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Heffron Education Bites topic areas and modules

There are 40+ 'Bites' across 7 topic areas ranging from beginner to expert level.

This 'bite' is part of the Super Foundations course.

Super is ultimately about saving for retirement so understanding when money can be paid out (known as “paying a benefit”) is every bit as important as understanding how to get it in there in the first place.

Once again, given the generous tax concessions available on super savings, it makes sense that there would be rules about it. They are designed so most people are only tapping into their super savings when the Government wants them to – such as when they’ve retired. There are some circumstances when super benefits can be taken earlier but these are limited.

There are special tax rules for the payments made to people from their super to make sure it is particularly tax effective in retirement but also not so generous that tax breaks are given away unnecessarily.

On 1 July 2021 the cap was indexed for the first time, from $1.6m to $1.7m. But not everyone got the full $100,000 increase. When the cap is indexed again in the future, there are strategies which can be employed to maximise the outcome for clients.

Most super balances end up in a super income stream (pension) at some point. While these accounts are really all about pension payments, it is also very common for a member to take a commutation (lump sum).

This module explains the two types of commutation (partial and full), what can be done with the commutation amount and how each type of commutation impacts important issues like minimum payment amounts and exempt current pension income.

Individuals start pensions for a range of reasons.

It might be because they are seeking income in retirement or cash flow for other reasons such as contribution strategies. Or they simply want access to the tax benefits of drawing a pension (eg tax exempt investment income inside the fund).

Regardless of the reasons, there are a number of tax and compliance issues to consider before the pension starts.

Retirement has always had a very specific meaning in the super law as it has an important impact on how and when members can access their superannuation. It took on even more importance from 1 July 2017 due to the changes to the tax treatment of funds paying transition to retirement income streams.

In this module we explore the retirement definition, its implications and common questions.

The decision to nominate a reversionary beneficiary on a pension, or equally to go without, is an important one. There can be advantages and disadvantages depending on an individual’s circumstances. The issues can be complex but it’s important to be able to explain them in a way clients understand so they can make an informed decision about what will happen to their pension on their death.

The rules about who can be nominated generally apply to both SMSFs and non-SMSFs. But some funds may have their own special rules.

Anyone who has reached their preservation age can start a transition to retirement income stream (TRIS). These are just account-based pensions with some extra restrictions. Eventually, a TRIS will become a retirement phase pension which we often think of as a “normal” or "full" account-based pension.

But there are some important things to consider when that time is close - some rules to follow, smart steps to take and simple strategies that can help make best use of the super tax concessions.

Individuals generally can’t access their super until they reach their preservation age. Even then, there are generally limits on how they can access their benefits and how much they can have until they have retired or turned 65.

These rules, known as the preservation rules, apply to both SMSFs and non-SMSFs, although some funds may have their own more restrictive rules.

Given the significant penalties that can apply when super benefits are withdrawn before an individual is eligible, it is important to understand these rules.

Changes on 1 July 2022 mean more people than ever can consider a withdrawal & recontribution strategy. In this module, we’ll identify target clients, explain how to implement the strategy and when fine tuning will be required to get the best result.

THIS BITE IS CURRENTLY UNAVAILABLE AS IT IS BEING UPDATED.

We normally describe the limit or cap on non-concessional contributions as $110,000 pa. But that’s not strictly true.  In any given year, the limit for a particular member could be more or less than $110,000 if:

  • their total super balance was at or above a certain threshold at the previous 30 June (currently this threshold is $1.7m) – in which case their non-concessional contributions cap is $nil, or
  • they are using the bring forward rules  in which case their cap will be higher than $110,000. 

This module explains these bring forward rules – what they are, who can use them, how they work and the opportunities and traps they bring.

Prior to 1 July 2018, the concessional contributions cap operated on a “use it or lose it” basis.

But, since 1 July 2018, unused concessional cap space carries forward for up to five years. Depending on an individual’s total super balance, carried forward amounts can then be used in a later year to make additional concessional contributions without exceeding a cap.

These “catch up” rules provide a valuable opportunity for individuals wanting to maximise their salary sacrifice or personal deductible contributions. For example, individuals with unused cap amounts from a prior year:

  • who could not afford to make contributions in the past but now can, or
  • where there is a spike in their income (for example, a bonus, trust distribution or capital gain) and they would like to minimise the tax on that income.

To make effective use of these rules, it is important to understand how they work and how to apply them in practice.

The Government offers a number of tax concessions to encourage Australians to save for their retirement via super including tax deductions for individuals who make their own contributions to super. There are also tax deductions available for employers who make contributions for eligible employees but these are covered in a separate module.

As with most things super related, there are rules which must be met before tax deductions can be claimed.

