Westover wrote: “I was surprised and somewhat alarmed that some of the information provided was technically wrong and misleading, particularly in relation to the tax measures.”

Remember that Real Estate agents are NOT licensed financial advice providers.

Real Estate agents are licensed facilitators of a real estate transaction.

And in the current property climate it seems that some will do whatever they can to get more transactions occurring.  Don’t allow yourself to be misled – get financial advice only from licensed financial advisers.

You may also enjoy these related articles:

1. Property index changes name
2. Find the right property mentor
3. SMSF Guide

If you are contemplating a self managed superannuation fund or already have one then you may be interested in this useful SMSF Guide produced by Macquarie’s technical team.

Self managed superannuation funds are increasingly popular as people believe a SMSF gives them greater control over their money. However a SMSF is often not needed to get the level of control you desire. Read my earlier article to discover when you may or may not need a SMSF.

You may also enjoy these related articles:

1. Why you don’t need a SMSF
2. SMSF: corporate or human trustee?
3. Checklist to ensure your SMSF deed is up to date

Question: My accountant suggested a corporate trustee for my Self Managed Super Fund. I already have a few companies – I know they are more expensive to operate than having individual trustees. Is he only trying to generate more fees from me? I’m not made of money you know.

Answer [by LawCentral]

It is a vexed question whether SMSFs should have corporate trustees. Everyone in the Superannuation game has a different opinion. I change my opinion daily.

But no two SMSFs are the same. So a blanket ‘yes’ or ‘no’ won’t cut it. Your adviser and accountant looks at the following things to formulate their opinion:

• What is the relationship between the members? Will they change often?
• What are the type and value of the SMSF assets?
• Where are the SMSF assets located? Other states or countries?
• How pedantic are you?
• Do you need extra asset protection? Is there risk that the SMSF can go insolvent?
• Are the members happy to pay higher maintenance costs for a company?
• Contemplating Limited Recourse Borrowing Arrangements (formerly known as instalment warrants)?
• Do you own more than one property in one state paying land tax?

Corporate Trustees add expense and complication. Your Accountant is best to do the cost/benefit analysis. If your accountant suggests a corporate trustee, they have already answered all of these questions.

Who can be trustee of a SMSF?

• Humans as Trustees

If you want a human Trustee, all members of the SMSF must also be Trustees. You can’t pick and choose between members – it’s all or nothing. (There are minor exemptions for children and members living overseas.)

• A company as Trustee (Corporate Trustee)

If you have a Corporate Trustee, all members must be the Directors of the Company. All Directors must be members of the Fund. The Corporate Trustee carries out its role as a Trustee of your superannuation fund just the same as you as individuals do.

If you are the only member of your SMSF, special rules apply. (See the Platinum member only section below.)

When should I have humans as trustees?

• You want less hassle and the lowest administrative cost

It costs nothing (apart from food and shelter) to keep humans as trustees. There are no annual reports to ASIC or dates to lodge with ASIC.

• You are unlikely to change the SMSF membership

It can become a nightmare to change the members of your SMSF with human trustees. Firstly, you need to admit (or exit) that person as a member (you have to do this anyway). Then, title to the SMSF assets is transferred to or from the member. This is because SMSF assets are held in the name of the trustees, not in the SMSF itself. For example, the four of you as members hold the SMSF land in your names. That is the law. You die; the property must now be transferred into different names. If you had a company, no transfer is required.

When should I have a corporate trustee?

• You change the members of your SMSF often

If your members change often, you simply remove (or appoint) them as members and as directors of the corporate trustee. Although the directors change, the actual corporate trustee does not. As the SMSF assets are owned in the name of the corporate trustee, there is no need to jig about with the land titles office.

• You are secretive and own lots of assets

Don’t want anyone to know what assets you own? A Corporate Trustee holds the assets in the name of the company. If someone does a land titles search using your personal name, they won’t find the real estate held in your SMSF.

• You want to borrow in your SMSF

If you want to take advantage of Limited Recourse Borrowing Arrangements to borrow to fund SMSF assets, beware. Many lenders only agree to lend you money if you have a corporate trustee.

