SMSF Strategies

[Fraxinus]

This is my first post. I manage an SMSF with share market investments. I was using a financial adviser until 18 months ago but he lost me heaps so I took it over, read everything I could get my hands on about the share market and my particular shares and now use an online broker.
I am now becoming more confident and my portfolio is doing quite well (thanks to a fair wind on the market) I also subscribe to one of the investment newsletters.
I mostly buy and hold as I am accumulating for my retirement and I’m too busy working to spend time glued to the screen looking for trades. I also like to sleep at night.
My biggest dilemma is deciding when to sell.
I also have an ethical bias to my portfolio which excludes me from fossil fuels, gambling stocks and companies with a questionable environmental or social record, so I have difficulty in particular choosing resource stocks, although I think I’m doing OK with Portmans.
I’d be interested to know if anyone else on the forum has experience managing an SMSF and if there are any experiences, tips or tricks they could share with me.

[clowboy]

Well I have experience managing a SMSF but I can't really say that I have any tips etc to share.

[RichKid]

I also subscribe to one of the investment newsletters.

I think I’m doing OK with Portmans.
I’d be interested to know if anyone else on the forum has experience managing an SMSF and if there are any experiences, tips or tricks they could share with me.

First of all, Welcome!!

Which newsletter do you subscribe to if you don't mind me asking? just out of interest, see the newsletters thread if you've got time and post something if possible as I'd be keen to discuss things, I use a lot of free tips sheets (newspapers and mags).
Portman looks like it's a takeover play, you must feel fortunate, might go North this week at high speed!!

Sorry I don't have anything to offer on SMSF but I'm looking into setting one up as my trades are doing better than my super manager and even cash rate returns are good for me as the management fees etc really kill my super. I can't believe they get away with such poor performance.

[Fraxinus]

First of all, Welcome!!

Which newsletter do you subscribe to if you don't mind me asking? just out of interest, see the newsletters thread if you've got time and post something if possible as I'd be keen to discuss things, I use a lot of free tips sheets (newspapers and mags).
Portman looks like it's a takeover play, you must feel fortunate, might go North this week at high speed!!

Sorry I don't have anything to offer on SMSF but I'm looking into setting one up as my trades are doing better than my super manager and even cash rate returns are good for me as the management fees etc really kill my super. I can't believe they get away with such poor performance.

I subscribe to FatProphets although I haven't used many of their recommendations yet. I have also joined the Australian Investors Association.

The Portman offer has just been announced at $3.40. Good one!

I sympathise with you on management fees. I think they should be linked more directly with performance.

I feel more in control now I'm managing my own super. The only drawbacks are the auditing fees (money for accountants) and every few years the trust deed has to be rewritten (money for lawyers).

[RichKid]

I subscribe to FatProphets although I haven't used many of their recommendations yet. I have also joined the Australian Investors Association.

The Portman offer has just been announced at $3.40. Good one!

I sympathise with you on management fees. I think they should be linked more directly with performance.

I feel more in control now I'm managing my own super. The only drawbacks are the auditing fees (money for accountants) and every few years the trust deed has to be rewritten (money for lawyers).

Hi Fraxinus,
Well done on Portman, Fat prophets seem ok I like them, you can find their old reports via google and their annual reports are free on their site. Tipsheets often cover the same stocks but FP seem a bit better than the rest. I also keep an eye out in the papers for broker picks but make up my own mind.

Are there any good books that you found useful when going out on your own with your fund? Any you can recommend for someone like me who's considering a similar path (maybe next year)? Let's hope the super choice changes will make things fairer, might take awhile though.

[Fraxinus]

Regarding books and other reading materials... I did dip into one of the Warren Buffett books which had some sage advice. I also read a number of the ASX on-line tutorials. I bought investment mags for a while and I now also subscribe to Fairfax digital's newstore which sends me a note whenever there's a story about one of my stocks.

The E-trade site has been educational as well. They provide a lot of background info on companies as well as recommendations and stock selectors that you can use to choose stocks that fit your criteria.

I recently started reading the online mag Aireview which summarises what brokers are recommending.

I also like to read the personal investment section in the Sun-Herald.

[drmb]

This is my first post. I manage an SMSF with share market investments. I was using a financial adviser until 18 months ago but he lost me heaps so I took it over.......
I can empathise with that! My f/a was taking management fees of close to 45k p/a and 70% of my portfolio was reported quarterly with brackets around the amounts in the growth column. He kept saying we're buying on the market as it goes down but that's all his picks ever did! Go down. For that amount of money I set up my own smsf and made a few mistakes initially, but recovered from that. I am vey interested to hear how other smsf owners diversify?

[Little1]

We have our own SMSF and have used a F/A since it was started 6 years ago. Everything is done through Assetchoice and they produce a report the accountant digests to spit out a tax return. Cost of manageing $400k, $5,300 + $1900 accounting and audit. How does this compare with others?

I did find an accountant in Melbourne who would do the books for about $700.

I was also going to ask if anyone has any strategies for SMSFs in a bear market as my understanding is SMSF can not take short positions or use derivatives.

Any books on subject?

Thanks guys

[tech/a]

Your question was when to sell.
A very intelligent and more important question LONGTERM than when to buy.
It will have MORE impact on SMSF profit performance than when to buy!

SELLING

(1) The portfolio. In total.
(2) Individual components of the portfolio.

(1) This is a long term investment so look long term.
(2) Again you need to look long term.
I would simply be holding stock which is in an OBVIOUS uptrend.
Selling stock which Has moved from a LONGTERM up trend to a down trend.
Moving held stock trading in a range over a longterm (say 6 mths) and doing very little to stocks which are in an OBVIOUS uptrend.

WEIGHTING
I would shift amount of stock held from this appearing to enter a DOWNTREND to those still in an OBVIOUS uptrend (So hold more $$s in the uptrending and less in the not so sure.
Same with those in consolidation--lighten those and go heavier Trending.

SIMPLE AS THAT.

Long term thinking.

Little There will always be trending stock even in bear markets---to the long side.

Longterm thinking.

I have my own managed superfund,Am a Licienced Builder not a financial planner---thank GOD.

Remember---"most Financial Planners are striving to BECOME as wealthy as their clients!!!"

[money tree]

Remember---"most Financial Planners are striving to BECOME as wealthy as their clients!!!"

Golly, theres a shock. Are you suggesting there are some FP's who are not yet rich and trying to get poorer?
Or that FP's will continue to work for low pay once they become a millionaire? Poor people usually have no need for a FP, so why would it be a shock that many of a FP's clients are wealthy?

Your statement is constantly repeated as though its some phophetic ingenius wisdom, when in fact its an ignorant misleading generalisation designed to scare people away from getting advice when they may be in trouble without it.

I guess you better not go to the doctor, cos he is trying to be as healthy as his patients! :banghead:

what about your teachers at school? Did they all win the nobel prize?

Should we ignore the advice of all experts unless they can prove they are the worlds most successful in their field?

Its hilarious!

[Kimosabi]

The Financial Planner I went and saw a few weeks ago ADVISED me that I should Borrow money to invest in a managed fund so I could get some 'LEVERAGE'.

He told me all my existing investments were effectively crap, and that my money is better off being looked after by an 'EXPERT', "Wouldn't that be great", he said.

Anyway he rang me about a week an a half ago and asked me if I wanted to pursue the investment strategy he'd recommended.

I said to him that I was 'DEFINITELY' not borrowing any money to invest and that my research indicated that now is probably a really bad time to be investing and that I was more open to putting money into things like managed funds during the bottom of the Market (Not the top of a Bubble D1ckhead). Sh1t, I still remember seeing negatives on my Super Statements a few years ago.

I asked him if he new anything about the downturn in property in the US, which he knew a little about, "BUT HE DIDN'T KNOW ANYTHING ABOUT THE US SUBPRIME MORTGAGE MARKET SELF-IMPLODING IN ON ITSELF". Seems I'm more informed than my financial adviser.

Anyway, he was starting to get a bit sh1tty with me by then so we agreed that he should give me a call after the World's Financial Markets have crashed. hahaha, He might be giving him a call in a year or so if last week's little speed bump get's some momentum.

Now I have serious trust issues with any of these Financial Advisers(Investment Brokers) because I was in Westpoint when the Receivers/ASIC moved in, and I have seen these supposed 'Wealth Consultants' in action and I didn't like what I saw.

[tech/a]

Tree we have been here before.

Get advice by all means but get advice from people who are living their advice (In the financial arena) not just professing it.

In the Finanicial arena if I wish to learn something BEYOND generalisations I'll seek out a RADGE whos Traded on the floor of CBOT.If I wish to discuss RISK I'll search out One of the other reefers who was Risk manager for Currencies with ABN AMRO Tokyo.

Property
I'm certainly not going to listen to a Planner who.
(a) Doesnt have a home of his own.
(b) Doenst have an investment property.
Start talking subdivisions,Community title developements and you get really dumb responses---ignorance abounds!

Business.
I'm not going to listen to an Advisor who has either no staff or perhaps a secretary.Netting $150k a year if he's lucky.
I run up to 20 which if you've never had 20 staff you wouldnt have a clue of the issues that generates.Nor would you have any idea of infrastructure needs as I move into 1 million $ projects interstate.
For this I search out mentors who have been there before me.You'd be suprised how much you can learn from people who have been there!
Talk to the majority of advisors---glum dumb looks

Call it Ignorant,Arrogant,Egotistical,Selfserving whatever you like.
If I'm investing what most would see as substantial sums I'm not going to entrust it with a novice.

No more than I would entrust Heart Surgery to my local GP.
Or My son would learn Optic Fibre and Laser Physics from his High School Teachers.

Tree beyond "GENERAL" advice the Financial Planning profession in my view is SADLY lacking,simply Managed fund salesmen in the larger majority of cases.

I had a Financial Planner who looked at my "Needs" and suggested I place $80k a year into Super.
Hell with that 80K I could grab $1 mill from my financiers and do a 4 apartment developement netting $350K---what will my Super return me?

Dumb look mainly as he knew I had done 2 such developements.

[yonnie]

I was also going to ask if anyone has any strategies for SMSFs in a bear market as my understanding is SMSF can not take short positions or use derivatives. Any books on subject? Thanks guys

no, that is not right.

you can trade derivatives like options, futures, cfd`s and warrants in a SMSF and take short positions as long as you dont sell them on margin.:)

[Jimminy]

a friend in finance told me that he has heard of people doing this.

Buy shares in your own name in a stock with low volume and then have your superfund buy them at a, say, a 10% increase on what you bought your original shares at.

So in otherwords they have transferred wealth from their superfund to their private broking account. Very ddogy I thought, but it got me thinking.....:rolleyes::sly:

I guess if the shares the superfund has bought still appreciate you win/win. But he seemed to think plenty of young people with quite a bit tied up in super are more than happy to do this for some quick change.

has anyone ever done this or heard of it happening.

[Prospector]

You have to buy shares at market rate, not an inflated one; so that strategy is definately not legal!

[yonnie]

jimminy,

could be done with low value shares like MBI.
quotes 0.5-0.6 cents

those shares are trading at both prices quite often.
personally you can buy them at 0.5 and sell to SMSF for 0.6 on a day that the 0.6 price is on the board.

