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When it comes to franking credits, all public funds are not the same

Many SMSF trustees who may lose their franking credit refunds under Labor’s proposed policy are considering transferring to a large retail or even industry fund. It has become a common assumption that such a fund will give retirees access to franking credit refunds. For example, Robert Gottliebsen writing in The Australian last weekend said:

“But the ALP plan is that if you save via an industry super fund or a large retail fund, then you can receive your cash franking in full.”

This is not correct. Some large super funds are receiving a refund that they will lose under the Labor policy. When it comes to franking credits, all public funds are not all created equally.

Why are we assuming all large funds can use the full franking credit?

Under the imputation system, the franking credits attached to a dividend can be used to offset tax payable by the recipient. For an individual, excess imputation credits can offset tax liabilities on other taxable income, including salary.

Large pooled funds with members in the accumulation phase incur a tax liability on both their assessable contributions and asset earnings. Where this tax liability is sufficient to utilise the franking credits generated by all members (including those in pension mode who pay no tax), the franking credits are fully utilised and there is no refund. Usually, the fund makes internal transfers between investment options to ensure the franking benefits go to the entitled members.

Some large funds are not in this position

There are some existing funds with a large proportion of pension phase members that already receive a refund of excess franking credits. In the future, more funds will reach this position as the population ages and more people retire. Such a fund would have less assessable contributions, especially when combined with low or negative investment returns, and the net cash refund will be lost under Labor.

In the accounts of the super fund, where once a dollar value of a tax benefit would have been added to the unit price, the loss of the franking credit will reduce the unit price and the investment return.

How does someone who is contemplating transferring to a pooled fund due to the Labor proposal know which funds are likely to be affected? The main indicator will be the proportion of accumulation phase members (and how much money they contribute and hold in the fund) relative to the retirement phase and the type of fund.

Check the fund before you switch 

Unlikely to lose franking credits

A fund which attracts new, younger members as a natural part of its business ( for example Hostplus, which targets the hospitality and tourism industries and many retail wrap funds) should have a steady stream of accumulators. When it comes to Industry funds however it is important to be aware that ‘averaging’ is the norm. Effectively all credits will likely be pooled and distributed evenly (via the ‘unit share’) across members – you won’t necessarily receive your share in full.

By now most public superannuation funds have made statements on their expected treatment of franking credits under Labor. For example:

Hub 24

” Based on our current assessment and future projections of the HUB24 Super Fund’s tax position, we expect the HUB24 Super Fund to have enough concessional contributions and assessable income from investment earnings to absorb and utilise all the imputation credits that it may derive each year. Why? As one of the fastest growing platforms in the industry we have a large number of members who are in the accumulation phase relative to members in the retirement phase, and as a result will generally have sufficient levels of tax payable to utilise any excess imputation credits.

As tax is calculated and applied at an individual member level, those members that are in pension phase will continue to receive the full benefit of franking credits within the HUB24 Super Fund.

In summary, any SMSF trustee who plans to close their SMSF and go into a pooled fund needs to first consider the following:
1) The new fund can utilise its franking credits.
2) The structure of the fund – Many platforms offer wrap accounts where the benefits with regard to investment options are similar to SMSF
3) The broader implications. For instance if your have complex Estate Planning needs and/or you own assets in your SMSF moving to a pooled fund may not be in your best interest.

If you have an SMSF It is also important to recognise the merits of the following strategies:

  • Diversification may mitigate impacts, so look for assets that provide gross income or don’t have franking credits and are taxable, for example, international shares, property, fixed interest, infrastructure assets
  • Consider the merits of non-retired family members (such as adult children) joining the SMSF
  • For retired SMSF members comfortable to reduce their regular pension payments, rolling an amount back to the accumulation account may no longer have the impact of increasing the funds tax bill.
  • If you have assets outside of superannuation, consider the merit of qualifying for an aged pension to retain franking credits if you are just above the pension qualification threshold.

The best advice we can give is ‘to seek advice’ before taking any action – An informed decision is one you make based on knowledge and clarity. And, for now, please remember this is a proposed policy only but keep appraised of your investments.

The ALP need to get elected and then to have the proposal legislated by the parliament, further adjustments or concessions can occur before a proposal becomes law.