• You need to amp up your asset protection

Assets in your SMSF are meant to be conservative – they are there for your retirement – not for speculation. Risky or not, I have had clients that have ended up with negative assets in their SMSF. Insolvency often leads to the SMSF Trustees going down with the sinking ship. Better to lose just a company.

• You pay land tax

In most states, you pay a higher marginal rate of land tax the more land you have. Therefore, if you and your spouse already have a rental property then owning more land (as Trustee of the SMSF) increases the rate of land tax you pay. At Brett Davies Lawyers, we can usually transfer the land out of your name into the name of your new company – for no transfer (stamp) duty and no Capital Gains Tax.

Ok fine. I think I need a corporate trustee. Can I use one of my other companies as trustee?

Yes you can. But just because you can do something, doesn’t mean you should. Using a company for multiple purposes is fraught with risk. People who are pedantic and never make mistakes should only do it. I am pedantic and never make mistakes; however, I still use one company solely for my SMSF.

Why do you need a separate company? SMSFs are delicate. SMSF auditors are even more so. There can’t be any overlap between SMSF funds and other company funds. Weekly, I get calls from accountants where their clients accidentally used the wrong cheque book (or clicked the wrong internet banking account). Sure it is an accident, but the SIS Acts say this is incredibly illegal. No one can guarantee that they never make mistakes. Best to bite the bullet and set up a separate corporate trustee.

What are the ASIC fees for my corporate trustee company?

It is cheaper to run a company that acts as the trustee of your SMSF. Why? Because ASIC allows you to register this company as a ‘Special Purpose Company’. Your special treatment means that the annual ASIC review fee is only $41 per year (rather than the usual company review fee of $218). (The initial ASIC registration fee is still $412.)

You can build a Special Purpose Superannuation Trustee Company at LawCentral (it takes 8 minutes).

How do I update my SMSF to include a Corporate Trustee?

To change the trustee of your Self Managed Superannuation Fund (SMSF) to a Corporate Trustee, you do two things (in this order):

1. Set up a company. Use the LawCentral Build a Company document to do this. After you build the company, you register it at ASIC. ASIC charges $412.
2. Update your SMSF Deed by using the SMSF – Deed Update document available at LawCentral. Select: change your trustee into a Corporate Trustee. Insert: new company name, ACN and address

(Original publication date 18th October 2010 in LawCentral Bulletin 338.)

You may also enjoy these related articles:

1. Should you use a Corporate Trustee to run your Self Managed Super Fund?
2. Why you don’t need a SMSF
3. Checklist to ensure your SMSF deed is up to date

An off the shelf fund gives you great control

When you are thinking of getting more control over your superannuation, what control are you seeking? Is it more control over investment decisions?

Well, you already have plenty of that control in most off the shelf (retail) funds. For over a decade you’ve been able to choose the investment option within your current fund. And for nearly five years you’ve even been able to choose the superannuation fund (account) itself.

Are you seeking control over the money so you can spend it on yourself now? Think again – that’s technically illegal and scrutinised by the ATO.

What you can access and do in an off the shelf (retail) superannuation fund

• Access an investment menu that includes hundreds of different managed funds from most investment sectors
• Directly buy the top 200 (even 300) shares listed on the Australian Stock Exchange (ASX)
• Invest in managed funds that include internal gearing
• Buy some derivatives, such as some types of options and warrants

If you want all of those features you’ll pay a higher administration fee, but it’ll still probably be less than a SMSF would cost you.

If you don’t want any of those features you can find really low cost funds off the shelf (retail) that still give you control. The retail superannuation product market is so diverse you can probably find a product to suit your needs whilst also being value for money.

Do you really want to DIY your super?

Self managed superannuation funds may also often be known as DIY Super, which sounds attractive. But DIY is dangerous when you don’t know what you are doing.

Big penalties for non-compliance

Each member of a SMSF is also a trustee, which involves a lot of responsibility.

The SIS Act (Superannuation Industry Supervision Act) is huge and as trustee of your SMSF you are legally obliged to understand it and comply with it. If you don’t comply you could be stripped of your concessional tax status and pay the top tax rate. (i.e. no more 15% tax rate.) Ouch!

You can also be personally subject to a range of civil and criminal penalties for non-compliance.

