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SMSF Superannuation

CONCORD TAX WILL HELP YOU THROUGH THE SUPER MAZE
5 REASONS TO SET UP A SUPER FUND

 

1. Take charge of your Super with a SMSF Superfund

Get total control of your Super with a SMSF Superfund.  Choose where you invest your Super savings. Are you happy with the performance of your existing super fund?  Could you achieve a better result managing your own investments, or are you looking for the safety of bank term deposits.

You become the master when you choose to establish and manage your own SMSF superfund.  You can then choose to invest in a wide range of investments. For example, with an SMSF superfund, you can invest in Term Deposits, Australian & International Shares, Residential & Commercial Property.

2. Managing your Fees

Many super funds and managers charge a flat fee of 1% or 2% which doesn’t sound much.  1% of $300,000 of a super balance is $3,000 per year which is quite substantial.  Concord Tax – Kirwan provides a quality service for a reasonable fee in taking care of the compliance of your own fund.

3. How many members can join your fund?

You can choose to be the only member of the fund or you can choose to include up to three other members.  Four members can reduce further the cost of the fund per person.

4. The advantages in Retirement

The Retail and Industry Funds will have you choose either a Pension or an Accumulation Account. When you wish to start taking your Super Benefit as a Pension your Super Benefit will need to be transferred to a separate Pension Account and any additional contributions you make will be added to a completely separate Accumulation Account.

An SMSF is a Pension and Accumulation Funds in one. You can commence a Pension and continue contributing to the same SMSF. There is no need to split your Super Benefit into multiple Funds.

5. Contribute Assets to the SMSF

You can make contributions such as Investment Properties, Shares, and Managed Funds, into your SMSF superfund .  These specie transfers allow you to consolidate your Family Assets in a tax advantaged way. There are some taxation and capital gains tax issues which you need to consider prior to entering this type of strategy.

GRAHAM CASE HELP YOU MANAGE YOUR OWN SMSF

3 REASONS TO INVEST IN PROPERTY

 

1. Spread your investment assets

A key benefit of a SMSF superfund is that it offers a wider range of investment options than traditional super funds – including direct property. By spreading your savings across asset types, you reduce risk while still investing for growth.

2. Grow your savings faster

An SMSF superfund can borrow to invest in residential or commercial property, with lenders typically funding up to 70% or 80% of the purchase price. So you can take advantage of low interest rates to build a bigger portfolio now, and potentially earn more income and capital growth in the future. As long as your returns outpace borrowing costs, you’ll come out ahead.

3. Use negative gearing to save on tax

SMSFs can use negative gearing to claim a deduction for interest and other borrowing expenses. Rental income earned by your SMSF is generally taxed at  15%. When you commence a pension in your SMSF, then the rent you receive is tax free.  More importantly after commencing a Pension, the capital gain on selling the Property is also tax free!

There are some provisos

You need to remember some special rules relating to property investment in SMSF’s.

1. Remember the sole purpose test

You can’t invest in your own home or even a holiday home.  The reason for this is that your SMSF is to be used solely for providing for your retirement.

2. SMSF’s use a special type of loan for property investment

A limited recourse loan  is the only way an SMSF can borrow.  This means if something goes wrong only the investment property is at risk.

3. Check your investment strategy.

Every SMSF must have an investment strategy and your investments must comply with your strategy.

4. Stay clear of any related party transactions.

You may not buy, sell or rent a residential property to or from a fund member, trustee or a relative in a SMSF, that includes your own home or a holiday home.  You can buy a commercial property and rent it back to your own business.

The normal income tax rate of a complying self-managed superannuation fund is 15% of its taxable income which will also specifically include:

  • assessable contributions – essentially those which for which a tax deduction is claimable
  • investment earnings – dividends, interest and rent
  • capital gains

Certain types of income are basically taxed at penalty rates, at a rate which matches the top marginal rate on the personal income tax scale.

Higher rates are applicable to:

  • non-arms length income and earnings of a non-complying fund – 45%
  • contributions without quotation of a tax file number – 47%
  • contributions above the allowable caps – subject to corrective withdrawals when allowed  – 47%

Income that a complying SMSF earns from assets which provide a eligible income stream (pension) entitlement is exempt from income tax.

Complying SMSFs are entitled to a capital gains discount of one-third in respect of assets which had been owned for at least 12 months. The capital gain is reduced by 1/3rd when calculating taxable income.

When the normal tax rate of 15% for a complying fund is taken into account,  a 1/3rd discount effectively reduces the nominal tax rate on capital gains to 10%.

Allowable capital losses – both current year and past years – are deducted from current year capital gains before applying the discount.

SMSFs are subject to the general rules which require registration if GST turnover exceeds the turnover limit which is currently $75,000.

Otherwise GST registration (and therefore access to GST credits) is optional, and whether it is worth doing so should be weighed up against the expected value of GST credits claimable as against the additional reporting and administration involved.

The value of GST credits will be limited due to the input-taxed nature of most investment income, giving rise to a nil or reduced credit.

Here are some of the things on the ATO radar at present.  You should watch out for things like these.

Holidays, housing benefits or cosmetic surger.