Australia’s retirement income system includes significant tax concessions for super. Not surprisingly there are rules which dictate when a fund can accept a contribution for a member. Eligibility is dependent on the type of contribution, the member’s age and sometimes their work status.

These rules generally apply to contributions to both SMSFs and non-SMSFs. But some funds (for example, public sector funds) may have their own special rules about contributions.

It is important for all practitioners to understand these eligibility rules.

The superannuation law has rules around when a member is eligible to contribute to super and the tax laws include limits or caps on the amount of contributions which receive concessional tax treatment. Inevitably mistakes are made from time to time and the rules are broken or caps exceeded. It’s common to assume that these mistakes can be fixed by simply refunding the contribution once the error is discovered.

Unfortunately it’s not that simple - sometimes contributions can be refunded immediately and sometimes they cannot.

The consequences for refunding contributions incorrectly can be more serious than making the contribution incorrectly in the first place.

This 'bite' is part of the Super Foundations course.

Australia’s retirement income system includes significant tax concessions for super. So not surprisingly there are rules which limit:

  • who can make contributions to super (or have contributions made on their behalf) – these rules have changed over the years but are now mostly linked to the member’s age, and
  • how much can be contributed to super before additional taxes are payable – these limits are known as “contribution caps”.

These rules and caps generally apply to contributions to both SMSFs and other types of funds. But some funds (for example, public sector funds) may have their own special rules about contributions.

Deferred allocation strategies involve making a super contribution in June but not allocating it to a member until July. 

These strategies are unique to SMSFs and can be a valuable opportunity for members:

  • seeking to bring forward tax deductions,
  • wanting to maximise their contributions to super in their final year of eligibility, or
  • needing additional liquidity in their SMSF for an investment opportunity but have already utilised their current year contribution caps.

To make effective use of the strategy, advisers need to both understand the mechanics of it and also be aware of the hurdles which can be encountered in practice.

Downsizer contributions were introduced from 1 July 2018. They are special contributions to allow older members to top up their super after selling their home.

While there are a range of conditions to meet and rules to follow, two very important features are that they:

  • don’t have a maximum age at which they can be made, and
  • can be made regardless of the amount the member already has in super and whether or not they are working. 

Other opportunities to make large contributions at older ages (non-concessional contributions, CGT small business contributions) are far more restricted.

Downsizer contributions can be extremely valuable for older members looking to add to their super.

Changes on 1 July 2022 mean more people than ever can consider a withdrawal & recontribution strategy. In this module, we’ll identify target clients, explain how to implement the strategy and when fine tuning will be required to get the best result.

Personal insurance. It is something that one may have but hopes they will never need! It includes being covered for loss from death, injury and illness. There are many decisions to make when taking out insurance cover and whether the policy should be owned “inside super” is one of them. In this module we will look at the types of insurance a super fund trustee is allowed to hold on behalf of members and things to consider when deciding if it’s a good idea.

SMSFs have special rules about who needs to be a trustee (or a director) and who needs to be a member. In this module, we will look at how a fund might stop meeting these rules after the death of a trustee, director or member. We will also consider what changes may be needed to the fund’s structure as a result and how soon these changes need to be made.

There’s been much commentary recently on the average cost of running an SMSF as compared to other types of super funds.

In this module, we explore the common outgoings of SMSFs and the not so common. We review the factors to consider when determining whether a particular cost is appropriate for an SMSF to pay, and also the tax deduction rules.

One of the great benefits of starting a retirement phase pension is that the fund providing it stops paying tax on some or all of its investment income. The income that is exempt from tax is called “exempt current pension income” or ECPI.

The way in which ECPI is calculated can be different under different circumstances and there are some important rules to understand.

Some of these rules only apply to SMSFs whereas others are the same for all super funds.

This module gives an overview of how ECPI is calculated as well as some tips and traps when it comes to getting the best possible result in an SMSF.

Our module “ECPI unpacked” explained the two methods SMSFs use to claim “exempt current pension income” (ECPI) – the tax exemption that applies to certain investment income for funds providing retirement phase pensions.

This module explores this topic further and delves into some important features of ECPI in less common scenarios – for example:

  1. when pensions are partially or fully commuted,
  2. when a pension member dies,
  3. when a fund’s income is earned very unevenly during a year or pensions start and stop during the year, and
  4. when a fund sells assets with capital gains that have been deferred as a result of special tax relief taken in 2017.

This 'bite' is part of the Super Foundations course.

In the earlier modules of the Heffron Super Foundations course, we mentioned three times when super could potentially be taxed:

  • On the way in – when contributions are made to a super fund
  • Inside the fund – while the super fund’s investments are growing
  • On the way out – when benefits are paid out of a super fund

You’ll also recall that we said the normal super fund tax rate is 15% on contributions (#1) and investment earnings (#2).