Components of this article were first published on https://cuffelinks.com.au/not-all-public-funds-same/.

What you need to know in the lead up to the Federal election

With the 2019 Budget week having concluded following the formal delivery of the 2019/20 Federal Budget by the Treasurer on 2 April 2019, and the Opposition response on 4 April 2019, it’s now “game on” in terms of policy positions as the electorate starts to consider where they will cast their vote in the upcoming election.

For some voters, the decision on where they cast their vote will be influenced by where the future elected Government will focus their spending. In this respect, both sides of politics have made announcements for spending on defence, education, welfare, health, transport and infrastructure. Often, expenditure in these areas will not show an immediate benefit to individuals, but can form the basis for longer term changes. The actual or perceived benefits of expenditure in these areas will differ from person to person, and in this paper there will not be a comparison of the relative benefits from such expenditure. For many however, reform or changes to areas such as taxation or superannuation have a more immediate impact because of their ability to influence shorter term actions. To help provide you with an overview of the differences (or in some cases consistency) in positions, the following is a comparison of the more significant positions proposed by both sides of politics, drawn from announcements during both Budget week itself, and at other times as both sides have positioned themselves towards the upcoming election.


Taxation

Personal taxation

Both the Coalition and Labor parties are in agreement on the need to provide additional tax relief to low and middle income earners. There is also consistency in the view to lift the level of tax offset available to individuals with more than $48,000 of taxable income and up to $126,000. Both sides are in agreement on a maximum offset of $1,080 being available to those with taxable incomes between $48,000 and $90,000 and a gradual phase out of the benefit up to a taxable income of $126,000, with the changes to have effect for the current financial year (ie from 1 July 2018).

Difference for lower income earners

However, it is in relation to lower income earners that the first difference arises:

  • The Coalition has proposed a minimum tax offset of $255 for those with taxable income up to $37,000 and a gradual increase until taxable income reaches $48,000.
  • Labor have instead proposed a minimum tax offset of $350, again with a gradual increase until income reaches $48,000 at which point the maximum $1,080 offset is available.

Difference for middle to high income earners

  • More significant differences in approach arise when it comes to the issue of the broader reform of the marginal tax rates and thresholds that apply to individuals.
  • The Coalition has already legislated (subsequent to the 2018/19 Federal Budget) for changes to take effect to this system through to 2024/25. In this year’s Federal Budget, the Coalition announced further changes.

Under the Coalition policy the following changes will occur:

  • From 1 July 2022, the current taxable income threshold of $37,000 where an individual moves from a 19% marginal tax rate to a 32.5% marginal tax rate will rise to $45,000
  • a $4,000 increase in the threshold level announced in the previous Federal Budget. At the same time, the upper threshold for application of the 32.5% tax rate is scheduled to rise from $90,000 to $120,000 of taxable income
  • From 1 July 2024, whilst in government the Coalition has already legislated for the existing marginal tax rate of 37.0% that would then have applied to taxable income between $120,001 and $180,000 to be removed, with the same marginal tax rate to then apply to taxable income between $45,000 and $200,000. In this year’s Budget, the Coalition have indicated their intent to reduce that applicable marginal tax rate from 32.5% to 30.0% from 1 July 2024. The existing 45.0% marginal tax rate would then apply to taxable income above $200,000.

The Labor party is not supportive of this level of reform to the personal marginal tax rates and thresholds, specifically not to the changes due to take effect from 1 July 2024. If elected, we would expect the Labor party to look to legislate for the proposed 2024 changes not to take effect, although it is not clear to what extent they would seek to make changes to the existing rates and thresholds due to apply from 1 July 2022.

However, what the Labor party has proposed is the re-introduction of the 2% “budget repair levy” for those generating taxable income greater than $180,000. In recent times Labor have confirmed this effective increase in the highest marginal tax rate from 45% to 47% (excluding Medicare) would be a temporary increase until 2023.

Business taxation

In the 2019/20 Federal Budget, the Coalition announced that small businesses would receive an extension of the ability to immediately write off (ie deduct for tax purposes) the value of an eligible asset. This immediate write down will be extended to 30 June 2020, and the write off value lifted to $30,000 (from $20,000) for assets purchased after 7:30pm AEST on 2 April 2019. Additionally, they proposed that the definition of a small business eligible for this will be increased from business valued at up to $10 million to those valued at up to $50 million.

