If anyone expecting a comfortable life in retirement need to think about their super. Superannuation is the tax-effective way to save for the future. Your employer must pay a minimum of 9.50% of your gross pay towards your super and you have also the opportunity to contribute and also government make a contribution if you are alow-income earner.
By law, employees can choose their super fund where employer supposed to pay. Superannuation funds can be structured either accumulation fund or defined benefit funds. Nowadays over 90% of funds are accumulation funds. Accumulation funds are general superannuation funds in where employer contribute mostly and also employees can contribute themselves. Defined benefit funds are those in where final super payment based on a formula that takes into members final salary and number of years that a person works for a company or a government department.
There are five broad types of superannuation funds in Australia such as:
– Industry super funds
– Retail super funds
– Corporate/company super funds
– Public sector super funds and
– Small super funds
Small super funds include self-managed superannuation funds. Main difference between SMSF and other super funds members of an SMSF also the trustees of SMSF. Therefore, SMSF trustees/members invest/utilise the super fund and also responsible for complying with super and tax laws.
An SMSF must be operate solely for the providing benefits upon retirement to the members or their dependents. If someone set up SMSF for early access to the super fund, buying holiday home or expensive art to decorate the home is illegal.
There are number of rules for contributing towards to the SMSF. Before accepting any contribution trustees of SMSF must ensure contributions are within the cap of members. For accepting any contribution from the members trustees of SMSF must ensure following:
– Members already provided their TFN
– Employers contribution can be accepted any time. Employers contribution are called as mandated contribution in where employer contribute towards to the employees super under a law or industrial agreement.
– If someone aged over 75 non mandated superannuation contribution are not allowed. Non mandated contributions include: contributions made by the employer above their mandatory superannuation guarantee, personal super contribution, super co-contributions, eligible spouse contributions, contributions made by a third party such as insurer.
SMSF cannot accept asset as contribution except for the following situations:
– listed shares and other securities
– business real property (land and buildings used wholly and exclusively in a business).
Acquiring assets from related parties e.g. members of the super funds are not allowed except the following cases:
Your fund can’t acquire an asset from a related party unless it is acquired at market value and is:
– a listed security (for example, shares, units or bonds listed on an approved stock exchange)
– Business real property
– An in-house asset provided the market value of your fund’s in-house assets does not exceed 5% of the total market value of your fund’s assets
– an asset specifically excluded from being an in-house asset.
Members contributions can be classified as concessional and non-concessional:
Concessional contribution: Concessional contribution can be called asbefore-tax contribution. This types of contributions are employer mandatory contribution, salary sacrifice and also contribution from a self-employed.Concessional contributions are taxed at 15%. From 2017-18 Financial year onward $25,000 maximum contribution concessional contribution each year allowed regardless of the age. End of 30.06.2017 if anyone had less than $500,000 will able to carry-forward any previously unused portion of the concessional cap and able to make extra deposits in later financial year.
Non-Concessional contribution: Non-concessional contributions are actuallyafter-tax contributions. From 1st July 2017 annual cap of non-concessionalcontribution $100,000 with a bring forward rule. If you are under 64 years you can make the larger payment in any year e.g payment of $300,000 current financial year but not allowed to contribute next two financial year. Exceeding non-concessional contribution can be expensive as tax rate is 47%. Lifetime limit of non-concessional contribution is 1.6 Million.
To set up self-managed super consider appointing professionals. We have clients with SMSF and welcome any interested clients. We can assist any client to set up new SMSF or assist ongoing self-managed superannuation fund by preparing annual SMSF annual return and provide time to timeadvice.
For set up SMSF minimum two members requires and maximum four members requires. By set up, corporate trustee individual can set up self-managed superannuation fund.
– There must be two trustees.
– One trustee must be a fund member.
– If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.
– The corporate trustee company can have one or two directors, but no more.
– The fund member must be the sole director or one of the two directors.
– If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.
– If super laws are breached, administrative penalties are levied on each trustee.
– For example, for failing to prepare financial accounts and statements, each trustee is liable for a $2,100 penalty (10 penalty units). This would amount to $8,400 if there were four trustees.
– The value of a penalty unit is $210.
– If super laws are breached, administrative penalties are levied on the corporate trustee.
– For example, for failing to prepare financial accounts and statements, a corporate trustee would be liable for a $2,100 penalty (10 penalty units).
– The value of a penalty unit is $210.
Many Australians think SMSF right for them but many cases that is not. According to the tax office (ATO), there are about 560,000 operational SMSF’s and total members of those SMS’s 1,050,000. All those super funds control around 572 billion dollars assets. SMSF’s are growing and 88 new SMSF were set up every weekday on average for past some months. To set up SMSF and operate for benefit of members you need to ask following three questions:
– Do you have enough knowledge about investment, investment strategy, investment diversification etc?
– Do you have enough time to do the above?
– Do you have enough money in the super fund so that it will able to cover operation cost e.g. auditor fees, accountant fees, ATO fees make profit out of the investment?
If the above question answers are yes, then you can consider for set up a self-managedsuper fund. You can set up four-member SMSF to minimise expenses and increase the fund size. I will recommend you contact with professional to do the setup SMSF for