Yes, you can outsource some of that compliance to a specialist financial adviser plus a compliance firm. But that costs money.

They’re costly

You also need to pay for annual financial accounts and audits. More money.

In a SMSF the costs can only be spread across four members, not thousands as with a retail superannuation fund. So your administration, investment and transaction costs can quickly add up to higher in percentage terms than in an off the shelf product. That’s why it’s best to wait until you have hundreds of thousands of dollars in superannuation before considering self managed superannuation.

When you may need a SMSF

There are some types of assets that retail superannuation funds generally don’t enable you to hold. If (big if) you need to hold these assets in superannuation then a SMSF may be appropriate for you. These assets include:

• direct property
• private business
• collectibles (for investment only – no personal use allowed. And a recent announcement suggested these ‘exotic’ assets be banned.)
• other direct investment assets. (e.g. that gold bar you just bought from the Perth Mint.)

In addition technically you can now ‘directly’ borrow to buy investment assets within superannuation. For example you can borrow to buy an investment property. If you want to implement that strategy you will need a SMSF (plus a nice sized deposit and good cash flow from contributions.)

Who definitely should NOT consider a SMSF

If you habitually ignore your superannuation, as evidenced by barely reading your annual statement, then a SMSF is not right for you.

Similarly if you don’t understand how superannuation works then don’t go near DIY Super. This may sound harsh, but if you have not understood this article then you’re probably not yet ready for a SMSF.

In summary the reasons a SMSF is not appropriate for most people include

• you can get the desired level of control from a retail fund
• you can access the desired type of investments from a retail fund
• you’re not interested enough to learn to fulfil the trustee’s obligations
• you want to minimise your costs
• you don’t currently have a high enough balance

What do you think? Anything I’ve overlooked? Please share in the comments below (you can be anonymous)

You may also enjoy these related articles:

1. SMSF Guide
2. SMSF: corporate or human trustee?
3. Industry super funds are under-performing

As with most things whether you use a corporate trustee to run your self managed superannuation fund entirely depends on your situation. Your accountant is the best person to ask.

A Corporate Trustee is good if you fall into the following categories:

You are secretive and own lots of assets

Don’t want anyone to know what assets you own? A Corporate Trustee holds the assets in the name of the company. If someone does a land titles search using your name, they won’t find the real estate held in your SMSF.

The members of your SMSF change often

Your members are the Trustees. So when a member changes, so do the Trustees. In this instance, you have to go back to the local titles office and transfer the property into the names of the new Trustees. There are generally no state duty or Capital Gains Tax issues to do this. But there are administrative costs to transfer.

You love asset protection strategies

Assets in your SMSF are meant to be conservative – they are there for your retirement – not for speculation.  Risky or not, I have had clients that have ended up with negative assets in their SMSF. Insolvency ensures that the Trustees of the SMSF can go down with the sinking ship.

You pay land tax

In most States you pay a higher rate of land tax the more land you have. Therefore, if you and your wife already have a rental property then owning more land (as Trustee of the SMSF) increases the rate of land tax you pay. You can transfer the land out of your name into the name of your new company – for no transfer duty and no Capital Gains Tax. (Get the help of a tax lawyer.)

Corporate Trustees add expense and complication. Your Accountant is best to do the costs/benefit analysis.

For the definitive arguments for and against a Corporate Trustee visit LawCentral and subscribe for Platinum membership.

You may also enjoy these related articles:

1. SMSF: corporate or human trustee?
2. Why you don’t need a SMSF
3. Checklist to ensure your SMSF deed is up to date

If you have a self managed superannuation fund (SMSF) it is essential that you as trustee regularly review the deed to ensure it is up to date. One benefit is that an up to date deed will give you access to the latest strategies as they become available.

When was your SMSF trust deed drafted? Review the list below produced by LawCentral to discover if and why you need to review your trust deed as soon as possible.

