Archive for 'super'

Why Pick One Trustee Type Over The Other When Setting Up Your SMSF?

If you have a Self Managed Superannuation Fund (SMSF), the Fund is considered to be a trust and must have a trustee. There are two options as to who this trustee can be.

Barring a few exceptions, it can be individual members, or it alternatively can be a company with the members as the directors and shareholders of the company. The choice, either way, is that the trustee of an SMSF can be either an individual trustee or a company as a trustee.

When choosing the appropriate trustee structure for your SMSF, a closer examination of the advantages and disadvantages will assist you in determining what is right for your needs.

The Cost

When looking specifically at the cost, a company as a trustee could initially cost around $1,000 or more to establish. An annual fee of roughly $50 will also need to be paid to ASIC, and when you are finished with the company, there will be costs associated with deregistering it. Using individual trustees, there is no initial cost associated.

Asset Separation

Most importantly, you have asset separation. The assets are held in the name of a separate entity; if the individuals are ever attacked financially, there is nothing to point toward the super fund.  Even though the fund’s assets should be protected even with individual trustees, if assets are in the individual names, you will need to spend legal fees to prove they are fund assets.

If the fund members are changed, you will need to change the trustees, and if you change the trustees, you need to change the ownership of all the assets. This will be a major administrative burden, as a lawyer will need to be engaged to do the necessary documentation to change the trustees and is required to be engaged if real estate is involved. In most instances, simply changing trustees and ownership of the assets will cost far more in the long run than the initial investment costs of setting up a corporate trustee.

Compliance Concerns

People always make mistakes, but with SMSFs, mistakes can create breaches of the law. If you have all of the assets in a special purpose company name, there is less chance that you will make the mistake of thinking that a particular fund asset (such as a bank account) will be your own asset. If you take money from the super fund account by mistake, thinking it is your own money, the auditor may report a breach. If you deposit money into your SMSF account, which is yours and not the fund’s, you may not be able to take that money back if the mistake isn’t realised in time. While price-wise, individual trustees may seem advantageous at first glance, companies as trustees possess more benefits over individual trustees.

Do you already own a company, and after reading this article, are you asking yourself if you can use that to set up a corporate trustee? It is only recommended that you do so if the company is not operating in any other capacity, but yes, doing so can save on the initial set-up costs.

There is no one size fits all advice we can give you, but we can try to determine what would best suit your needs. We may sit down with you and agree that individual trustees may be appropriate, but if our recommendation is for a corporate trustee, it is for sound financial reasoning.

Posted on 7 August '22 by , under super. No Comments.

Superannuation & Divorce: The Split Of Assets Isn’t Always 50/50…

Were you aware that if you were to split up with your current partner, you may be able to file a legal claim for up to half your superannuation (under certain circumstances?

In all states (bar Western Australia), you don’t need to be married, have kids or even own a house together for your super to be split in a relationship breakdown. The superannuation of both partners is included in the pool of assets to be divided upon the separation.

According to the Federal Attorney General’s website, superannuation can be split either by:

  • an order of the Federal Circuit and Family Court of Australia (or Family Court of Western Australia for married couples in Western Australia); or
  • a superannuation agreement (a financial agreement that deals with a superannuation interest).

The Family Law Act 1975 gives the Family Court the power to deal with the superannuation interests of spouses (including de facto spouses). Superannuation cannot be taken as a cash payment and is usually rolled over to the recipient’s own superannuation account.

These laws were designed to tackle the longstanding issue where one person in a relationship – usually a woman – would have a tiny amount of super relative to her partner.

You don’t have to be married to potentially split your assets.

It applies if you have a child together or have been in a de facto relationship for at least two years. The definition of a de facto relationship under section 4AA of the Family Law Act 1975 is based on whether you were living together in a genuine domestic relationship.

Remember that any split isn’t necessarily half-half. You can enter into an agreement without going to court, but if you do end up in court, the judge will take into account the relevant circumstances including whether you have kids, direct and indirect financial contributions to the relationship, and the ongoing needs of each party.

Posted on 2 August '22 by , under super. No Comments.

Your Employees, Their Super: What Do You Have To Do?

It is your responsibility as an employer to set up your business to pay super into your eligible employees’ chosen super funds or their stapled super fund where no choice has been made.

