Death of a SMSF member

by Leigh Mansell

We regularly get queries about recalculating the minimum pension amount for account-based pensions upon the death of a member, particularly where reversionary pensions are involved.

Consider the following example. Jim (currently 66) has an account based pension that commenced several years ago. When he established the pension he documented that his wife Anne (currently 56) was to automatically continue to receive the account-based pension on his death. Jim died on1 May 2013. What is the minimum pension payment required for 2012/13. Jim’s drawdown rate is 3.75% for 2012/13 whilst Anne’s is 3%. Click Here To Read More

Major Superannuation Announcements

by Meg Heffron

Last Friday saw the Government finally crack under intense media pressure and release details of its superannuation plans. There were half a dozen announcements which were mostly modest and mostly sensible.

One looks like a train wreck (the scaling back of the income tax concession for pension funds) and one looks quite interesting (the idea of having a Council of Superannuation Custodians). Click Here To Read More

Praemium throws it hat in to the SMSF ring

by Ben Smythe

Praemium (ASX code – PPS) have announced to the market today that they have expanded their existing portfolio administration service’s (“v-wrap”) capability to include full SMSF compliance functionality so they will be able offer their clients a “complete SMSF solution.”

Some might argue that this is a logical extension of Praemium’s product range as they have no doubt started to feel pressure from SMSF software providers such as Class and BGL as they expand their offering beyond standard SMSF administration software.

The other trend that they might possibly be responding to is the blurring of the lines between an “accountant” and an “adviser”. Typically the choice of SMSF administration software has been controlled by the accountant (who then controlled the SMSF administration/accounting functionality) and the investment administration software controlled by the adviser (who then controlled the SMSF investment and strategic advice component) and they have co-existed happily with a convenient cross referral arrangement. Click Here To Read More

ATO Pension Concession

by Mark Wilkinson

When the draft tax ruling TR 2011/D3 about how a pension starts and ends was released over 18 months ago, there were a great many contentious issues raised, one of them was that if the pension was underpaid in a particular year then the pension was deemed to have ceased at the commencement of that finanical year.  Click Here To Read More

APRA and SMSF lending

by Meg Heffron

I’ve been following the press about APRA’s comments concerning SMSF loans with interest.   (If you hadn’t caught it – APRA has warned banks that SMSF loans are more risky because they are limited recourse.)

Of course, many have made the obvious point that most banks will insist on a personal guarantee from the members before lending to a SMSF and hence the bank is largely protected (it’s not perfect – if I was the bank, I would want to be able to attack the SMSF’s other assets.)

Just out of interest – I have not yet seen a single 3rd party loan without some kind of supporting guarantee like this.  Has anyone else?

However, it occurred to me that there’s a more important point that we’re probably all quietly ignoring.

I wonder if the problem is actually quite the opposite.  The BANK will always be protected but will the limited recourse nature of the loan work entirely as intended?

Click Here To Read More

ATO Announces new minimum lodgment requirement for tax agents

by Ben Smythe

The ATO last week announced that they will be implementing a minimum 85% requirement for all tax agents in lodging returns (including SMSF) by the relevant due date.

We understand that the ATO has recently written to tax agents alerting them to this new policy (which will be effective from 1 July 2013) and also advising them of their current lodgment performance.

Interestingly enough, the ATO has advised Heffron that the lodgment performance of similar practices to it for 11/12 (ie > 1,000 returns per annum) was 79.3%. Click Here To Read More

TA 2012/7

by Tod Fankhauser

When I read this alert when it was issued earlier this week, one feature of Limited Recourse Borrowing Arrangements (LRBAs) which is potentially of concern to the Tax Office, and which particularly took my eye, was feature 2(c) of Arrangement 1, ie:

“The trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed”.

Not long after, a client phoned to say that he had executed a contract to purchase property for their SMSF, which they intend to fund using a LRBA, but before a holding trust for the property had been established.

The client had essentially purchased the property in the name of an individual ‘or nominee’, with the intention that the individual would subsequently nominate (before settlement) the trustee of the holding trust as the purchaser, once the holding trust was established.

Does this work? What are some of the issues?

Firstly, under contract law, that individual is able to nominate someone else (before settlement) as the purchaser, regardless of whether the contract actually envisages any nominee arrangement.

However, having said that, there may be a Superannuation Industry (Supervision) Act 1993 (SISA) issue. A related party (in this client’s case an individual) of the SMSF in the first instance has the right to purchase the property. If the related party subsequently nominates someone else (in this case the holding trust trustee), then it might be argued that the SMSF is acquiring an asset (the right to purchase the property) from the RP, and that would be a breach of s 66 of the SISA.

Additionally, it may be prudent to seek advice about any potential for any nasty stamp duty issues buying this way.

Naturally, you might conclude that it would be best not buying this way and avoiding the issues I’ve mentioned above.

But what if your client has bought this way? Is there a way forward without having to address these matters?
It would certainly solve the problem if the holding trust is established prior to settlement, the original contract is rescinded and replaced with an identical one : albeit with the holding trust trustee as the purchaser, with a shortened settlement period so that the vendor is not disadvantaged…..

I’d be interested to hear any views you may have.

Investing in US property

by Tod Fankhauser

We have fielded a number of enquiries recently about whether or not it is possible for an SMSF to invest in US property. While we have a number of ideas that we think could work for SMSF trustees looking to invest in the US, we would like to know what you think.

Often we find the SMSF cannot invest directly, and the investment needs to be done via a US company. The question that then arises is what role is that US company playing with regard to the SMSF.

One alternative might be for the SMSF to purchase shares in a US shelf company to the extent that the shares  issued are equal to the value of the investment (plus estimated costs) to the SMSF trustee. The SMSF has acquired its shareholding from (it is assumed) an unrelated entity (so there are no Superannuation Industry (Supervision) Act 1993  [SISA] s 66 issues).

The SMSF is now invested in a related company (it holds 100% of the company shares), so the investment is an in-house asset of the SMSF, unless an exception applies. Click Here To Read More

Pensions after death

by Mark Wilkinson

Fortunately the changes announced to the superannuation laws in the Mid Year Economic Forecast, on 22 October 2012, were much more benign than had being speculated in the media in the weeks preceding.

One change that is worthy of note, is the announcement by the Honourable Bill Shorten MP of certainty with regard to the taxation of earnings on pension assets following the death of a pensioner.

The Government proposes to “amend the law to allow the pension earnings tax exemption to continue following the death of a pension recipient until the deceased member’s benefits have been paid out of the fund.”  While the announcement is welcome and will reduce the concerns of fund member’s with regard to how their benefits will be taxed after their death, there are still a number of questions that remain unanswered, some of these include: Click Here To Read More

Defined benefit pensions

by Meg Heffron

Please join us for a webinar on defined benefit pensions on Friday November 2.
For further information and to register on line please click here.

Once upon a time, “defined benefit” pensions were one of the many tools used to optimise the tax and social security rules at the time.   The general consensus amongst tax collectors and politicians was that they were too good to be true and from 31 December 2005 it was made illegal to start a new one in a SMSF (although of course many schemes for public servants still allowed them and continue to do so to this day).

The major changes to superannuation tax law in 2007 made these pensions largely redundant as a tax planning structure and naturally many SMSF members who still had one unwound them.  But some remain.

A recent Interpretive Decision (ATO ID 2012/84) has - for the first time – considered the wind up process for these pensions in the context of excess contributions tax and provided some unsettling answers.

Click Here To Read More