We touched on how super benefits are taxed (#3) in “Getting money out of super – an overview” but in this module, we’ll take a closer look at #1 and #2. In particular, how super funds are taxed and when the tax rate might be more or less than 15%.

All super funds need to meet the residency rules to be entitled to concessional tax treatment. In this module, we will look at the rules an SMSF needs to meet to qualify as an “Australian super fund”, what SMSF trustees and members need to think about before they travel overseas, and steps to take to ensure a fund continues to meet the residency rules.

This 'bite' is part of the Super Foundations course.

In our earlier modules of the Heffron Super Foundations course, we explored why people might choose to save for their retirement in a super fund, the rules which limit who can make contributions to super and how much can be contributed, and the rules restricting when monies can be withdrawn from super.

We also explored the different types of super funds, particularly SMSFs and the specific rules SMSF trustees need to be mindful of when investing the fund’s money.

In this final module of the Heffron Super Foundations course, we’ll look at the responsibilities of SMSF trustees in the context of the establishment of an SMSF and the day to day running of the fund. 

There’s been much commentary recently on the average cost of running an SMSF as compared to other types of super funds.

In this module, we explore the common outgoings of SMSFs and the not so common. We review the factors to consider when determining whether a particular cost is appropriate for an SMSF to pay, and also the tax deduction rules.

When any super fund starts a retirement phase pension, some or all of its investment income becomes exempt from tax (this income is known as “exempt current pension income” or ECPI).

There are two methods for calculating a fund’s ECPI – the “segregated method” and the “actuarial certificate method”.

This module explains how the actuarial certificate method works – ie when SMSF trustees want to set aside just some assets to be treated as segregated assets, what steps are required and what does it mean for the administration of the fund?

One of the many responsibilities of SMSF trustees is to ensure proper accounting records and returns are kept for the fund. But what sort of records must be kept? For how long? And what happens if records are lost? All SMSF accountants and auditors need to understand these record keeping rules so they can assist trustees in meeting their obligations.

Since the introduction of the transfer balance cap on 1 July 2017, all superannuation funds that pay retirement phase pensions must report certain events to the ATO. The way in which funds report these events and the due date for reporting differs depending on the type of fund.

For SMSFs, events are reported via a Transfer Balance Account Report or TBAR. The due date for lodging a TBAR currently depends on whether the fund is an annual or quarterly reporter.

It is important for all SMSF accountants to understand the SMSF TBAR obligations.

Most people get to choose the fund in which their super is invested. So why choose an SMSF? Having this type of setup, where members run their own fund, allows individuals to enjoy benefits unique to SMSFs. This module outlines what some of these benefits are and why individuals might choose an SMSF over other types of super funds.

SMSFs are generally prohibited from acquiring assets from related parties or leasing assets to related parties. There are limited exceptions.
One of the most commonly known exceptions is for “business real property”.

As the name suggests, business real property is simply real property used in a business. However, real life scenarios can be more complex than that.

Note the same rules apply to small APRA funds but other types of funds would be subject to different rules.

The super law requires all SMSF trustees to “formulate, regularly review and give effect to” an investment strategy for their fund.

With the ATO continuing to focus on investment strategies and able to penalise trustees who fail the rules, it is important all professionals supporting SMSF trustees understand what is needed to develop an ATO compliant investment strategy.

This 'bite' is part of the Super Foundations course.

Once a super fund has money, it’s time to invest it.

But super funds are given very generous tax treatment – it’s the Government’s way of helping people save for retirement. So it’s not surprising there are rules to follow to make sure those tax breaks are only used by people who are genuinely trying to save for their retirement.  

This is particularly obvious when it comes to investment rules. There are rules that trustees need to think about carefully when it comes to:

  • Why an investment is made
  • Who else is involved
  • From whom the investment is acquired
  • What is done with it afterwards (ie once the fund owns it)

Believe it or not, there are not many rules about exactly what a super fund invests in. Most of the mainstream things people might invest in themselves (or via other structures like a family trust) can be bought in an SMSF. Really common examples are shares listed on a stock exchange, managed funds, property or property trusts, term deposits and cash. The investments don’t have to be in Australia – plenty of SMSFs own shares listed on overseas stock exchanges or hold deposits in foreign banks. Even more exotic investments such as artwork, crypto currencies, and shares in private companies are allowed. In all cases, it’s the other rules that can get in the way.

This module is all about those other rules.

Approximately 10% of SMSFs own commercial property, and often this property is leased to a related party. The super and tax laws include rules about to whom funds can lease assets, the terms of the arrangement and the documentation required.  Failure to follow these rules can result in:

  • a breach of the super law (and potentially penalties on the trustee), or
  • adverse tax consequences for the fund because the income from the arrangement is considered non-arm’s length income (NALI) and taxed at 45%.

