The Australian Taxation Office is a great resource for information on SMSF – here is a video produced for SMSF Trustee’s.
I had a phone call the other day asking if a SMSF can loan money to an ex-wife of a member. I must admit my first thought was you would have to be crazy! But it does pose an interesting question.
Firstly, a SMSF cannot lend money or give any other financial assistance using the fund resources to a member or relative of a member (section 65 SISA).
So who is a relative of a member?
According to The Australian Government, one of the most confronting and evolving matters seen today, is the lack of Financial literacy among Gen Y. Providing financial education to our kids today, presents the best possibilities for our monetary future and stability. With knowledge, this has the potential to lead to more responsible; borrowing, investing, saving and spending patterns.
Loans and Debts
A common problem today among investors, is the ability to blame the lender against its better judgement. Many people believe that through regulation, institutions who lend will make wiser decisions in whom they lend to… not the case. Research has proven that tighter regulations of borrowing power though institutions will not ‘cure the cause’. Simply, the responsibility falls upon the borrower to make repayments and manage their funds in order to re pay or maintain the debt.
The SMSF pension rules can be a minefield to negotiate and it is so difficult for accountants in public practice keep up with all the changes to GST, Tax, FBT, Etc. Etc. let alone pensions that you may not come across very often. I see mistakes when dealing with pensions all the time, below are five of the common SMSF pension mistakes that I come across.
1 Set up documents
Documentation is important to ensure that the pension actually commences when you want it to commence. Typically, a pension may start before an actual pension payment is made. For example, sometimes the pension start date will be 1st July and the actual pension payment may be a yearly payment commencing the following June. The documentation should reflect this and include at a bare minimum such things as a request from the member to the trustee, minutes of the trustee, and notification from the trustee to the member (type of pension, when to be paid, if a reversionary pension is to be applied, etc.).
I was cleaning up my office at home over the Holiday period and came across some old “Money” magazines. Picking up one that had a special feature on superannuation and business owners from October 2002, I flicked through the articles and was interested to see how much things had changed and how much has stayed the same.
Business Owners and SMSF Contributions
One of the articles that struck me was entitled “Going it Alone” – it stated that “the Australian Bureau of Statistics tells us that only about 20% of small business people are contributing to super.” Back in 2002, if you were self-employed (as a sole trader or in partnership) the maximum full tax deduction for superannuation contributions was $3000 (increased to $5000 during that year). Now we are able to make tax deductible contributions up to the contributions caps limits – for those under 50 year of age $25,000 and $50,000 for those over 50 for the 2012 financial year.
Time to reform the excessive contributions tax legislation.
I read with interest that the Institute of Chartered Accountants (ICAA) has used its pre-budget submission to urge the government to reconsider the legislation regarding the excessive contributions tax and the refund of up to $10,000 in excess contributions. They have called for the implementation of a full refund of excess contributions regardless of the amount, timing or frequency.
The SMSF industry has seen that the ATO has had their hands tied by the legislation that the ICAA described as “excessive, unwarranted and inconsistent not only with the policy objective, but penalties for breaches in other areas of the tax law”.
I can’t believe how quickly Christmas has come around this year. I am looking forward to sharing Christmas with the family and telling a few stories over a couple of drinks.
There are a few common things that I often hear when I say that I specialise in self-managed superannuation. Firstly, I hear the comment I don’t want to put my money into super because they change the rules all the time. The second common comment I hear is I don’t want to invest in superannuation because it is too risky.
I am commonly asked by accountants “should I set my SMSF clients up with a company as trustee or just have individuals?”
It is always my preference to have a corporate trustee over individuals for a number of reasons. The main reasons are risk minimisation, asset protection and simplifying administration.