Self Managed Super Funds What Every Trustee Should Know Presented By David Busoli CEO of Tranzact To

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Self Managed Super FundsWhat Every Trustee
Should Know!Presented ByDavid BusoliCEO of
Tranzact Total Super
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Currently Australia has over 380,000 self managed
funds with over 700,000 members and 290 billion
in assetsWHY?
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• Because a Self Managed Superannuation Fund is
  the most efficient structure available for
• Tax
• Wealth Creation
• Retirement Income
• Social Security
• Estate Planning

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• A superannuation investment portfolio is
  similar to any other investment portfolio
• It just has a few more rules

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TYPICAL INVESTMENT PORTFOLIO
FIXED INTEREST
CASH
SHARES
PROPERTY
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• TRUSTEE
• owns the assets on behalf
• of the Member

FIXED INTEREST
CASH
SHARES
PROPERTY
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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

FIXED INTEREST
CASH
SHARES
PROPERTY
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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

FIXED INTEREST
CASH
SHARES
PROPERTY

• ADMINISTRATOR
• administers all fund compliance
• and reporting

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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

FIXED INTEREST
CASH
SHARES
PROPERTY
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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Institutional FundsVersus Self Managed Funds
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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

AMP
AMP
FIXED INTEREST
CASH
SHARES
PROPERTY
YOU
AMP
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

AMP
YOU
AMP
FIXED INTEREST
CASH
SHARES
PROPERTY
YOU
AMP
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

AMP
YOU
AMP
YOU
FIXED INTEREST
CASH
SHARES
PROPERTY
YOU
AMP
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

AMP
YOU
AMP
YOU Genesys
FIXED INTEREST
CASH
SHARES
PROPERTY
YOU
AMP
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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• TRUSTEE
• owns the assets on behalf
• of the Member

• INVESTMENT MANAGER
• advises the Trustee on
• investment matters

AMP
YOU
AMP
YOU Genesys
FIXED INTEREST
CASH
SHARES
PROPERTY
YOU
YOU TTS
AMP
THE MEMBER

• ADMINISTRATOR
• administers all fund
• compliance and reporting

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A self managed super fund wraps a powerful
trust structure around investments you may
otherwise hold personally.
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You are the Trustee giving You the Security of
knowing that- all the investments are in your
name- only you can sign the Fund accounts-
only you can authorise Fund investments- only
you can authorise Fund payments
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Choosing the Right Deed
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Choosing the Right Deed

• Ease of understanding
• Product Disclosure Statement
• Member eligibility
• Contribution eligibility
• In specie transactions
• Compulsory benefit withdrawal
• Range of benefits
• Life insurance proceeds discretion
• Individual member power
• Pension continuation
• DIY instalment warrant
• Non-lapsing binding death benefit nomination

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Sole Purpose Test

• Sole Purpose Test
• Provides members with retirement benefits (or
  provides its members beneficiaries or dependants
  with benefits in the event that the member dies
  before retirement.)

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In-house Assets

• In-house Assets
• Loan to, or an investment in, a related party of
  the fund, an investment in a related trust of the
  fund, or an asset of the fund subject to a lease
  or lease arrangement between the trustee of the
  fund and a related party of the fund.

• Cannot be gt5 of the value of the fund
• Tested continuously

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In-house Assets

• Lending Prohibition
• Trustee must not lend money of the fund or give
  any other financial assistance to a member of the
  fund or a relative of a member of the fund.