Be cautious though what people tell you: you may not hear from them when ATO has a nosey and declares the SMSF non-complying and will have to pay tax in the SMSF at the marginal rate.
Some people are too clever for their own good.

[Jimminy]

You have to buy shares at market rate, not an inflated one; so that strategy is definately not legal!


But you are still buying them on market - hence the reason you would need a low volume or tightly held share where there is a gap from buy to sell.

[CFD]

As I understand it an SMSF can borrow money, they just can not use SMSF assets to secure the borrowing.

[Prospector]

But you are still buying them on market - hence the reason you would need a low volume or tightly held share where there is a gap from buy to sell.

When your SMSF buys shares from your personal account they are done through off market trades.

[yonnie]

As I understand it an SMSF can borrow money, they just can not use SMSF assets to secure the borrowing.

a SMSF cant borrow at all: thats a big no no:cool:

and besides: where would you borrow money without security apart from $ 20 from the corner shop?

[Adventure Always]

Hi Guys

A SMSF cannot incur debt in any way, shape or form

This is why SMSF's cannot invest in an installment warrant as this is a debt facility, unlike an endowment warrant which is a contractural obligation.

CFD's are a contractural obligation and a SMSF can use these instruments, providing they lodge cash with the provider and do not lodge assets as security - this is seen as allowing someone to take a charge over the assets of a Superannuation fund which is definitely against the law.

Have a great day

Pete

[YELNATS]

Hi Guys

A SMSF cannot incur debt in any way, shape or form

This is why SMSF's cannot invest in an installment warrant as this is a debt facility, .......

Pete

Hello Pete,

I run my own SMSF and have been investigating a facility called Quantum Warrants which are available both for property and equity investments. Here's part of of what they say on their website www.quantumwarrants.com.au:

Quote:
About Quantum Portfolio Warrants
A Quantum Portfolio Warrant is a structure that allows you to buy a portfolio of shares or managed funds using your equity and borrowed funds. A Quantum Portfolio Warrant is an instalment warrant. You make an upfront equity payment and then the final payment (loan) to take possession of the underlying investments.

The instalments allow you to gain exposure to the shares or managed funds by making a part payment upfront and delaying a final payment until a later date.

This allows you to buy the shares or managed funds for a fraction of the current price, while receiving the benefits of any capital growth, dividend returns and tax deductions

Key Features
• Ability to increase the pool of investable funds within your superannuation fund
• Ability to increase diversification within your superannuation fund
• Access to the benefits of dividends, franking and tax deferred distributions on the total investment amount without your superannuation fund having to contribute the total investment amount
• Potential to use excess franking and interest deductions to offset contributions and earnings taxes within your superannuation fund
• Extensive choice of Approved Securities including shares and managed funds
• Ability to trade Approved Securities
• Flexible payment options including interest
• Ability to create a "self funding" position such that expected dividends exceed interest expense, leaving the excess available to reduce your debt
• Competitive interest rates and low facility fees
• Simple application process without credit checks in most cases
• Consolidated reporting (with online access) on all transactions, investment holdings, obligations, dividends, distributions and interest
Unquote

Can you comment on this, as like you I understood that SMSF's couldn't borrow, but this company indicates that SMSF's can participate in instalment warrants.

Look forward to your comment. Many thanks, regards YN:)

[CompareSMSF]

Interesting article from the Bulletin re: SMSF's borrowing.

DIY funds await green light (http://bulletin.ninemsn.com.au/article.aspx?id=296649)

[fourth]

A SMSF cannot incur debt in any way, shape or form

Can't you just set up a company structure that does the business, then buy shares equal to 100% of the value of the super fund. Then just do whatever the hell you want inside the company?

[reece55]

Can't you just set up a company structure that does the business, then buy shares equal to 100% of the value of the super fund. Then just do whatever the hell you want inside the company?

Short answer is no, because the income from the Company would be special income to the Super Fund and taxed at 46.5%.......

If it doesn't work directly in a super fund, then you have no chance of making the super fund investing in a structure that does the same thing....... Otherwise wouldn't we all invest in unit trust that lent money to people????? HAHAHAHA....

Cheers

[Junior]

Hi Guys

A SMSF cannot incur debt in any way, shape or form

This is why SMSF's cannot invest in an installment warrant as this is a debt facility, unlike an endowment warrant which is a contractural obligation.

CFD's are a contractural obligation and a SMSF can use these instruments, providing they lodge cash with the provider and do not lodge assets as security - this is seen as allowing someone to take a charge over the assets of a Superannuation fund which is definitely against the law.

Have a great day

Pete

This is incorrect.

For example you can purchase 'Self Funding Installments' which are a geared product. This is allowed because the way they are structured means that you cannot end up in a situation where you have negative equity.

[Boggo]

A SMSF can invest in instalment warrants.

http://ato.gov.au/taxprofessionals/content.asp?doc=/content/00102389.htm

http://assistant.treasurer.gov.au/pcd/content/pressreleases/2006/078.asp

[awg]

Hi,
I am just now setting up my SMSF, after 3 years with a planner led Wrap fund.

I researched the alternatives, and have found a Melbourne base organisation,
Esuper, that will set up SMSF free and charge only $599pa, for all audit and financials.

There is a one off $590 to set up the Corporate Trustee and $499 to setup the Pension.

A Commsec account is established and as many trades as one wishes can be carried out.

I have become dissatisfied with the fees and lack of aggressive advice from the planner. My balance is over $1m.

my Wrap was setup with managed funds, over the last couple of years I have been reallocating into direct shares, mainly Resources and Financials.

Because I recieve a Pension, the Managed funds do not distribute the Franking credits to me, as effectively as they would in direct shares.

I have had to learn everything myself, my advisor never rings me, I ring him and instruct to buy certain shares. He is not permitted to give me any advice on shares.

My ongoing strategy is to virtually eliminate managed funds, to hold 20 to 30 shares, to utilise these newer ETF's to gain International and ASX 200 market tracking exposure,and maintain my ongoing education regarding stockpicking.

I expect to pocket extra, no risk, about $15,000 pa, by greatly reducing MERs, buy/sell spreads, Accountant Audit fees, and Financial planners fees.

Does anyone have any comments regarding the new style ETF's..for example iSHARES, recently introduced, especially regarding liquidity, MER and any risks/downsides associated with their use.

regards tony

[Boggo]

Tony

I am not familiar with these etf's etc but I would strongly recommend that you have a look at StockDoctor.

It narrows the playing field down in your favour.

For investment stocks I believe it is essential.

Ask around, my :2twocents

Mike

[Julia]

There is a one off $590 to set up the Corporate Trustee and $499 to setup the Pension.

regards tony
Hello Tony,

What does the Corporate Trustee do? Are you planning to set up the SMSF as a company?

I've had a SMSF for several years and have never heard of a Corporate Trustee.

There are several ASF members who have used E-super and hopefully some of them will let you know if they are happy. I know from one of them that they registered the Fund for GST which apparently delivered them (E-super) some advantage.

Sorry, no experience with ETF's. I use all Australian direct shares.

[awg]

The Corporate Trustee structure:

1) allows a single member to be in control without the need for another trustee

2) In the event of adding other family members in the future, it is easier to do this for several reasons

3) My accountant strongly advised the Corporate trustee structure,
it is allegedly better for Estate planning, and future administration.

I was somewhat sceptical, cause it costs the extra $590 setup + $45 pa ASIC fee, but as he strongly advised I felt best to take his advice, even though I decided not to use his services for the SMSF, due to higher cost.

The ESUPERFUND uses software to automatically audit the share transactions, that is why it is so much cheaper. The accountants are supposed to manually check each share transaction, dividends etc.

The Esuper people told me one of their clients did over 2000 share transactions within his SMSF...same audit price $599.

[YELNATS]

I feel more in control now I'm managing my own super. The only drawbacks are the auditing fees (money for accountants) and every few years the trust deed has to be rewritten (money for lawyers).
Hi Fraxinus, I've been running my own SMSF for about 6 years now.

In addition, I also still have a retail super fund. Since 01-01-2007, I am +19% with my SMSF and only +6% with my retail fund. In the prior 2 years, it was much the same result. It says a lot about the impact of fees in retail funds I think.

I pay about $1000 pa for my accountant to prepare the financial statements and annual tax return for my SMSF. I have no problem with this, as I think the fee accurately reflects the amount of work the accountant needs to do to put all the results together.

However, I've haven't heard anything about the SMSF trust deed needing to be rewritten every few years involving lawyers. For what reason(s)? My SMSF Trust Deed was set up by my accountant with my collobaration. ie. lawyers were not required, and I see no reason to change/update it. Can you please elaborate on this aspect?

Best wishes with your SMSF, you seem to be on the right track with it.
Many thanks.:)

[yonnie]

YELNATS,

the trust deed will be outdated quickly if you want to go beyond trading shares.

you will have to keep an eye on your trading strategy for your SMSF as a lot has changed since 6 years ago.

if you want to trade cfd`s, warrants, options etc, you will have to change your SMSF`s trading strategy to include those derivatives.

so your trading got to reflect the SMSF trust deed, otherwise it will be called non-compliant and you will be in a lot of trouble.:mad:

[macca]

There are companies that specialise in updating all the rules, your accountant should know of them.

I got a letter from my accountant in April saying time to check and update SMSF company paperwork, cost me $99.00 payable to Thrifty Corporate services.

HTH

[Julia]

There are companies that specialise in updating all the rules, your accountant should know of them.

I got a letter from my accountant in April saying time to check and update SMSF company paperwork, cost me $99.00 payable to Thrifty Corporate services.

HTH

And what did you get for your $99.00, Macca?
What differences were made and did you feel they were all necessary/relevant?

I'm not suggesting this is the case here, but I imagine there would be the odd organisation out there quick to make a buck through offering a service which will capitalise on someone's anxiety not to offend the ATO.

[hangseng]

Hi,
I am just now setting up my SMSF, after 3 years with a planner led Wrap fund.

I researched the alternatives, and have found a Melbourne base organisation,
Esuper, that will set up SMSF free and charge only $599pa, for all audit and financials.

There is a one off $590 to set up the Corporate Trustee and $499 to setup the Pension.

A Commsec account is established and as many trades as one wishes can be carried out.

I have become dissatisfied with the fees and lack of aggressive advice from the planner. My balance is over $1m.

my Wrap was setup with managed funds, over the last couple of years I have been reallocating into direct shares, mainly Resources and Financials.

Because I recieve a Pension, the Managed funds do not distribute the Franking credits to me, as effectively as they would in direct shares.

I have had to learn everything myself, my advisor never rings me, I ring him and instruct to buy certain shares. He is not permitted to give me any advice on shares.

My ongoing strategy is to virtually eliminate managed funds, to hold 20 to 30 shares, to utilise these newer ETF's to gain International and ASX 200 market tracking exposure,and maintain my ongoing education regarding stockpicking.

I expect to pocket extra, no risk, about $15,000 pa, by greatly reducing MERs, buy/sell spreads, Accountant Audit fees, and Financial planners fees.

