Several key super changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.
What are the changes?
Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:
How can you benefit from these changes?
This year’s Federal Budget cost-of-living relief, job growth and women’s security. The key measures that you should be aware of as an SMSF trustee are outlined below. Should you wish to discuss how these may impact your personal circumstances or retirement plans please contact me to arrange a time to chat.
Extension of the temporary reduction in superannuation minimum draw down rates
The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The minimum drawdown requirements determine the minimum amount of a pension that a retiree must draw from their superannuation in order to qualify for tax concessions.
Given ongoing volatility, this change will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements.
Digitalising trust income reporting and processing
The Government will digitalise trust and beneficiary income reporting and processing, by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes. The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.
Trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, resulting in longer processing times and limited pre-filling opportunities. This measure will reduce the compliance burdens on SMSF trustees (taxpayers), reduce processing times and enhance ATO processes. The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications.
New research released
When used in the right circumstances a self-managed super fund (SMSF) can provide important benefits for individuals looking for greater levels of investment flexibility and control over how their super savings are invested.
New research released by the University of Adelaide shows an SMSF may be a suitable option for individuals with lower superannuation balances than previously thought.
In its report, titled “Understanding self-managed super fund performance” the University of Adelaide used data from over 318,000 SMSFs between 1 July 2017 and 30 June 2019, to identify the minimum amount of capital required for an SMSF to achieve comparable investment returns with much larger funds.
You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID). The new requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee, which is why I wanted to bring this new requirement to your attention. All directors of your corporate trustee will need to apply for their own director ID by the prescribed deadline.
This document provides some important information about Director Identification Numbers, including how to apply for one and by when.
An application for a director ID must be made individually and only by those who are applying for the director ID. As you are required to prove your identity as part of the process, our firm, or any other third party, is not able to apply for a director ID on your behalf.
What is a Director Identification Number (director ID)?
A director ID is a unique identifier that directors need to apply for, like a tax file number. If you are a director of multiple companies, you are only required to have one director ID that will be used across all companies. You will keep your director ID forever even if you change companies, resign altogether from your director role(s), change your name, or move overseas.
Why do I need a Director Identification Number?
As part of the Government’s Digital Business Plan, it is rolling out a Modernising Business Registers program which includes the introduction of director IDs. The main purpose is to prevent the use of false or fraudulent director identities as well as to improve the efficiency of the system by making it easier to meet registration obligations and trace director activity and relationships. By improving the integrity and security of business data it is expected to reduce the risk of unlawful activity. (more…)
Setting up an SMSF can be complicated. Not getting it right can materially affect your financial situation and retirement plans.
The first question you need to be sure about is whether an SMSF is the right fit. Seeking specialised financial advice can help you determine this answer. Some considerations include:
You must ensure you have an appropriate superannuation balance before considering an SMSF. While a low balance can be a red flag, it is not always a barrier to entry. Establishing an SMSF with a small balance may not be in your best interests. This is because SMSFs tend to be more cost-efficient with larger balances. Therefore, before rolling over your superannuation balance to an SMSF, you should establish and justify that by doing so you are likely to end up in a better position in retirement.
You must also understand your motivation for establishing an SMSF. The most common motivation SMSF trustees indicate is control. Control of an SMSF allows individuals to have a wide range of investment choice, flexibility and engagement with their superannuation. However, superannuation law is complex and you need to ensure your ambitions are allowed under the law and will be able to achieved in an SMSF.
Costs and time
SMSFs incur a wide range of costs in establishment and the day to day running of the fund. Ensure you are across the estimated establishment, accounting and audit costs that will be incurred by your SMSF. Speak with your advisers so you are across all other incidental costs, which unlike large super funds generally occur with fixed rates rather than as a proportion of your balance.
SMSFs also require dedicated attention from trustees which will take time out of your daily life to manage. Understanding from the outset your legislated responsibilities and obligations before establishing an SMSF is important.