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Prohibited Acquisitions

• The Fund cannot acquire anything from a member
  except
• Listed securities
• Business real property
• Life insurance policy not owned by a member or
  relative
• Deposits in banks, building societies, credit
  unions
• Widely held unit trust (Managed Fund)
• An in-house asset which would not tip the 5
  limit
• Regulator specified

Prohibited Assets are tested at time of
acquisition. Ownership must be reversed at no
cost to the fund
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Borrowings

• Ignoring managed funds, a self managed super fund
  can arrange borrowings to acquire assets such as
  property in only 3 practical ways
• the new DIY Instalment Warrant
• closely held unit trusts/companies in which the
  SMSF invests
• Non-controlled unit trusts in which the SMSF
  invests

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DIY Instalment Warrants
A Fund can borrow if Loan is to the
SMSF Purchase is by nominee trustee Loan is to
buy the security asset The Fund does not own the
asset beforehand The asset is acquirable Investmen
t strategy is updated SMSF has immediate
beneficial interest SMSF has right to acquire
Title in the future Limited Recourse conditions
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The Structure
SMSF
200k
Property 500k
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The Structure
SMSF
200k
Nominee Trustee
Property 500k
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The Structure
SMSF
Bank, Member, etc
200k 300k
300k Loan
Nominee Trustee
Borrowing secured by the trust property
Buys property 500k
Property 500k
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The Structure
Repayments
SMSF
Bank, Member, etc
200k 300k
300k Loan
Expenses
Nominee Trustee
Borrowing secured by the trust property
Buys property 500k
Property 500k
Income
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Why Borrow

• Set the cost base now
• Plan for future retirement residence
• Buy the family factory
• Pay off the debt with tax deductible dollars then
  sell the investment tax free
• Gearing multiplies profits (and losses)
• Contribution Cap strategy

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Investment Strategy

• Cash Flow
• Negative gearing
• Future contributions
• Death
• Appropriate asset types
• Interest deductibility
• No dividend reinvestment
• Trading the asset

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Closely Held Unit Trusts
Prior to 11th August 99 a common arrangement had
been the establishment of a closely held unit
trust where the SMSF owned all or part of the
units. The unit trusts then borrowed to buy a
property with the property being mortgaged. This
is NOT covered by the Instalment Warrant
borrowing rules already discussed
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Closely Held Unit Trust
SMSF
300k
Unit trust
Buy property 500k
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Closely Held Unit Trust
SMSF
300k
200k
Unit trust
Bank
Borrowing secured by the trust property
Buy property 500k
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Closely Held Unit Trust

• New arrangements are in-house assets unless the
  Fund already had this arrangement at 11th August
• What if an existing trust gears? becomes an in
  house asset
• Property Development
• Who contributes and in what proportion?
• Need to value respective contributions
• Can the SMSF carry on a business of property
  development?

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Life Insurance
Most policy premiums (term life, total
permanent disablement, temporary disability,
whole of life) are tax deductible to the Fund.
The exception is a trauma insurance premium which
is not tax deductible. Most policy proceeds
(term life, total permanent disablement, whole
of life) are received by the Fund tax free. The
exception is trauma insurance which is subject to
capital gains tax. Subject to the Fund Deed
proceeds of life insurance will be credited to
the Fund, not necessarily the deceased Members
account.
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Life Insurance
If the proceeds are credited to the deceased
members account they become part of the taxable
portion of that account. This is not an issue if
the benefit is to be paid as a tax free lump sum
to a tax dependant - Spouse, financially
dependant person, interdependent, child under
18. If the benefit is paid to a
non-tax-dependant, such as an adult financially
independent child, then it will create an extra
tax bill. This type of beneficiary generally pays
15 tax on the taxable component. This can rise
to 30 if life insurance proceeds are included.
If the deed allows flexibility as where the
proceeds are to be credited a number of options
arise.
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Life Insurance

• Proceeds may be credited to reserves and reissued
  to accounts for grandchildren or others. Beware
  preservation!
• The extra tax to non-tax-dependant beneficiaries
  can be avoided by crediting reserves then
  crediting the beneficiary accounts. Beware
  preservation!
• A portion can be credited to reserves to pay an
  anti detriment payment.

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Anti Detriment Payment

• This is a mechanism which allows a refund of all
  contributions tax paid by the member provided
  they are under 65 at death.
• Payment must be made to a spouse or dependent
  child
• Refund is gained by a tax deduction so the fund
  must continue into the future to get the benefit.
• 15,000 payment earns the fund a 100,000 tax
  deduction.

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Questions