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YourGuardian: March 2003 edition
Contents
- Welcome
- Internal Rollovers
- Self Managed Super Fund Trustees
- To Wrap or not to Wrap?
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 Welcome
Welcome! to our March edition of our monthly newsletter—Your
Guardian.
Our newsletter is intended to provide you with a brief update
of the latest changes and issues as they relate to Self Managed
Superannuation Funds (SMSFs).
We invite you to forward a copy of our newsletter to anyone you
know who may be interested.
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Internal
Rollovers
In July 2001, the Assistant Treasurer announced that legislation
would be introduced to allow internal rollovers within a self-managed
super fund. This legislation was introduced in the House of Representatives
on 13 February 2003, and if passed will apply to any internal rollovers
from 1 July 2001.
In summary, what this means is that a self-managed super fund will
now be able to change from the pension phase back to the accumulation
phase without being penalised. As the law currently stands, the
change from pension phase back to the accumulation phase does not
meet the definition of an Eligible Termination Payment (ETP) and
therefore cannot be reported to the Tax Office.
As a result, the balance of the member’s account is counted
towards the member’s Reasonable Benefits Limit (RBL) twice
– first when the initial pension commences and then again when
a new pension commences upon final retirement. In a lot of cases
this means that a member’s RBL limit may be exceeded therefore
the tax concessions in relation to some or all of the new pension,
such as the 15% rebate on pension income, are lost.
The new legislation is a welcome relief for members of self-managed
super funds, who may return to work after starting to receive a
pension from their super fund. Without the new legislation, to avoid
penalties the only option available would be to rollover the allocated
pension from the member’s self managed super fund to another
super fund just so that it could be reported to the ATO. We will
keep you updated in relation to the progress of this legislation.
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Self
Managed Super Fund Trustees
When you first set up your self-managed super fund, you need to
consider who the trustees of the fund will be. The trustees have
the responsibility for ensuring that the self-managed super fund
complies with all of the rules and regulations relating to superannuation.
You will have a choice between nominating at least two individuals
as trustees, who must be related, or you can nominate a company
to be the trustee. As a self-managed super fund, all members of
the fund must be either individual trustees or directors of the
trustee company.
In choosing between individual trustees versus a company as trustee,
the things to consider are summarised below:
Reasons for having a company as trustee
- If you are setting up a super fund with only one member, you
can appoint a company as trustee with that member being the sole
director, which saves the need for having a second person involved.
- There is no need to change the investment ownership details
upon any change in members, as all investments will be registered
in the name of the trustee company. It is therefore beneficial
where there are likely to be changes in members of the fund, such
as where the super fund is passed down to future generations.
- You may have an existing family company that you can use, which
will save you money in establishment costs. However if it is a
company that already runs a business, you will need to be careful
that the trading activities of this company are always clearly
separate from the trustee activities.
Reasons for having individuals as trustees
- It is a cheaper option if you don’t already have a family
company that can act as trustee – to set up a new company
costs around $1,100.
- An annual return lodgement fee, is payable each year if you
have a company as trustee. This fee will be either $36 or $200
depending on whether the company acts solely as a trustee or not.
- If your super fund has only a few investments, or a share portfolio
that is setup on CHESS for example, then the steps to update investment
ownership details upon any change in members is relatively simple.
In the past, it was considered that a super fund must have a company
as trustee to enable retirement benefits to be paid as a lump sum
instead of a pension. However, as long as the Trust Deed allows,
the members can direct the trustees to pay their benefits as a lump
sum as opposed to a pension, whether there is a company as trustee
or individual trustees. The decision as to who to appoint as trustee
of your self managed super fund therefore comes down to the individual
circumstances of the members involved.
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To
Wrap or not to Wrap?
The time may come where your financial adviser will recommend that
the investments held by your self-managed super fund be transferred
to what is called a “Wrap Account”. A Wrap Account is
generally an all-in-one account that is badged by the Dealer Group
your financial advisor is connected with, that consolidates all
investment transactions for your super fund
Before you decide to go ahead with using a Wrap Account, the following
are some of the issues you need to consider:
- Most importantly, what are the total fees involved with the
Wrap Account?
Often there will be a quoted fee upfront however there may also
be other hidden fees such as ongoing transaction fees for example.
It is important that you are fully aware of the total annual costs
up front before agreeing to transfer your super fund investments
to a Wrap Account. Financial advisors are required by law to disclose
the commissions they will receive on any investments they recommend,
which includes Wrap Accounts.
- How difficult is it to un-wrap your investments from a Wrap
Account?
You should confirm with your financial advisor whether there will
be any complications, or extra costs for that matter, if you decide
that you no longer wish to use a Wrap Account for your super fund
investments. For example, check whether investments such as wholesale
funds can be held outside the Wrap Account. Otherwise, if you
transfer these investments out of the Wrap Account you may need
to sell them, which could unnecessarily realise a capital gain
or a capital loss.
- What are the benefits to you as a trustee and member of your
super fund in using a Wrap Account?
It would be worth checking what the total benefits of the Wrap
Account are to you. For example, check what is included in the
fees you pay to the provider of the Wrap account to record the
transactions relating to your super fund investments. You will
still need to pay for the annual financial statements and tax
return for your super fund to be prepared by your accountant therefore
you may be paying twice for a similar service.
While there may be advantages in using a Wrap Account, such as
ease of administration or access to wholesale managed fund investments,
you need to first be clear on what these advantages are to you as
the trustees/members of your super fund and be satisfied that these
advantages outweigh the costs of investing in a Wrap Account.
SuperGuardian provides a low cost alternative to using a Wrap Account.
Many of SuperGuardian's clients invest directly rather than through
a Wrap Account in order to maintain control, and the total costs
in initial investment and ongoing administration could well be less
than the total costs incurred under a Wrap Account arrangement.
For further details please contact Michelle Kewell or Tania Tonkin
on (08) 8221 6540 or visit our website at www.superguardian.com.au
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