Does anyone have any comments regarding the new style ETF's..for example iSHARES, recently introduced, especially regarding liquidity, MER and any risks/downsides associated with their use.

regards tony

I take it this is what you are referring to?
http://www.esuperfund.com.au/index.aspx

I have been looking to SMSF for some time as after analysing what the fund managers take and the performance of the funds I have. I would have been far beter off trading in direct shares myself, i.e. I have by far outperformed my super funds % performance over the last 5 yrs and they are both only in Aust shares. When I saw what they poured into the units on the 23/7 last year when I was busy getting out of the market, I was quite staggered that I could see what was coming but professionals couldn't or if they did were tied to "policy' to re-invest. I would have expected at least they wouldn't have placed such a large amount into the market at that time. Waiting 3-4 weeks would have made a huge difference to what I have now in super. At least they are seemingly holding back at present with the cash account loading up again ready to place into the market.

Also found a litle something that has me angry at myself. The fund managers seems to retain funds that outperfom the all ords index. I am yet to confirm but if it is fact then it would explain why my collective super has only just performed near the index before fees in the last 5 yrs, after fees I am behind the index.:banghead: I have ben so caught up in trading shares directly that I wrongly left the funds to there own devices.

Esuperfund seems excellent with low fees and I am in complete control. Just wondering if anyone has feedback after using them over time?

Either way SMSF here I come.

[xyzedarteerf]

I take it this is what you are referring to?
http://www.esuperfund.com.au/index.aspx

Either way SMSF here I come.

i say do it ASAP before the fed govt start regulating SMSF more and more as i cant imagine half the working population pulling out there super funds and doing it on there own, which for me is a far better option than just watching your super go up and down with no control.

[danhoff]

hello gentleman and ladies... this is my first post

for year after year I got confused why my retail super funds always UNDERDID the market by 5%; four years ago I told my super managers to put all my money into the 'aggressive' managed funds; well the stock market grew 20% a year and my fund grew 14%; in fact, I had three retail funds... AMP, State Super, and Spectrum. And I was amazed how a monkey throwing darts at the ASX200 could out perform fund managers.

in Nov, the funds that I could control, I had all the money moved into 'capital stable' funds, but I did also set up an esuper fund. I have no idea what one writer says about esuper doing something with GST to their advantage.

I can only tell you since Nov I have increased my portfolio about 10% (with the monies I transferred to my SMSF) whereas the monies I left with AMP (about $43,000 simply crashed down to $35,000); and I invested in such dodgy shares as ANZ, ERA, BHP, ZFX, UGL, CWN, PAG. So, I have no idea what the heck these BMW, MERCEDES driving fund 'managers' are doing - other than losing my money and collecting fees for doing worse than the aforementioned monkey throwing darts at the share list showing in the daily newspaper

re esuper, I am sad I must trade on comsec at $29 fees, not the $19 - I am not allowed to use a CommBank account (which gives lower fees) I am required to use a Macquarie account and a Commsec account the report directly to esuper - in fact, I am a 'third party' on my own account, but they say they do that so that they can do your returns each year for $600

that leads me to two questions you all may be able to answer me

1) since my wife spends hours and hours daily monitoring and managing our SMSF, can I pay her a FEE from the SMSF for her work; I am not doing anything dodgy, but I would think since some idiot losing my money gets fees, I should be able to pay my 'stay at home' fund manager a small stipend... is there any guidance there from you all

2) just tonight after a few wines, I thought (from a tax and fee advantage) it would be most useful to buy shares personally and TRANSFER them to my SMSF; is there any problem with that... it sort of goes like this

I KNOW ANZ is great value at just a tick over $20; so why dont I just buy them personally, and if they go up... great... I sell and pocket profit. If they go down, since I KNOW they are great value, I sell them to my SMSF (at the daily rate via share transfer)... in this way I get a nice tax deduction for the capital loss and my SMSF has a quality share at a great price. It seems WIN WIN to me.

Comments?

Thanks all, I enjoy your down to earth words.

[Dezza]

Welcome Danhoff and congrats on boosting your SMSF.

I'm no Accountant, so please double check with your tax adviser before doing anything. However, to my understanding, if you pay your wife a fee, she will then have to declare that as an income and pay tax at her marginal tax (unless operating under a business name).

As for transferring shares, you can make in-species transfers from your personal name to the SMSF, however, there are CGT implications upon the transfer of ownership as with most cases. So before completing any transfer, be sure to check with your Accountant.

As for the CommSec brokerage fees, Colonial First State have a SMSF Admin product called YourChoice, which will administer your SMSF. Allows you to hold property / shares / managed funds, and does not require a Macquarie Account for trading. Therefore, you should be able to use your CBA CDIA account and trade at a lower cost. More info can be found at www.colonialfirststate.com.au.

However, please do your own research. The above is just my input / personal opinion.
Cheers and have a good night.

[reece55]

1) since my wife spends hours and hours daily monitoring and managing our SMSF, can I pay her a FEE from the SMSF for her work; I am not doing anything dodgy, but I would think since some idiot losing my money gets fees, I should be able to pay my 'stay at home' fund manager a small stipend... is there any guidance there from you all

2) just tonight after a few wines, I thought (from a tax and fee advantage) it would be most useful to buy shares personally and TRANSFER them to my SMSF; is there any problem with that... it sort of goes like this



Is your wife a trustee of the fund? Because if she is, the answer is definitely no. Personally, regardless of that fact, I would probably avoid doing it, the other questions would be is she qualified to do the work, is the transaction at arms length as she's a related party - all big no no's in super land...

You can certainly transfer or even make the fund buy the shares with cash if you like, listed securities are one of the 4 exemptions from the related party rules. However, if you only transferred the shares for a tax advantage and generated the loss to reduce other gains, the strict answer is that you shouldn't do this. The ATO have been pretty heavy in the media stating that they are looking at wash sale type transactions and if the only reason for the sale/transfer is for tax purposes, then they are likely to have an issue with it. In saying all this however, I think it will be very difficult for the ATO to monitor.

As usual, the above does not represent financial advice, when it comes to super, ALWAYS double check with your accountant...

Cheers

[Prospector]

Paying your wife or partner would to me, be a red flag to the ATO. SMSF's cannot run a business; paying someone a salary is like running a business. I spend a lot of time managing our SMSF but you just have to lump it. No way would I even think of paying myself a salary, nor anyone else.

As for your shares, you can buy them personally and then transfer them across.

The above is not financial advice, just what I have been told, so seek advice from your accountant/financial advisor before doing anything!

[rick62]

Hi

My wife and I have a SMSF [largely direct shares]which is presently being administered by a FP. We are in the process of moving the entire fund away from him and his firm. The shares and MFs will go to a Comsec HIN a/c. The taxation, compliance etc will go to a chartered accountant. This guy has been our personal accountant for some years and looks after quite a number of SMSFs for clients. I've only one brief meeting with him about SMSFs and, naturally, there are still gaps in my knowledge.

I largely retired in 2003 but continue to do independent [ie: self-employed] casual work as a consultant. [I have not had a SMSF all that time by the way].

If anyone has time to help with a few questions then I'd be grateful:

Just how do I salary sacrifice my earnings?

Can payments for my consultancy work be made out to the SMSF [the super fund] and its ABN and then deposited into our SF a/c? I’m pretty sure the answer is “No” and that the fund would be seen as running a business.

If my earnings are cheques made out to me [and my business ABN], can these cheques be deposited directly into our SF a/c and be viewed as a personal contribution? Here I think the answer is “Yes”. [These earnings would also form a part of my personal income and be a part of my personal (not SMSF) tax return]



Because I am over 60 and not an employee [but rather part-time self-employed] are lump sum withdrawals in the pre-pension phase tax free?

All help appreciated!!

With thanks

Rick

[Dezza]

Hi Rick,

As you're self-employed, you can make concessional contributions (c/c's) to your SMSF from your employment income/earnings. As you are also above 60 yrs, you can make up to $100,000 this Financial Year and until 2012 without incurring additional contributions tax (however, the standard 15% contributions tax to super is applicable).

Although you are over 60, you haven't met a condition of release yet and your funds will remain preserved and cannot be withdrawn in lump sum amounts until i) you deem yourself permanently retired, ii) hit 65 years iii) or in the ATO eyes, work less than 10 hours per week to be deemed retired. You are able to however, set up a pre-retirement income stream and draw down a maximum of 10% of your SMSF balance per annum. There is a dodgy loophole at the moment to 're-boot' your SMSF income stream, however it defies the purpose of the income stream and is looked down upon from the ATO, so I won't discuss it here.

Note that if you have unrestricted non-preserved amounts, you can withdraw these at anytime, however, if you convert to an income stream, the income will be drawn from this component first.

Hope this helps a little. But as for all posts, please seek financial advice from your licensed planner or tax adviser before proceeding as this is just my personal opinion.

[rick62]

Hi Rick,

As you're self-employed, you can make concessional contributions (c/c's) to your SMSF from your employment income/earnings. As you are also above 60 yrs, you can make up to $100,000 this Financial Year and until 2012 without incurring additional contributions tax (however, the standard 15% contributions tax to super is applicable).

Although you are over 60, you haven't met a condition of release yet and your funds will remain preserved and cannot be withdrawn in lump sum amounts until i) you deem yourself permanently retired, ii) hit 65 years iii) or in the ATO eyes, work less than 10 hours per week to be deemed retired. You are able to however, set up a pre-retirement income stream and draw down a maximum of 10% of your SMSF balance per annum. There is a dodgy loophole at the moment to 're-boot' your SMSF income stream, however it defies the purpose of the income stream and is looked down upon from the ATO, so I won't discuss it here.

Note that if you have unrestricted non-preserved amounts, you can withdraw these at anytime, however, if you convert to an income stream, the income will be drawn from this component first.

Hope this helps a little. But as for all posts, please seek financial advice from your licensed planner or tax adviser before proceeding as this is just my personal opinion.

Thanks Dezza. I wish this was easier!
I just phoned the ATO.
They advised that I can make personal contributions [is this what you mean by "concessional"] as I wish.
They also said I could make lump sum deductions from the SMSF tax free - which I have been doing.
Perhaps these have been coming from my undeducted contributions?
Does this make sense?
Rick

[Dezza]

Hi Rick,

There are different types of contributions, each with their own limits. If you exceed these limits, you can pay up to 97% tax on the excess (eg. if you breach the concessional cap + the non-concessional cap in a financial year).

Personal contributions can be made as either concessional (e.g. pre-tax dollars) or non-concessional (after-tax dollars). C/c's attract 15% contributions tax whilst NC/c's are tax-free as it's coming from after-tax dollars. These have their own caps ($100K C/c's for over 50s and $150K/$450K NC/c's depending if you use the bring-forward rule).

If you haven't met a condition of release for super, you can only make lump sum withdrawals from your SMSF if you have unrestricted non-preserved components. Otherwise, the funds remain preserved until you meet one of those conditions. Even non-concessional (undeducted) contributions are preserved.

As always, your situation is personal so please seek advice from your Accountant to work out what components you have and how much you have left in your caps this Financial Year.

[TheRage]

Hi

My wife and I have a SMSF [largely direct shares]which is presently being administered by a FP.

Rick

I am interested in knowing why you have chosen to move the managing of your SMSF away from you FP. I am assuming that you feel that the value provided by your FP is not enough to justify the cost and you now feel like managing your own finances? What is you accountants compliance fees?

