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How to select a default fund for your business

Business owners might be required to select a default fund for employees when they do not want to nominate their own superannuation funds. Funds should meet specific requirements that are stated as per super law, so it is important to select a complying fund. However, there are other factors that you may have to think about before selecting a default fund to make sure that you and your employees get the most out of it.

Pricing
Naturally, one of the main considerations while selecting a super fund should be pricing. Funds that have a lower fee may not cover extras, and this requires careful analysis to see what extras have been left out. Coverage for extras like being able to track down missing super is a key feature that employees will prefer your default fund has.

Employee preferences
Employees are likely to prefer funds that allow flexibility with their investment options and have essential features like insurance policies covering death, total and permanent disability (TPD), and income protection. You may want to consider options that give your employees a comprehensive cover while keeping an eye out for any exclusions that might affect you.

Industry fund
Checking industry funds may help reveal awards that are particularly applicable to employees from your industry. It is a requirement that your default fund is a MySuper product. All listings under Industry SuperFunds are MySuper products, so this can simplify the process of finding an affordable super fund for your employees.

Fund management
Finally, consider taking a closer look at the fund’s insurance offerings. Past performance of the fund doesn’t guarantee high returns in the future. But it is important to be aware of the returns on the fund’s investments to compare how their options have performed against their return objectives. This can increase the chances that the selected super fund will be beneficial to you and your employees.

Posted on 7 August '20, under super. No Comments.

How to avoid SMSF disputes

Self-managed super funds (SMSF) can be vulnerable to disputes, especially when family members are involved.

SMSF disputes may be caused by a number of reasons such as relationship breakdowns, (common in funds where parents and siblings are in a member and trustee relationship) and fundamental differences in opinions. Other common triggers for SMSF disputes include:

Consider the following methods to avoid SMSF disputes.

Clear decision-making procedures
Disagreements are bound to occur when it comes to money, so it is important to include concise decision-making provisions to keep things fair for all parties involved. For example, trustee decisions can be made by a simple majority rather than unanimously, and a particular trustee may be provided a casting vote in the case that a deadlock occurs. Provisions could also include voting rights that are based on the value of a member’s account balance within the SMSF to avoid situations where a member with minority interest out-votes a member with a large fund account balance.

Updating your SMSF regularly
An SMSF trust deed will provide provisions which determine the trustees’ rights, obligations and options. It is important to keep your SMSF and trustee information up to date to prevent any unwanted beneficiaries and claims. For example, in the case of an unfinalized divorce or legally unchanged relationship status, a former spouse can claim the others’ superannuation death benefits. To prevent such situations and avoid their inevitable disputes, be sure to update your super fund regularly.

Posted on 30 July '20, under super. No Comments.

What circumstances permit early access to your super?

Early access to your superannuation is permitted under a few limited circumstances outlined by the ATO. In the case that you are experiencing financial struggle and would like to withdraw from your super, be aware of the particular circumstances that will allow you to do so.

Compassionate grounds:

Withdrawing super on compassionate grounds is permitted in the event that you need money to pay for:

Severe financial hardship:

You can also be permitted access to your superannuation due to severe financial hardship. However, when requesting withdrawals under severe financial hardship, individuals need to contact their super provider for access rather than the ATO.

Both of the following conditions must be met for you to be eligible to withdraw some of your super:

Superannuation that is withdrawn due to severe financial hardship is taxed as a super lump sum. You can withdraw up to $10,000 from your superannuation (minimum of $1,000) and in the case that you have less than $1,000 in your super funds, you can withdraw up to your remaining balance after tax.

Terminal medical condition:

You may be eligible to request access to your super (approval by your super fund) in the event that you have a terminal medical condition and all the below conditions are met:

Temporary incapacity:

Those who are temporarily unable to work as a result of physical or mental medical conditions may be eligible for early access to superannuation. Access is dependent on the insurance benefits linked to your super account. Any withdrawals you receive are taxed (with regular rates) as a super income stream.

Permanent incapacity:

Permanent incapacity, also known as disability super benefit, allows for early access to super in the case that a permanent physical or mental condition is likely to stop you from ever working again, in a job you were previously qualified for.

Individuals can choose to receive permanent incapacity super withdrawals as regular payments (income stream) or as a lump sum. Unlike temporary incapacity, permanent incapacity super withdrawals are subject to different tax components, based on:

To receive concessional tax treatment, your permanent incapacity must be certified by least two medical practitioners.

Keep in mind that the ATO has also announced a new set of rules for the early release of superannuation due to COVID-19. Individuals who have been adversely affected by the pandemic may be eligible to access some of their superannuation early.

Posted on 23 July '20, under super. No Comments.

