April 2019 - Practical Systems Super

3 things I’ve learnt from starting an SMSF

Apr 30,2019 Comments Off

I stumbled blindly into the world of self-managed super funds (SMSFs) the same way most people do – through their accountants.

My accountant asked for a meeting after I was hit with a sizable tax bill from my share investment and told me I was better off starting a SMSF. This was about six years ago and I was a full-time employee back then.

I’ve learnt a lot since, especially given that I knew nothing about SMSFs back then as I didn’t think I was well off enough for an SMSF to generate better outcomes than a retail fund.

As it turns out, starting my SMSF was the right thing to do but for the wrong reasons! On reflection, there are three things I’ve learnt that I think is relevant to anyone thinking of starting an SMSF.

How much do you need to start an SMSF

My SMSF should be a disaster, according to the recent Productivity Commission (PC) report looking into the failings of $2.7 trillion superannuation system.

The PC found that SMSFs with less than $500,000 perform significantly worse than retail funds (this includes industry funds). I certainly didn’t have half a million to pump into super as I was only an ordinary wage earner.

But I don’t think my accountant steered me in the wrong direction. I haven’t spoken to him in a few years after he sold his business and I’ve more than doubled my initial account balance in the SMSF over the past five years.

I think (or I like to think) he encouraged me to start a SMSF because he knows my track record as he personally prepared my tax return for many years. If you have a reasonably good history of investing in a personal capacity, then you shouldn’t be too flustered by the $500,000 target highlighted by the PC.

More than one superannuation account

Having multiple super accounts is a bad idea. You will have to pay fees on each account and that’s over a smaller account balance if you split your super between several funds. It’s death (of your super) by many cuts!

However, I have decided to keep my industry superfund when I stared my SMSF. The industry fund was my default super as an employee and I intentionally left it alone after I’ve set up my super.

I did this for two key reasons. My industry fund gives me access to investments that I can’t with my SMSF. This includes unlisted investments, direct property, international bonds, alternative investments, etc.

I also keep my industry fund for my life insurance. While I can probably do that through my SMSF, it’s just easier to get covered through the industry fund (as long as you trust the fund has partnered with the right insurer with the right product).

For the love of interest

The third takeaway from my experience is interest. I am not talking about bank interest but your level of interest in managing your investments.

I’ve long treated investments, particularly shares, like a serious hobby. I know it sounds sad as it probably means I don’t have much of a life given how much time I spend a day looking and reading about markets, but I think anyone who runs his/her own SMSF need to have interest in the subject.

This is particularly so for those with more modest balances as it doesn’t make a lot of sense hiring a professional to help you unless the fees make up only a very small percentage of your capital.

If you don’t have interest in investments, it is very likely you will neglect your SMSF. In such situations, you will more than likely be better off sticking to a retail or industry fund with a good track record of returns.

A final word, this isn’t meant to be tax or investment advice. The article is based on my personal experience and may not be relevant to your circumstances. You should always seek professional advice before making any decision.

Written by: Bendon Lau
Source: https://au.finance.yahoo.com

SMSF Association professional members learn to maximise super contributions and deconstruct the 2019 Federal Budget.

Apr 23,2019 Comments Off

With over half a million self-managed super funds (SMSF) in Australia, accountants and other advisers are struggling to ensure their clients comply with constant changes to superannuation legislation.

Over the past two weeks Practical Systems Super has been proudly supporting a series of events held by the SMSF Association in a range of locations across New South Wales including Sydney, Port Macquarie and Newcastle.

Francis Waddell, Business Development Manager for Practical Systems Super has been speaking at these events to articulate how the company is dedicated to reducing the administrative and compliance burden of self-managed super funds.

“It’s been a pleasure to attend these events and support the SMSF Association and its professional members. Superannuation legislation is constantly changing and the recent Royal Commission has focused attention on compliance and the need for professional and trusted administration”, said Mr Waddell.

Francis joined Peter Hogan, Head of education and technical of the SMSF Association as he deconstructed the 2019 Federal Budget in these sessions and also provided an outlook on the Australian Liberal Party’s superannuation policy as we head to a federal election on the 18^th May 2019.