If your employee hasn’t made a choice and doesn’t have a stapled super fund, you can contribute their super to your default super fund.

What you need to do:

  • Select your default super fund.
  • Offer employees a choice of super fund and keep records that show you’ve done this.
  • Request your employee’s stapled super fund details if they do not make a choice
  • Provide employees’ TFNs to their funds.
  • Set up your systems to pay super contributions electronically to the right fund.

If you pay extra super for an employee:

  • under a salary sacrifice agreement, you must set up the arrangement for the employees’ future earnings, document the arrangement and use a complying fund.
  • you must report the amounts being made to the employee’s fund.

Salary Sacrifice Agreements

To create an effective salary sacrifice arrangement, you must:

  • set up the arrangement for employees’ future earnings
  • document the arrangement
  • use a complying fund.
Set Up The Arrangement For Employees’ Future Earnings

The arrangement must be set up for your employee’s future earnings. It can’t include previously earned or accrued:

  • salary, wages or entitlements
  • annual or long service leave.
Document The Arrangement

You and your employee must prepare and sign a document that states the terms of the salary sacrifice arrangement. If you don’t have this documentation, it may be difficult to establish the facts of your arrangement.

Employees can renegotiate the arrangement at any time, within the terms of their employment contract or industrial agreement. If your employee has a renewable contract, you can renegotiate the salary sacrifice amount before the start of each renewal.

Use A Complying Fund

The salary sacrifice amount must be contributed to a complying fund for the period of the arrangement.

Contributions can’t be accessed until the employee satisfies a condition of release, such as reaching retirement age.

Report The Amounts

Reportable employer super contributions (RESC) are not included in your employee’s assessable income. They do not affect the way you calculate super contributions for your employees.

The following employer super contributions are reportable:

  • additional contributions as part of an employee’s individual salary package
  • additional contributions under a salary sacrifice arrangement
  • pre-tax amounts paid to an employee’s super fund at the employee’s direction, such as directing an annual bonus into super.

You must report extra contributions if:

  • your employee can influence the rate or amount of super you contribute for them; and
  • the contributions are in addition to the compulsory contributions you must make under
    • super guarantee
    • a collectively negotiated industrial agreement
    • the rules of a super fund
    • federal, state or territory law.

The extra contributions are reportable super contributions for employees unless you show that:

  • the extra contributions are made for administrative simplicity
  • a documented policy is in place that does not allow an employee to influence the contributions you make on their behalf.

Posted on 17 July '22 by , under super. No Comments.

Women’s Average Superannuation Balance Likely To Be 28% Less Than Men

As women approach retirement, a lifetime of gender inequality can often come into sharp focus. Particularly so when that focus is on superannuation.

Some of the causes of the super gender gap include:

  • Unequal pay – while the increase to the national minimum wage is a step in the right direction, women in full-time work earn 8 per cent less than men and are more likely to undertake casual or part-time roles.
  • Breaks from work for unpaid caring duties – As opposed to their male counterparts, women are more likely to take time off to care for a family member or to reduce their work hours due to parenting responsibilities.
  • Childcare costs
  • Maternity leave – the lack of superannuation paid onto maternity leave currently leaves women on the back foot when it comes to superannuation

Gender gaps can affect superannuation accounts as much as they can affect salary rates. With barriers to entering into fields, low hourly rates of pay in industries predominantly worked by women, less hours worked and more unpaid labour affecting the amount of super Australian women are retiring with, as compared to men.

This gender gap in superannuation balances can be impacted even more by women using maternity leave. With women taking their time off from work and losing out on super contributions during this period of paid parental leave, it can affect their super in the long run as it exacerbates the income and superannuation gaps that were already in effect during their employment.

It can also be exacerbated by existing salary gaps across the workforce. Despite traditionally male-dominated fields experiencing high percentages of female graduates entering the workforce, the positions that they fill are not always high-ranked, irrespective of experience.

There are three proposed measures with regard to how the superannuation gap could be addressed at a macro level. These include:

  • Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women and it is a leading cause of the gap exacerbation.
  • allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is having a negative impact on women’s superannuation outcomes, so the policy needs to be changed accordingly.
  • Amending the Sex Discrimination Act to ensure employers are able to make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred:

  • Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
  • Salary-sacrificing contributions into their super to make up for the shortfall from not working in the previous year.