The Labor party has indicated it would support this measure, although it has proposed a broader measure they have termed the “Australian Investment Guarantee” that would allow any Australian business (irrespective of its size) to immediately deduct 20% of the purchase price of any eligible asset purchased that is worth more than $20,000.

Negative gearing and capital gains tax (CGT)

The Coalition haven’t announced any changes to the taxation rules on negative gearing arrangements and capital gains discounting. As such at this point we have to assume that their position is to maintain the status quo.

The Labor party has however announced changes, restating their policy position prior to the 2016 Federal election. Whilst there has been a lot discussed about these changes, as a reminder the Labor party position is as follows:

From 1 January 2020, negative gearing will only be permitted in respect of a geared investment into newly constructed housing purchased on or after that date. Any deductions for geared investments (whether property, shares, or managed funds) purchased from that date will be limited to the assessable income generated by the investment. Any excess interest costs can be added to the cost base of the asset for determining the level of any future capital gain.

  • For assets purchased on or after 1 January 2020 that would be entitled to a 50% CGT discount on sale under existing rules, that discount will be reduced to 25%.

Grandfathering arrangements will apply to geared investments and CGT calculations for assets purchased before 1 January 2020. That is, the current rules allowing negative gearing deduction and a 50% CGT discount will continue to apply to those investment assets.

Refund of imputation credits

The Labor party remains committed to amending the law such that where an individual or super fund has excess imputation credits remaining after calculation of its tax payable, those excess imputation credits will be forfeited, rather than refunded. This change, which is due to take effect from 1 July 2019, is a return to the position that applied before 1 July 2000.

A “pensioner guarantee” exemption is available to allow for the refund to continue in specific circumstances.

The Coalition’s policy position is to allow the refund of excess imputation credits to continue.

Taxation of distributions from discretionary trusts

The Labor party has stated that where a distribution is made from a discretionary trust (such as a family trust) to a beneficiary aged at least 18, that distribution will be taxed at a minimum of 30%. If the beneficiary’s effective tax rate is less than 30%, they will not receive a refund of the difference. If it is higher, they will need to pay the difference as additional tax. Some trusts (eg testamentary trusts) will be exempt from this change.

The Coalition has not announced any policy position in this area.


Superannuation

Given the significant changes to superannuation that largely took effect from 1 July 2017, the Coalition did not make many announcements around super in the 2019/20 Federal Budget. However, the changes they did announce can only be viewed as positive. Broadly the changes announced will, from 1 July 2020, allow someone with less than $1.6 million in super to:

  • Make contributions to super without the need to meet a work test until they turn 67. Currently the work test applies from your 65th birthday.
  • Receive a spouse contribution until they turn 75. Currently, a spouse contribution can only be received before the receiving spouse turns 70.

The Labor party has previously made a number of announcements around superannuation however, which include the following:

  • The annual contribution limit for non-concessional (after tax) contributions will be lowered from $100,000 to $75,000. It is expected the requirement to have less than $1.6 million in order to qualify to make these contributions will continue to apply.
  • The level of adjusted taxable income a person can have before an additional 15% tax is applied to concessional contributions made to their super will be lowered to $200,000 (from the current level of $250,000).
  • The ability to carry forward any unutilised concessional cap space for up to 5 years to allow a greater concessional contribution cap in the future (subject to certain criteria) will be removed.
  • The changes that took effect from 1 July 2017 to allow all eligible taxpayers to claim a deduction for contributions made to their super fund will be reversed, and the position that applied before that change will be reinstated.
  • A ban on future borrowings within a superannuation fund.

What are the next steps?

With an election set for 18 May 2019, the policy positions for both sides largely remain just that – announcements of their stated intent if they were successfully elected.

Even when it becomes known who is able to form Government after the election, the measures will still need to be successfully passed through the parliamentary processes and it is possible that the final version of these measures could be different to that which has currently been stated. It is important therefore not to rush out and take action on what is currently just a potential future outcome in case changes are made.

The best course of action however is to continue to monitor development on both sides of politics through the election and subsequent parliamentary process to ensure informed decisions can be made at the right time.

