Upload
spence
View
47
Download
3
Embed Size (px)
DESCRIPTION
End of year strategies and opportunities for business owners. Speaker’s name Title/department April 2013. Disclaimer. This information was prepared by Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL & Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013. - PowerPoint PPT Presentation
Citation preview
End of year strategies and opportunities for business owners
Speaker’s name Title/departmentApril 2013
3April 2013
Disclaimer
This information was prepared by Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL & Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013.Get personalised advice.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 presentation 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.
4April 2013
Agenda
Your super fund retirement options The self-managed super fund option Opportunities for small businessThe small business retirement exemptionOther matters
5April 2013
Choose your tax rate!
Individual
45%
• Up to 45% - Top marginal rate + 1.5% Medicare levy• Discount of 50% on capital gains
Company30%
• 30% Company tax rate• No CGT discount
Super15%
• 15% on earnings and deductible contributions • 10% on capital gains
Pension0%
• Tax free earnings within super when drawing a pension• Tax free pension payments once you turn age 60• 15% tax offset on taxable pension payments if over 55 and under 60
6April 2013
Super is a tax structure, not an asset class
No greater investment risk when investing through super
– you can invest in same assets
– cash is an option Bankruptcy protectionLow tax environment
SUPERCash
Insurance
Shares
Property Fixed Interest
7April 2013
Who can contribute to super?
Anyone under 65Between 65 and 74 (‘work test’ required)Age 75 and older (From 1 July 2013 required employer Super Guarantee and contributions under an award agreement only).
8April 2013
Tax deductions for small business owners
A Company contributing on behalf of employees – 9% SG contributions– Salary sacrifice arrangements
Self-employed PartnershipSole tradersTax deductible contributions are referred to as “concessional contributions” and are taxed @ 15% on entry
9April 2013
Maximise your deductible contributions
More important to start salary sacrificing earlier than ever before!– 9% compulsory super counts towards cap.
Proposed legislation to allow $50,000 cap for over 50s from1 July 2014 where super balance is less than $500,000
Deductible contribution cap 2012/13 2013/14Standard cap $25,000 $25,000
10April 2013
Personal contributions can help plug the gap
050,000
100,000150,000200,000250,000300,000350,000400,000450,000500,000
1 2 3 4 5 6 7 8 9 10Year
Salary Sacrifice $34,225 (50K Cap)Salary Sacrifice $9,225 (25K Cap)Salary Sacrifice $9,225 plus $15,375 after-tax
Case StudyBrad (age 55)Employed on a package of $180,000 plus SGWas sacrificing up to $50,000 cap.From 1 July 12 only have $25,000 cap
Note: Assumes a return of 7% after fees and tax
11April 2013
Who can make a non-concessional contribution?Partners in a partnership can – treated as personal after tax contribution (nil tax applies on contribution).Sole traders can – treated as personal after tax contribution (nil tax applies on contribution).Employees can – treated as personal after tax contribution (nil tax applies on contribution).A Company cannot – taxed as concessional (15% tax).
12April 2013
Maximise your personal contributions
No deduction is claimedPersonal contributions capped at $150,000 p.a.If under 65 you can bring forward 2 years of cap and contribute up to $450,000
Your super fund retirement
14April 2013
Lump sum tax on super
Tax free component Taxable component
55 to 59 Tax-freeFirst $175,000: Tax-free*Balance: 15% tax, plus Medicare levy
60 and over Tax-free Tax-free
Note: applies only to withdrawals from a taxed fund and only to the taxable component of the payment.* For 2012/13 financial year
15April 2013
Pension income/payments
Investment returnin pension account
Pension incomethat you receive
55 to 59 Tax-free Assessable –15% rebate
60 and over Tax-free Tax-free
Note: applies only to withdrawals from a taxed fund and only to the taxable component of the payment.