If you are concerned about how your superannuation is performing or looking for more information, consulting with a professional is the best course of action.

Posted on 12 July '22 by , under super. No Comments.

Mortgage Debt & Superannuation – An Unlikely Pair?

A relationship has been established around superannuation and mortgage debt that could impact the stability of your retirement.

As prospective Australian retirees approach their preservation ages and retirement, those who are yet to own their own homes may struggle to maintain a comfortable retirement. Retirement plans often work out a prospective financial situation, and assume that an owned home is an already existing asset.

Housing is quickly becoming a critical aspect of retirement, alongside the pension, super and voluntary savings as the main means of ensuring a comfortable retirement for future retirees.

Mortgage debt and the threat of continued payments to pay it off is something that workers must now take into consideration when looking into their retirement, as Australians struggle to pay off their homes. Can it be paid off without the extra income earned from their work?

As more and more Australians retire with healthy superannuation balances, the allure of using that money to pay down a mortgage is strong.

Factors that may be affecting retiree’s mortgage debts could include:

  • Higher property prices (now ten times the average wage as compared with three or four times two decades ago).
  • A delayed entry into the property market as they save for a deposit, leaving fewer working years to pay off the loan.
  • Relatively low-interest rates – currently, every dollar used to pay down a mortgage is saving less than 3% on interest, while in superannuation that same dollar has the potential to return 7 or 8 per cent.

Paying down a mortgage is a growing problem for retirees who are increasingly leaving the workforce with mortgage debt, which is far from the norm among middle-income Australians as recent as a decade ago. Among retirees, homeowners in the years prior to retirement (ages 55-64) had dropped from 72% in 1995 to 42% in 2015-16.

However, those who began their working careers prior to the 1990s face another challenge as they move closer to their preservation age; the superannuation guarantee was only introduced in 1992, which means that many may have accumulated less superannuation than other generations after.

It is understandable that for those approaching retirement, preferencing super over mortgage could seem like a logical move, as the extra funds generated can be diverted back into property on retirement. Using superannuation to pay a mortgage can make some tax sense – in an assets test for the Age Pension, a primary residence is exempt while superannuation is not.

This may become a more common approach for retirees and those looking to retire within the next few years. However, you should consider what the best approach is for your situation, and whether paying off the mortgage with your super is worth it in the long run. Consulting with a professional before taking any action should be your first step in this process.

Posted on 26 June '22 by , under super. No Comments.

$450 Threshold Requirement Being Removed From Superannuation Guarantee This July

Employees will no longer need to meet the monthly minimum income threshold of $450 to receive superannuation guarantee payments from their employers from the 1st of July 2022.

At this point in time, employers are not required to pay super guarantee payments to their employees if they have not earned $450 per month. It does not matter if employees are working for multiple employers – if they have not earned $450 per month from a single employer, they are still not eligible for superannuation guarantee payments.

For those employees working in lower-income jobs or in part-time or casual employment who may not reach that minimum income threshold, this has meant that they have been missing out on critical payments to their superannuation. With a significant portion of these workers being women, it has also been a contributing factor to the widening ‘gender gap’ in superannuation.

Next month’s removal of the minimum income threshold means that these employees will now be able to accrue super through the payments made by their employer and help address a long-term equity issue that had been in place in superannuation for years.

These changes should come into effect by the 1st of July 2022 and, though they may not necessarily improve the retirement outcomes of individuals, the savings resulting from these payments into super will be boosted and all workers will as a result be provided with superannuation coverage, regardless of whether or not they earn more than $450.

If you are an employer who did not have to pay super guarantee payments to your employees and will need to do so starting next month, you can find out your compliance requirements by speaking with your trusted adviser.

Posted on 21 June '22 by , under super. No Comments.

What Happens If I Can’t Make A Decision About Financial Matters?

As you grow older, your aim may be to live a long, happy and healthy life. This is hopefully with the mental capacity to make your own financial and lifestyle decisions, and the appropriate superannuation to fund it.

But not everyone is always able to do this as they grow older. In the worst-case scenario, you may find yourself unable to make those choices yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). If you can’t make your financial decisions, this could be bad.