Tax-deductible super contributions

Individuals may be able to claim tax deductions for personal superannuation contributions they make. Personal super contributions are made after-tax, not to be confused with the pre-tax contributions made by employers. This includes contributions made using inheritance money, savings, proceeds from the sale of assets, or from a bank account directly into a super fund. To be eligible, individuals must receive their income from:

A valid notice of intent to claim or vary a deduction must be provided to and acknowledged by your super fund before being able to claim a deduction for personal super contributions.

A valid notice may be:

Deductions claimed for a super contribution will result in the contribution being subject to 15% tax in the fund. As well as this, after-tax contributions that have been successfully claimed will not be eligible for a super co-contribution from the government.

Individuals who are eligible to contribute to super will be able to claim a deduction, however, some age restrictions may apply. Those aged 65 or over must meet a work test before voluntary super contributions can be made, while those under 18 years of age may only be able to claim a deduction if they have earned income as an employee or business operator during the year.

Individuals claiming deductions for their personal contributions should also keep in mind that their contributions will count towards their concessional contributions cap of $25,000 a year. Penalties may apply if this amount is exceeded.

Posted on 16 July '20, under super. No Comments.

Tax on super death benefits for dependants vs non-dependants

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).

Posted on 9 July '20, under super. No Comments.

Do you need to lodge a transfer balance account report?

Self-managed super funds (SMSF) may be required to lodge a transfer balance account (TBA) report by 28 July 2020 in the case of a TBA event.

A TBA report will need to be lodged with the ATO in the event that both of the following apply:

SMSFs will also need to complete this report when a member needs to correct information about a TBA event that they have previously reported to the ATO or are responding to a commutation authority.

According to the ATO, an event is classified as a TBA event if they result in credit or debit in a member’s transfer balance account. Such events include:

There are a number of ways you can lodge your TBA report with the ATO:

Posted on 2 July '20, under super. No Comments.

Carrying on a business in an SMSF

Self-managed super funds can carry on a business providing the business is allowed under the trust deed and operated for the sole purpose of providing retirement benefits for fund members.

Carrying on a business through an SMSF does have restrictions that other businesses do not have, such as entering into credit arrangements or having overdrafts.

SMSF trustees that carry on a business through their fund must adhere to the sole purpose test. The ATO looks for cases where:

The same regulatory provisions still apply to funds that carry on a business, i.e, SMSF investments must be made on a commercial ‘arm’s length’ basis, business activities must be conducted in accordance with the SMSF’s investment strategy, collectables and personal use assets cannot be displayed at the business premises and so on.

The SMSF cannot be involved in the following business activities:

Posted on 25 June '20, under super. No Comments.

How to transfer a business property into your SMSF

Employers with a self-managed super fund (SMSF) looking to protect their business assets can consider transferring their business real property into their SMSF.

Transferring business property into your SMSF is useful to protect your assets in the event of your business failing or facing litigation. It is possible for SMSF members to transfer business real property (land and buildings used exclusively for the business) to their SMSF by using a combination of methods.

In-species transfer
An in-species transfer in the context of a business property refers to the ownership transfer of a property from one entity to another without the need to convert it into cash. During an in-species transfer, the value of the property is considered a contribution to your SMSF and is restricted by CGT regulations and contribution caps.

Cashing in your SMSF
You can use the cash available in your SMSF to buy your business property at market value as a normal cash purchase. The property must first be valued by an independent and qualified party before this is allowable. SMSFs that do not have enough sufficient capital to do this may consider using their non-concessional contributions cap to cover the outstanding balance.

Limited recourse borrowing arrangement (LRBA)
In the event that you do not have enough cash in your SMSF to outright buy your business property, you can apply for a loan using an LRBA. An LRBA can be obtained through a third-party lender, including your own business. You can borrow funds for your SMSF under an LRBA from your own business. However, before applying for an LRBA, consider its legal complexities and whether your SMSF will be able to maintain loan repayment fees on top of existing fees you may have, such as member pensions and accounting and auditor fees.

CGT retirement concession
The CGT retirement concession allows business owners exemption from CGT on business assets up to $500, 000 over a lifetime. If you are over 55, there are no associated conditions, however, if you are under 55, then you must place the money into a superannuation fund to receive the exemption.

This means that if you are under 55 and wishing to transfer a business real property into your SMSF, you can potentially do so without incurring any CGT liability (up to $500, 000).

Posted on 18 June '20, under super. No Comments.

Divorce and splitting your SMSF assets

Running an SMSF under regular circumstances comes with enough compliance obligations as it is. Adding divorce or separation into the equation can raise even more legal and tax issues that need to be addressed.

The breakdown of your relationship does not absolve you from your responsibilities as an SMSF trustee; you are still expected to continue acting in accordance with super laws and in the interests of all members. As a trustee, you must:

When it comes to dividing SMSF assets, separating couples can transfer assets, such as property, from one SMSF fund into another. During this process it is important to consider:

Posted on 11 June '20, under super. No Comments.

SMSF property investment regulations to keep in mind

Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.

To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:

Also keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.

In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.

Posted on 2 June '20, under super. No Comments.

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