The most significant policy change is ending the refunding of franking credits. SMSFs that receive franking credits for the tax paid by Australian companies will often receive a refund of the tax paid at the corporate level.

Under Labor’s proposed policy, SMSFs with a member receiving the age pension on March 28, 2018 will still be able to get a refund for franking credits received by the fund under Labor’s “pensioner guarantee”. Those who begin to receive the age pension after this date will not be eligible.

If elected, Labor has signaled it will cut the after-tax annual contribution limit to superannuation from $100,000 to $75,000.

Further, with Labor proposing to ban new LRBAs if elected, SMSF trustees who believe that a geared investment strategy is right for their fund should consider pursuing this before the next election. This should always be done with specialist SMSF advice and with a long-term investment strategy.

No one understands a clients’ needs like their accountant or financial adviser. Practical Systems Super employs SMSF professionals to support those professionals in ensuring their clients comply with superannuation legislation. Importantly, Practical Systems Super leaves that existing relationship in their hands.

To find out more about Practical Systems Super, contact us on 1800 951 855.

ATO issues reminder on upcoming TBAR deadlines

Apr 18,2019 Comments Off

The ATO has reminded SMSFs that there are two upcoming deadlines for transfer balance account reporting over the next month.

In an online update, the ATO said that the next transfer balance account report (TBAR) deadline for SMSFs that report quarterly will be 29 April 2019.

The ATO explained that SMSFs will need to lodge a quarterly TBAR if their fund has any member with a total super balance (TSB) greater than $1 million and any member had a transfer balance account event occur between 1 January and 31 March 2019.

Annual TBARs, it said, are due at the same time as the SMSF annual return, which may be 15 May.

“You must lodge a TBAR for the 2018–19 financial year if all members of your SMSF have a TSB less than $1 million and any member had a transfer balance account event occur in the 2018–19 financial year,” the ATO said.

“You do not need to lodge a TBAR to report an accumulation phase value or a retirement phase value. If you need to report this information to us, you should include this information on your annual return. This information does not affect your member’s transfer balance account.”

The ATO also reminded SMSFs that if no transfer balance account event occurred, then there is nothing to report.

“Different reporting time frames will apply if your member has exceeded their transfer balance cap,” it said.

The ATO added that tax agents now have access to online TBAR lodgement.

“Online lodgement offers a number of advantages including prefilling of details and inbuilt verification rules to reduce reporting errors and reverse workflow,” it said.

It also said that it would continue to take an educative and supportive approach where routine quarterly or annual TBARs are lodged late.

“If you’re in this situation and can’t lodge by the due date, but are working towards lodging as soon as possible, you don’t have to seek a formal extension of time,” the ATO said.

“Be aware that late lodgement may affect your member’s transfer balance account and cause reverse workflow.”

Source: https://www.smsfadviser.com/news/17536-ato-issues-reminder-on-upcoming-tbar-deadlines

3 simple rules for related parties

Apr 12,2019 Comments Off

Identifying related party transactions in an SMSF can be a complex process, but there are some simple rules to keep your funds compliant.

Trying to identify related party transactions in an SMSF can seem like pulling apart a set of Russian dolls: the first entity links to another entity, which, in turn, has another entity inside of it, and so on.

The question is how far do you continue searching to ensure that no related parties exist?

The reality is that when an ASIC search for an unlisted potentially related company reveals a group of shareholders that are companies or trustees for unit trusts, ASIC searches then have to be undertaken for each of those entities and when those shareholders are companies … well, it’s easy to see where this is going.

The basic rule of thumb is that related party transactions are rated high risk, so both the asset and any transactions will always be audited. The more information provided upfront will result in fewer queries and a more efficient audit — a win for everyone.

Here are 3 simple rules to help keep your funds compliant.

Acquisition of assets from related parties

It’s essential that all dealings between related parties are done in conjunction with the fund’s investment strategy and trust deed. Remember, too, that the only assets a fund can intentionally acquire from a related party under s66 SIS are money or cash, listed shares, business real property and certain in-house assets.

