Presentation on theme: "SMSF-BACK TO BASICS WEALTH PLAN FOR THE FUTURE. SMSF BACK TO BASICS This information is current at February 2014 and is subject to change. As this information."— Presentation transcript:
SMSF-BACK TO BASICS WEALTH PLAN FOR THE FUTURE
SMSF BACK TO BASICS This information is current at February 2014 and is subject to change. As this information (including the statements on taxation which are of a general nature only and based on current laws, rulings and interpretation) has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances. My Financial Group Health is a corporate authorised representative of Synchronised Business Services (ABN , AFSL ) You should consult with your financial adviser before selecting any insurance or investment products. The information provided here tonight is general in nature and any personal advice to meet your personal objectives. Disclaimer – Synchronised Business Services Pty Ltd
SMSF BACK TO BASICS AGENDA Investment process SMSF is this for you? Commercial property case study Shares can play a role in diversification and yield Property development using SMSF Don’t put it at risk!
SMSF BACK TO BASICS THE INVESTMENT SELECTION PROCESS STEP 1: Review your personal circumstances with a professional in light of Taxation, Litigation, Income and Growth Requirements and Investment Objectives Short and Long Term. STEP 2: Decide on the appropriate Style of investment to meet your requirements above. E.g. Property, shares, business STEP 3: Decide on the most effective ownership structure to take into account CURRENT and FUTURE tax requirements.
SMSF BACK TO BASICS TAX ENVIRONMENTS Super 15% Individual 46.5% Company 30% Trust Retirement Income 0% Capital Gains 0% Marginal Tax Rate up to 46.5%
SMSF BACK TO BASICS CREATING ASSETS + INVESTMENTS TERM DEPOSITSSHARES PROPERTY TAX UP TO 46.5% ON EARNINGS DOWN TO 15% ON EARNINGS 10% CAPITAL GAINS 0% AFTER 60!
SMSF BACK TO BASICS SMSF IS THIS FOR YOU? RETIREMENT STRATEGY
SMSF BACK TO BASICS Acknowledged as one of the most tax effective structures for wealth creation, SMSFs offer a number of key benefits, including: Controlover the structure and all decisions made by fund Flexibilityof investment choice, timing of contributions and access to income stream (pension) payments Tax effectivenessthe opportunity to reduce tax rates on investment income and capital gains through, for example, the use of franking credits, offsetting capital losses, timing of disposal of assets and other capital gains considerations Estate planningSMSFs can be structured to provide effective estate planning Asset ownershipability to transfer personal shares and business real property into the fund, and Asset protectionfrom bankruptcy and other legal claims (up to a limit).
SMSF BACK TO BASICS 1.Sole purpose test Core purpose: retirement, age 65, death benefits 2.Investment strategy Trustee obligation to have an investment strategy (Key role for Adviser) 3.Arm’s length transactions Investments must be made and maintained on a strict commercial basis 4.Financial assistance to members or related parties Cannot use the fund to provide financial assistance to a member or relative of a member 5.Prohibitions on loans 6.Acquisition of assets from related parties Generally prohibited. Exemptions include listed securities, units in a widely held unit trust, life policies (except from a member or relative), business real property, in-house asset (5% limitation applies) 7.In-house assets test limited to 5% of the fund’s market value 8.General prohibition on the fund borrowing. What is allowed: Geared managed funds Cash applications of (traditional) instalment warrants Other instalment trust arrangements
SMSF BACK TO BASICS SMSF – MAIN POINTS SUPERANNUATION Asset Ownership – Control of these investments Leverage which creates purchasing power Flat fees instead of percentage based fees Low costing once you have reached an amount of $200K + Provides further diversification
SMSF BACK TO BASICS ALL ABOUT SMSFs How big is the SMSF market? At 30 June 2013 there were: Over 450,000 SMSFs Nearly 850,000 SMSF members Over $432 billion in total assets in SMSF Growth in SMSF market since June 2004 APRA found that at the end of June 2013, SMSFs continued to hold the largest proportion of superannuation assets, accounting for 31.2% of the total of Australian superannuation assets, followed by retail funds with 27.5%. Industry funds accounted for 18.6%, public sector funds 15.1% and corporate funds 4.5%. Small APRA funds (fewer than five members, but not classified as a bone fide SMSF) held 0.1% of total assets.
