Patersons Superannuation Services June 2008

Transcription

1 Patersons Superannuation Services June 2008 Stephen Blackhall Financial Adviser Superannuation and Retirement Planning Patersons Securities Limited

2 Patersons Superannuation Services SELF-MANAGED SUPERANNUATION Are you reaping the benefits and avoiding the pitfalls?

3 Patersons Superannuation Services THE PITFALLS THE BENEFITS

4 The Pitfalls Common Compliance Breaches ATO Targeted Audits - Trustee declaration 10 questions on annual return

5 Common Compliance Breaches Accepting contributions when not permitted Paying benefits prior to retirement age Failing to keep fund assets separate Moving outside investment strategy In-house assets > 5% of fund Loaning money to members and/or relatives Acquisitions from related parties Leveraging/day trading

6 Common Compliance Breaches (cont.) Failing to keep proper records/minutes Failing to notify changes of trustees Breaches of trust doing something outside the trust deed Late lodgement of returns Late payment of tax/supervisory levy Borrowing to invest No (documented) investment strategy Becoming non-resident

7 Examples of Penalties Action Offence Penalty Failure to lodge annual return Criminal, strict liability $5,500 Failure to prepare annual accounts Criminal, strict liability $5,500 Failure to keep records for up to 10 years Criminal, strict liability $5,500 Not keeping proper records Criminal, strict liability $4,400 Accepting contributions when directed not to Criminal, strict liability $11,000 Non-compliance (eg. non-resident fund) Civil, fault liability 45% tax on fund Maximum penalties - $220,000 & 5 years imprisonment plus fund made non-complying

8 ATO Targeted Audits What the ATO Looks For: Related unit trusts Funds of less than $40,000 Funds claiming large deductions Employer contributions received but no notice lodged Non arms-length investments/loans to related parties In-specie transfers/acquisitions from related parties Benefits paid Pensions commenced

9 ATO Targeted Audits (cont.) Fund address the same as the auditor Offshore investments Fund has substantial borrowings First year of operation Fund has existed for more than 5 years Perennial late lodgers Qualified accounts Beware the ATO Has Just Trebled it s Audit Team Target 7% of funds per year

10 The Benefits 1. Maximising Contributions 2. Converting to Pension Mode 3. Drawing a Pension While Still Working 4. Using a DIT to Gear your SMSF

11 1. Maximising Contributions Concessional Contributions Non-Concessional Contributions Age Maximum Contribution Age Maximum Contribution Up to 75 $50,000 pa. Up to 75 $150,000 pa. $100,000 available until 30 June 2012 (for individuals over 50) $450,000 available if <65 & 3 years paid up then no contribution for next 2 years Work tests apply for contributions to be made for anyone 65 to 74 Contributions cease completely at age 75

12 1. Maximising Contributions Super vs Personal Investment Yield 7.0% Tax Rate - fund 15.0% Tax Rate - personal 46.5% Super Personal Gross Amount 100, ,000 15,000 46,500 85,000 53,500 Super Personal Improvement Net Value - Year 1 90,058 55,504 34,554 Net Value - Year 3 286, , ,742 Net Value - Year 5 507, , ,059 Net Value - Year 10 1,184, , ,691 Net Value - Year 15 2,088,210 1,090, ,655 Net Value - Year 20 3,295,067 1,609,737 1,685,330

13 2. Converting to Pension Mode Assumptions: 1. Dividends yield 4% and are fully franked 2. 4% realised capital gains (>12 months)

14 2. Converting to Pension Mode No Pension Pension Paid* Fund Balance $500,000 Fund Balance $500,000 Capital Growth $20,000 Capital Growth $20,000 Dividends $20,000 Dividends $20,000 Contributions $50,000 Contributions $50,000 Franking Gross Up $8,571 Franking Gross Up $8,571 Tax 15% ($13,786) Tax 15% on $50, % of earnings ($8,129) Imputation credit $8,571 Imputation credit $8,571 Net income $84,785 Net income $90,442 $5,657 pa. better off tax rate 0% *If age 55-64, a minimum pension of $20,000 must be paid

15 2. Converting to Pension Mode Super vs Personal Investment Yield 7.0% Tax Rate - fund 15.0% Tax Rate - personal 46.5% Super Personal Gross Amount 100, ,000 15,000 46,500 85,000 53,500 Super Personal Improvement Net Value - Year 1 90,058 55,504 34,554 Net Value - Year 3 286, , ,742 Net Value - Year 5 507, , ,059 Net Value - Year 10 1,184, , ,691 Net Value - Year 15 2,088,210 1,090, ,655 Net Value - Year 20 3,295,067 1,609,737 1,685,330