While the definition of cash and listed shares are easy to define, there are 2 necessary conditions that business real property must satisfy prior to acquisition:

The SMSF or the other entity must hold an eligible interest in real property
The underlying land must meet the business use test, e. the real property has to be used wholly and exclusively in one or more businesses carried on by an entity (refer SMSFR 2009/1)

All acquisitions must be made at market value under R8.02B SIS with business real property being subject to a market valuation at least three months before the acquisition. The ATO recommends the use of a qualified independent valuer where the value of the asset represents a significant proportion of the fund’s value.

Once the asset is in the fund SMSF trustees can provide a valuation of the property in future years, but the hurdles are difficult to clear. They must be able to demonstrate that the valuation has been arrived at using a ‘fair and reasonable’ process, which should include an explanation to a third party (i.e. the auditor).

Related party income

SMSF auditors are required to strap their professional scepticism hats on at the beginning of every engagement.

When there’s a related party transaction either in the fund or in a related unit trust, the auditor will look at the investment in a different light. They will start by questioning whether the rent is being paid at market value and whether the terms of the lease are conducted at arms-length.

It’s best that an independent rental assessment is provided to confirm the rent is at market rates at the time of submitting the audit to avoid delays.

Any identified shortfall in rent may be a breach of s 109 SIS and reportable to the ATO. The timing of rent payments and all lease-related payments, such expenses, are also checked to ensure they’re in accordance with the terms of the lease and on an arms-length basis.

Where related party transactions are not on commercial terms and the fund is not worse off, this may also be reported in an auditor contravention report for not complying with s 109 SIS.

The NALI effect

There can be significant tax implications for SMSFs from income-producing related party assets such as business real property, companies and unit trusts.

One of the most common examples is where the fund holds property, and the lessee is a related party. When rent is being paid at higher than market rates, a tax issue is generated as the investment is not being maintained on an arm’s length basis.

As a result, all of the income that the fund receives from that asset may be deemed as non-arm’s length income (NALI).

NALI is taxed at the highest marginal rate and applies regardless of whether the fund is in pension mode. Most importantly, it includes all of the income generated from the asset since the day of acquisition. Ouch.

From an audit perspective, NALI is not a compliance breach but a tax issue, which results in a management letter comment in most cases.

Conclusion

When related parties become part of the SMSF investment landscape, there are 3 simple rules that can help keep funds compliant.

The first one is to provide annual market valuation documentation demonstrating that all transactions are booked at current market value to comply with R8.02B SIS. The second is to ensure that all related party income is being paid at market rates and, finally, ensure transactions are undertaken on an arms-length basis to avoid NALI.

Of course, the legislative complexities surrounding related parties mean more onerous obligations and responsibilities for SMSF trustees and their advisers. Keeping on top of it all is the key.

Written by Shelley Banton, executive general manager, technical services, ASF Audits

Source: https://www.smsfadviser.com/strategy/17522-3-simple-rules-for-related-parties

Software firm launches new SMSF administration service

Apr 10,2019 Comments Off

By Miranda Brownlee | SMSF Adviser |

An accounting software firm has developed a new SMSF administration service aimed at accountants and financial advisers.

The new administration service, Practical Systems Super, has been developed by Armidale based software firm Practical systems, which has been offering specialised accounting and management software for small business and agribusiness clients since 1992.

Practical Systems chief financial officer Bob Locke said he decided to launch the new service in order to reduce the administration and compliance burden of SMSFs for financial professionals and trustees alike.

Over his 35 years of working as an accountant and taxation expert, Mr Locke said he has watched the increasing complexity in the administration and compliance of SMSFs in the face of ever-changing government regulation.

“From my previous experience with software development, it was clear that a good software platform would go a long way towards making the task much more efficient,” Mr Locke said.

“The cloud-based system allows all SMSF records and documents to be kept in the one easily-accessed location facilitating the sharing of information between stakeholders, such as accountants, auditors, advisers, and clients.”

Mr Locke said he expected an increase in the number of SMSFs being implemented by family and farming businesses.

“There are around 600,000 SMSFs in Australia and this number is steadily growing,” Mr Locke said.

“There is significant potential for rural and regional businesses to utilise self-managed superannuation. Often these businesses are family owned and SMSFs can be a great way to accumulate off-farm or non-business assets, thereby greatly assist with the succession process.

The use of SMSFs can allow family farms or businesses to be passed onto the next generation without the need for the sale of assets or the younger generation to take on debt to support the retirement of the previous generation, he said.