[rick62]

Hi Rick,

There are different types of contributions, each with their own limits. If you exceed these limits, you can pay up to 97% tax on the excess (eg. if you breach the concessional cap + the non-concessional cap in a financial year).

Personal contributions can be made as either concessional (e.g. pre-tax dollars) or non-concessional (after-tax dollars). C/c's attract 15% contributions tax whilst NC/c's are tax-free as it's coming from after-tax dollars. These have their own caps ($100K C/c's for over 50s and $150K/$450K NC/c's depending if you use the bring-forward rule).

If you haven't met a condition of release for super, you can only make lump sum withdrawals from your SMSF if you have unrestricted non-preserved components. Otherwise, the funds remain preserved until you meet one of those conditions. Even non-concessional (undeducted) contributions are preserved.

As always, your situation is personal so please seek advice from your Accountant to work out what components you have and how much you have left in your caps this Financial Year.

Am I getting closer Dezza?
If I earn $$ from consultancy work [and I'm not talking huge amounts -- maybe $15-25k a year] and pay personal tax on those earnings [which is what I have been doing] then the $$ can go into my SMSF as non-concessional tax-free contributions?
[[U]You must be an accountant!]
With your [i], [ii], [iii] in your first post (regarding release conditions) do ALL of these have to be met or any one of the three? Over a year I work less than the average of 10 hours / week you mention. {My wife refuses to pay me for the meals and cups of tea I make}.
Sorry this is taking a while to sink in. While I got distinctions for pure maths at Uni, I was a disaster at applied maths.... altho a lot of this really belongs in the world of foreign languages.
Thanks, again, for your help.
Rick

[Dezza]

Haha, no worries Rick. I'm still learning about things as well. Not an Accountant, but work in the Financial Planning industry.

You are spot on with the first part. Using your post-tax earnings to contribute to super is a non-concessional. However, as you are classified as self employed, you can also claim a deduction on these contributions, which in turn changes them to a concessional contribution. The purpose of this is to minimise your taxable income, especially if you have CGT implications for the financial year, works a treat. However, seeing as your income is around the 15% tax bracket anyway, there's no real benefit of this, so your non-concessional contributions are good enough.

As for the preservation rules, the ATO has a listing of when you can access them here: http://www.ato.gov.au/super/content.asp?doc=/content/48211.htm
You only need to qualify for one of them, not all of them, to qualify for access. From the sounds of it, you should be able to qualify.

However, again, just personal view based on the info provided. Don't take this as personal advice, and always check with your Accountant / Adviser before proceeding.

[rick62]

Thanks Dezza - the picture is slowly coming together although sometimes the information is not consistent.-- Or maybe it is, but my understanding is inconsistent.
On a similar / related topic: Superannuation co-contributions.
The ATO told me I was eligle but my wife is not. We are both trustees of our SMSF and occasionally draw lump sums from there.
Difference is, according to the ATO, that I am self-employed [even if just casually]. My wife's earnings are from bank interest and share sale profits. [Shares outide the SMSF at this time]. She is not self-employed [other than as an investor perhaps]. Hence the ATO consider her a "passive" earner and ineligble for the super co-contribution.
Have others received this same advice please?
R

[TheRage]

Thanks Dezza - the picture is slowly coming together although sometimes the information is not consistent.-- Or maybe it is, but my understanding is inconsistent.
On a similar / related topic: Superannuation co-contributions.
The ATO told me I was eligle but my wife is not. We are both trustees of our SMSF and occasionally draw lump sums from there.
Difference is, according to the ATO, that I am self-employed [even if just casually]. My wife's earnings are from bank interest and share sale profits. [Shares outide the SMSF at this time]. She is not self-employed [other than as an investor perhaps]. Hence the ATO consider her a "passive" earner and ineligble for the super co-contribution.
Have others received this same advice please?
R

That's because 10% of your assessable income needs to come from eligible employment. Eligible employment can include income from self employment or carrying on a business hence your wife's passive income does not qualify.

[Julia]

What a terrific resource ASF is, huh, Rick?

Dezza and The Rage - many thanks for such helpful contributions.

[rick62]

What a terrific resource ASF is, huh, Rick?

Dezza and The Rage - many thanks for such helpful contributions.

Spot-on Julia. I'm glad I found ASF. And I add my thanks to Dezza and Rage.

[Dezza]

No probs. Studies and work actually became useful for once. ;)

[sandgroper3]

I've just launched into the world of SMSF using MySF software to set up and learn my own way on the accounting and management side and Esuperfund to make sure the job gets done correctly. This site has been a wealth of information, Thanks everyone.

Now to the problem at hand:

In order to rollover super into a self managed super fund, it is necessary to classify that super with respect to both accessibility and taxation.

Rollover statements classify the monies being rolled over with respect to accessibility: i.e. preserved and non-preserved and the two categories of non-preserved: Restricted and Unrestricted.

The same rollover statement classifies the same monies being rolled over with respect to taxation liability: i.e. Tax Free and Taxable Components and the two elements of Taxable components: taxed in fund and untaxed in fund.

Is there anywhere on the statement by which one can tell if, for example, all or some portion of an Unrestricted non-preserved rollover amount is non-taxable or taxable?

[Prospector]

At the 'annual accountants meeting" a few days ago; he said that I should be wary about how often I buy/sell shares in the SMSF structure, because the SMSF is not allowed to be in the "business of being a business" and that if I trade too regularly the ATO could re classify the SMSF as a business with huge penalties and loss of tax benefits. The ATO could say I derived "pleasure" from trading and that defeats the sole purpose test! :banghead: My sole purpose is to make money for retirement, but apparently that isn't a business. What kind of 'business' is it though, where you do research and work for hours each week but are not allowed to draw a salary? A flawed model methinks, but apparently the ATO don't see it that way.

He thought a maximim of 100 trades a year would be about the benchmark. I am well under this, but the amount of $$$ such shares I did trade was quite high. For reasons of the obvious fall of the markets, but also to lighten profit. A bit contrarian. The Investment strategy does not allow me to have more than a certain % of 'spec' shares in the portfolio; for me some of those spec shares (mining, mining, mining) paid off so I was forced to lighten them because of their profit :D; others, well, 1 of them (MFS) totally tanked.

I did a recalculation last night of how the SMSF was faring this financial year and I was back in the black! Today, given the 200 point fall in the DJIA, who knows. At least I am out of the financial sector these days. Thank god for iron ore and copper.

[elbee]

Prospector,

A SMSF can lose its concessional status if it fails to meet the sole purpose test. The sole purpose test being that the fund is run purely to provide retirement benefits to its members.

Now whilst the ATO has said its view is that if a superannuation fund is conducting a business, then it is not being administered for the sole purpose of providing benefits for the members, it is a bit of a stretch to say this implies a numerical limit on the number of trades a SMSF can make.

You clearly have, as the SMSF regulations require, a documented investment strategy that addresses the matters specified in the regulations, and are taking trading actions to comply with that plan. The ATO can have no argument with this regardless of the number of individual trades made.

Where the ATO may become concerned is if your trades are outside the mandate of the investment strategy or the strategy does not meet the Prudent Person Investment Act for your state, or if you are indeed conducting a business, trade or profession as distinct from investing in a business.

[Julia]

I have a question about the audit of the SMSF and hope someone might be able to help.

Despite having had all the information available to her since the end of the last financial year, my accountant has only this afternoon completed the financial statements for the tax return, lodgement date for which is this Thursday 15th. Given that there are some 30 odd pages of what to me is complex information, and further given that my careful checking of the return last year elicited two large and very expensive errors, I will not be signing off on it so she can lodge it electronically by 15th.

(I've contacted the ATO, explained, and as per their instructions, written requesting an extension. They were quite OK about that.)

Now I have always had the understanding - and this is what I'd appreciate someone confirming or correcting - that the accountant completes the tax return and the return is then sent out to the auditors for checking.
(When I first went to this accountant, she made a point of confirming that the audit was not done 'in house', but that rather she was very careful about sending the return out to a separate firm for auditing.)
Is this right? If so, then my accountant has not allowed time for this.

When I put this question to her, and further asked "what would happen if there is a mistake subsequently picked up by the auditor?", the following was her reply:


With regard to your question concerning the audit of the Fund; I work extremely closely with the auditor throughout the entire financial statement preparation process and any issues are communicated during this process. They are prepared to sign the documents after they have been lodged to facilitate smooth lodgements and as they too are subjected to the same ATO lodgement program as we are, and they are also stretched for time

Now this sounds like pretty shonky practice to me and rather as though there is a cosy little arrangement happening here.

I'd very much appreciate any comment on this.

With thanks.
Julia

[Whiskers]

Now this sounds like pretty shonky practice to me and rather as though there is a cosy little arrangement happening here.

I'd very much appreciate any comment on this.

With thanks.
Julia

Hi Julia

I don't think it's uncommon for an accountant to work closely with another that acts as an auditor... especially if it involves a query about how to treat a certain transaction/event. Better to query and come to a common understanding about how something should be done in advance.

I'd assume the auditor at least had seen the electronic version before lodgement. But strictly speaking the auditor should also check against the source documentation or data file if you keep electronic records.

I'd be more concerned that there was errors in the (previous) return.

Were they simple math errors or wrong accounting treatment of certain transactions/events?

[Julia]

Hi Whiskers,

The errors were:
(1) including a company I had never owned
(2) omitting a company I still owned

[CAFA1234]

At the 'annual accountants meeting" a few days ago; he said that I should be wary about how often I buy/sell shares in the SMSF structure, because the SMSF is not allowed to be in the "business of being a business" and that if I trade too regularly the ATO could re classify the SMSF as a business with huge penalties and loss of tax benefits.

He thought a maximim of 100 trades a year would be about the benchmark. I am well under this, but the amount of $$$ such shares I did trade was quite high.


I think your accountants warning is reasonable he is doing his job. I would think that the number of trades per year would depend on how many companies you own. E.g. if you own one company and trade 100 times, or twice a week you ARE trading. If you traded each company once or twice a year you are not trading. If you are buying and selling within days on a regular basis then you are probably trading. If Day Trading then you are absolutely trading and your SMSF will get stuffed sooner or later.

The value of the shares traded has no impact on whether you are classified as Trading, it's the frequency especially within one or more companies. (my view)

I assume you understand why trading is banned from a SMSF? If you are able to make a living from trading (as opposed to holding stock for the long term) then why can't I operate a consulting business from within the SMSF??? Now where would the taxation base be if this was allowed :-) (again, my view of the world)

[elbee]

Trading as such is not banned from within a SMSF. Operating a consulting business within a SMSF is also not directly banned.

What the law says is that a super fund must be operated with the sole purpose of providing retirement benefits to its members. The ATO has stated that in its view the carrying on of a business within a SMSF would negate this sole purpose test. The ATO statement is meant as generalised guidance only and is not law. Particular circumstances must be considered case by case.

What is definite is that a super fund can only provide benefits on retirement, it cannot provide immediate benefits. Thus any activity in a SMSF that generates current salaries, fees or dividends to members is not allowable.

[awg]

with respect to "trading" within an SMSF.