Labor’s franking policy is a ticking bomb for all super funds

The Australian Labor Party (ALP) proposal to limit cash refunds of franking credits will clearly impact many pension phase SMSFs, but we believe it also has the potential to impact many other superannuation funds.

In this paper, we build a model of the key variables which determine whether a superannuation fund is likely to lose refunds of net franking credits under the ALP proposal. Our model is consistent with and helps explain an article in The Australian which reported that $309 million in franking credit refunds were paid to over 2000 APRA-regulated superannuation funds, including 50 (out of a total of 240) large APRA funds, in 2015-16, impacting 2.6 million member accounts.

The ALP proposal

On 13 March 2018, the ALP announced a proposal to abolish the net refunding of franking credits to Australian investors other than for charities and endowments. The initial proposal was expected to impact 1.17 million individuals and superannuation funds and generate $59 billion in government savings over 10 years.

On 26 March, the ALP revised their proposal in the light of significant public criticism. Direct investments by welfare pensioners (part and full aged, disability and other Centrelink pensions) were also excluded, ensuring 306,000 pensioners will continue to receive cash refunds. SMSFs are also exempt if they had at least one welfare pensioner before 28 March 2018. Our understanding is this exemption does not apply to other superannuation funds.

Which super funds are affected?

Note that franking credits themselves are not abolished. Australian investors can continue to use franking credits to offset income tax payable and for a superannuation fund, contributions tax payable.

The ALP believes the main superannuation funds impacted by this proposal will be pension phase SMSFs. However, ATO taxation data (as quoted in The Australian) and analysis of APRA statistics show that many APRA-regulated funds will likely also be affected. This implies the impact may be far broader than initially predicted.

Analysis of key drivers (to losing franking credit refunds) and their potential magnitude.

Franking credits will be lost if total tax payable by a superannuation fund is less than franking credits received. Tax payable is a function of tax on investment earnings on the accumulation portion of a fund, as well as contributions tax payable on normal contributions. The percentage of pension phase assets, the level of taxable earnings and the level of contributions will vary from fund to fund and may vary from year to year.

For example, taxable investment earnings will be largely determined by the state of investment markets. The level of franking credits can also vary between funds and over time. We base our estimate of the typical impact of imputation assuming an average SMSF exposure to Australian shares based on March 2018 ATO statistics of 31%, and the franking credit yield of the S&P/ASX200 Index which has averaged approximately 1.5% pa over the 10 years to December 2017.

Investors with higher allocations to Australian shares, or allocations to higher-yielding Australian shares could earn even higher levels of franking credits. They stand to lose more if franking credit refunds are denied. In our analysis we double the level of franking credits in our high-franking scenario.

Loss of refunds depends on pension v accumulation and franking levels 

We then varied the proportion of a superannuation fund devoted to pension and accumulation as well as the levels of franking credits, contributions tax and taxable income [1].

Figure 1 illustrates the outcome of our sensitivity analysis varying the proportion of pension assets and the level of franking credits.

Clearly funds with 100% pension assets will lose all their franking credits. We estimate that for a typical level of franking credits, funds with 70% or less in pension assets should not expect to lose franking credits. For funds with double the typical level of franking credits, this number drops to 50%.

If accumulation phase (or 15% taxed) members aren’t paying contributions and therefore aren’t paying contributions tax, funds are more likely to lose franking credits. Funds with higher levels of taxable income would be less likely to lose franking credits. Higher levels of taxable income are usually associated with strong markets or the realisation of capital gains.

The number of funds impacted will vary from year to year in response to the level of investment returns. When investment returns are very low or negative, tax on investment earnings will also be low, increasing the chance that the value of franking credits received by a fund exceeds tax payable.

Accordingly, when investment returns are low, a higher percentage of superannuation funds may miss out on some or all of their franking credits, exacerbating the low investment returns.

The winners and the losers

We find that the loss of franking credits is likely to be positively related to:

1) The percentage of assets in pension, with maximum loss at 100% pension assets, but losses starting to occur from 50% to 70% pension assets

2) The level of franking credits generated by the underlying assets (the more franking credits generated the more likely you are to lose some).