SMSF pre 2009

Since 2009, SMSF Deeds need updating because of:

• Compliant with Auditing and Assurance Standards Board (AUASB) Guidance Statement GS 009.
• Allowing you to borrow money on a limited recourse basis (Instalment Warrants) under section 67(4A) SIS Act. Sadly, many regimented deeds (even some new ones we have seen lately) actually go out of their way to stop borrowing and charging of SMSF assets. (See the ATO’s view here).
• Allowing death benefit nominations to be typed into the trust deed so that they don’t expiry every 3 years.
• Don’t restrict membership – there should be no restriction in your deed as to who can become a member – the rules change and you don’t want to miss out.
• Don’t restrict contributions – old regimented deeds prohibit many classes of people from contributing to your Super. What a waste of time to put in such restrictions. The government, fearful of people running out of superannuation and collapse of the age care pension, are increasing the classes of contributors.

SMSF pre 1 July 2007

Since 1st July 2007, SMSF Deeds need updating because of:

• “Plan to Simplify and Streamline Superannuation”, from 1 July 2007, once you turn 60 you can take out your Super tax-free, unless you Deed states otherwise (2007).
• New strategies allow you to turn off and then turn on pensions. Some can be converted to accumulation mode. However, some trust deeds require rollovers be paid to other funds, even if you want to continue to hold them in your fund.
• Account-Based Pensions and Transition to Retirement Incomer Streams were released in April 2007. Your deed must allow for their payment. Sadly, many older deeds don’t allow for them.
• Compulsory cashing rules are mostly abolished, except for death. However, many deeds still enforce compulsory cashing.
• Estate Planning – more people will now retain wealth in their Superannuation until their death. The Superannuation may well be lost to the wrong people or the tax man. Binding Nominations are required.
• What if by mistake you put in too much money into your Super? Unless you can reject or return the excess funds you suffer a high tax rate. The deed must allow the power to reject and return funds.

SMSF pre 2006

Since 2006, SMSF Deeds need updating because of:

• Thanks to the 2006 Budget SMSF deeds will become shorter and simpler over time. The pension payment sections of old SMSF Deeds are long and laborious. Such complexities are being phased out in the deeds. A lot of complex rules can be removed.
• SMSF deeds less than 6 years old: Many SMSF deeds have a deeming provision to include all the new SIS rules. This helps. Sadly, these provisions operate only on those mandatory issues that SIS requires a SMSF to follow. What if a SIS change is not mandatory? What if the Deed applies stricter terms than required by SIS?
• Since 12 March 2004 it has been considered courageous to operate a SMSF without a complying Product Disclosure Statement (PDS). The PDS contains everything that a trustee is expected to know. If you act for a SMSF (as an accountant, auditor, adviser or lawyer) and there is no PDS then the trustee has a higher chance in successfully suing you. This is based on negligence for your failure to bring everything the trustees needed that the trustee needed to know. The PDS protects the professional advisers as much as it protects each trustee from each other.
• Contribution Splitting – Spouses can split super contributions between accounts or Funds. Your Deed needs to allow this to happen. (November 2005)
• Your Deed should be able to permit minors (people under 18) as fund members.
• What happens if a member is totally disabled? This can be permanent or temporary. You need to have a right to that payment. Power needs to be in the deed so that if a member is totally disabled, then the trustee can pay a benefit provided there are funds available from the member’s account or from the proceeds of the insurance policy.

SMSF pre 1999

Since 1999, SMSF Deeds need updating because of:

• New market-linked pensions. (2004)
• Interdependent relationships for beneficiaries. (2004)
• Acceptance of government Co-contributions. (2003)
• Changes to compulsory cashing of benefits rules.
• Changes to contribution acceptance rules. (2004 – Changes to over 65 contribution and benefit payment rules)
• Divorce and super splitting. (2003)
• All members must be trustees. (1999)
• When the Australian Taxation Office took over supervising the SMSF funds most deeds were updated – but not all. Without updates the concessional tax treatment may be lost. (October 1999)

SMSF pre 1995

For deeds last updated from 1995-1999 you need to address these additional issues (as well as the ones above):

• Accepting your wonderful spouse as a member and for contributions. (1997)
• Expanding the in-house asset rules to related parties. (1999)
• Providing for complying lifetime and term pensions. (1998)
• Binding nominations for death benefits (otherwise your son in the SMSF can direct your Super goes to him and not evenly to all your children). If you don’t have a “binding” nomination then the nomination form you sign merely expresses your wish to the trustee. The Trustee can decide who gets your super when you die. Sadly some deeds stop the member having any choice. (1999)
• Full preservation of your Superannuation. No taking back out your undeducted contributions. (1999)
• New regulation – ATO takes over looking after SMSFs.(1998)
• Need to include complying term and life-time pensions. (1998)
• Ensuring you get the CGT retirement component. Up to $500,000 can go into your superannuation CGT free from the sale of business assets. (1997)
• The ever useful expanding of acquisition of asset rules to related parties. (1999)

