SMSF Investment Opportunities

Transcription

1 For adviser use only SMSF Investment Opportunities Presenter: Sam Rubin, Head of Adviser Services

2 General Advice Warning This presentation has been prepared by IOOF Investment Management Limited (IIML), ABN , AFS Licence No and Australian Executor Trustees Limited (AET) ABN , AFSL IIML and AET are members of the IOOF group of companies consisting of IOOF Holdings Ltd, ABN , and its related bodies corporate. IIML's contact details can be found on and AET s contact details can be found on This presentation is intended for adviser use only and is not to be distributed to retail clients without the consent of IOOF. Information contained within this presentation has been prepared as general advice only as it does not take into account any person s investment objectives, financial situation or particular needs. The presentation is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied on as such. Before deciding whether to acquire or to continue to hold any investment mentioned in this presentation, a Product Disclosure Statement (PDS) should be obtained and considered. Past Performance is not a reliable indicator of future performance. All assumptions and examples are based on current laws (as at 1 Feb 2012) and the continuance of these laws and IOOF s interpretation of them. IOOF does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances. ADVISER USE ONLY 2

3 Agenda Introduction to SMSF Growth of SMSF Instalment Warrants Business Real Property Reserve Accounts General SMSF Strategies 3

4 Why may clients wish to DIY? Overall control of costs- potential costs savings Control your own destiny (your investments) Estate planning- DIY still within family control Tax planning Investment flexibility

5 Summary of SMSF Market SMSF Statistical Report Published by ATO September 2011 SMSF Population & Assets June 2009 June 2010 June 2011 Net Established annually 23,778 16,132 29,879 Total No. of SMSFs 397, , ,607 Total Assets ($m) 367, ,692 Average assets per SMSF 890, ,153 5

6 SMSF Average Demographics As at July 2011* Note that approximately 90.46% of SMSFs are one or two member funds. This has been consistent of the last 5 years. Members over age 45 represent 81% of SMSF sector 22.4% of members are over age % of members are male. 6 * ATO Statistical Summary of SMSF (September 2011)

7 Summary of SMSF Market / ATO Report - September 2011 Sept-10 Sep-11 Trend Listed trusts 19, % 19, % -0.08% Unlisted trusts 35, % 35, % -0.14% Insurance policy % % 0% Managed Investments 19, % 21, % 0.3% Cash and term deposits 103, % 113, % 1.75% Listed Shares 126, % 120, % -2.68% Non-residential real prop 41, % 45, % 0.53% Residential real property 13, % 14, % 0.17% Total assets ($m) 383, ,216 7

8 SMSF Developments Restrictions on collectables Increase in SMSF levy from $150 to $180 pa. FOFA no commission on group insurance via super from 1 July 2013 (Only announcement) 8

9 Off market transfers Proposal to ban all off market transfers where a market exists Includes purchases, sales and contributions Covers most mainstream transactions Shares, managed funds, property, collectables If no market exists the transaction must be supported by a valuation from a qualified independent valuer Private unit trusts, private companies Designed to increase transparency and eliminate price manipulation for CGT and contribution caps 9

10 What is a collectable? SIS Act section 62A Artwork Jewellery Antiques Artefacts Coins or medallions Postage stamps or first day covers Rare folios, manuscripts or books Memorabilia Wine Cars Recreational boats Memberships of sporting or social clubs Personal use assets SIS Regulation 13.18AA(1) Artwork Jewellery Antiques Artefacts Coins, medallions or bank notes Postage stamps or first day covers Rare folios, manuscripts or books Memorabilia Wine or spirits Motor vehicles Recreational boats Memberships of sporting or social clubs 10

11 Collectable rules Effective 1 July 2011 for new assets - 5 year phase in for existing assets Asset must not be leased to a related party Asset must not be stored in the private residence of a related party Decisions regarding asset storage must be documented and kept for 10 years Asset must be insured in the fund s name Asset must not be used by a related party Transfer to a related party must be done at a value determined by a qualified independent valuer 11

12 What are the basic investment rules? Arms length basis section 109 of SIS Investment objectives and strategies in writing Borrowing and loan to members rules section 65 of SIS Acquisition rules section 66 of SIS In-house asset rules section 71 of SIS 12 Sole purpose test section 62 of SIS

13 Investment Borrowing Opportunities Borrowing in SMSF became available in September 2007 when section 67 of SIS Act was amended in include subsection 4A Limited recourse loan Allowable asset singular acquirable asset Third party holds legal title to the asset on trust for the SMSF trustee. Note borrowing costs can further improve the tax efficiency of the fund. 13

14 SMSF Borrowing Structure Lenders lends to super fund on a limited recourse basis Lender Lender takes mortgage over property/asset held by custodian trustee Super Fund Super fund holds beneficial interest in property via initial deposit payment and structure of custodian trust documents. Once lender repaid, title transferred to fund. Custodian Trustee 14 Super fund has to pay deposit as most lenders will provide approx. 70% of residential property. Remaining payment paid directly from lender to vendor. Vendor Vendor transfers asset. Trustee holds asset title and noted on the contract of sale.