The loss will be negatively related to:

3) The level of taxable income generated from the underlying assets (with losses in franking credits more likely in periods of weak investment markets meaning investors may receive a double hit to returns)

4) The level of contributions and contributions tax payable by accumulation members (the less contributions tax payable the more likely a fund loses franking credits).

Our model explains why The Australian reported that 50 large APRA-regulated superannuation funds (out of 240) received net refunds of franking credits in the 2015/16 tax year.

Mature funds may suffer most from loss of refund

Our scenario analysis finds that any relatively mature superannuation fund, where maturity is defined by the percentage of member balances in pension mode, may be in a net franking credit refund position.

While many SMSF members have been vocal critics of this proposal, we believe members of other superannuation funds probably don’t even know they receive franking credit refunds (they are not reported on investment summaries) and probably won’t know whether they might miss out on franking credits should this proposal be enacted.

Finally, we believe that as the superannuation industry matures as a whole, as more members migrate to pension status, the loss of franking credit refunds will impact a growing number of people, be they members of government, industry, retail or SMSFs.

As such we believe this proposal may represent a ticking time bomb for the whole superannuation industry.

This article was authored by Dr Don Hamson. Dr Don Hamson is Managing Director at Plato Investment Management Limited. This article is for general information only and does not take account of any person’s financial circumstances.

1. We vary pension proportions in rests of 10% from 0% to 100%. For franking credits we used a normal level of franking credits as discussed above and then we doubled the level of franking credits to reflect a higher exposure to Australian shares and/or a higher franking yield from the Australian portfolios. We use two levels of contributions – none (reflecting for instance pension phase SMSF with greater than $1.6 million balances per member) and 7% of the accumulation balance which attract contributions tax of 15%. Similarly, we varied the taxable income level which can be caused by (for instance) realisation of capital gains. Full details of our assumptions are available on request.

Active Investment Success Relies on Finding a Top Personal “Trainer” to do the Heavy Lifting

A mate recently cancelled his gym membership at a popular city health club, citing lack of motivation, high monthly fees and a general malaise about “just not getting results’’.

Out of interest, I asked him what his training regime looked like.

A brisk walk on the treadmill, he confessed, followed by a quick sauna and an obligatory large iced-coffee (with cream and ice-cream) in the club lounge afterwards.

Those stubborn kilos are still hanging on for dear life.

Comparisons can be drawn between my friend’s story and the heated – often hysterical – active versus passive investment debate dominating financial news headlines in recent months.

Proponents of active investment, quite rightly, argue for its superior ability to outperform the market over the long-term, with astute investor-led analysis and individual market research informing which stocks to include in any given portfolio. But active management is far more than just stock picking and here lies the often unseen value. Active management utilises all the tools available to achieve a tailored outcome for investors; asset allocation that considers the return you need at the risk you can live with, dynamic management to help avoid downside risk and ‘smooth’ the ride, precise factor exposures and even tax strategy – there is no one right way to invest for everyone. Each investor has a unique set of goals, real-world constraints and risk preferences.

This is contrary to passive investing, which follows the index, relies on trends and is often based on exchange-traded funds.

The Australian market is dominated by two sectors – banks and resources. And the top 20 Australian-listed companies account for 47% ($804 billion) of ASX200, leaving the remaining 180 stocks to make-up the remaining $900 billion.

The inherent risk with a passive Australian shares strategy tracking the S&P/ASX 200 Index is that it will overweight companies that have gone up in price and, therefore, have greater representation in the Index. So, when they fall, the portfolio hangs on for the ride from the peak to the trough – with painful consequences for total returns.

The bottom line is – markets are cyclical, what is winning today could lose tomorrow.

A philosophy that rewards past performance at the expense of future prediction isn’t an intelligent, strategic approach to creating wealth.

Also, it’s important to understand the distinction between cost and value. There is no disputing that passive strategies typically have lower fees and have done a good job of beating ‘average active managers’ (their term not ours). The key word here is average – an average manager will probably deliver average results. Our advice is to only use an excellent active manager – one who has the runs on the board, with a disciplined and robust process that is bigger than any key individual and will endure beyond the current group of people.

Find an active manager who reports their fees. Transparency is king when it comes to trust and building strong long-term relationships.

Warren Buffett once put it simply.

I just advise looking at as many things as possible and you will find some bargains. And when you find them you have to act, Buffet said.