SMSF BACK TO BASICS WHY MFG HEALTH? Experience - in the SMSF segment of the superannuation industry for 25 years Specialist SMSF administration experts Quality, client focussed service Accurate and compliant accounting and ATO reporting Proven risk management structure Complete range of SMSF services Market leading technical capability and expertise Brand strength and stability Dedicated contact and relationship management All About MFG Health
SMSF BACK TO BASICS DEFINING SUPERANNUATION
SMSF BACK TO BASICS DAN + JUDY’S SUPERANNUATION CASE STUDY SUPERANNUATION Total income $560,000 Home mortgage $500,000 P/A Practice Turnover $2,000,000 Profit $380,000 Dan fee draw $200,000 Judy fee draw $80,000 Premises leased $62,000 OPPORTUNITY = BUY PREMISES FOR $1,000,000
SMSF BACK TO BASICS DAN + JUDY’S SUPERANNUATION CASE STUDY SUPERANNUATION Current Super $200,000 + Cash boost of $50,000 (Combined Contribution) = $242,000 after 15% Tax 10% dep = $100,000 Stamp Duty + Costs =$48,000 LOAN = $900,000 $94,500 CASH IN SUPER +
SMSF BACK TO BASICS DAN + JUDY’S CASE STUDY SUPERANNUATION INCOME / P.A. Rent $62,000 Contribution $50,000 (%15 Tax + offset by depreciation etc) TOTAL $112,000 SUPERANNUATION EXPENSES Interests $62,000 Outgoings $12,000 Gen. Costs $7,500 Dep’n $28,300 TOTAL $83,000 OFFSETS $115,300
SMSF BACK TO BASICS JOHN + MARY’S PRACTICE CASE STUDY 2 SUPERANNUATION Common Fund Age based fee 0.71% SUPERANNUATION SMSF Flat fee $4000 = $16,330= $4,000 SMSF Flat Fee is geared to complexity not fund value $2.3 MILLION IN SUPER FUND
SMSF BACK TO BASICS DEFINING SUPERANNUATION DEFINING SHARES
SMSF BACK TO BASICS JASON + MAREE’S CASE STUDY 3 STOCK MARKET 47 yr. old Jason earns $180, yr. old Maree earns $35,000 2 small kids Several investment properties
SMSF BACK TO BASICS BLUECHIP20 PORTFOLIO Security DescriptionPortfolio WeightDollars Invested BHP Billiton Limited 14.51% $54,413 Commonwealth Bank % $47,850 Westpac Banking Corp 10.12% $37,950 ANZ Banking Grp Ltd 8.91% $33,413 National Aust. Bank 7.87% $29,513 Telstra Corporation. 7.12% $26,700 Wesfarmers Limited 5.31% $19,913 Woolworths Limited 4.95% $18,563 Rio Tinto Limited 3.55% $13,313 Westfield Group 2.99% $11,213 CSL Limited 3.01% $11,288 Woodside Petroleum 2.81% $10,538 Newcrest Mining 2.40% $9,000 QBE Insurance Group 2.36% $8,850 Origin Energy 1.94% $7,275 AMP Limited 1.64% $6,150 Suncorp-Metway 1.57% $5,888 Santos Limited 1.47% $5,513 Brambles Limited 1.40% $5,250 Macquarie Group 1.31% $4,913 Cash 2.00% $7, %$375,000 TOP 20 STOCKS PORTFOLIO
SMSF BACK TO BASICS BLUECHIP20 PORTFOLIO TOP 20 STOCKS PORTFOLIO TAX POSITION INCOMEEXPENSES Franked Dividends (4%) $15,036Interest on loan-$17,062 Imputation Credits$5,616Interest on LOC-$6,750 Cash Interest$300Portfolio Fee-$1,500 Total (5.58%)$20,951 -$25,312 $4,361 TAX OFFSET EACH YEAR
