account based pensions, including transition to retirement income streams and market linked pensions.
10. What’s the most tax effective way to draw my pension for the financial year?
A controversial ruling issued by the ATO in July 2011 (TR 2011/D3), provided scope for a member who has retired to potentially take their benefits as a lump sum payment and have the benefits treated as a pension for the year. This is beneficial where you may wish to receive an in-specie payment such as a transfer of shares or property from the fund. This can also be beneficial for people under 60 who could have a withdrawn amount applied against the pension limit for the financial year but taxed against the lump sum tax rates.
11. Is my current death benefit nomination up-to-date?
What happens to your superannuation benefits in the event of death is not determined by your Will – it is based on the instructions that are left within a member’s death benefit nomination. Unfortunately, not enough attention is spent looking at the important aspects of what can happen with super benefits when somebody dies. This could include a pension, lump sum or combination of both, subject to the beneficiaries being tax dependants.
Within SMSFs, there are several options available to members subject to the fund’s trust deed. A member may wish to have no nomination (at all), have a statement of wishes (non-binding), or binding nomination. The binding nomination may be lapsing (i.e. review and renew every 3 years) or non-lapsing.
12. I need to establish a comprehensive SMSF estate plan?
Simply having a death benefit nomination and a Will is not sufficient in this day and age with a range of associated risks that could derail how you ultimately want your benefits to be dispersed when you are no longer here…
It is important to not only think about the issues when you are no longer here, but address the ‘life risks’ such as if you lose your marbles!! In my view, a comprehensive SMSF estate plan needs to intertwine the Will, death benefit nomination, Enduring Powers of Attorney, and Guardianship. You should also consider within your Will the creation of testamentary trusts for nominated beneficiaries to help protect from marital, business and other risks that might expose your death benefits ending up in somebody else’s pocket!!
There they are… Is there something there for you (or your clients) to consider reviewing or/and implementing for 2012?