The world isn’t going to tell you about great deals, you have to find them yourself and that takes a fair amount of time.”

The prevailing truth is that price doesn’t dictate a great company. Good investors must do proper due diligence in determining whether, firstly, they’ve found a great company and, secondly, if it’s a great company at a great price i.e. it can be a great company but the price might already reflect that in which case it is not a bargain.

There are no shortcuts. This takes thousands of hours of quantitative research, face-to-face meetings, stress testing analogies and scrutinising their balance sheets, and ongoing monitoring.

That’s the beauty of astute, wise and experienced (‘above average’) managers, they invest their time, energy, experience and the muscle to do the heavy lifting for their clients and the results speak for themselves.

Here at FinSec building sustained long-term wealth for people is at the core of ‘why we do what we do’. And, although no investment manager can ever promise they will always beat the market (if they do, run in the opposite direction) long-term wealth is only achieved with a smart, strategic and transparent investment policy and an in-house investment committee accountable to it.

It’s an approach any ‘above average’ manager should be able to prove and is best illustrated by an example of our own performance plotted below.  (Blue line is the index compared with FinSec’s performance represented by the red balls).

 


* FinSec Partners performance compared with index June 2010 – July 2017

Which brings me back to my mate.

Him not shedding his winter weight, of course, wasn’t the gym’s fault.

He just didn’t have the right training schedule and he could have done with the disciplined, rigorous support of a qualified and experienced personal trainer who knew how to get the best out of him to enable him to achieve his goals.

SMSFs gear up for advice

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Advised self-managed superannuation fund (SMSF) trustees are more confident about achieving their desired retirement income than non-trustees, according to research commissioned by nabtrade and the SMSF Association.

The research says about 53% of SMSF trustees are more likely to be receiving financial advice than non-trustees (about 30%). Illustrating the value of financial advice, about 72% of advised trustees are confident of being on track to achieve their desired retirement income as opposed to 66% of non-trustees.

According to the Intimate with Self-Managed Superannuation report, there is a continued move by trustees from the “do-it myself” culture to a “help me do it” approach. NAB head of SMSF solutions Gemma Dale said SMSF trustees taking an active role in managing their savings helps ensure continued confidence.

“As we’ve seen over the last decade, SMSFs are not a flash in the pan. As these preliminary findings show, SMSF trustees continue to show a preference for direct investment and are looking for prudent ways to manage risk in uncertain times,” Dale said.

“While Australian shares and cash continue to dominate portfolios, low interest rates are driving interest in asset classes outside of cash, such as fixed interest and international shares.”

SMSF Association chief executive Andrea Slattery said another interesting finding was the focus on risk by those trustees who understand their SMSF investment strategy.

“The most commonly cited factors in developing the strategy are the overall risk of the portfolio (65.8%), diversification of the fund’s investments (63.4%), and the risk of the fund’s investments (61.6%),” Slattery said.

“The prevailing attitude of de-risking is evident among trustees who allocate at least 10 per cent of their SMSF to cash, the asset class that is universally perceived as less risky.”

The research was conducted between November and December 2014 with 468 SMSF trustees and 532 APRA fund members surveyed.

Article first appeared in the Financial Standard, Monday 13th July 2015
http://www.financialstandard.com.au/news/view/51382122

SPAA Changes It’s Name

SPAA self managed super fund association

It is no secret that the SMSF sector is evolving at an ever increasing pace, SMSF is now the largest super sector in terms of asset size, boast around one million trustees and the breadth of it’s professional membership is growing exponentially.

Today the professional body tasked with leading the SMSF sector has changed it’s name from SMSF Professionals’ Association of Australia Limited (SPAA), to the SMSF Association, in a move thought to better reflect the growing growing sector and vibrancy of the organisation.

The simpler name is more intuitive and will cause less confusion within the SMSF community, in particular trustees who will now have a clearer path to accessing the best professional advice.

For further information regarding the name change, please view the following resources;

Number of SMSF members tops one million

spaa_enews_newsalert_spaa

It’s official. The numbers of SMSF members has now topped one million, according to the Australian Taxation Office’s March 2014 SMSF statistical report.