I basically have 3 investment strategies within my SMSF.

short, medium and long.

short is basically day-trading.( 40trades last week)

In my opinion, no matter how many trades i do, I dont believe the ATO or anyone else could sustain an argument this breached any aspect of SIS regs.

Because the BULK of my assets are medium/long term, I would simply mount the case, that I am maximising my return.

I have past experience in determining cases that require assesment against legislative and administrative appeals.

admin and civil cases are decided on balance of probability after all factors are taken into account. Precedent is used. Each case on its merits.

If I day traded the bulk of my account, I could possibly have a problem.

I would be very interested if any precedents have been published by ATO.

This matter will arise frequently.

my SMSF is in pension phase so very little tax, but if still in accumulation 15% tax, so people will want to claim the cost of data, software etc, as a deduction in their SMSF.

regards tony

[CAFA1234]

Trading as such is not banned from within a SMSF. Operating a consulting business within a SMSF is also not directly banned.

What the law says is that a super fund must be operated with the sole purpose of providing retirement benefits to its members. The ATO has stated that in its view the carrying on of a business within a SMSF would negate this sole purpose test. The ATO statement is meant as generalised guidance only and is not law. Particular circumstances must be considered case by case.

What is definite is that a super fund can only provide benefits on retirement, it cannot provide immediate benefits. Thus any activity in a SMSF that generates current salaries, fees or dividends to members is not allowable.

Lets look at an example - if I don't need any income, you think I can operate a consulting business from within my SMSF and say, make $500K pa which would be taxed at only 15%. What if I can make $5m PA? With these assets being built up within my SMSF, I'd have little problem borrowing from a bank for day to day living expenses.

Do you have any knowledge of ATO rulings that allow a consultancy of large scale trading within a SMSF. Unless you have some evidence it is very misleading to suggest hat this is generally OK. How many SMSF's have the asset base to take on the ATO.

You may have technical point, but do you have any accountancy advice to suggest that this is OK?

[elbee]

I have not suggested it is generally OK to run a consultancy business from within a SMSF. What I said was that the law does not specifically prevent it and therefore particular circumstances must be considered case by case. The general tax avoidance provisions of the law would probably prevent the type of arrangement you mention.

My comments were aimed at the suggestion made by someone that share trading was not allowed in a SMSF because the ATO would consider it a business and there was some arbitrary limit to the number of trades that can be made.

The point I want to emphasis is that the number of share transactions is irrelevant. What matters is that the fund meets the sole purpose test and that any trading is within the fund's overall investment strategy.

[CAFA1234]

I have not suggested it is generally OK to run a consultancy business from within a SMSF. What I said was that the law does not specifically prevent it and therefore particular circumstances must be considered case by case. The general tax avoidance provisions of the law would probably prevent the type of arrangement you mention.

My comments were aimed at the suggestion made by someone that share trading was not allowed in a SMSF because the ATO would consider it a business and there was some arbitrary limit to the number of trades that can be made.

The point I want to emphasis is that the number of share transactions is irrelevant. What matters is that the fund meets the sole purpose test and that any trading is within the fund's overall investment strategy.

Elbee - please help me as I'm now confused. Your post above now says that you have not suggested it is generally OK to run a consultancy business from within a SMSF. Could you clarify and explain when this WOULD be OK as I'm very interested in any technical point that I may have missed. Or are you now agreeing with the assertion that running a business within a SMSF is a no-go for all practicable purposes?

Moving onto share trading. As you may know, there is a semi-technical aspect of what the ATO means by 'trading' - e.g. making a living out of buying and selling shares on a regular basis. yes it is a grey area and one that could be challenged in the courts. I suspect that most of the SMSF readers on this forum do not have the asset base to make this sort of challenge worthwhile.

You assert that the number of share transactions is irrelevant. To use my earlier example, if I trade in and out of the same share for say over 70% of my SMSF value, on a daily / weekly basis would you think that the ATO would consider that as 'trading'. I do.

Please take this in the spirit it is meant - not trying to take issue with your views, just trying to get to a pragmatic and reasonable advice for the 80/90% of users.

[Tom Ronalds]

The ATO outlines their position on SMSF running a business on page 17 in their "Roles and Responsibilities of Approved Auditors".

Here's the relevant bit:



AUDIT OF THE SOLE PURPOSE TEST
You must be satisfied that the fund has not contravened the
sole purpose test. You can determine whether a self managed
fund has contravened the test by examining:
the character and purpose of the fund’s investments,
to ensure that:
...
– the fund is not running a business as part of its
investment strategy – A superannuation fund has as its
sole purpose the provision of benefits to members on
retirement or attainment of a certain age, or to dependants
on the death of a member. Therefore, superannuation
funds are generally prohibited from carrying on an active
business as there is an inherent risk in running a business
that may jeopardise members’ benefits. An indicator of a
self managed fund operating a business would be the fund
making payments or claiming a deduction for salary and
wages or other business-related expenditure. Funds that
operate a business may do so to exploit the tax
concessions given to regulated superannuation funds.


<http://www.ato.gov.au/content/downloads/nat11375.pdf>

It is pretty clear that anyone trying to claim the cost of software, data feeds and so on for frequent trading of large volumes of assets within the SMSF would breach the above provision.

It is true that there is no arbitrary "hard limit" on the number of trades allowed; however the ATO can use its discretion in what constitutes a "business" in this context - in the same way it can disallow CGT discounts to those investors who are engaged in the "business" of frequent buying and selling (of properties, shares or whatever). The accountant mentioned earlier is therefore just being prudent - as he should be.

The line between "investing" and "running a business" can thus be a very fine one indeed.

Cheers,

Tom R.

[CAFA1234]

The ATO outlines their position on SMSF running a business on page 17 in their "Roles and Responsibilities of Approved Auditors".

It is pretty clear that anyone trying to claim the cost of software, data feeds and so on for frequent trading of large volumes of assets within the SMSF would breach the above provision.

The line between "investing" and "running a business" can thus be a very fine one indeed.

Cheers,

Tom R.

Thanks Tom, clarification appreciated. The ATO example does raise a question - what if there are no salary being paid and no expenses being claimed, just a direct deposit of fees for labour? Are you aware of any rulings or attempts to clarify this sort of situation. My best guess is that the ATO would fight it all the way to the Supreme Court, but I'm often wrong!

[Tom Ronalds]

Thanks Tom, clarification appreciated. The ATO example does raise a question - what if there are no salary being paid and no expenses being claimed, just a direct deposit of fees for labour? Are you aware of any rulings or attempts to clarify this sort of situation.


I am not aware of any specific ruling that would deal with that particular matter, but then again, I am not a tax lawyer! ;-)

Common sense would indicate that if all you are doing is depositing fees for your labour, then this is in principle no different from salary sacrificing/making deductible (concessional) contributions of your salary (if substantially self-employed) of up to the allowable limit of $50K/yr. for under 50 year olds & $100K for over 50.

There is nothing stopping you from contributing 100% of your salary/contract fees into super/your SMSF, if this is less than the above limits.

Obviously these "fees for labour" must be earned by you from ordinary employment - or your spouse (if you have a contribution splitting agreement in place and your Deed allows it).

In fact, if you are over 55, you should do exactly this with up to the allowable maximum; subject to overall personal cashflows of course. There are numerous advantages to it.

If your "fees for labour" were day trading profits incurred by trading the SMSF assets, then I think you'd find this could be termed as being employed by your SMSF - which of course is illegal.



My best guess is that the ATO would fight it all the way to the Supreme Court, but I'm often wrong!

Well not if all you are doing is the above (concessional contributions). There's nothing illegal about it.

Unless I am misunderstanding your question.

Cheers.

T. R.

[CAFA1234]

I am not aware of any specific ruling that would deal with that particular matter, but then again, I am not a tax lawyer! ;-)

Common sense would indicate that if all you are doing is depositing fees for your labour, then this is in principle no different from salary sacrificing/making deductible (concessional) contributions of your salary (if substantially self-employed) of up to the allowable limit of $50K/yr. for under 50 year olds & $100K for over 50.

There is nothing stopping you from contributing 100% of your salary/contract fees into super/your SMSF, if this is less than the above limits.

Obviously these "fees for labour" must be earned by you from ordinary employment - or your spouse (if you have a contribution splitting agreement in place and your Deed allows it).

In fact, if you are over 55, you should do exactly this with up to the allowable maximum; subject to overall personal cashflows of course. There are numerous advantages to it.

If your "fees for labour" were day trading profits incurred by trading the SMSF assets, then I think you'd find this could be termed as being employed by your SMSF - which of course is illegal.



Well not if all you are doing is the above (concessional contributions). There's nothing illegal about it.

Unless I am misunderstanding your question.

Cheers.

T. R.

Agree with all your valuable points.

I guess I'm interested in the figures when outside of the concessional limits. Can my SMSF 'own' the consultancy business (a limited company registered on, or off shore) and thus be the beneficial owner of the income and be internally taxed at 15% as income. No salary paid, no expenses claimed just a straight pass through. This would allow significant sums to be taxed at 15% and thus in effect.

Where is this different to a SMSF owning shares in BHP? Each business runs, makes money and distributes surplus profits to it's shareholders. I know I'm pushing the envelope in a big way, but I'm sure that by now someone has taken on the ATO and produced a precedent ruling - either way.

[Tom Ronalds]

Agree with all your valuable points.


Thank you.



I guess I'm interested in the figures when outside of the concessional limits. Can my SMSF 'own' the consultancy business (a limited company registered on, or off shore) and thus be the beneficial owner of the income and be internally taxed at 15% as income. No salary paid, no expenses claimed just a straight pass through. This would allow significant sums to be taxed at 15% and thus in effect.


Technically it can - provided this is a public company of which you, or another Member of the SMSF, are not a controlling individual. If it fails that test, then the company will be an in-house asset and the SMSF will be prohibited from owning it, unless the overall asset balance of the SMSF is so large that it keeps the company's value at less than 5% of the overall tally.

Certain definitions of what exactly is an in-house asset are currently in a transitional period and will cease to apply from June 2009. This means some investors need to be aware they may subsequently breach the 5% ceiling if they have not made appropriate provisions.

Google "in-house assets" (general definition) and "Part 8 associates" (investment in related structures) - there is plenty of material available on the topic.



Where is this different to a SMSF owning shares in BHP? Each business runs, makes money and distributes surplus profits to it's shareholders. I know I'm pushing the envelope in a big way, but I'm sure that by now someone has taken on the ATO and produced a precedent ruling - either way.

BHP is a publicly listed company. Therefore by its very definition it cannot be an in-house asset.

Cheers.

T. R.

[CAFA1234]

Thank you.



Technically it can - provided this is a public company of which you, or another Member of the SMSF, are not a controlling individual. If it fails that test, then the company will be an in-house asset and the SMSF will be prohibited from owning it, unless the overall asset balance of the SMSF is so large that it keeps the company's value at less than 5% of the overall tally.

Certain definitions of what exactly is an in-house asset are currently in a transitional period and will cease to apply from June 2009. This means some investors need to be aware they may subsequently breach the 5% ceiling if they have not made appropriate provisions.

Google "in-house assets" (general definition) and "Part 8 associates" (investment in related structures) - there is plenty of material available on the topic.



