Self-Managed Super Funds

2. Self-Managed Super Funds Take Control of Your Future Speaker’s nameTitle/departmentMonth, 2014

3. Agenda • The SMSF market stats • How should trustees be investing? • Transferring assets into a SMSF • Borrowing to invest • SMSF opportunities for business owners

4. What tax rate do you prefer?

5. SMSF market* • 509,362 funds registered with the Government • 35,776 new funds established last 12 months • 139,915 new funds in last 4 years • $1.62 trillion - total of all super assets • $504b – total SMSF assets (31.1%) • 963,852 members • 69% of funds have no more than 2 members * APRA & ATO stats as at June 2013

6. Age Profile of SMSF Members SMSF Age Profile 61.5% of SMSF fund members are age 55+ (nearing and post retirement age). These members would have higher average balances and as they move into pension draw down the growth in assets will slow.

7. Customer drivers for SMSF Advantages • Control of investment decisions • Direct investments options • Investment returns lower costs • Ability to gear • Tax management • Flexible retirement pension options • Flexible estate planning/ protection options • Disadvantages • Full trustee responsibilities • Lack of knowledge • Time consuming to run • Tough penalties for breaching rules • May be uneconomic for low balances • Extra legal responsibilities • Potentially higher costs • Maximum of four members

8. The ATO Watchdog

9. Concessional Caps Increased * Those aged 59 on 30 June 2013 eligible for $35,000 (2013/14) Those aged 49 on 30 June 2014 also eligible for $35,000 (2014/15)

10. Managing Contribution CapsNon-concessional – No Deduction Claimed • Personal contributions capped at $150,000 pa • If under 65 you can bring forward 2 years of cap and contribute up to $450,000 30 June 2013 30 June 2014 30 June 2015 30 June 2016 30 June 2017 $180,00 $150,00 $180,000 $180,00 $180,00 $450,00 $540,00 $0 $0 $0

11. How should trustees be investing?

12. The Fund’s investment strategy • SIS Regulation 4.09 • As a Trustee you must consider: • Risk involved, likely returns and fund objectives • Composition of a fund’s investments, diversification • Liquidity requirements of the fund • Ability of the fund to discharge present and future liabilities • Providing insurance for members

13. Asset & Family Protection • Providing insurance cover within a SMSF • Insurance cover for members is owned by the fund on the life of the members • The fund can insure members for: • Life Insurance as a result of death • Total & permanent disability • Income protection • The fund will claim a tax deduction for the insurance premiums • Provides cash liquidity to enable payment of death benefits to beneficiaries • Provides protection for any borrowings within the fund • Tax advantages of holding insurance in super as opposed to outside super

14. Satellite Type Directly held shares Self-funding instalment warrants Specialised managed funds Global property Hybrid securities Global fixed interest Capital protected products Core Type Cash /TD’s High interest savings a/c Diversified fixed interest Tailored TD’s Australian property Managed funds ETF’s The Different Types of Assets

15. Transferring assets to a SMSF

16. Which assets can be transferred ? • The only assets that are currently owned by a member outside super that can be transferred are: • Listed securities at market value • Managed funds that are widely held • Business real property at market value • Allows these assets to be transferred to a concessionally taxed structure: • Maximum 15% tax on income investment • Maximum 10% tax on capital gains • Nil tax when SMSF in pension phase

17. How can you transfer ? • There are two options for transferring assets • Fund can purchase outright from a member where it has sufficient cash or fund could borrow – not treated as a contribution • Asset could be transferred in-specie where ownership transferred to trustee of SMSF – will be treated as a contribution by member • Issues to consider: • Asset locked into super until retirement • CGT implications on transfer of ownership • Stamp duty • Contribution caps for in-specie contribution method • Financial planning strategic advice will be critical