SMSF BACK TO BASICS THE BENEFITS OF LONG TERM INVESTING No negative rolling ten year returns on the ASX 200 Accumulation Index since 1910 *Source Goldman Sachs JB Were (derived from a number of original sources including the ASX) Past performance may not be a reliable indicator of future performance
SMSF BACK TO BASICS JASON + MAREE’S CASE STUDY 3 STOCK MARKET Regular dividends Franking credits (tax paid at 30% on dividends already ) Long term growth Liquidity Ability to reinvest distributors or add further funds to access a long term average price STOCK MARKET High level of volatility Risk associated with holding individual stocks
SMSF BACK TO BASICS BLUECHIP20 PORTFOLIO
SMSF BACK TO BASICS
DAN + JUDY’S COMMERCIAL PROPERTY CASE STUDY 4 SUPERANNUATION Total rollover $560,000 Add Concessional Contributions $50,000 ($42,500 after tax) Add Non Concessional Contributions $900,000 Borrow $1,000,000 Premises purchased $2,200,000 OPPORTUNITY = BUY PREMISES FOR $2,200,000 Total Available $2,502,500
SMSF BACK TO BASICS DAN + JUDY’S COMMERCIAL PROPERTY CASE STUDY 4 SUPERANNUATION Concessional Contributions $50,000 Lease from property $190,000 = $255,000 income Interest $70,000 Property Costs $10,000 Interest/Dividends $15,000 Tax Deductions = $105,000 deductions Depreciation $25,000 = $150,000 taxable at 15% = total tax $22,500
SMSF BACK TO BASICS DAN + JUDY’S COMMERCIAL PROPERTY CASE STUDY 4 SUPERANNUATION Surplus Cashflow $175,000 Repay Loan over 5 yrs approx Over Time = $255,000 taxable at 15% Income in SMSF then $255,000 indexed VS $255,000 taxable at 46.5% = total tax $118,575 = total tax $38,250
SMSF BACK TO BASICS LOOKING BENEATH FOR THE OUTCOMES TAX UP TO 46.5 % ON EARNINGS 15 % ON EARNINGS 10 % CAPITAL GAINS 0 % AFTER 60! VS
SMSF BACK TO BASICS DALE + SANDRA’S SUPERANNUATION CASE STUDY 5 STOCK MARKET REAL PROPERTY INVESTMENT Property cost: $577,000 including stamp duty Town planning and other costs: $18,000 Cost to construct: $338,000 Other costs of construction i.e. council contributions: $40,000 Total costs: $973,000 Final valuation: $1,120,000 Total project took 18 months and net equity developed $147,000
SMSF BACK TO BASICS DALE + SANDRA’S SUPERANNUATION CASE STUDY 5 STOCK MARKET Tangible asset Feeling of safety Growth asset in the long run Regular income offered through rent Depreciation can be claimed as a deduction Can potentially offer other opportunities such as improvements mentioned above REAL PROPERTY INVESTMENT Not highly liquid Can also be volatile May incur high ongoing maintenance and cost
SMSF BACK TO BASICS CHALLENGES WITH INSURANCE COVER
SMSF BACK TO BASICS CHALLENGES WITH INSURANCE COVER
SMSF BACK TO BASICS Medicals – blood test, medical check ups, medical history report Be mindful of disclosure Family History Financials May take up to 3 months therefore no check ups WE HAVE A 100% CLAIMS SUCCESS CHALLENGES WITH INSURANCE COVER
SMSF BACK TO BASICS E-BOOK’S FOR PROPERTY GROUP MEMBERS
SMSF BACK TO BASICS Any questions? Special Offer Free SMSF Establishment for any insurance client *