The self managedsuper fund option
17April 2013
SMSF market*
468,133 funds registered with the Government33,600 new funds established lastfinancial year126,000 new funds in last 4 years31% of total super assets ($1,376 billion) $418.5 billion under investment853,700 members$835,000 average fund size (average member account size is $440,000)69% of funds have no more than 2 members
31%
69%
SMSF Share of Super
* ATO stats as at March 2012
18April 2013
Age profile of SMSF members
<25 years, 1.1%25-34 years,
4.4%35-44 years, 14.3%
45-54 years, 26.0%
55-64 years, 33.7%
>64 years, 20.6%
More than half 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.
As at March 2012
19April 2013
Customer drivers for SMSF
AdvantagesControl of investment decisionsDirect Investments optionsInvestment returnsLower costsAbility to gearTax managementFlexible retirement pension
optionsFlexible estate planning / protection options
Disadvantages Full trustee responsibilities Lack of knowledgeTime consuming to runTough penalties for breaching rules May be uneconomic for low balances Extra legal responsibilities Potentially higher costs Maximum of four members
20April 2013
The investment strategy
Trustees are required to prepare and implement an investment strategy, and regularly review it.As trustees 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– Penalties : $220,000 and possible 12 months gaol for
trustees
21April 2013
The fund’s investment flexibility
SharesStocksBondsOptionsFuturesNotesMortgagesRental PropertyManaged Funds
Property TrustsPrivate TrustsFixed TrustsArtworksSpecial ObjectsLife Office PoliciesTaxi PlatesAbalone LicencesStamps etc
22April 2013
Investments you cannot make within an SMSF
You cannot:Lend to members/relativesAcquire assets from a related party however:
– Few exceptions include listed shares, widely held unit trusts, business property
Exceed 5% in-house asset rule – An investment in a related party– A loan to a related party– A lease to a related party
23April 2013
How can a SMSF acquire an asset?
1. Outright purchase from a member if SMSF has sufficient cash or SMSF could borrow – not treated as a contribution
2. Transfer asset in-specie to SMSF trustee – will be treated as a contribution
3. Purchase from a third party
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
24April 2013
Case study – shares in-specie transfers
David, aged 59 (self-employed) wishes to make contributions to his SMSF.He does not have cash but...Owns $200,000 worth of listed shares
Solution/strategyTransfer shares in-specie to the SMSF trustee.Realises personal capital gain of $20,000 (after claiming the 50% discount). Meets eligibility to deduct personal contributions to super.Claims a tax deduction for $20,000 of the amount contributed.Remaining $180,000 is a non-concessional (limited to $150,000 pa or $450,000 'bring forward' 2 years contributions)
Important notesYou 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.
Opportunities for small business
26April 2013
Opportunities for small business owners
The benefits to business owners:Source of income and growth for the SMSFBusiness stability – SMSF trustee is the landlordRental income taxed at maximum of 15%If property sold CGT maximum of 10% or 0% if sold in pension
phaseSMSF may provide asset protectionAssets in super don’t count towards Net Tangible Asset test for Small Business CGT ConcessionsAble to transfer business premises in-specie into the fund
Business owners may hold business property tax-effectively in SMSF
27April 2013
How an SMSF can acquire property
Purchase at arm’s length (or deemed market value)Via contribution (business real property only)Combination of contribution and purchaseTenants-in common option – where fund has insufficient assets to purchase outright residential or commercial.Related unit trust structure which is ungeared.Unrelated trust or company (geared or ungeared).Borrowing option - where fund has insufficient assets to purchase outright residential or commercial
28April 2013
SMSF borrowing rules
Loan must be used to purchase a single acquirable asset.The asset must be held in trust for the SMSF- SMSF has beneficial interest in that asset.SMSF has the right to acquire the asset following the SMSF making one or more payments.Lender’s recourse is limited to rights relating to the asset in the event of default or exercise of rights by the trustee.Rules are complex and extreme care should be taken in setting up properly.
29April 2013
Case study
John and Jane are 55, live in their $1.5 million home. They have $750,000 in cash and shares. The couple have a motel business.Their motel ($2.5 million) is security for business loans ($500k). The couple wish to purchase another motel at $1.2 million and do repairs and improvements - spend $1 million. Strategy: Purchase motel via SMSF and lease the property to their business for $200,000 pa What are their options?