SMSF pre 1994

Don’t point out the “old age” to your auditor. Just update it. You need the above plus:

• Uses of Pensions or Corporations powers.
• Election to become regulated.
• Covenants by the Trustees.
• Allowing you to adopt rules under the SIS Act for compliance.

You may also enjoy these related articles:

1. SMSF: corporate or human trustee?
2. SMSF Guide
3. Why you don’t need a SMSF

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. )

You may also enjoy these related articles:

1. Has some of your superannuation been stolen?
2. Time for tax planning
3. Staff get more legal rights to claim superannuation in company collapses

Industry Super Funds

In a submission to the Australian Industrial Relations Commission on award modernisation and default superannuation funds, Minister for Superannuation and Corporate Law, Senator Nick Sherry said:

“Aggregated, unpublished Australian Prudential Regulation Authority (APRA) data shows that there are 24 industry funds (out of a total of about 84 such funds), potential default funds in awards, that have under-performed over the long-term.”

Sherry said this underperformance was as high as 1.6 per cent a year and the funds had a membership of around 3 million accounts in a system wide total of around 21 million accounts. (Read the article here.)

Oh my goodness! That is 28.5 percent of funds are under-performing and 14 percent of fund account members that could be affected.

The Industry Super Funds network are extremely vocal about the fees charged by retail super funds and apparent under performance of retail funds. This brings to mind the phrase “Me thinks you protest too much!” Their incessant headline grabbing behaviour appears to be a smoke screen for the real story.

And anyway, who is paying for the millions of dollars of advertising spent by the Industry Super Funds network? The members! “Run only to profit members” – yeah right! If you are going to make a claim, make sure it is true!

The lesson here is to not be complacent and accept the BS fed to you by your providers. Take a few moments a year to compare their performance to relevant benchmarks and Crack The Whip Over Your Wealth!

You may also enjoy these related articles:

1. Almost $12 billion in lost superannuation
2. Why you don’t need a SMSF
3. An example of how DIY is costly

The way employers “steal” your superannuation is by not paying compulsory superannuation guarantee contributions (9%) into your account on time, if ever. Some people in the story went 2 or 3 years without superannuation having been paid.

The truth is, if your superannuation is unpaid for over one year you must take some responsibility for that.

If superannuation goes unpaid for over a year it means that you ignored your annual superannuation statement when it was sent to you. Superannuation is your money; your wealth; your future lifestyle – ignore it at your peril!

How To Avoid Your Superannuation Being Stolen

If you want to avoid working for an employer who does not have the integrity to pay their full obligations then check your superannuation at least every three months. Employers are obligated to pay their superannuation guarantee by the 28th day after the end of each quarter. If you salary sacrifice into superannuation then your employer is obligated to contribute more regularly. And I dare say you have a greater interest in ensuring they do.

So I recommend that you check your superannuation account at least 4 times per year; on the 1st day of February, May, August and November. It should take less than five minutes each time, since most funds offer online access these days. Set a recurring reminder in your diary right now. Go on,  set one now.

And once you’ve done that quickly check your account to ensure that last quarter’s contributions have been paid. You don’t want to working one day longer for an employer who won’t or can’t pay their obligations.

You may also enjoy these related articles:

1. Almost $12 billion in lost superannuation
2. Staff get more legal rights to claim superannuation in company collapses
3. Chronology of superannuation and retirement income in Australia

If you prefer to learn in fun, interactive ways (as many of us do) then check out the SuperAnt website, developed for TasPlan. It has lots of budgeting tips that will be useful for your teenage children too.

You are never too young, or old to learn how to make your money work harder for you. 

You may also enjoy these related articles:

1. Retirement simulator launched by AMP
2. Chronology of superannuation and retirement income in Australia
3. Staff get more legal rights to claim superannuation in company collapses