Once you have decided that an SMSF is right for you, the process of establishing the fund can commence. A Specialist SMSF adviser is the best person to help you with this process which generally involves choosing a trustee structure, selecting a trust deed, completing the ATO registration, opening a unique fund bank account, getting an electronic service address and arranging for rollovers to the fund to occur.
Investment Strategy and Insurance
Upon establishment you must also create an investment strategy which must be regularly reviewed.
Your investment strategy should be in writing and must consider:
• Diversification (investing in a range of assets and asset classes).
• The liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses).
• The fund’s ability to pay benefits (when members retire) and other costs it incurs.
• The members’ needs and circumstances (for example, their age and retirement needs).
• Whether to hold insurance in your SMSF.
It is also common for SMSF trustees to be motivated by investing in property when establishing an SMSF. You should be sure that any investment in property, particularly when gearing is involved, is appropriate for your circumstances. Holding properties in an SMSF can also require some complex structures to ensure the law is being followed and specialist advice may be needed before making an investment choice. A lack of diversification, low balances and inappropriate property investments can have a detrimental impact on your retirement savings.
How can we help?
If you are considering an SMSF, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements and circumstances in more detail.
When you are moving from Working Holiday Maker (WHHM) Visa to a Temporary Skills Shortage 482 (TSS482) you need to ensure that you complete the attached Withholding Declaration form and give it to your employer.
The ATO receives your tax status from your employer, so without doing this you could end up under or over paying tax. It could come as quite a shock when you are completing your end-of-year tax returns.
“If you’re on a working holiday visa, you’ll be taxed at 15% for the first $37,000 you earn. If your residency status changes during the financial year, you’ll need to notify your employer by completing a withholding declaration to notify them of the change in your residency status and you elect to start claiming the tax-free threshold.
When your residency status changes partway through a financial year, you’ll be entitled to a pro-rata tax-free threshold based on the number of months you’ve been a resident of Australia. If you’re concerned you won’t have enough tax withheld based on your situation, you can request extra tax to be withheld by completing an upwards variation form.”
Should you have any queries in relation to your working visa please contact our office at email@example.com.
SMSFs are not for everyone, but for those individuals where an SMSF is entirely appropriate for them, the benefits can be considerable.
In the context of ongoing public debate regarding the appropriate minimum size for an SMSF, new research has been provided to provide insights into the true costs of running an SMSF. And the research shows SMSFs are cheaper to run than many people may think.
The findings allow SMSF trustees and potential SMSF trustees to compare appropriate estimates of fees for differing SMSF balances with institutional superannuation funds (commonly referred to as APRA regulated funds).
The costs include establishment, annual compliance costs, statutory fees and some investment management fees. Direct investment fees have been excluded.
SMSFs with less than $100,000 are not competitive in comparison to APRA regulated funds (SMSFs of this size would generally only be appropriate if they were expected to grow to a competitive size within a reasonable time).
SMSFs with $100,000 to $150,000 are competitive with APRA regulated funds (SMSFs of this size can be competitive provided the Trustees use one of the cheaper service providers or undertake some of the administration themselves).
SMSFs with $200,000 to $500,000s are competitive with APRA regulated funds even for full administration. (SMSFs above $250,000 become a competitive alternative provided the Trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services).
SMSFs with $500,000 or more are generally the cheapest alternative regardless of the administrative options taken. (For SMSFs with only accumulation accounts, the fees at all complexity levels are lower than the lowest fees of APRA regulated funds).
This research highlights that SMSFs with a low complexity can begin to become cost-effective at $100,000. This is a significant departure from what many had believed to be the case. For simple funds, $200,000 is a point where SMSFs can become cost competitive with APRA regulated funds or even cheaper if a low cost admin provider is used. With the proposed expansion to six member SMSFs, we may see many more take up this option at this threshold.
