Have you recently seen advertising inviting you to attend a conference or seminar to educate you about self-managed superannuation funds (SMSFs)? Your SMSF pays for the privilege of attending the ‘conference’ in Australia or overseas and you take a holiday as well, all at the fund’s expense.
You might want to think again and seek advice as to whether this is the type of expense your SMSF should be paying and claiming as a tax deduction.
While it may be possible for your SMSF to get a tax deduction for a range of activities, they must be authorised in the first place by your SMSF’s trust deed. Also, for any expense of your SMSF to be tax deductible it must be linked to income earning activities of the fund. No tax deduction is available if the expense is for private or domestic purposes – such as holiday or travel expenses for the trustee which are unrelated to the fund’s income earning activities. When it comes to expenses that an SMSF trustee incurs for the fund, care needs to be taken so that the expenses relate to the fund’s income and not for other purposes which are personal or related to the fund’s exempt income (normally its pension income).
Personal expenses may include part or all of the expenses relating to the trustees attending a conference which has both a personal element (such as sightseeing) and an element that relates to the income earning activities of the fund (a SMSF trustee education course). In cases where the fund pays the personal expenses of the trustees or the expenses are required to be divided between the personal expenses and SMSF income producing expenses there are a number of issues. The first is that the expenses which relate to personal expenses are not tax deductible for the SMSF but there may be wider implications for purposes of complying with the superannuation laws.
The superannuation law considers if the superannuation fund pays for or reimburses members or their relatives for private expenses then it breaches the rule that the SMSF must operate to solely provide retirement benefits for its members. These fund activities can also breach the rule which prohibits SMSF members or their relatives using the resources of the fund for private purposes.
Using the SMSF to pay for private activities in this way exposes the SMSF’s trustees to penalties for breaching the superannuation law. The fund may be at risk of having the SMSF treated as a non-complying superannuation fund resulting in the SMSF losing its essential tax concessions. Also, such a breach could result in the SMSF’s trustees being disqualified as trustees.
Unsure of whether fund expenses are tax deductible?
Marketing hype and fantastic offers can often lure SMSF trustees into making decisions that can impact their fund’s compliance. Before your SMSF ends up paying expenses that may not be tax deductible, seek advice from an SMSF specialist.
If you are considering participating in a conference to educate you on SMSFs that also includes a personal element such as an overseas or local holiday, seek guidance on whether your SMSF is allowed to pay for it. Call me for assistance or arrange a time that we can meet to discuss the impact on your SMSF.
SMSF Loans and Bare Trusts
The Superannuation Industry (Supervision) Act 1993 states, an SMSF can borrow funds to acquire certain types of properties. A Bare Trust deed is used to ensure the proper arrangements are in place for the Super Fund to borrow funds for the acquisition of assets.
In simplified, terms a Limited Recourse Borrowing Arrangement using a Bare Trust structure is set in place to facilitate the purchase of a property using borrowed funds.
Please see our Limited Recourse Borrowing Arrangement page for further details on Bare Trusts & LRBAs. Click here
The information provided is of general nature only and should not be relied upon without seeking legal & financial opinion.We strongly recommend the trustees of super funds obtain independent legal and financial advice as to whether the acquisition of an investment under a limited recourse borrowing arrangement is an appropriate investment for a fund.
Buying Property with your SMSF ~ Co-Ownership
Trustees of SMSFs that wish to own property in their super fund have a variety of different options available to them depending on their particular circumstances.
One of those options is to purchase a property whereby the ownership is shared between the super fund and a related party. A common way to do this is to own the property directly as tenants in common. The super fund and related party each pay for their ownership interest from their own funds and they are then each entitled to that share of income or loss from the property.
Utilising this strategy may allow for the purchase of a property that neither the related party nor the SMSF could purchase on their own and can be useful in certain circumstances. One of the potential drawbacks to this strategy is that the super fund cannot purchase the related party’s share of the property if it is a residential rental property. So, if for some reason the related party wished to sell their portion and the SMSF did not; the SMSF could not buy out the related party unless the property was business real property.
There is another strategy that can be considered which may offer a higher level of flexibility when co-ownership of a property is desired. This strategy involves the use of what is referred to as a 13.22C trust.
As a brief summary, a unit trust is established which meets the conditions of S13.22C and the SMSF and the related party purchase units in it. The property is then purchased by the unit trust with the proceeds it received from the sale of the units. The unit trust receives the rent and pays the expenses in relation to the property and the net income of the trust is distributed to the unit holders according to the number of units held.
There are particular rules and regulations that must be adhered to in order to make this strategy work effectively and remain compliant for SIS purposes, but it is worth considering in certain circumstances.
For a more information about the rules and regulations as well as a practical example in practice please Click Here
6 Important Things to Know about Borrowing in Super ( Limited Recourse Loans )
Are you thinking of purchasing a property in your SMSF by using a Limited Recourse Loan ?
This type of transaction has become more prevalent over recent years due to various amendments to the superannuation law. The decision to borrow within super requires careful consideration as it may not be suitable for your fund but if you’ve decided that it is right for you there are a number of important aspects that you need to be aware of.
Check your trust deed to ensure that it allows for borrowing, the granting of security over assets and the holding of assets in trust on behalf of the fund.
The fund’s investment strategy needs to be reviewed to ensure that it considers the risks, liquidity and diversification aspects of the purchase and the borrowing.
The SMSF, the Custodian (Bare) Trust and the Custodian Trustee must be in existence before the purchase of the property and the Custodian Trustee and SMSF Trustee cannot be the same.