Currently, Practical Systems Super’s services are available to accountants and advisers.

The company plans to expand to software-only offerings in the next year and the platform is to be flexible in the face of future superannuation changes.

“Practical Systems Super sees opportunities to meet the needs of smaller accounting firms and financial advisers, as well as supporting individual trustees directly,” said Mr Locke.

New SMSF admin platform launches

Apr 9,2019 Comments Off

By Kareen Vergara | Financial Standard |

A new one-stop-shop SMSF solution that aims to help financial advisers keep on top of administrative and regulatory burdens has launched.

Practical Systems Super meets the needs of small accounting and advice firms by providing services such as fund setup, financial recordkeeping and investment monitoring.

Founder Bob Locke said the cloud-based software solution provides an SMSF service to clients without the burden of keeping up compliance, licensing and auditing requirements.

“Practical Systems Super is completely independent of any financial institution or organisation and entirely Australian-based. One of our objectives is to achieve cost-efficiencies for the benefit of our clients through smart technology, rather than through lower labour costs via overseas outsourcing,” he said.

“Recent changes to superannuation regulations has resulted in the need for real-time administration and monitoring of SMSFs, particularly when fund members start to draw down on their accumulated benefits.”

Armidale-based Locke also created Practical Systems Super’s software Cashbook

Bob Locke examines the federal budget from his perspective.

Apr 8,2019 Comments Off

2019/20 Federal Budget Overview

Bob Locke, founder of Practical Systems Super, examines the 2019 Federal Budget.

Over my 35 years of working as an accountant and taxation expert, I have watched the increasing complexity in the administration and compliance of SMSFs in the face of ever-changing government regulation.

On the back of an improved fiscal position, the budget was clearly designed for an election year with no surprises or “hits” and where most people will benefit from tax cuts.

The slated tax reductions will increase consumer disposable income. In the context of the current lower than average consumer confidence, you could expect some of this to be saved (rather then spent) and some of these savings could flow into superannuation.

It’s good to see that the budget position is finally heading back into surplus but paying down the existing debt is going to require a sustained discipline on the part of current and future governments.

The 2019/20 Budget and superannuation

There were very few measures in this year’s budget relation to superannuation.

I think this is a good thing and very wise given the massive changes made over the last few years (i.e. changes to contribution caps, introduction of the Transfer Balance Cap and Totals Super Balance cap, etc.).

Any changes to superannuation arrangements tend to impact negatively on general confidence in superannuation – negative changes especially, but also positive changes can influence the general perception that “governments are always changing the rules and I can never be sure how my superannuation savings will be affected in the future”.

In my experience, younger people in particular are often skeptical about making additional contributions to super as constant changes undermine their confidence in a system where the government is supposed to be supporting and encouraging provision for their retirement.

To find out more about how the budget will impact on your SMSF call the office on 1800 951 855.

Government dilutes Work Test and extends bring-forward rule

Apr 1,2019 Comments Off

The Government has announced it will remove the Work Test for people aged 65 and 66 from 1 July 2020 and extend access to the bring-forward arrangements for non-concessional contributions for the same group.

In an announcement released a day before the Federal Budget, Treasurer Josh Frydenberg also stated the current Government would increase the age limit for spouse contributions from 69 to 74 years.

According to a statement released by Frydenberg, under the Work Test change people aged 65 and 66 will be able to make concessional and non-concessional voluntary superannuation contributions without meeting the test from the middle of next year.

Frydenberg said the change to the Work Test would align it with the eligibility age for the Age Pension, which is scheduled to reach 67 from 1 July 2023, and that around 55,000 people aged 65 and 66 would benefit from the change in 2020-21.

The Treasurer also said the bring-forward arrangements would be extended from those aged less than 65 years to those aged 65 and 66, allowing the latter to make three years’ worth of non-concessional contributions, capped at $100,000 a year, to their super in a single year.

“The Government can deliver these reforms because our responsible budget management allows us to guarantee the essential services that Australians rely on,” Frydenberg said in the statement, which also referenced new laws to scrap exit fees and to reunite super fund members with low balance or inactive accounts.

Source: smsmagazine.com.au

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Archive April 30, 2019