SMSF-BACK TO BASICS WEALTH PLAN FOR THE FUTURE

SUCCESSFUL PRACTICE WORKSHOP This information is current as at July 2011 but may be subject to change. It is issued by Super Concepts Pty Limited ABN a Corporate Authorised Representative of RI Advice Group Pty Limited ABN AFSL It is intended as general advice only and does not take into account a potential investor's objectives, financial situation or needs. Before making any investment decisions based on this material, you should consider the appropriateness, taking into account your objectives, financial situation and needs, you should seek advice from a licensed financial professional. The examples and case studies used in this material are based on current legislation and are for illustrative purposes only. DISCLAIMER

SUCCESSFUL PRACTICE WORKSHOP ALL ABOUT SMSFs How big is the SMSF market? At 30 June 2012 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 2011, 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.

SUCCESSFUL PRACTICE WORKSHOP WHY WOULD YOU WANT A SMSF? RETIREMENT STRATEGY Why? SMSF

SUCCESSFUL PRACTICE WORKSHOP 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).

SUCCESSFUL PRACTICE WORKSHOP A small superannuation fund established for 1 to 4 members who want to grow and manage their future wealth by creating their own super fund. SMSFs are typically attractive to people with over $200,000 in superannuation assets The key things to remember are: The money in a SMSF is held in trust for the members of the fund A SMSF and its assets are controlled by trustees The fund must be run in accordance with the legislation The fund receives contributions and rollovers and the trustees decide how the money is invested When a member is allowed to access their super, the trustees pay money as a lump sum or as a pension. All About SMSFs What is self managed superannuation?

SUCCESSFUL PRACTICE WORKSHOP 1.Obtain a trust deed 2.Appoint trustees 3.Obtain an ABN, TFN 4.Elect to become regulated 5.Establish an investment strategy 6.Open a bank account 7.Obtain death benefit nominations from each member 8.Appoint other SMSF professionals ESTABLISHING A SMSF

SUCCESSFUL PRACTICE WORKSHOP Advantages  Control  Flexibility  Performance  Tax savings  Cost Disadvantages  Legal requirements  Trustee responsibilities  Administration  Cost WHY AN SMSF?

SUCCESSFUL PRACTICE WORKSHOP Members of a SMSF are also the trustees of the fund. SMSFs must comply with the following restrictions:  Must have no more than 4 members  No member of the fund is an employee of another member of the fund, unless they are related  Each member is a trustee of the fund, or for a corporate trustee, all members of the fund are directors of the trustee company, and  No trustee is receiving remuneration for their services Special rules also apply for single-member funds which may allow non-members to act as trustee or director of the corporate trustee. ALL ABOUT SMSFS Who can be a member?

SUCCESSFUL PRACTICE WORKSHOP TRUSTEE OBLIGATIONS Trustees are required to fulfil the following general obligations:  Act honestly  Exercise the care, skill and diligence of a prudent person  Perform their duties in the best interests of the members of the fund

SUCCESSFUL PRACTICE WORKSHOP Trustees must have an investment strategy The investment strategy must address:  Risk & return  Diversification  Liquidity  Ability of the fund to discharge liabilities  insurance coverage for members The investment strategy needs to take into consideration the objectives of each member An SMSF must have a separate strategy to manage fund reserves The investment strategy needs to be reviewed at least annually INVESTMENT STRATEGY

SUCCESSFUL PRACTICE WORKSHOP 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 INVESTMENT RULES – 8 BASIC TESTS

SUCCESSFUL PRACTICE WORKSHOP In September 2007, an exception to s.67(1) the Superannuation Industry Supervision Act was introduced to allow self managed superannuation fund (SMSF) trustees to borrow to acquire assets. New rules apply from 6 July 2010 as follows: Under s.67A and 67B, a borrowing arrangement will qualify for the exception if the following requirements are met:  The borrowing is used to acquire an asset that is held on trust so that the superannuation fund receives a beneficial interest and a right to acquire the legal ownership of the asset through the payment of instalments.  The loan must be applied to acquire an asset the fund is permitted to acquire under the superannuation law.  If the superannuation fund defaults on the loan the lender’s right to recoup the amount outstanding is limited to the value of the asset (i.e. the lender cannot recover money through the fund’s other assets). What is a borrowing arrangement?

SUCCESSFUL PRACTICE WORKSHOP Any asset that is allowable under SIS legislation. This may include:  Commercial / Industrial property.  Residential property.  Listed and unlisted shares.  Other Assets – such as bullion (Gold Bars, etc). What assets can a super fund borrow to invest?

SUCCESSFUL PRACTICE WORKSHOP Need to consider:  fund’s governing rules including trust deed and investment strategy.  arm’s length dealings.  sole purpose test.  acquisition of asset from related party rules.  In-house asset rules. What assets can a super fund borrow to invest?

SUCCESSFUL PRACTICE WORKSHOP There are three key parties to the borrowing arrangement:  SMSF trustees:  select the asset to be acquired.  organise the loan.  establish the Custodian Trust.  receive income from, and pay the expenses associated with, the asset.  make the instalment payment(s).  Custodian  purchases the asset under a Custodian Trust.  holds the asset as the legal owner until the loan is repaid/asset is sold.  Lender  can be a related party or a commercial lender. How is a borrowing arrangement structured?

SUCCESSFUL PRACTICE WORKSHOP In five simple steps you can have established what is needed: 1. SMSF Trustees formally agree – to the use of a borrowing arrangement  You need to arrange for the SMSF trustee to meet and appropriately minute the agreement to use a borrowing arrangement. 2. Decide which asset to purchase – in line with the fund’s investment strategy  You need to:  make sure your SMSF’s investment strategy allows for borrowing arrangements.  Decide on which assets to purchase with consideration to the investment rules within SMSFs. 3.Establish the Custodian Trust – to purchase the asset  Super Concepts Borrowing arrangement documentation services can help you with all requirements. 4.Arrange finance – either related party or commercial loan 5.Arrange the relevant loan documentation  Super Concepts Borrowing arrangement documentation services can help you with all requirements. Five easy steps to borrow through an SMSF

SUCCESSFUL PRACTICE WORKSHOP Super is often our biggest asset – therefore, its important that an SMSF’s assets are appropriately managed if a member loses mental capacity and cannot fulfil their trustee role or on the death of a member. The Trust Deed is a key part in ensuring that the appropriate steps are taken in these circumstances. Its important that you understand what is in the SMSF’s Trust Deed, that it is reviewed regularly and have it updated if required. The use of a corporate trustee and enduring powers of attorney should also be considered and implemented if required. Estate Planning is a specialist area, and professional advice should be considered. Key Points

SUCCESSFUL PRACTICE WORKSHOP 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

SUCCESSFUL PRACTICE WORKSHOP Investment Strategy Investment Selection Fund establishment Deed management Ongoing administration Compliance Financial Planner Investment Advice Direct Share advice Managed Funds Ongoing Investment and Strategic Advice My Financial Group Health/William Buck Fund establishment Deed management & other document services Annual accounts Audit Tax return preparation ALL About SMSFs Delegating Tasks

SUCCESSFUL PRACTICE WORKSHOP Any questions?