BHP is a publicly listed company. Therefore by its very definition it cannot be an in-house asset.

Cheers.

T. R.

Tom - you add significant value in all your posts - thank you.

Hopefully by now you will have put the 'trading' within a SMSF to rest, along with any othger form of business :-)

[Julia]

Can anyone offer informed comment on the following?

According to the ATO the Superannuation Industry Supervision Regulations state that the audit for a SMSF must be completed no later than a day before the tax return is lodged.

My accountant was late finishing the financial statements and tax return.
Should have been lodged on 15 May but it was not lodged (electronically) until ten days after that. In the Return document she has completed the Auditor's section and put a 'Yes' in the box which asks "Did the fund comply with all relevant SIS requirements", thus indicating to the ATO that the audit has been completed.

(In the meantime I have paid the tax owing so as not to incur displeasure from the ATO.)

I have said to her that I am unhappy about the way she has gone about this as I really feel uncomfortable being associated with anything which could render the Fund non-compliant. If the audit is supposed to be done before the tax return is lodged then that is what should happen.
All the relevant input material was available to her since the end of the 2006/07 financial year.

Now she is saying it is her 'standard practice' that the fee (which is twice what she estimated) be paid before the audit is done. I have said I find that unacceptable, and that we will not be signing off on the financial statements or the tax return until we see the signed audit.

Has anyone encountered a similar situation? Obviously I will be disputing the fee, she assumes this, and hence her request for the money before I 'get the goods'.

Any suggestions would be appreciated.

[Tom Ronalds]

Can anyone offer informed comment on the following?

According to the ATO the Superannuation Industry Supervision Regulations state that the audit for a SMSF must be completed no later than a day before the tax return is lodged.

My accountant was late finishing the financial statements and tax return.
Should have been lodged on 15 May but it was not lodged (electronically) until ten days after that. In the Return document she has completed the Auditor's section and put a 'Yes' in the box which asks "Did the fund comply with all relevant SIS requirements", thus indicating to the ATO that the audit has been completed.


Is she herself the nominated Auditor?

If not, then of course she had no right to make a statement like that on the Auditor's behalf. Doubly so, if the audit process has not been completed yet.



(In the meantime I have paid the tax owing so as not to incur displeasure from the ATO.)


Are you comfortable with the amount of tax? Do you have any reason to believe it may not be correct?



I have said to her that I am unhappy about the way she has gone about this as I really feel uncomfortable being associated with anything which could render the Fund non-compliant.


All correct sentiments, but so far, the ATO has generally gone out of its way to avoid making a SMSF non-compliant. As long as the Trustees show willingness to correct their ways, the Commissioner will generally refrain from imposing that sort of penalty.

This may be about to change however, as the ATO has announced it believes it has been too nice for too long and it is now time to move from a purely educational stand to one incorporating stricter enforcement and penalties, where appropriate.

Unfortunately, in my experience many accountants who deal with SMSF clients are not overly educated in general SMSF matters. A bit like financial planners, who just want to get the SMSF money into their preferred wrap platform, many accountants just want to crunch the tax figures, without much regard for compliance.

Many accountants also tend to abuse the one feature of a SMSF that is amongst the best that this structure offers - the benefit of hindsight, where you are able to, for example, amend the structure of your annual contributions once you know your personal tax position, so as to obtain the most tax advantageous outcome. This however also allows a sloppy Trustee/accountant the ability to change many aspects of the SMSF's operation a long time after the actual event - which leads some of them to believe there is no need to do it properly in the first place, because it will get fixed later.

Incidentally, I have come across SMSFs where the Trust Deed could not be located, there never apparently was an Investment Strategy, the Member was years past age 65, not working and yet not drawing a pension (before compulsory cashing was abolished) and yet the Auditor[s] kept happily signing off on the tax returns!

A recent case I have worked with involved a client who believed his SMSF was in a pension stage and therefore internally tax-exempt; yet no documentation existed to show this and his accountant/Auditor both thought they could just manipulate journal entries, rather that make physical drawdowns, to satisfy the minimum pension requirement (this fellow does not need the pension money to live on - he just wanted to save the 15% tax!)

A fund with several million dollars in it tends to save a lot of tax once fully in pension stage and it is not such a hard task to get the paperwork in order & make the annual drawdown - even if you then just contribute the excess cash back in again. Yet the accountant thought there was no need to bother with any of that...!

In such instances of course you could claim this was a breach at the professional/accountant level, and the ATO would/should reserve most of its wrath for the Auditor who signed off on it rather than the Trustee[s].

But in any case, who needs the hassle, hey?

My advice would be to just find a more skilled/professional accountant.



If the audit is supposed to be done before the tax return is lodged then that is what should happen.


Indeed.



All the relevant input material was available to her since the end of the 2006/07 financial year.


This is what often happens though. Accountants are notorious for falling behind with their work and then there is a mad rush to meet the last available deadline. This is how mistakes are then more likely to occur.

If she can't cope with the workload, she should employ another accountant.



Now she is saying it is her 'standard practice' that the fee (which is twice what she estimated) be paid before the audit is done.


I would be asking how come she was so far out with her fee estimate? Was there something in your returns that had not been obvious/anticipated at the start?

The fees quoted are quoted for a reason; otherwise what's the difference between that and, say, a real estate agent that quotes an outrageous price on your property solely to secure the listing?



I have said I find that unacceptable, and that we will not be signing off on the financial statements or the tax return until we see the signed audit.


I would be also looking closely at the Auditor. If this accountant is sloppy, the Auditor may well also be. Good Auditors will not work with sloppy accountants because it is ultimately their skin on the line, if something is not right.



Has anyone encountered a similar situation?


See above.



Obviously I will be disputing the fee, she assumes this, and hence her request for the money before I 'get the goods'.
Any suggestions would be appreciated.

Sounds pretty dodgy to me. I would not be paying until the job has been properly completed and, just as you say, I would be questioning why the fee was so far out of the initial estimate.

If the accountant found no unexpected items which would have required the extra work, then there is no justification for the extra fee. Her being inefficient does not qualify.

Cheers,

T. R.

[sinic]

I have a SMSF in pension mode this financial year for the first time. In the next week or so I am going to getout an annual minimum pension payment of the 4% as required under the rules. I am then going to recontribute this. Does anyone know how long the money has to leave the SMSF until it can come back ie can I put it back again on the same day ?

I just like to keep everything within the fund so that all earnings are tax free - makes it feel like I am living in Monaco or somewhere.

Is the ATO likely to have a problem with a couple of bank transfers on a single day? Any one have any experience before I ring up the ATO about five times until I get a majority answer that is consistent.

[Hyperion]

Just my opinion...


According to the ATO the Superannuation Industry Supervision Regulations state that the audit for a SMSF must be completed no later than a day before the tax return is lodged.

Firstly, I'm not too sure how strict this rule is...

I guess this won't really matter if the accountant is doing the financials, audit and tax return. Like if they have seen all your information, and they know they will be happy to sign off the audit. If the accountant is slightly dodgy they may backdate.


My accountant was late finishing the financial statements and tax return

This often happens unfortunately...


(In the meantime I have paid the tax owing so as not to incur displeasure from the ATO.)

Yes, you should definately do this. Regardless of when you lodge the tax return, you should at least pay an estimate of the tax owing to avoid penalties and GIC. If you overpay, you will get any overpayment back + interest.


Now she is saying it is her 'standard practice' that the fee (which is twice what she estimated) be paid before the audit is done. I have said I find that unacceptable

Hmm this is how the firm I worked did it. Clearly outline in an engagement letter what was our responsibility and what was not covered and then give a fixed quote. If it looked like it was necessary to do work "out of scope" of the original engagement letter, we notify the client to get agreement before we do it. This additional work is normally at our hourly rates. The accountant wants to avoid fee disputes as much as you do.

In reality, we know our clients well enough so we know how much they are willing to pay...

Ask your accountant what they did to add value above and beyond what was included in the fee quote, and to justify the additional cost. Also ask them if they can tell you if they intend to charge over the quote in the future.


I have said I find that unacceptable, and that we will not be signing off on the financial statements or the tax return until we see the signed audit.


I thought that they technically weren't able to do the audit until you signed the financials? We always got the client to sign financial statements and return to us before we did the audit. Happy to be corrected though.


Hyperion

[Hyperion]

From your earlier post Julia,


Now I have always had the understanding - and this is what I'd appreciate someone confirming or correcting - that the accountant completes the tax return and the return is then sent out to the auditors for checking.

It is the financial statements which are audited - not the tax return.

[Julia]

From your earlier post Julia,



It is the financial statements which are audited - not the tax return.
Yes, thanks Hyperion. Just a careless statement on my part. I did, of course, mean the financial statements.

Tom, thank you so much for detailed and helpful reply which has reassured me I'm not being unreasonable.

The accountant, when I first met her, made much of the fact that she sent the audit out to another firm. When I saw her to collect the financial statements last week she admitted that this arrangement was "a formality, at best" and that she "prepared the financial statements in such a way that she knew the auditors would sign off on them without question", and there would be no problem in their doing this after the return had been lodged. I suggested that this hardly fulfilled the supposed purpose of the audit, i.e. a protection for me that my Fund's statements were correct etc, and she agreed.
Said that was "how she was able to keep costs down". Well she hasn't even done that.

We have emailed her saying definitely that nothing will be signed until the audit is completed.

Her invoice does not include any specific cost for the audit. There is no separate account to come from the auditor (who is apparently her ex-employer). Should I ask for the account to be itemised more clearly so as to show the cost of audit? Or doesn't it matter at this stage?
I am getting fed up with the whole damn thing. The tax paid seems about right for the profit for that year. I have already found a new accountant for next year. Have considered making a complaint to CPA Australia but doubt whether it's really worth the negative energy involved.

[Hyperion]

I think you will find most accountants have a preferred auditor whom they regularly use. Like your accountant said, to do otherwise would be extremely expensive.

Right now your accountant prepares financials and gets auditor to rubber stamp pretty much. If you wanted a completely independent auditor, they would essentially have to do all the work the initial accountant did all over again, effectively doubling the cost. Keep in mind, preparing the accounts properly is no easy exercise.

I think it all pretty much comes down to how much you trust your accountant. A preferred auditor in itself is not a problem. Or hardly a problem worth avoiding in any case (due to difficulty in getting one + added expense)

I don't know how much your accountant charges, but anything under a few thousand for SMSF work is fairly reasonable for a good accountant IMO.

Hyperion

[Julia]

I think you will find most accountants have a preferred auditor whom they regularly use. Like your accountant said, to do otherwise would be extremely expensive.

Right now your accountant prepares financials and gets auditor to rubber stamp pretty much. If you wanted a completely independent auditor, they would essentially have to do all the work the initial accountant did all over again, effectively doubling the cost. Keep in mind, preparing the accounts properly is no easy exercise.
Thanks, Hyperion. The audit is supposed to be my reassurance that the work has been done correctly. Simply 'rubber stamping' doesn't reassure me at all.




I think it all pretty much comes down to how much you trust your accountant. A preferred auditor in itself is not a problem. Or hardly a problem worth avoiding in any case (due to difficulty in getting one + added expense)
Well, obviously I don't trust her orI I wouldn't be having these concerns. She made two significant mistakes last year and they were things I was able to pick up. I don't know enough about the whole accounting process to know whether she has done the work correctly this year, and am therefore dependent on a properly independent audit to show this. It seems no such independent audit actually occurs.