30April 2013
Related trust option
Smith’s Unit Trust
New motel$2,250,000
John and Jane contribute $750k to
Smith’s SMSF
SMSF and couple acquire units
Smith’s Motel $2.5MBusiness loan($500,000)
Equity $2,000,000
Smith’s Motel Business
Lease tax deductible
Distributionsto unit holders
Access transition to retirement
pension at 55+
The small business retirement exemption
32April 2013
Capital gains realised on moving business assets to super may be reducedSmall business capital gains concession:15 year exemption - $0 assessable50% active asset reductionSmall business roll overRetirement exemption
Must meet eligibility criteria:Small business entity or $6M net asset valueActive assetAdditional requirements for company or trustRequirement for each concession
33April 2013
Increase super via CGT exempt contribution
Cost Base
50% general exemption
50% active asset reduction
(optional)
Assessable forCGT
Super FundNon-
concessional contributionUp to $450k for under 65s
CGT Exempt
Component
Up to $500k
Other matters
35April 2013
Review asset & family protection
Providing insurance cover (Super or Non-super?).Insurance in super is owned by the fund and covers the life of the
members.The fund can insure members for:
– Life insurance as a result of death– Total & Permanent Disability– Income Protection
Provides cover where your cash flow is short.Life and total permanent disability premiums are a tax deduction
for the fund.Provides cash liquidity for payment of disability and death benefits to members and beneficiaries.Provides protection for any borrowings within the fund.
36April 2013
Review SMSF & 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, bypassing the estate.
37April 2013
Katz v Grossman [2005] NSWSC 934
SMSF with $1M of assets Mr and Mrs Katz had 2 children – Linda & Daniel (adults)Mrs Katz died a few years earlier and Mr Katz appointed Linda as co-trustee of SMSF.Mr Katz made a binding nomination that death benefit ($1M) be paid to children equally.Mr Katz diedLinda appoints her spouse as co-trustee and distributed the death benefit to herself.Guess what happened???
Daniel challenged the appointment of her husband but the NSW supreme court determined that his appointment was valid under the trust deed and trust law. Ultimately Daniel received no benefit from the super fund and the court ordered that the costs of the court action be paid by the fund.
38April 2013
Review business overheads, key person insurances & succession planningEnsuring business stability in the event of death or
disability:– Replace revenue– Pay off loans– Fund business overheads expenses– Replace and train key person
Plan business succession and exit:– Legal transfer agreement (buy/sell agreement)– Provides certainty when an owner leaves the business– Provide funding for remaining owner to purchase the
departing owner’s share – (Commonly entered into where two or more persons
control a business together)
39April 2013
Transitioning to retirement for 55+
Boost your super without affecting your lifestyle, orReduce work hours Make tax deductible contributionsStart a non-commutable income stream
You Super
Pre tax contributions
Tax free income
stream at 60+
40April 2013
Example of transition to retirement
Plus, benefit of 0% tax on earnings when in pension phase
Gross salaryLess tax
$100,000$ 26,447
Net salary $ 73,553
Gross Salary (after SS) $84,000
Net salary $63,713Pension income (age 60 – tax free) $9,840
Net income $73,553
Benefit in Year 1 $3,760
Current Proposed
* 2012/2013 FY tax rates
Next steps
42April 2013
Next steps
Choose the tax rate you want to payExplore super and business opportunitiesReview estate planning arrangementsReview business insurances and business succession
43April 2013
Westpac’s SMSFs services/support
Experienced Financial Planners accredited to advise on SMSFAlliances with professional, specialist administration firms that can assist with the administration and compliance obligations for SMSFsLending products for purchase of Commercial or residential property in a SMSF under limited recourse borrowingInvestment products for cash, equities, fixed income and insuranceSMSF seminars, information flyers & booklets to assist with trustee education on SMSFs
Questions?