Note, this module specifically deals with SMSFs. Similar rules would also apply to small APRA funds but other types of funds would be subject to different rules.

The focus for this module is commercial property. The specific rules for the leasing of other assets (eg residential property, collectables) are not covered.

Whilst not common, sometimes an SMSF trustee chooses to invest the fund’s assets by lending money to other parties. The super and tax laws include rules about to whom funds can lend monies and the terms of any permitted loan arrangement. Failure to follow these rules can result in:

  • a breach of the super law (and potentially penalties on the trustee), or
  • adverse tax consequences for the fund because the income from the arrangement is considered non-arm’s length income (NALI) and taxed at 45%.

Super funds are allowed to invest in a wide range of different assets with relatively few restrictions. Where strong limits are imposed is where the fund has dealings with "related parties". These generally come in four forms:

  • limitations on the amount funds can invest in entities like trusts or companies that are related parties,
  • limitations on the amount funds can lend to related parties,
  • limitations on the value of certain assets that the fund can lease to related parties,
  • specific processes to be followed when certain assets (collectables) are sold to related parties, and
  • quite significant restrictions on the assets that can be acquired from related parties.

This module is about the last set of rules and we cover the assets that can and cannot be acquired from a related party.

The term “related party” comes up often for SMSFs, mainly linked to the fund’s investments. 

Broadly speaking, a related party is a person or entity (such as a trust or company) that might be expected to have a closer relationship with the members of the SMSF than other parties. To make sure the trustee is always focused on saving for members’ retirement rather than some other purpose:

  • there are some transactions that are prohibited entirely with related parties (for example, an SMSF cannot buy residential property from a related party), and
  • others that are just limited (for example, an SMSF cannot invest more than 5% of its assets in shares in a company that is a related party).

The definition of the term can be complex and it is the subject of this module.

A superannuation fund is a tax structure (like a company, trust or partnership) but one that has a specific purpose – it is designed to be used to save for retirement. An SMSF is simply a special type of superannuation fund. The difference between an SMSF and other types of superannuation funds is that generally, SMSF members (trustees) are also the people in charge of the fund. This means that if you choose to have an SMSF, you and your fellow trustees have complete control over how it is run, what investments are made and what other suppliers such as administrators, insurance companies etc. it uses.

Visit Heffron IQ to learn more about SMSFs.

Self-managed superannuation funds, or SMSFs as they are more commonly known, are unique to Australia. Not that many people in Australia have an SMSF – just over 4% of the total population – but total assets held by SMSFs at the end of 30 June 2021 represented just over 25% of total assets in super – a whopping $822 billion! But what exactly is an SMSF? In this module, we will work through the rules to qualify as an SMSF.

This 'bite' is part of the Super Foundations course.

Self managed super funds (SMSFs) are a key component of Australia’s super industry – there are currently over 603,000 SMSFs and more than 1.12m people belong to one. This means understanding what an SMSF is and how they work is vital for all professionals dealing with super.

This 'bite' is part of the Super Foundations course.

Super is a central component of Australia's retirement income policy. Given almost all Australians will, at some stage in their life, have money in an Australian super fund, having an introductory level of knowledge about super is vital for all professionals.

Twenty years ago, the elderly rarely had super, let alone an SMSF. These days, over 25% of SMSF members are over age 70 and almost 15% are over age 75.

Across the entire population, by 2055 the proportion of those over age 65 is expected to grow from around 15% to 23%. While people are living longer and staying healthy for longer, it is no secret that the risk of mental and physical impairment increases with age. By 2056, more than 1.1m Australians are expected to have dementia and it stands to reason that many of these people will have balances in super funds and in some cases an SMSF.

Not surprisingly it is becoming increasingly important to understand how to prepare for, and deal with, the incapacity of individuals with super balances, particularly SMSF members.

The 1 July 2017 super reforms introduced the concept of an individual’s “total super balance”. The total super balance concept is a way of calculating or valuing the entirety of an individual’s super interests at a particular point in time and is used to determine their eligibility for a range of super measures.

Whilst the calculation of someone’s total super balance is conceptually simple, there are a number of complexities to be mindful of. Misunderstanding the total super balance rules could cause adverse outcomes for clients (eg inadvertently exceeding a contribution cap).

Most SMSF trustees never encounter any compliance problems when running their funds. But around 2% of all SMSFs each year will report a breach of the super law to the ATO. Often the reason is a simple misunderstanding of the rules - by either the trustee or their accountant/adviser. But we also come across cases where trustees/advisers are ignorant of the rules, or even worse, aren’t concerned if they are breaching the law. So, what happens when an SMSF breaches the super law?

Who is it for?

Professionals who want to develop their knowledge of superannuation and SMSF in specific areas of need and meet CPD requirements.

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