[Tom Ronalds]

I have a SMSF in pension mode this financial year for the first time. In the next week or so I am going to getout an annual minimum pension payment of the 4% as required under the rules. I am then going to recontribute this. Does anyone know how long the money has to leave the SMSF until it can come back ie can I put it back again on the same day ?


There is no specific time lag that needs to be considered for the re-contribution. It just needs to be clear that you have taken the pension payment out - typically this can be documented by your SMSF working account's bank statement.



I just like to keep everything within the fund so that all earnings are tax free - makes it feel like I am living in Monaco or somewhere.


The amount you re-contribute will henceforth form a separate, accumulation portion of your SMSF Member interest. Any earnings accrued on it will consequently be taxable at the usual rate of 15% (or 10% for capital gains on assets held for more than 12 months).

If you want to have the full 100% of your Member interest free of tax going forward, you will need to either commence a second account based pension (ABP), using the re-contributed amount, or you will need to commute the existing pension back to accumulation stage, merge with the re-contributed amount and commence a new ABP with the consolidated amount.

Either of these operations requires a specific set of instructions from you to the Trustee[s] and a specific set of notes/paperwork to document this. If you choose to commute and merge, then of particular importance will be the calculation of the adjusted tax free/taxable components applicable to the new pension.

Obviously if you are over 60 years old, the tax free/taxable component is of no specific consequence to you personally, but you have an obligation as a Trustee to properly calculate and record them. Failing to do so may disadvantage your eventual beneficiaries with regards to the eventual death benefit ETP taxation.

Be aware also that commuting the existing pension may in certain instances result in a lower anti-detriment provision (refund of contribution tax paid over your lifetime) in case of your premature death (this is assuming your SMSF Trust Deed allows for anti-detriment). It generally pays to consult with an appropriately qualified specialist so as to work out whether this is the case or not in your instance. Alas, do not as a rule expect your accountant to even know what a superannuation anti-detriment provision is, let alone calculate it for you.



Is the ATO likely to have a problem with a couple of bank transfers on a single day? Any one have any experience before I ring up the ATO about five times until I get a majority answer that is consistent.

See above.

Be sure to also record what type of re-contribution you are making - i.e. concessional (if this is required and you qualify) or non-concessional (most cases).

Be careful also that you do not exceed the respective contribution caps.

Cheers.

T. R.

[sinic]

Hi Tom,

Thank you for your detailed and informative reply.

I had intended to recontribute back as an undeducted contribuion, and immediately start up a new pension which would be 100% tax free in nature.

I think that means the old pension (somewhat depleted) will retain its original character regarding the percentage of "good" to "bad" money.

The new pension would be based on 100% "good" money. Next year I would have to take 4% of its value out, but my understanding is that this would not be taxable or even declarable even if I am still under 60.

I guess a slight messiness is that one could end up with a few pensions - although all new ones would be tax free effectively.

In all this I am assuming it is OK to have mutiple pension accounts for one member within a SMSF.

Cheers,

[Julia]

Tom Ronalds:

It's very good of you to offer your knowledge and expertise on the forum, Tom.

I'm sure I'm not the only one who has much appreciated your contributions.

Thank you.

Julia

[Julia]

Could someone who knows please discuss the reasons for registering (or not) for GST with a SMSF?

Some people seem to be registered, and have an ABN, whilst others have just a TFN.

Is there any advantage to the holder of the SF to be registered for GST?

[sinic]

Hi Julia,

I mentioned this in posts #20 and #21 on the the thread about "Esuperfunds SMSF brokers ".
Basically you get back 75% of the GST on the brokerage if you register for GST - the downside is you have to do the 3 monthly BAS statements and claim it back. Probably only worth the bother if you pay a lot of brokerage.
Cheers,

[Julia]

Hi Julia,

I mentioned this in posts #20 and #21 on the the thread about "Esuperfunds SMSF brokers ".
Basically you get back 75% of the GST on the brokerage if you register for GST - the downside is you have to do the 3 monthly BAS statements and claim it back. Probably only worth the bother if you pay a lot of brokerage.
Cheers,
OK, many thanks, Sinic.

[Tom Ronalds]

Hi Tom,

Thank you for your detailed and informative reply.



You're welcome.




I had intended to recontribute back as an undeducted contribuion, and immediately start up a new pension which would be 100% tax free in nature.


If your re-contribution is fully non-concessional (undeducted), then yes, you are correct.



I think that means the old pension (somewhat depleted) will retain its original character regarding the percentage of "good" to "bad" money.


That's right, provided you are over 60 or it is an "account based", as opposed to "allocated" pension.

Be aware that pensions started under the old rules - i.e. "allocated" - have not automatically converted to account based unless a "trigger condition" has been reached.



The new pension would be based on 100% "good" money. Next year I would have to take 4% of its value out, but my understanding is that this would not be taxable or even declarable even if I am still under 60.

I guess a slight messiness is that one could end up with a few pensions - although all new ones would be tax free effectively.


True, but as I said earlier - you can consolidate them. You just need to make sure that it is beneficial to do so.



In all this I am assuming it is OK to have mutiple pension accounts for one member within a SMSF.
Cheers,

You can have as many interests (accounts) as you like. Including a reserve - which is something that can be quite useful and yet not seen too often any more nowadays. Probably because the current crop of advisers do not know what it can be used for, given the term "RBL compression" means nothing to those young turks...! :-)

T. R.

[Tom Ronalds]

Tom Ronalds:

It's very good of you to offer your knowledge and expertise on the forum, Tom.

I'm sure I'm not the only one who has much appreciated your contributions.

Thank you.

Julia

No worries Julia.

Superannuation is a minefield and successive governments just seem to make it messier and messier. It's as bad, if not worse, as the general tax field - even the ATO will typically not give you a straight answer, if you have a complex question.

So if I can assist a few people through spending a few minutes here at ASF from time to time, I'm happy to do so.

Cheers.

T. R.

[hangseng]

Your SMSF is under attack by "The superannuation industry"

I would suggest if you are currently in a SMSF that you seriously consider joining the Self Managed Superannuation Members Association (SMSMA) http://www.smsma.asn.au/

If you don't you will have little or no voice and be drowned out by the large managed funds. I for one have joined this morning, I don't want my money to go back to the very people who have mismanaged my retirement funds and ripped us off with fees for years that eroded both my wifes and mine capital.

To have incompetent (and in one case downright deceitful) fund managers and "Financial Advisers" stating they can do better than I can, is something I will have a lot to say about and can prove they are wrong.

The latest article in the Eureka Report is of real concern and should be for anyone in a SMSF.

Have you voice heard through the SMSMA or have no voice at all! I responded to the Govt survey and didn't even get the courtesy of a response.

In part:

"Big funds target DIY By Trish Power"
"The superannuation industry is playing hardball against DIY funds to protect its shrinking market share."

"To put it bluntly, the superannuation industry is playing hardball in a panicked attempt to protect its shrinking market share from the spectacular growth in self-managed funds.

Industry associations have asked for DIY super fund trustees to be licensed, for DIY funds to have minimum account balances, for the government to do something – anything – to stop independent-minded Australians from taking responsibility for their own retirement savings.

The associations making the loudest noise are the Association of Superannuation Funds of Australia (which purports to be the “only peak body that can truly claim to represent all sectors of our industry and its service providers” but obviously not DIY fund trustees), the Australian Institute of Superannuation Trustees (which makes it clear it does not represent DIY super funds, but claims to have authority on how DIY funds operate) and, surprisingly, the Financial Planning Association (FPA)."

"Member interests first"

"The whispering (some may argue shouting) campaign against DIY super funds orchestrated by the larger super industry – both retail and not-for-profit super funds – has been a sad, disappointing display from a sector that seems to have forgotten that the super industry only exists because of fund members, including DIY fund members. The important question is: what serves the best financial interests of the individual? "

[Julia]

Thanks for the link Hang Seng.

I've had a look at the website. It's all a bit vague. Lists committee members but provides no information about the background of any of them.

At this stage, anyway, I don't feel my Fund is under any threat and don't feel inclined to pay $55 to a bunch of people about whom I know nothing.

Also, under their heading "Policies" it is blank!

[hangseng]

Thanks for the link Hang Seng.

I've had a look at the website. It's all a bit vague. Lists committee members but provides no information about the background of any of them.

At this stage, anyway, I don't feel my Fund is under any threat and don't feel inclined to pay $55 to a bunch of people about whom I know nothing.

Also, under their heading "Policies" it is blank!

It is all very new Julia but they are on the right track. I for one do believe SMSF is under threat as the fund managers are speaking as if they are the voice for the whole of the supperannuation industry including SMSF. The quite deliberate attack on SMSF displays another agenda.

The Federal minister Nick Sherry has a past alignment with the fund managers (check his background). The erroneous statements coming out of the fund managers and Nick Sherry is listening to them.

Did you know that SMSF make up the smallest number of members in the superannuation total numbers. However the SMSF also make up around 25% of all super funds held and it is increasing rapidly. The fund managers know this and are protecting themselves, nothing to do with governance or any other "concern" they have over SMSF. They have no concern for anything but themselves and their fees. If they concentrated on their own governance and a desparate need for financial advisers to be more controlled and better educated before handing out advice, I would be more inclined to believe they have any guenuine "concern" for SMSF.

You may not feel under threat, but the white ants are busily working behind the walls and I can see the writing on the other side of the wall. SMSF are under threat and even the writer on the Eureka report saw fit to write an extensive article on this very subject.

This may help you. The website is obviously undergoing change and it is voluntarily run. For mine $55 is not a lot to pay to get heard and to find out more of what is really going on.

From the website:

SMSMA Board - Who Are They?

Brief Board member profiles are:

Bill Banks (Chair): Bill is a former federal public servant who retired to pursue his interest in golf. He has one several amateur seniors' championships throughout Australia over the last five years. Bill has operated his own SMSF since retiring from the public service and has taken up the role of chair of SMSMA because he supports the aims and objectives of the Association.

Brian Banyard (Director): It was Brian who first came up with idea to register the SMSMA and try to establish a body representing SMSF trustees (SMSMA would prefer to be known as a “SMSF Trustees’ Association" but there is a law against having the word “trustee” in any Association without the approval of the Federal Attorney General). Brian is the former CEO of Perpetual Trustees (ACT) and has held positions on associations representing the interests of trustee companies. Brian is also now retired and has been operating his own SMSF for over a decade.

Bob Samarcq (Director): Bob is the current CEO of Clubs ACT, a body representing the interests of registered clubs throughout the ACT. He was formally employed as a senior officer in the Federal Public Service. Bob has been operating his family SMSF for about seven years.

Peter Bishell (CEO); (Me): I have been working in the field of superannuation and related areas since 1979. I am a regular speaker at professional events on superannuation matters. I have been involved in the development of superannuation policy on behalf of the Self Managed Superannuation Professionals Association of Australia, worked for CPA Australia in developing resources for members wishing to be involved in financial planning, and have written many articles for various newspapers and magazines, mainly in regard to consumer protection and consumer interests in the field of superannuation and financial planning. In June 2008 a book I have written entitled “The SMSF Trustees’ Handbook” will be published by Wiley Books Australia.