Illegal early release

Dividend stripping

Inexplicable changes in value of SMSF assets or income

Cold callS from promoter, SMSF established and then invested in certain investments

Related party investments or transactions entered into on non-commercial terms

Limited recourse borrowing arrangements that are not structured correctly
 
 
 

When I ask the business owners I work with, “How are things going?”, they will often reply, “Okay”, or “Good”.  I will often reply, “Compared to what?”.  They will often scratch their heads.

A business needs to know how it is performing as compared with others in the same industry.  This is called benchmarking.  How are you performing in comparison with your peers.  Ask your accountant/business advisor to benchmark your business.

This will give you invaluable insight into where you are doing great and where you can improve.

It’s a legal requirement for you to keep records of your business transactions for a minimum of five years, so it’s important that you have good record-keeping practices in place. The records you must keep include all documents relating to your income and expenditure.

Keeping good records makes paying your taxation and other business transactions much easier and helps you to monitor how your business is going.

You also need to keep other important papers, legal documents, and contracts in a safe place, so make sure to set up a filing system for easy retrieval.

One of the first things you need to find out when you’re starting out is what laws apply to your new business. As a small business owner, you’ll know that being legally compliant relies on being aware of rules and regulations. You may wish to consult a legal professional to help you with all the legal requirements that you must comply with, such as licences and registrations, contracts and leases.

 

BUSINESS REGISTRATIONS

All business owners in Australia have to register before commencing any business activities. As well as registering a business name, there are a variety of taxes that can impact on your business that you may be required to register for. These may include:

  • an Australian Business Number (ABN)
  • the Goods and Services Tax (GST)
  • a Tax File Number (TFN)
  • Pay as you go (PAYG) withholding.

LICENCES.

If you operate a business, it’s likely you’ll need certain licences to make sure you’re complying with your legal obligations.

The licence or permit you require may depend on the product or service you’re selling. You’ll need to find out whether there’s a licensing requirement for your particular business, or you may face fines or other difficulties.

Businesses selling products for consumption as food, for example, could need a Food Business Licence. However, there may be other licenses that aren’t so obvious, so it’s best to do some research into this area. Licenses and permits can vary from state to territory, so it’s best to find out this information from your local, state/territory, or federal government, to ensure you’re doing the right thing.

PRIVACY ACT

A new set of privacy principles was introduced in March 2014. The principles cover how a business handles personal information, including the:

  • handling and processing of personal information
  • use of personal information for direct marketing purposes
  • disclosing of personal information to people overseas.

Find out your Privacy Act 1988 obligations from the Office of the Australian Information Commissioner External Site

ANTI-BULLYING LAWS

People who believe they’re being bullied in the workplace can apply to the Fair Work Commission External Site for help in resolving the issue.

Bullying occurs when a person or group of people, repeatedly behave unreasonably towards a worker. The behaviour also has to be deemed a risk to the worker’s health or safety. Read our Employing people topic for more information.

INDEPENDANT CONTRACTORS

Independent contractors are self-employed and provide a service to a business.

They often negotiate their own payments and working arrangements, and have the opportunity to work for a range of clients at any given time.

Before entering into a contract, you’ll need to determine whether someone is classified as an independent contractor. Their status will affect their rights and obligations. It’s possible for someone to be an employee for some work and an independent contractor for other work.

You also need to remember that it’s illegal to fire, or threaten to fire, an employee if they don’t agree to become a contractor.

It’s important to know whether you’re hiring an independent contractor or an employee, so you can be sure you’re complying with your legal obligations.

UNFAIR DISMISSAL

Small businesses have different laws compared with larger businesses when it comes to unfair dismissal. Most small businesses (those with fewer than 15 employees) will fall under the Small Business Fair Dismissal Code External Site.

If you are planning to terminate an employee, it’s important you follow the rules outlined in the Code.

If you’d like to start a business in Australia, but you’re not an Australian citizen or permanent resident, you should know:

 

  • how to get the right visa
  • the legal and government requirements that apply to Australian businesses.

We’ve put together this news article to help you work out the basics and point you in the right direction for the information you need.

Business visas

The Department of Immigration and Border Protection (DIBP) is responsible for Australian business visas.

Business Innovation and Investment visas

If you have business skills and want to set up and manage a new or existing business in Australia, take a look at the Provisional Business Innovation and Investment visas External Site.

Before you can apply for these visas, you must be nominated by a state or territory government.

Generally, you’ll need to follow these steps:

  1. Submit an expression of interest through DIBP’s SkillSelect External Site online service.
  2. See if a state or territory government decides to invite you to apply for a visa. You can wait for a state or territory government to contact you, or you can contact them directly.
  3. If you receive an invitation, apply for a visa. You’ll need to meet certain requirements and provide documents to support your application.

If you’re granted one of these provisional visas, it will be valid for four years, and you’ll have completed the first step towards getting a Permanent Business Innovation and Investment visa External Site.

Business Talent visas

You may also be eligible for the Permanent Business Talent visa External Site if you:

  • own or part-own an overseas business, have net business and personal assets of at least AUD $1.5 million, and an annual business turnover of at least AUD $3 million, or
  • have obtained at least AUD $1 million in venture capital funding in Australia to develop a high-value business idea.

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