Jordan George is an industry leading speaker for the SMSF Association, and holds the title ‘Head of Policy’.
2018 was a tumultuous year for SMSFs with volatile investment markets and an even more volatile political environment giving SMSFs plenty to think about. However, as we move into the festive season, this is the ideal time to review your SMSF plan and consider what awaits in 2019. Taking some time to review and plan can help ensure your SMSF is on track to achieve your superannuation goals.
The key issue that will occupy the mind of most SMSF trustees is the imminent 2019 Federal election, expected in May, and the possible change to a Labor Government. We already know that the Australian Labor Party has announced significant policies impacting SMSFs.
The most substantial planned policy change is Labor’s proposal to end the refundability of franking credits. SMSFs that receive franking credits for the tax paid by Australian companies will often receive a refund of the tax paid at the corporate level.
Balance and contribution caps are just part of the new regime.
There have been dramatic changes in the past few years – and more this July – to the administration, reporting and compliance of self-managed super funds, and it’s crucial that an SMSF trustee is up to speed on how they affect their fund.
Below are some of the key changes to discuss with an SMSF accountant to ensure the fund remains compliant, avoids penalties and employs the best strategies to improve retirement outcomes.
1. The ins and outs of TBAR reporting
For some, the mention of TBAR recalls lifts gliding up snow-covered mountains. From an SMSF perspective, the acronym stands for Transfer Balance Accounting Reporting.
TBAR is an Australian Taxation Office event-based reporting initiative and part of a longer-term move towards real-time reporting. It came into effect on 1 July 2018 and in simple terms means that when you complete certain events in the SMSF they need to be reported to the ATO in defined timeframes.
How much superannuation should I have for my age?
As of July 2014, employers have been required to contribute 9.5% into superannuation, however individuals are able to contribute further.
According to The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, a couple expecting a comfortable retirement will need an average of $60,457 a year.
Whilst there is no magic age to start planning for retirement, the simple answer is the earlier you start, the more chance you have to achieve the retirement you dream of. This really comes into play because of the compounding interest effect and how powerful it can be.
The longer a person has secured super contributions and associated investment earnings, the higher their account balance, especially over a significant period of time.
So, for my age, how much super should I have?
For the competitive among us,
Self-managed super funds have often been criticised for lacking diversification when it comes to their investments, specifically that SMSFs have too much in Australian shares and cash and not enough in international investments.
This criticism is somewhat unwarranted as SMSFs access international investments via Australian managed funds and ETFs. Research from Class Super shows that the underlying exposure to international equities across the top 20 managed funds and ETFs is 57% and 58% respectively (Source: Class SMSF Benchmark Report June 2016).
A large portion of SMSF trustees desire access to international investments, namely the US as the largest financial market in the world, however investing directly has traditionally been a costly and complex exercise. Trustees face a mountain of paperwork, complex forms and typically expensive trading fees.
Looking at trading fees, the cost to an SMSF to purchase AUD $10,000 of US stocks will be anywhere from $41 to $134 ($88 on average) per trade if conducted via the international broking solutions of the big four banks (Nabtrade,
In the May 2017 budget, the Government announced that from 1 July 2018, older Australians could contribute up $300,000 each (per couple) from the sale of their family home into their Superannuation Fund. This measure is to encourage older people to downsize from family homes that no longer meet their needs, while also freeing up these homes to younger families starting out.
Do you pass the test to contribute the sale of your home into your Superannuation?
Currently the rules state that if you are over 65 years of age, then you cannot contribute into Superannuation unless you meet the “work test” (meaning you have worked at least 40 hours in a 30-day period and been paid for this service). If you do meet the work test, then you can only contribute up to $100,000 in after-tax contributions, and $25,000 in before-tax contributions.
Another layer of complexity to this is that even if you are over 65 in age,
The downsizer contribution initiative is due to come into effect on the 1 July 2018. Late last year the Government passed its policy which allows super fund members over the age of 65 to sell a main residence and contribute funds into their superannuation accounts without contribution cap and work test issues.
While it may seem quite straight forward, like any government policies, there are a few hoops to jump first. There are three key steps that need to be taken if a member would like to be eligible to make downsizer contributions.
The first step a member needs to take is to confirm that their contributions will be eligible to be contributed to their fund. An eligible downsizer contribution is where:
1. the contribution is made to a complying super fund by a member aged 65 years or older;
2. the amount is equal to all or part of the capital proceeds received from the disposal of an ownership interest in a dwelling that qualifies as a main residence in Australia;
There is no magic number to start planning but the simple answer is, the earlier you start, the more chance you have to achieve the retirement that you dream of having.
The reason for this is because of the compounding interest effect. Below are some simple graphs showing how powerful this effect can be.
The first graph shows a beginning balance of $25,000 and rate of return of 6%, with no extra payments. Starting at age 25, by age 65 the balance has grown to over $257,000. If you delay the start by 10 years, the end balance is $143,500.
If you wanted to have $1 million at retirement age 65, the graph below shows how much you would have to save every month, using a 6% return, at different starting ages.
The table shows the amount that would have been personally contributed over the time to retirement and the compounded interest amount.
The recent surge in the price of Bitcoin has many investors seriously looking at crypto-currency as a part of their SMSF investment portfolio.
So, can an SMSF invest in bitcoin and crypto currency, and if so, what must trustees and advisers be aware of?
There are a number of key areas that trustees need to consider and address if they are looking if invest their SMSF monies into Bitcoin and other crypto-currencies / crypto-assets.
Is it allowable under the SMSF trust deed?
For any investment to be allowed, it must specifically be enabled and included in the trust deed of the SMSF. As Bitcoin and other crypto-assets are part of a relatively new asset class, it is unlikely that most SMSF deed would include a provision for investing into these currencies.
The ATO’s view is the Bitcoin and other crypto-assets are NOT currencies:
“Our view is that bitcoin is neither money nor a foreign currency,
The S&P/ASX200 Accumulation index finally put in a surge in October, with a gain of 4.01% in the month, shaking off a 6 month malaise. Twelve month numbers are back up to 16.13% almost double our expected annual 12 month returns of around 8.5%.
Global markets also had a good month, with gains of 4.29% and a rolling 12 month return that tops the charts at 22.53%. Emerging Markets posted even higher returns with a gain of 5.92% in October, and one year returns of 25.49%. Although vulnerable to negative events in the short term, Emerging Markets remain somewhat cheaper than developed markets, with arguably more to gain from structural reforms and demographic changes.
Bond markets improved in October, posting a gain of 1.09% on average. However one year gains are still muted at 1.64%, held back by long bond yields that are drifting higher, albeit at a slow pace.
The Australian market had a fair month in August. Mark takes us through the performance across the board to prepare us for what’s to come.
The Australian market had a fair month in August, with the ASX 200 Accumulation Index posting a 0.71% return for the month, which annualises out to around 8.5% which is within a few points of our expected long term returns. The commodities price was the action sector with Energy shares (+6.07%) delivered the biggest gains.
The rolling one year historic returns for the ASX200 Accumulation index is now 9.79%, rolling off some good periods in FY 2017 which saw a great return of 14.09%. Sentiment on Australia remains patchy. Banks, our largest sector have plenty of sceptics due to the high capital city house prices, and highly leveraged consumers. Our other big sector being materials, seems captive to sentiment about what China will do next.
Looking globally, the MSCI World Index gained 0.85% in AUD terms during August,