18. Case study – shares in-specie transfers • David, aged 59 (self-employed) wishes to make additional contributions to his SMSF super fund • He does not have any spare cash to contribute • But he owns $200,000 worth of listed shares in his name • Solution/strategy: • David transfers the shares ownership (in-specie) to the SMSF superannuation fund • $20,000 personal CGT (after claiming the 50% discount) personal • As David is eligible to make deductible concessional contributions to super, he can claim a tax deduction for $20,000 of the amount contributed • $ 20,000 (Concessional contribution deduction) • $180,000 (Non-concessional contribution – no deduction) • $200,000 Total contribution Important notes You need to take into account the appropriate value for the purposes of the contribution caps that apply under super Legislation at the time Note that a self managed superannuation fund is only able to accept an in specie contribution if it is allowed under the trust deed of the fund

19. SMSF borrowing to invest

20. SMSF borrowing rules • Loan must be used to purchase a single acquirable asset • The asset must be held in trust for the SMSF − SMSF holds beneficial interest in that asset • SMSF has the right to acquire the asset following the SMSF making one or more subsequent payments • The loan must be limited recourse • Rules are complex and extreme care should be taken in setting up properly

21. An example personal guarantee? limited recourse loan interest Rental Income SMSF Trust holds property $ contributions funds used to acquire asset held on trust

22. Recent Changes –SMSFR 2012/1 • Clarification of definition of a “single acquirable asset” • Borrowed money may be used for repairs and maintenance • No borrowed money can be used for improvements • Replacement assets • If asset subject to borrowing is improved too much may become a different asset & breach the rules • Off the plan purchases are OK

23. The borrowing option to purchase assets Advantages • Can increase your returns by using borrowed funds • Income from investment taxed at maximum 15% • Capital Gains Tax limited to 10% • Nil tax if in pension phase • Interest payments are tax deductible to the fund • Disadvantages • Borrowing can magnify losses as well as gains • Borrowing costs are usually higher due to limited recourse loan • Asset usually locked in super until retirement • Costs to set structure and ongoing administration

24. The opportunity for small business owners Business owners have the opportunity to structure business premises assets in an effective way by holding business property in the SMSF The benefits to business owners: • Source of income and growth for the SMSF • Business stability – SMSF trustee is the landlord • Rental income taxed at maximum of 15% • If property sold for either business succession or retirement CGT maximum of 10% or 0% if sold in pension phase • SMSF may provide asset protection • Assets in super don’t count towards Net Tangible Asset test for Small Business CGT Concessions • Able to transfer business premises in-specie into the fund

25. SMSF asset protection and estate planning

26. SMSF and estate planning • In the event of death of a member the SMSF can pay death benefits in the form of: • A lump sum to beneficiaries • A pension to a SIS spouse dependant or child dependant beneficiaries • A reversionary pension to spouse for existing pensions • Super death benefits do not form part of your estate unless the estate is nominated as beneficiary under binding or non-binding death benefit nomination form • If structured correctly the SMSF can be an efficient way to pass assets to beneficiaries

27. Katz vs. Grossman [2005] NSWSC 934 • SMSF with $1m of assets • Mr and Mrs Katz had 2 children – Linda and Daniel (adults) • Mrs Katz died a few years earlier and Mr Katz appointed Linda as co-trustee of SMSF • Mr Katz made a non - binding nomination that death benefit ($1m) be paid to children equally • Mr Katz died • Linda appoints her spouse as co-trustee • Guess what happened ???

28. Disclaimer QUESTIONS

29. Disclaimer This information was prepared by Asgard Capital Management Limited ABN 009 279 592, AFSL 240695 (Asgard) and is current as at March 2014. A Financial Services Guide (FSG) is available for all Asgard accounts and services and can be obtained by calling 1800 998 185.  Material contained in this presentation is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This presentation contains general information only and 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. All case studies and examples used in this presentation are for illustrative purposes only and nothing in this presentation should be construed as an indication or prediction of future performance or results. Any taxation position described in this publication should be used as a guide only and is not tax advice. You should consult a registered tax agent for specific tax advice on your circumstances. As the rules associated with the super and pension regimes are complex and subject to change and as the opportunities and effects differ based on your personal circumstances, you should seek personalised advice from a financial adviser before making any financial decision in relation to any matters discussed in this presentation.

30. “Thanks”