16 2. Converting to Pension Mode DRAWING A PENSION Net Value - Year 20 3,295,067 1,609,737 1,685,330 What if you pay an income from each - assume max tax & same return as above Super Personal Income - year , ,682 Tax Payable - 52,397 Net Benefit 230,655 60,285 Improvement 170, % Assumes paid out after age 60

17 3. Drawing a Pension While Still Working Assumptions: 1. Client age 60 and still working 2. $500,000 in super fund 3. Salary $130,000 pa. 4. $50,000 of salary contributed to superannuation

18 3. Drawing a Pension While Still Working Salary Only Pension, Salary and Super Salary $130,000 Salary $80,000 Tax payable + Medicare ($39,950) Tax payable + Medicare ($19,200) Net Salary after Tax $90,050 Net Salary after Tax $60,800 Pension Payment $0 Pension Payment $29,250 Take Home Pay $90,050 Take Home Pay $90,050 Superannuation Contribution $0 Superannuation Contribution $50,000 Contributions 15% $0 Contributions 15% ($7,500) Total Tax Payable $39,950 Total Tax Payable $26,700 $13,250 pa. better off

19 4. Using a DIT to Gear Your SMSF Set up of a Debt Instalment Trust (DIT) Financier (Can be associated) Only has recourse to DIT Security over assets Repays debt Investment earnings. Transfer of assets DIT (Separate trustee) Purchases investments Only investor is SMSF Pays Instalments Loans $$ SMSF Invests in DIT & has exclusive beneficial interest in assets Pays instalments Members Enhanced benefits

20 4. Using a DIT to Gear Your SMSF TO PURCHASE PROPERTY Purchase premises for your business & contribute to Super Assumptions: 1. You would like to purchase a property for $500, The property yields 8% 3. You or your Super Fund invests $200,000, plus $300,000 borrowed 4. 8% interest payable on loan 5. Your business has $100,000 profit to distribute 6. Your personal tax rate is 41.5%

21 4. Using a DIT to Gear Your SMSF Personal Gearing Super Fund & DIT Income $100,000 Contribution $100,000 Rent $40,000 Rent $40,000 Interest ($24,000) Interest ($24,000) Tax 41.5% ($48,140) Tax 15% ($17,400) Net funds to invest $67,860 Net funds to invest *$98,600 Improvement $30,740 *Instalment to DIT to pay debt

22 4. Using a DIT to Gear Your SMSF TO AUGMENT PORTFOLIO RETURNS Gear up your share portfolio Assumptions: 1. Dividends yield 4% and are fully franked 2. 4% capital gains (unrealised) 3. $300,000 borrowings 4. 8% interest payable on loan

23 4. Using a DIT to Gear Your SMSF Super Fund No Gearing Super Fund Geared DIT Fund Balance $200,000 Fund Balance $500,000 ($300,000) Capital Gain $8,000 Capital Gain $20,000 Dividends $8,000 Dividends $20,000 Interest payable $0 Interest payable ($24,000) Imputation Gross Up $3,429 Imputation Gross Up $8,571 Tax 15% ($1,714) Tax 15% ($686) Franking credit $3,429 Franking credit $8,571 Net Income & gain $17,715 Net Income & gain $23,885 Return 8.86% Return 11.94% Improvement $6,170 (3% greater return)

24 4. Using a DIT to Gear Your SMSF Trustee of DIT needs to be different to SMSF Borrowings must be used to acquire an asset(s) in the DIT Existing fund assets cannot be used apart from cash Super fund must have sole beneficial interest in asset(s) and the right to acquire them through payment of instalments The underlying investments must be allowable under Superannuation Law if the super fund had held them directly (eg. not an in-house asset) The payment of any liability must be limited to the assets of the DIT and there must be no obligation on the super fund to make any future payments

25 4. Using a DIT to Gear Your SMSF These conditions (and others) must be strictly adhered to, otherwise: Capital gains tax could be payable on transfer of assets to SMSF The super fund could lose its complying status

26 Patersons Superannuation Services THE PITFALLS THE BENEFITS

27 Patersons Superannuation Services WHAT TO DO NEXT Speak to your Patersons adviser Make sure your fund is up to date and compliant - See us for a check-up See us for a complimentary review Maximise contributions; Start pensions; Explore the use of a DIT; if appropriate

28 This seminar provides a summary only of the subject matter covered without the assumption of a duty of care by Paterson Securities Limited, its directors or employees. The seminar is not intended to be, nor should it be relied on, as a substitute for professional advice taking into account the investment objectives, financial situation and particular needs of any particular person. As such this seminar should not be relied upon as the sole basis for any investment decision or planning. Before making any investment decision, you should consider, with or without the assistance of a securities adviser, whether any decision is appropriate in light of your particular investment needs, objectives and financial circumstances. Copyright Paterson Securities Limited 2008