15 SMSF Borrowing Steps Find property/asset wish to purchase (make sure asset allowed to be held within SMSF e.g. in-house and sole purpose tests. Pre-approval for Loan Determine who will act as Trustee of Custodian Trust. Generally a new corporate trustee is recommended from SMSF. Complete borrowing documentation Warrant Trust (Custodian Trust) Updated SMSF Trust Deed Update SMSF Investment Strategy Establish trustee for bare trust Sign purchase in name of bare trust Settle purchase with bare trust as title holder 15

16 Conclusion with Borrowing Rules Importance of having sufficient cash flow in SMSF to support a negative gearing investment strategy. Uncertainty around laws and rules; Must seek specialist advice around structure; Importance of risk/ return incorporating current borrowing rates (assumptions should be based on average home loan variable rate around 7-7.5% so mortgage lending around 9.5%); 16 What does the client really want to achieve, is borrowing in super the way to go??

17 SMSFR 2008/D3 Business Real Property - Examples Appendix 2 BRP Examples Ok Primary production business with private residence <= 2 hectares Farming land (unused paddocks) held ready for use of primary production business Client owns 15 residential units and are leased to long-term residents, client treated as running a property investment business. Motel with manager s residence is incidental and relevant to that business, B&Bs run as full time business even if live in property 17

18 Insurance for BRP Strategy option: Insure an asset (BRP) of the fund on the life on one of the members so not required to payout property as death benefit or forced to sell property to have cash to payout. Insurance value can be used as superannuation lump sum death benefit & then BRP gets transferred to a miscellaneous reserve. 18

19 Reserve Accounts Types: Investment reserve; Contribution reserve (limited as all cont. must be allocated); Miscellaneous reserve. Investment reserves are used for smoothing returns. Can utilise where members have different investment objectives & strategy. Miscellaneous reserve is used for other unallocated amounts eg. anti-detriment benefits, self insurance funds. 19

20 Funding of Insurance Life, TDP & Salary Continuous SMSF owns a policy purchased from a life office. Purchase policy via a range of Life Offices in the name of SMSF. 2. Partial purchased & self-insured. As above and below. 3. Fully self-insured SMSF. Must establish a reserve account and funds must be accumulated to cover insurance cover. Actuarial certificate is required to determine the self-insurance cover and applicable tax deduction available to fund for premium value. Maximum cover that actuary can certify for any one death & TDP cover is less than or equal to the reserve value. Salary continuance annual amount is the lesser of 75% of salary and reserve and maximum payment period. Note all insurance cover held in a SMSF must be in line with the investment objective and strategy of the fund or in the case of a segregated fund within the members investment objective and strategy.

21 Reserve Accounts Investment held in reserve account taxed at 15% Can establish a separate investment objective and strategy Funds can be allocated to members based on Regulations 21 Reserves transferred to a member after 30 June 2007 are counted as concessional contributions unless: they are allocated evenly and do not exceed 5% of a member s balance; or they satisfy the pension switch over test. Allows transferring certain reserves from an existing pension to a new pension for the member

22 Reserve Accounts Section 115 of the SIS Act allows a superannuation fund to maintain reserves, if the trust deed allows it. It is important that the trust deed is broad enough to allow for various types of reserves to be created to enable the fund to adopt the range of strategies that use reserves. In addition, the trust deed should also contain clauses that explain what should happen to any remaining reserves upon the winding up of the fund. 22

23 Strategies Re-contribution Strategy: Still beneficial for pensions commenced under age 60 and for estate planning purposes; Flexibility to transfer assets especially if on unrealised capital loss, eg. listed securities. Pensions Consider reviewing existing pension structures and also update deed with all new super changes. What is benefit of SMSF in pension phase?? Make sure that if you are responsible for the full SMSF service for trustees, keep them updated with super changes and their responsibilities 23

24 24 Structuring Pensions Segregate Vs. Not Segregated pensions accounts do NOT require an actuarial certificate. Unsegregated pension accounts require an actuarial certificate every 3 years. Generally beneficial structure in situation with one main asset eg. Property/farm and accumulation account contributions utilised to cover pension payments Segregated accounts can improve tax efficiency especially for a TTR strategy. Separate investment objectives and strategies should be required for segregated accounts. Practically most SMSFs are unsegregated because it is just easier for all parties including accountant, financial planner, trustees and members.

25 For adviser use only Questions?

26 Disclaimer The information contained in this presentation is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omission (including responsibility to any person by reason of negligence) is accepted by IOOF Investment Management Limited (IIML), its officers, employees, directors and agents. IIML and AET are issuers of financial products, Responsible Entities of managed investment schemes, Trustees of superannuation entities and Operators of Investor Directed Portfolio Services. IIML is the trustee of the IOOF Portfolio Service Superannuation Fund (ABN ). AET is the Responsible Entity of IDPS like schemes, the Trustee of a number of Small APRA Funds and the provider of a number of small and self managed superannuation fund solutions and estate planning services. IOOF Ltd, ABN , AFS Licence No , another company in the IOOF Group, is the issuer of IOOF WealthBuilder (WealthBuilder). Where a client proceeds with an investment in an IOOF Group product, IOOF may receive remuneration via fees for that product. If a client seeks personal financial advice from a financial adviser, the adviser may receive remuneration via commission payments. Details of remuneration will be outlined within a Statement of Advice where personal advice is provided, or can be provided upon request 26 ADVISER USE ONLY