Avoid paying double transfer (stamp) duty. Each state has different rules on stamp duty when the property is transferred from the Bare Trust to the SMSF and the name on the contract is one important consideration. Seek expert legal assistance upfront to avoid an unwanted bill later on.
Make sure that what is being purchased is allowable. The usual rules (and the exceptions) prohibiting the acquisition of assets from members or related parties still apply. The investment must be a single, acquirable asset. Some things that would not qualify are chattels (such as a furniture package), developing a property on a block of land or purchasing a residential property from a related party.
Don’t forget to do your due diligence when choosing the property and the loan.
This is only a brief summary of some of the things to be aware of. Seeking expert assistance at the outset will help to ensure that the arrangement is structured appropriately so that it complies with the relevant legislation and does not entail unwanted costs.
At Green Frog Super we can assist with the establishment of an SMSF with a borrowing structure as well as a deed upgrade if needed. Click here for more information on our documentation service and fee structure.
Disclaimer. In providing this information Green Frog Super is not making any recommendations as to whether the acquisition of an investment under a limited recourse borrowing arrangement is or is not a suitable investment for any particular superannuation fund. We strongly recommend trustees of super funds should obtain independent legal and financial advice as to whether the acquisition of an investment under a limited recourse borrowing arrangement is an appropriate investment for that fund.
ATO set to collect on increased SMSF Supervisory Levy
While your self-managed super fund is busy working towards your retirement, it is also at work funding the Government’s costs to regulate the SMSF sector, and with the recent reforms, it’s about to pay even more.
The Mid-Year Economic and Fiscal Outlook (MYEFO) announced a transitional increase to the annual supervisory levy, changing to $191 in 2012-13 and to $259 from 2013-14 onwards. Along with this increase is a change to ‘bring forward’ the payment, so it is levied and collected in the same year of operation. Lodgement of the SMSF Annual Return will continue to automate the supervisory payment, yet will no longer collect the levy in arrears, i.e. collected at the end of the period in which it applied.
Implementing this timing change will require each SMSF to make a catch-up payment amortised over two years. What this means in practice, is that on lodgement of your 2013 and 2014 annual returns (AR), you will pay the following:
2013 AR: $321 – consisting of the 2013 levy plus 50% of the 2014 year levy (rounded up);
2014 AR: $388 – including the remaining half of the 2014 levy, plus 100% of the 2015 levy.
In effect, payments made in these two financial years will be higher than the nominal levy applicable to each year. From then on, your Fund will pay $259p.a. consisting of 100% of the next year’s levy… provided there are no further increases!
The following visual outlines the timeline of changes expected under the new arrangements
Super Clearing House – Help for Small Businesses
As every small business owner knows, there is no shortage of administrative tasks that take up valuable time and add to the cost of running their business.
The likelihood of having to make payments to multiple super funds for their employer contributions only adds to that administrative burden.
To help with this, the Department of Human Services operates something that is known as the Small Business Superannuation Clearing House. It is a free, online service that enables employers to access a central point where they can make just one payment for all of their employees rather than making payments to multiple funds.
The Clearing House distributes the contributions to the various funds on behalf of the employer and will distribute to all types of super funds, including self-managed superannuation funds (SMSFs).
Who is eligible to use the Clearing House?
It is available for small businesses with fewer than 20 employees. The number of employees includes full-time, part-time and casual staff.
Once registered, the Clearing House monitors your eligibility for the service.
How do you sign up?
Small business owners can visit the site below to register. It takes approximately five minutes to set up and then three to five minutes for each employee. You’ll need to provide your ABN and a contact email address along with information about your employees and their super funds. You can opt out at any time.
How do you make payments?
Once registered, employers will only need to log-on, enter the amounts for each employee and make one electronic funds transfer (EFT) or BPay payment to the Clearing House. Payments can be made as often as the employer wishes; although the required dates of 28 days after the end of the quarter must still be adhered to.
The contribution is deemed to have been made once the payments and instructions for employees are accepted by the Clearing House; not when the fund itself receives the payment.
The employer can make superannuation guarantee (SG) payments, salary sacrificed super contributions and personal (after tax) contributions made on behalf of employees.
Payment history is available on the site and includes a status update on current payments.
Where can I get more information?
For more information, visit the Small Business Superannuation Clearing House Click here
It’s time to review your minimum pension payments for 2013.
As we near the end of the financial year it is worthwhile to review the amount of pension payments that have been withdrawn from your fund this year. You need to ensure that at least the minimum amount will be taken by the 30th of June.
Failure to take the minimum amount can cause the fund to lose the tax exempt status on pension earnings which could be quite costly.
For those funds that we provide daily or quarterly processing for, we are already monitoring this for you and will let you know if additional funds need to be withdrawn.
For more information on how to calculate the minimum payment CLICK HERE.
And, as always ….. if you’d like our assistance, please let us know
On the 7th of August 2012 measures were introduced that affect the investment strategy requirements for self-managed superannuation funds.
These measures are intended to address potential risks and strengthen the regulatory framework in which self-managed super funds (SMSFs) operate.
The measures that affect the investment strategy require the trustee/s to:
conduct a review of the fund’s investment strategy on a regular basis
consider insurance for fund members as part of the fund’s investment strategy
These measures are prescribed operating standards for the fund, which means you must ensure they are complied with at all times.
What this means for trustees:
During each income year from 2012/13, you should review your fund’s investment strategy to ensure that it continues to reflect the purpose and circumstances of your fund and its members. These reviews should occur on a regular basis and could be evidenced by documenting decisions made in the minutes of meetings held during the income year. You should also consider insurance for members.
We have provided a free Investment Strategy template that you are welcome to use to help meet the new requirements. You can download it from here.