There is often a misconception that people who lose their capacity to make, for example, financial decisions will simply be able to have their partner or spouse step in to make those decisions on their behalf. This is not the case.

Even if you are in a relationship with someone or own property jointly with them, they do not automatically have the power to make those financial decisions for you. This is where estate planning comes into play.

An estate plan records what you want to be done with your assets after your death. It can include documents such as:

  • your will
  • a testamentary trust (as part of your will)
  • superannuation binding nominations

It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:

  • any powers of attorney
  • a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
  • an advance healthcare directive (your needs, values and preferences for your future care)

You may also choose to create an Enduring Power Of Attorney, which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).

The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.

Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. Doing research and consulting with us about what your course of action could be if you were to lose your mental capacity for financial decisions could be a great start.

Posted on 5 June '22 by , under super. No Comments.

Superannuation & The Election Results – What Does It Mean For Your Fund?

First and foremost, Labor has announced that it will not overhaul a “tsunami” of changes to superannuation.  This is good news as change only undermines confidence in the existing system.

Labor is the author of our current superannuation system though significant changes to it have also been made by different Liberal governments.  It was the Gillard government that decided to increase the superannuation guarantee rate to 12% but this process was stalled because of the Global Financial Crisis.

Labor is committed to the current program to increase the rate of Super Guarantee up to 12% by 2025 but has stated that it intends to establish a pathway to increase that rate up to 15%.

Labor has stated that it wants to reform the super guarantee so that it applies to low-income contractors.

The Superannuation Guarantee already applies to many contractors. Any change to therefore increase the rate of payment to a contractor by 10.5% may be met with a corresponding reduction to their payments of 10.5% by their employers, as contractors do not have the protection of a minimum wage like other workers.  This policy will likely require some consideration and detailed drafting to ensure that it is not abused.

In the 2019 election, one of the policies committed to by Labour was paying super on paid parental leave. This policy has since been effectively dropped. The party does still have the aim of reducing the gender gap currently existing in the superannuation system. At this point, it is unknown what the plan is to address this gender gap until the minister instructs Treasury to come up with a plan. It has also been announced that this may not be something that can be achieved in their first term.

Both Liberal & Labor had also announced that the age would be lowered for making downsizer contributions from the current age of 60 to be 55.  This is seen as a measure to increase the supply of inner-city housing by encouraging the downsizing of retirees’ homes.

If you have any questions about how your superannuation could be impacted in the post-election policy-making process, you can speak with a licensed professional for further information.

Posted on 2 June '22 by , under super. No Comments.

Individual Or Corporate Trustee? Single Or Multiple Member Fund? What Works For Your SMSF?

The way in which a self-managed super fund is structured could change its legal compliance requirements. If you are in the process of setting up an SMSF, you will need to make a decision about how to structure it appropriately to suit. 

An SMSF can be structured as a single-member fund or a multiple-member fund, with the trustees of those funds deemed as either to be individual trustees or a corporate trustee

Examining the circumstances of your members could help to narrow down the structure that will be best suited. You can also work out from the requirements of each structure whether or not a fund structure would be suitable for the needs of your members. 

Individual Trustees

Individual trustees in a single-member fund will have two trustees within the fund. One trustee must be the fund member, but cannot be the other trustee’s employee (unless they are also relatives). An example of a single member trust fund structure could be a family super fund, where the members are trustees for the fund.

Individual trustees in a multiple-member fund structure generally have between two to six members. Each fund member must be a trustee and each trustee must be a fund member. Like the single-member fund, members of this fund structure cannot be the employee of another member (unless they are relatives). 

SMSFs that use individual trustees or are looking to use individual trustees in their structure may benefit from the following: 

  • The fund can be cheaper to establish, as a separate company does not need to be set up to act as a trustee.
  • Trustees must follow the rules in the fund’s trust deed, the super laws and the tax laws.
  • There are fewer reporting obligations which means it can be easier to administer, however, changing trustees can mean more paperwork and administrative costs. .
  • Another trustee must be appointed if your fund only has two trustees and one leaves or dies to continue operating as an SMSF, or it must change to a corporate trustee structure. If the trustees change, you need to notify the ATO within 28 days.
  • Fund assets must be held in the name of the fund or the names of the individual trustees, “as trustees for” the fund. If the trustees change, the name in each asset’s ownership document must be changed as well, which can be time-consuming and costly.

