Viewing posts from: August 2016

Assets tests and the aged pension: do new rules affect you?

All / 26.08.20160 comments

Click here to read more and contact the team at TNR Wealth Management for more information

Read More >>

Protecting your wealth Ages 46–55

All / 18.08.20160 comments

  • Are you employed or self-employed?
  • Do you have any debts or dependants?
  • How long could you survive financially without your income?

Click here to read more and contact the team at TNR Wealth Management for more information

Read More >>

What can my SMSF invest in?

All / 11.08.20163 comments

Control over investment decisions lies with the Trustees of the Fund.

We find this is the main reason so many Australians are establishing their own Self- Managed Superannuation Fund or SMSF for short. The range of investments you can consider for your portfolio include almost anything you yourself could invest in as an individual including:

  • Direct investments (such as shares, ETFs, cash, term deposits, hybrids, income securities, gold/silver bullion and bonds)
  • Direct property (Residential houses, villas, units, as well as Commercial property such as offices, warehouses, factory units, shops and land.)
  • Managed funds (retail or wholesale, domestic and/or international)
  • Private Unit Trusts
  • A business (non-related party to avoid hassle) and business property
  • Non-traditional assets such as coins, antiques, art , taxi plate licences, ATMs

The first step is to ensure your Trust Deed allows you to invest in the items you are considering. I know it is a long boring document but you need to know its contents so go through it regularly to get a handle on it.

Once satisfied the Trust deed does not exclude an investment, the types of investments the SMSF actually holds are determined by the fund’s investment strategy, which is formulated by you, along with the other members in the fund, and often advised by an SMSF Specialist Advisor. The fund’s strategy should reflect your objectives, risk profile/tolerance, liquidity needs and the investments you intend to utilise. This is not set and forget or forged in stone. The investment strategy can be
changed as often as you wish, to suit your changing circumstances and to take advantage of new investment opportunities. The fund can also incorporate different strategies to suit each of its members.

An important benefit of this having this ultimate control is that, during retirement phase, you can continue to invest in growth assets. This contrasts the approach of many retail providers, who lock ‘pension phase’ investors into income-producing assets such as cash and fixed interest, increasing the risk that the investor may outlive their retirement savings. This is coming back on the agenda now as many funds move to ”Lifecycle strategies” which I believe are dangerous in assuming that fixed interest is low risk when inflation is a real risk and bubbles can effect the capital value of even “conservative”options.

It is important to understand that there are certain regulatory limitations placed on SMSF; for example, a fund cannot borrow money to invest in assets such as property or shares unless the funds are provided through a Limited Recourse Borrowing
Arrangement (LRBA).

A fund cannot acquire assets from related parties of the fund or invest in in-house assets; for example the fund could not purchase your assets (such as your house or residential investment property) from you. Other restrictions placed on the fund include the inability to lend funds to members or their relatives or to provide the assets of the fund as security for personal borrowing.

Can I invest in equipment and leased it to my business?
Technically yes but there are so many ways you can get in trouble it may not be worth the hassle.

Can I buy a Classic or Vintage Car within my SMSF?
Again technically and theoretically yes you can, but it would be very difficult with many pitfalls. You’d also have to be able to prove to the ATO that the investment meeting the sole purpose test and was going to generate income for your retirement and not for personal enjoyment now! You can own but you or a related party cannot drive it even for maintenance purposes! If you invest in classic cars, they would have to be hired out to generate income. It would be difficult for you to drive. Remember if you are driving you need to be covered by the vehicle’s insurance, and that would make it obvious to the ATO you are using the car for your own purposes.

Can I use a property within my SMSF?
SMSFs are expressly forbidden from investing in the family home or holiday home for your personal use. But they are able to invest in investment properties – as long as the property is only used for investment purposes. Likewise properties within holiday resorts or golf courses can draw the ire of the ATO as again you may be seen to benefitting members personally rather than providing for retirement. This means fund members can’t go and stay in the property or rent it out to family members. The property should generally be managed by a real estate agent to satisfy the sole purpose test regulations unless you can show genuine evidence that you are managing it professionally yourself.

If I want to push the limits! Coins, jewellery, antiques, wine and art?
You can invest in coins – but you can’t display them if you want to satisfy the sole purpose test. Coins are collectables if their value exceeds their face value. Therefore, if bullion coins have a value that exceeds their face value and they are traded at a price above the spot price of their metal content, they will be a collectable and your SMSF must comply with regulation 13.18AA in relation to the investment.

Likewise, you can invest in wine but you can’t drink it unless you are in pension fully retired and taking it out as a lump sum pension payment! If your fund acquired the wine on or after 1 July 2011 it must not be stored in the private residence of any
related party. A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.  SMSF investments in art operate in a similar way. You can’t hang it in the hall at home, but you can rent it to a non-related company or an art bank that rents out
artworks on an ongoing basis.

Here is a link to the ATO’s guidance on leasing and selling artworks:

Although it might seem like a good idea to use your super to invest in exotic assets, the value of these types of investments is notoriously volatile and the market for these asset classes is generally pretty illiquid. If you have special or professional
knowledge in a particular subject then you may be able to put forward a better case than an ordinary person for engaging in those assets as part of your funds strategy. Again make sure that you are not using your SMSF or its assets to prop up your own
business.
Source: Liam Shorte B.Bus SSA™ AFP

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication
does not take into account your personal objectives, financial situation or needs and so you should consider its
appropriateness having regard to these factors before acting on it. This article may contain material provided directly by
third parties and is given in good faith and has been derived from sources believed to be reliable but has not been
independently verified. It is important that your personal circumstances are taken into account before making any
financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before
acting on any information or advice in this publication. Any taxation position described in this publication is general and
should only be used as a guide. It does not constitute tax advice and isWhat based on current laws and our
interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Read More >>

2016 financial year in review – from Grexit to Brexit

All / 04.08.20160 comments

The year to 30 June 2016 was in many ways an extraordinary year with a range of both positive and negative influences at play. Regrettably for investors, the financial year concluded just as it started with considerable uncertainty and market volatility.

Read more here and contact the TNR Wealth Management Team for more information.

Read More >>
  • Switch and Save

    Switch and Save When developing a budget, it’s easy to think that you have no control over costs for essential items such as electricity, particularly when every bill seems to be higher than the last. But if you look closely at your energy usage at home and make a few small changes to reduce your […]

  • If you think you’d never fall for a scam, read this…

    If you are over 50, male, highly educated, financially literate and manage your own super, beware. You’re at a higher risk of being the target (and victim) of organised investment fraud. This isn’t necessarily because your demographic is particularly gullible. Rather, it’s because you’re more likely to control higher levels of wealth, perhaps as the […]

  • Salary sacrifice vs personal contributions to super

    Amongst the changes made to superannuation effective 1 July 2017 was the welcome and sensible move to give everyone who makes a personal contribution to super the option of claiming a tax deduction for it. Prior to this date, tax deductions on personal contributions could only be claimed by the “substantially self-employed”. The upshot is […]

  • Invest for the future not the past

    Investing bears no resemblance to gambling and, unfortunately past ‘form’ seldom provides an indication of future performance. Many investors are tempted to look at the best performing sector over the past year and then switch their investments accordingly. Beware this can be a recipe for disaster. In many cases, last year’s poor performer can turn […]

  • When was your last financial review?

    The months seem to fly past in a blink of an eye and although it feels like we were celebrating Christmas just a few months ago, it’s looming on the horizon again – another year gone! Almost every year we see changes to our superannuation system, interest rates, the stock market and the property market. […]

TNR Wealth Management