Comparing 2 member funds
From a cost perspective, the real benefit of an SMSF is when it achieves scale in balance and this can occur when members pool their superannuation savings. The below comparison can be used to grasp the ranges you might fall into.
|Combined Balance||SMSF Compliance Admin (2 members)||APRA regulated fund Low fees (2 members)|
But it’s more than cost
When determining whether an SMSF is right for you, your analysis must go further than just a simple comparison of the costs versus APRA Regulated Funds. It should also factor in your retirement and income goals and whether you have the desire, time and expertise to take on the role of an SMSF trustee. It’s also worth factoring in SMSF members may not receive the same level of protection in the event of theft or fraud that members in APRA regulated funds do.
The 2020-21 Federal Budget is all about jobs, jobs and jobs. COVID-19 has resulted in the most severe global economic crisis since the Great Depression. This Budget provides an additional $98 billion of response and recovery support under the COVID-19 Response Package and the JobMaker Plan.
The centrepieces of the Budget are a new JobMaker Hiring Credit for businesses and lower taxes for individuals.
Pleasingly, the Government committed to their election promise that there will be no adverse tax changes to the superannuation system. In addition, for the first time in a number of years, there were no measures specifically relating to SMSFs in this year’s Budget.
However, the Government did announce a ‘Your Future, Your Super’ package to address APRA superannuation fees and poor performances. The four measures in this package are outlined below:
‘Stapled’ superannuation accounts – A new default system
From 1 July, existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. Employers will be required to pay super contributions to their employees existing superannuation fund if they have one, unless they select another fund.
A ‘YourSuper’ portal
The Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal. The YourSuper tool will provide a table of simple super products (MySuper) ranked by fees and investment returns.
Increased benchmarking tests on APRA funds
Benchmarking tests will be undertaken on the net investment performance of MySuper products, with products that have underperformed facing stringent requirements. Products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
Strengthening obligations on superannuation trustees – Large APRA funds
By 1 July 2021 super trustees of large APRA funds will be required to comply with a new duty to act in the best financial interests of members. Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
This will affect those large APRA funds to ensure they are spending in the best interests of the members, rather than SMSFs.
In addition to previous COVID-19 relief, there are also further economic payments for pensioners
The Government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible welfare recipients and health care card holders.
This includes the:
Personal income tax changes brought forward
The Government will lower taxes for individuals by bringing forward its ‘stage two’ tax cuts that were due to start in July 2022. This means from 1 July 2020, the 32.5% tax rate will apply to incomes up to $120,000 (previously $90,000).
In 2020–21, low- and middle-income earners will receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families, compared with 2017–18 settings.
Other announcements and changes
Additional $14 billion in infrastructure projects across Australia over the next four years.
WINNER – IPA 2020 ACT Practice of the Year Award!!!!
This is the second year running we have been recognised with this prestigious award.
The IPA received high quality endorsements from our clients, colleagues and community members and we want to thank you so very much. The fact that you took your time to say such wonderful things means so much to us.
We look forward to working more with you in the future.
The Government has, on the 2nd September 2020, introduced a Bill into the Senate that will increase the maximum number of allowable members for SMSFs from four to six. This measure was first announced in the 2018-19 Federal Budget.
The Explanatory Memorandum explains that this change will help large families to include all their family members in their SMSF.
If passed by Parliament, the changes are to commence from the start of the first quarter (being the first 1 January, 1 April, 1 July or 1 October) that begins after the day the Act receives Royal Assent.
We now wait to see if the Bill has support from the ALP and cross-benchers. We will provide further updates and developments as they are announced.
Explanatory Memorandum: https://parlwork.aph.gov.au/Bills/s1269?_cldee=YmhlcGJ1cm5yb2dlcnNAZ21haWwuY29t&recipientid=contact-2270291ec278e61180d1000d3ad070fe-780c82f8f5a149cbb0b8586ac5544025&esid=ad55eb36-e2ec-ea11-a815-000d3acae753
Alert issued from the SMSF Association.