Corporate Trustees

SMSFs that are set up using corporate trustees, typically set up a business or company to act as a trustee. The members within these kinds of funds are known as directors and will need to apply for a director identification number as such.

Corporate trustees within a single-member fund structure may have one or two directors, but one of those directors must be the fund member. If there are two directors, the member cannot be the other director’s employer (unless they are relatives).

Corporate trustees within a multiple-member fund structure generally number between two to six members, with each fund member also being a director. A member cannot be the employee of another member (unless they are relatives). An example of a corporate trustee SMSF could be a business acting as the trustee for a super fund, where the members are also directors of the fund. 

SMSFs that use corporate trustees or are looking to use corporate trustees in their structure may benefit from the following: 

  • A company must be set up to act as the corporate trustee, for which ASIC will charge a fee to register them as a corporate trustee and an annual review fee.
  • Directors must follow the rules in the fund’s trust deed, the super laws, the tax laws, the company’s constitution and the Corporations Act 2001.
  • Company directors, including directors of an SMSF corporate trustee, will need to obtain a director identification number. 
  • There are some extra reporting obligations to ASIC but it can be easier to administer the ownership of fund assets and to keep fund assets separate from any personal or business assets.
  • The corporate trustee does not change if a director leaves or dies, as it can operate with just one director. However, you will need to notify the ATO and ASIC within 28 days if the directors change.
  • Fund assets must be held in the name of the fund or the names of the company, “as trustee for” the fund. If the directors change, the corporate trustee does not change so the titles of the fund assets are unchanged. 

The setup of an SMSF can be a complicated process. You may benefit from speaking with a professional assisting you in its preparation and establishment. Choose someone who is qualified, registered and licensed, and right for you and your circumstances. 

Posted on 16 May '22 by , under super. No Comments.

Retirement Planning Scheme Could Have Severe Consequences For Those Involved

With a significant number of Australians approaching retirement and looking at the best ways to maximise their retirement assets and income from their super for it, retirement planning makes sense. 

Unfortunately, there are those who want to target people approaching and planning for their retirement with schemes designed to ‘help’ retirees and prospective retirees avoid paying tax by channelling their income through a self-managed super fund. 

Retirement planning schemes are designed to help people avoid paying tax on the income earned through their assets (often in an illegal manner). Those schemes may seem like a simple get-rich-quick solution in maximising assets and income for retirement but can put people’s entire retirement savings at risk. 

Anyone can fall prey to a retirement planning scheme. Anyone who is looking to put significant amounts of money into superannuation can be at risk of being ensnared, particularly those who are over 50, and who are:

  • SMSF trustees
  • Self-funded retirees 
  • Small business owners
  • Professional service providers
  • Individuals who are involved in property investment 

Checking for standard features of retirement planning schemes can be an excellent way to avoid becoming tangled in one. Retirement planning schemes usually: 

  • Are artificially contrived and complex, with SMSF members often targeted and encouraged to use their SMSF as part of the scheme
  • Involve a lot of paper shuffling
  • Are designed to leave the taxpayer with a minimal or zero tax, or even a tax refund
  • Aim to give a present-day tax benefit by adopting the arrangement 
  • Sound too good to be true – and in most cases, they are. 

Currently, there are a number of schemes targeted toward those individuals who currently have an SMSF, as they have a high level of control and autonomy in the way that their retirement savings are invested (subject to applicable tax and super laws).

Some examples of retirement planning schemes include:

  • Some arrangements involving SMSFs and related-party property development ventures.
  • Refund of excess non-concessional contributions to reduce taxable components
  • Granting legal life interest over a commercial property to SMSFs
  • Dividend stripping
  • Non-arm’s length limited recourse borrowing arrangements
  • Personal services income
  • Liquidating an SMSF

To avoid becoming a part of a retirement planning scheme, seek professional advice on super or SMSFs from a specialised accountant. You can also: 

  • Seek professional advice from a reputable source, such as a financial planner, adviser or accountant with proven professional qualifications and/or certifications.

Posted on 10 May '22 by , under super. No Comments.