The report shows the number of SMSF members at 1,006,975 – a net gain of 11,384 compared with the 31 December 2013 figure of 995,591. Over the past four years the number of members has increased 26.6% from 795,563 at 31 March 2010.

Over the same three-month period to 31 March 2014, the net establishment of SMSFs was 6374, taking the number of funds to 528,701. Over the four-year period net establishments have risen 26.5% from 417,862 at 31 March 2010.

The SMSF Professionals’ Association of Australia (SPAA) CEO Andrea Slattery says: “The number of trustees and members exceeding one million is an important milestone for the SMSF industry, clearly demonstrating that there is a growing number of people wanting to take direct responsibility for their retirement savings.

“It now compels everyone involved in the industry to ensure that these trustees and members have access to the best professional advice, and certainly SPAA is committed to this outcome.”

She says that although the figures show that while number of SMSF establishments continues to grow, the pace of growth is softening.

“SPAA is encouraged by this trend. It suggests that people are only opting for an SMSF after doing their due diligence and deciding whether an SMSF is the appropriate retirement savings vehicle for them. As such, SPAA believes this growth is sustainable over the longer term.”

The ATO statistics also show that investment in residential property rose 17.2% to $20.5 billion in the 12 months to 31 March 2014.

Although that represents solid growth, Slattery says it has to be put into context.

“Residential property still only represents 3.7% of total SMSF assets of $558.5 billion, and is still dwarfed by non-residential property assets at $68.4 billion or 12.2% of total assets.

“In addition, most of that growth occurred in the first nine months to 31 December 2013, and was starting to ease in the last quarter.

“It’s also interesting to note that limited recourse borrowing arrangements only increased 1.6% in the March quarter and now stand at $2761 million or 0.5% of all SMSF assets. Again SPAA would suggest this number illustrates that trustees and members are adopting a conservative approach to gearing.

 

Wondering if an SMSF is for you? Read all about it here.

Is a SMSF for you?

Self managed superannuation funds (SMSFs) are the buzz-word of the Australian Financial landscape in 2013. Suddenly, everyone wants one or wants to work out if SMSF’s are applicable to their specific situation. SMSFs hold 31.2% of all superannuation assets and are growing in number at the rate of 7%pa.  Research indicates that 1.4 million people are considering establishing their own SMSF in the next three years.  Are you also one in that million?

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Finsec Partners have been specialising in providing high-level strategic professional SMSF services for over 10 years. SMSFs account for over 30% of all superannuation assets in Australia and continue to be the fastest growing sector within the industry.

This growth has been driven by individuals wanting control over their retirement savings. SMSFs provide members with control over the range of investments, the fees being charged, the amount of tax being paid or simply being able to include other family members in the one fund.

A summary of the key benefits include:

Your personal retirement platform – An SMSF is your personal retirement planning platform. It stays with you wherever you go and you will never find yourself in a position where you have to realise investments and pay tax just because you want to change superannuation providers.

Absolute investment flexibility – An SMSF provides you with absolute investment flexibility (subject to the constraints imposed by superannuation law). You can invest in whatever you and your adviser believe will ultimately provide you with the best retirement income result.

Take advantage of tax and superannuation legislation changes – An SMSF provides you with the opportunity to take advantage of changes in tax and superannuation legislation with immediate effect. You and your adviser won’t have to worry about when (or if) your superannuation provider will allow you access to new strategies that become available.

Access to valuable tax concessions – An SMSF provides you with access to valuable tax concessions such as account segregation and imputation credit sharing. This enables you to optimise your superannuation tax position in ways that are generally unavailable through large superannuation funds.

True “family funds” – This allows death benefits to be passed on to future generations in a flexible and tax effective manner.

Cost effective – For larger superannuation account balances an SMSF is generally a cheaper option than a larger commercial superannuation fund because the administration fees are fixed and do not increase as the amount within your superannuation account grows.

Whilst advocates for the obvious advantages of Self Managed Superannuation, they are not without risk and we regularly stress, SMSFs are not for everyone. The amount an individual has in super is by no means the only qualifying factor that should be in play. Thorough suitability scrutiny should always be conducted before making a decision to set up an SMSF.

These risks can be efficiently minimised by ensuring you establishing and maintain an SMSF with the professional advice of an experienced team consisting of an (adviser, accountant and auditor).