Until 31 May 2008 I will continue to operate a professional practice specialising in the area of SMSFs. From 1 June 2008 until the end of this year my attention will focus on my role at SMSMA. I have made a commitment to SMSMA to make sure it gets off to the best possible start and is in a sound position to continue its role in representing SMSF trustees and members for many years to come.

All members of the current Board are working in a voluntary capacity. As CEO I am also working in a voluntary capacity although that cannot go on forever. Both the Board and myself will be undertaking significant work to increase the profile of SMSMA throughout the remainder of 2008 as the one thing hindering us from meeting our objectives at this point is a lack of funds as we await all those who have indicated their support for the Association to join and pay membership fees.

The sections of the website where the above information ought to appear can only be updated by the website developer at present. We will publish this “question and answer” on the website in the news section.

[Julia]

OK, thanks for the background on the committee members, Hang Seng.
Hope you get some value for your subscription.

[Duckman#72]

Your SMSF is under attack by "The superannuation industry"

I would suggest if you are currently in a SMSF that you seriously consider joining the Self Managed Superannuation Members Association (SMSMA) http://www.smsma.asn.au/

If you don't you will have little or no voice and be drowned out by the large managed funds. I for one have joined this morning, I don't want my money to go back to the very people who have mismanaged my retirement funds and ripped us off with fees for years that eroded both my wifes and mine capital.

To have incompetent (and in one case downright deceitful) fund managers and "Financial Advisers" stating they can do better than I can, is something I will have a lot to say about and can prove they are wrong.



Hi Hang Seng

I agree. Unfortunately it seems that Sherry is in the pocket of superannuation at the "big end of town".

It wouldn't be a surprise to see legislation brought in over the next few years that continues to tighten and restrict SMSF. The licensing of SMSF trustees being just one of these.

With SMSF being such a fast growing sector - it must be really concerning to those that think that their share of the wealth will be diminishing. I think it is very interesting that the Financial Planners are in on the act. Goes to show who they are really concerned about - Trustees or themselves?

Duckman

[Julia]

Hi Hang Seng

I agree. Unfortunately it seems that Sherry is in the pocket of superannuation at the "big end of town".

It wouldn't be a surprise to see legislation brought in over the next few years that continues to tighten and restrict SMSF. The licensing of SMSF trustees being just one of these.

With SMSF being such a fast growing sector - it must be really concerning to those that think that their share of the wealth will be diminishing. I think it is very interesting that the Financial Planners are in on the act. Goes to show who they are really concerned about - Trustees or themselves?

Duckman
Hi Duckman,

Why would it necessarily be a problem if Trustees were required to be licensed?

I don't see that having a SMSF neeeds to eliminate the value of financial planners. Still room for them to advise on structural alternatives, moving to pension phase etc.
In an ideal world (!) financial planners would regard the growing number of SMSF's as an opportunity to offer genuine advice, on a fee for service basis, instead of lazily depending on trails from managed funds.

[Duckman#72]

Hi Duckman,

Why would it necessarily be a problem if Trustees were required to be licensed?

I don't see that having a SMSF neeeds to eliminate the value of financial planners. Still room for them to advise on structural alternatives, moving to pension phase etc.
In an ideal world (!) financial planners would regard the growing number of SMSF's as an opportunity to offer genuine advice, on a fee for service basis, instead of lazily depending on trails from managed funds.

Hi Julia

What we are talking about here is - control. Nothing more or nothing less. The superannuation industry wants to retain control and regain access to a large and growing portion of the superannuation sector. And they are doing it in the disguise of "helping the DIY sector".

They are not interested in educating Trustees, they are interested in making it difficult and problematic to become a trustee. The more difficult it is to establish a SMSF the more likely it will be that members will leave their accounts with large superannuation account providers. At present SMSF represent only 3% of all super accounts yet they make up a whopping 25% of the total super balances.

Some of the ideas have merit (I agree that some people start up a SMSF with way to little account balances) however do we want to regulate everything? For example, starting a fund with a small balance is fine if you have the ability to make regular and significant contributions. Far too many people start with a small balance and hope to "trade it up" without access to large contributions. Some do but a great many don't. If the super industry had its way it would make the minimum starting balance $300,000. Why? So that it could keep you in their grasp for longer.

I agree with your view on financial planners. Yes there will always be a need. I also agree that fee-for-service is the ideal. However it is still a long way off from being the norm. As a general rule - SMSF members are more investment savy. They can also invest in direct property, straight cash and direct shares. These are all investment classes that financial planners don't make money from. They have no vested interest in making sure that their clients can get access to cash to buy a rental property at Rainbow Beach, or Fortescue Metal shares. No trails, no upfronts and more work.

The other issue being - tax. With the explosion of "pension phase" accounts, the SMSF sector has moved in leaps and bounds ahead of the superannuation industry at large in terms of flexibility, tax planning and the products being offered.

Hope this explains a little more. I realise that there are ratbag trustees out there. But I am a little too cynical to think that the ASFA and FPA are holding their hands on their hearts and saying to SMSF trustees "Hi, we're Kevins, and we're here to help."

Duckman

[Julia]

But I am a little too cynical to think that the ASFA and FPA are holding their hands on their hearts and saying to SMSF trustees "Hi, we're Kevins, and we're here to help."

Duckman
Hi Duckman,
The above comment conjures up a pretty amusing picture, but, thanks, I understand what you are saying. Very useful comments, as always.

[Dezza]

Recent changes now allow them to borrow, however, not too many providers in the market at the moment.

I know Macquarie Bank offers such a product, but yeah, they can now. However, lenders only have access to the secured assets only and not the entire fund.

[hangseng]

If you believe any one of these people has the interest of SMSF as their core interest you should think again. Even the Self Managed Super Fund Professionals' Association of Australia is representing the SMSF 'professional' advisory group not the SMSF trustees/members.

SMSF's desperately need a voice to government.


source: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/031.htm&pageID=003&min=njs&Year=&DocType=0

Superannuation Advisory Group Members
Senator the Hon Nick Sherry (Chair), Minister for Superannuation and Corporate Law.
Ms Jo-Anne Bloch, Chief Executive, Financial Planning Association of Australia.
Associate Professor Marilyn Clark-Murphy, Head of the School of Accounting, Finance & Economics at Edith Cowan University.
Mr Richard Gilbert, Chief Executive, Investment and Financial Services Association and Chairperson of the International Investment Funds Association.
Mr John Maroney, Chief Executive, Institute of Actuaries of Australia.
Mr Terry McCredden, Chief Executive, Telstra Super Pty Ltd.
Professor John Piggott, Associate Dean Research, Australian School of Business, University of New South Wales.
Ms Andrea Slattery, Chief Executive, Self Managed Super Fund Professionals' Association of Australia Ltd.
Ms Pauline Vamos, Chief Executive, Association of Superannuation Funds of Australia.
Ms Rosemary Vilgan, Chief Executive, QSuper Board of Trustees, QSuper Limited and Government Superannuation Officer.
Mr Garry Weaven, Chair of Industry Funds Management.
BRISBANE
10 June 2008

[hangseng]

Be concerned.

http://www.treasurer.gov.au/DisplayDocs.aspx?doc=speeches/2008/006.htm&pageID=005&min=njs&Year=&DocType=1

This misinformation in this alone has me concerned.

[Julia]

Hang Seng, do youhave another link to that?
This one brought "page unavailable".

[hangseng]

Hang Seng, do youhave another link to that?
This one brought "page unavailable".

It is a problem with the http://www.treasurer.gov.au/ website Julia.

The link is public and correct.

[moreld]

I have created a Excel spreadsheet for 2008-09 SMSF Taxation.
You can download the free spreadsheet here
http://www.fusioninvesting.com/2009/08/preparing-your-own-self-managed-super-fund-smsf-tax-return/ (http://www.fusioninvesting.com/2009/08/preparing-your-own-self-managed-super-fund-smsf-tax-return/)

I guarantee it is worth every cent you'll pay for it ;)

As many people on this thread have pointed out super laws are a nightmare and managing your own SMSF and tax is not an easy task. However, if you're a control freak like me and enjoy managing your own affairs then I hope this spreadsheet is of some use.

Please let me know if there are any errors in the spreadsheet and as always double check everything yourself as I take no responsibility for the use of this free tool.

[bongcso]

As many people on this thread have pointed out super laws are a nightmare and managing your own SMSF and tax is not an easy task. However, if you're a control freak like me and enjoy managing your own affairs then I hope this spreadsheet is of some use.



Hi Dean
Thanks for sharing your spreadsheet, it is very generous of you to share it for free. I wish you had posted it earlier as I have just appointed a new accountant to do my 2009 tax for my SMSF. Like you I think I am a bit of a control freak. I always do a pro-forma of my own tax to check against what my accountant does. I have started doing our own individual tax returns since last year after I attended a course from H&R Block, but I did not feel confident enough to do my SMSF tax return. I will try out your spreadsheet and maybe do it next year.

I prefer to DIY if I can. The H&R Block course which cost me a tax deductible $500 was one of the best investments I made. The course paid for itself within a year as we saved ourselves accountant fees of $2000 last year. I also found out that my accountant had made mistakes in calculating the CGT on one of our tax return in a previous year and I have just filed an amendment which should result in a nice tax rebate.

BTW, Great website as well, I have RSS'd myself to keep updated. I also invest in both Australian and US markets using stocks and options. I have also been tracking the Shanghai composite as well.

Christina
http://blog.sli-smsf.com/

[Michael9]

My wife has set up a successful business as a clinical psychologist in Canberra (2 years old) and we need to put a superannuation plan in place for her. One of our investments is a serviced apartment in Ascot, Perth which we've had for almost three years. That regularly returns 12% pa :) and was purchased for $280K or thereabouts. My thinking is that maybe her SMSF could purchase that from ourselves at an advantageous price (i.e low) but representing "full value". The idea would be for her to repay the loan to the SMSF from her business earnings. The property would always remain as a business. Should I be factoring our family trust/other property into the mix?

Any thoughts as to whether this strategy has any legs or not?

Michael

[harks11]

Been reading a lot about ETF, IF and LICs. Their proponents talk very strongly for them a favour them strongly over individual shares. To me every middle man between me a the investment is another commission. Thoughts?
Also do we in a smsf get the same tax advantage as share with EFTs etc.

[tinhat]

Been reading a lot about ETF, IF and LICs. Their proponents talk very strongly for them a favour them strongly over individual shares. To me every middle man between me a the investment is another commission. Thoughts?
Also do we in a smsf get the same tax advantage as share with EFTs etc.

I'd rather pick the one, two or three stand-out best companies in a sector. Companies with strong balance sheets, strong earnings per share growth and good return on equity rather than have my money spread out across all the winners and losers through a ETF. Even if a sector is on a bull run it doesn't mean that there won't be individual dud companies in the mix. That's what being a small investor is all about - not having to hold all the duds in the ASX 200 - companies such as AMP and TLS which have consistently and steadily destroyed their shareholders equity over the last decade or more.

[Julia]

Sensible comments, tinhat. Agree entirely.