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 IN THIS EDITION
Welcome to our first newsletter Welcome to our fist
Welcome to the very first edition of the Insight Super News Update. We are very excited to provide this quarterly newsletter to our clients to provide the latest news and strategies for Self Managed Super Funds (SMSFs). newsletter
Self Managed Super
Funds Can Now Borrow to
Buy Property
Who Will Get Your Super
When You Die?
_____________
2009/2010
Concessional
Contribution Limits
The concessional (tax
deductible) contribution
limits for the 2009/2010
financial year are as follows:
50 year and over $50,000
Under 50 years
$25,000
2009/2010 Minimum
Pensions
The government has
announced that pension
payments will again be
reduced by 50% for the year
ended 30 June 2010. The
minimum draw downs for
the 30 June 2010 financial
year are as follows:
Under 65
65-74
75-79
80-84
85 – 89
90-94
95 and over
2%
2.5%
3%
3.5%
4.5%
5.5%
7%
Self managed super funds
can now borrow to buy
property Are you trying to save the cash to buy a rental property but property values keep going up faster than your fund balance? Have you ever wished you could borrow to buy an investment property in your super fund? Until recently, it has not been possible for superannuation funds to borrow because the Superannuation Industry (Supervision) Act had a strict requirement that super funds did not borrow or place charges over their assets. An amendment was made to the act in September 2007, which allowed super funds to borrow to invest in an instalment warrant provided certain conditions were complied with. While the amendment was originally done to allow funds to invest in Instalment Warrants over listed shares, the changes to the act were much wider than anticipated and now allow SMSFs to borrow to purchase a wide variety of assets including property. In the time since the amendment to the legislation, borrowing in SMSFs has become more mainstream with many of the major banks releasing borrowing products suitable for SMSFs with competitive fees and interest rates. Some lenders are now allowing you to borrow up to 72% of the property’s market value with no personal guarantees. The key benefits 1. The SMSF can borrow to acquire assets it may not be able to afford to purchase outright. 2. The SMSF obtains the income and capital growth from the asset from the time of acquisition. 3. Related parties can lend money to the SMSF at a commercial interest rate. This could be used as a way of getting money into the fund outside of the contribution limits. 4. The SMSF could acquire business real property or a listed share portfolio from a related party. Key risks and costs 1. Upfront costs to set up the structure. These start from $990 where the fund is borrowing from a bank. 2. The lender may charge a premium interest rate due to the limited recourse nature of the loan. 3. Up front and ongoing borrowing costs from the lender will be incurred. 4. Need to be conscious of the Linda. super fund’s cash flow and its ability to repay the loan. 5. Stamp duty and capital gains tax may apply if the asset is transferred from a related party. Please refer to the detailed fact sheet on our website for further information and costs. We can also assist you to arrange finance through an experienced mortgage broker at competitive rates. Who will get your
super when you die? Superannuation savings are now a major asset for many people particularly where life insurance cover is held through the super fund. However many people fail to realise that superannuation is not an estate asset and that unless a binding death benefit nomination or death benefit agreement is in place the remaining trustees decide to whom the superannuation death benefit is paid. Consider the real life case of Katz v Grossman [2005] NSWSC 934: 1. Ervin and Evelin Katz were individual trustees of their SMSF. 2. Evelin died in 1998 and Ervin appointed Linda (his daughter) as the second trustee of the fund. 3. Ervin died in 2003 and Linda appointed her husband Peter as a trustee. 4. Ervin had made a non‐binding beneficiary nomination where he indicated that he would like his super to be divided equally between his children Daniel and 5. Linda and Peter ignore the beneficiary nomination and pay the entire benefit of approx $1 million to Linda. 6. Daniel challenged the appointment of Linda and Peter as trustees of the fund. 7. The court held that both Linda and Peter were validly appointed as trustees. The end result is that Linda was paid the entire death benefit to the exclusion of Daniel. While there may be other legal avenues available to Daniel, the case does highlight the importance of: •
Your estate plan transferring control of your super fund to the right people. •
Changes to trustees being properly documented and retained. •
Binding death benefit nominations or death benefit agreements being completed where appropriate. Most superannuation fund deeds entitle a member to nominate a beneficiary for their superannuation. There are a number of different options available: Non Binding Nomination You may nominate to whom you would like your benefits to be paid. However the trustee will have the final say who will get your death benefit and may not follow your nomination. Binding Nomination A binding nomination means that you choose who will receive your superannuation death benefit. The trustee must pay your benefit according to your nomination, provided that the nomination is prepared and executed in accordance with the legislative requirements. A binding nomination is only valid for 3 years and must be refreshed after that time frame lapses. Death Benefit Agreement This is a specific death benefit provision which is incorporated into the SMSF deed. This agreement does not lapse and is binding on the trustee. In the original case if Mr Katz had made a binding nomination or death benefit agreement, his wishes would have been carried out, regardless of who took over the control of the superannuation fund. If you would like to further discuss your death benefit arrangements or would like to put a binding death benefit nomination in place please do not hesitate to contact our office. Getting future copies
of this newsletter We hope you have enjoyed reading our first newsletter. To ensure you receive future editions of our free newsletter please make sure you subscribe on our website. The information in this newsletter is general commentary only and should not be considered to be advice.