Setting up, operating and maintaining Self-Managed Superannuation Funds - Phil Tadros

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and must contain the following ‘ATF’. If this is not the case, then there can be errors when preparing and lodging annual tax returns.

       Declarations of trust may be required for certain asset types, such as property.

       ATO administrative penalties apply to each individual trustee. This can result in penalties of up to four times that of a corporate trustee.

      Now that you have weighed the pros and cons of using a trustee company versus individual trustees, you are in a good position to decide on whether to set up a company trustee, or have at least two individuals act as trustees in your SMSF.

       References:

      Australian Taxation Office - https://www.ato.gov.au/super/self-managed-super-funds/investing/sole-purpose-test/#:~:text=Your%20SMSF%20needs%20to%20meet,a%20member%20dies%20before%20retirement.

      Dixon Advisory - https://www.dixon.com.au/smsf/smsf-trustee-individual-or-corporate

      Thomson Reuters Cleardocs - https://www.cleardocs.com/clearlaw/superannuation/smsf-corporate-individual-differences.html

      Chapter 3 - Adding Funds to your SMSF

      Having set up your SMSF and established it, you are now ready to add money into your SMSF as a starting point to enable it to grow over time and provide the maximum benefits to the members. There are a number of ways that you can add funds into your SMSF. Your SMSF must first have a bank account to be able to add or bring funds into the SMSF.

      Let us suppose that you have a spouse and that both of you are members in your SMSF. This means there are two members in your SMSF. Suppose that you are both employed in a particular role, and your employer pays the Superannuation Guarantee (SG) on top of your gross earnings. Let us also suppose that you both have about $30,000 each in your large superannuation fund as a result of employer contributions and fund earnings over many, many years. This means that there is a combined balance of $60,000 in your super. You will need to access a form from your super fund, called a rollover of benefits, where you will need to fill in your personal details and state how much you wish to rollover from your super fund.

      You also need to provide your SMSF details in the form. Usually, these details are the ABN, TFN and the name of your SMSF. The super fund that will provide the rollover benefits will then check to see if your SMSF is a complying fund. Usually in the first year before any tax returns are prepared, there will be no information on the complying status of your SMSF. A complying status simply means that your SMSF complies with the SIS rules and the ATO regulations, and qualified for the 15% concessional tax on earnings and contributions.

      Having filled the rollover form (it can be done online these days) and signed the relevant sections and sent it to your super fund, the super fund will then process the form and after a certain amount of time, when it is satisfied that your SMSF exists, will issue you with a check representing your rollover benefits. You then need to deposit the check to your SMSF bank account and it will generally appear in your account within 3 working days. When you receive the rollover benefits statement, you will see some components of your super balance. The components are tax-free and taxable, and this will be discussed in a later chapter.

      So then, as a starting point, you will have a combined total of $60,000 in your SMSF, and there is no tax on this, because tax has already been paid on this balance from your super fund over the past years. The more members you have in your SMSF, the higher the balance will likely be before you even start making contributions.

      Another way of adding funds into your SMSF is by way of concessional contributions. This means that you can contribute up to a maximum of $25,000 per person, per year, into your SMSF. If you are both business owners, you can claim these contributions as a tax deduction in your business tax returns, so that means $50,000 can be claimed as a tax deduction if you are both business owners in the same business. Then your SMSF will pay 15% tax on the $50,000, which is $7,500. Let us suppose your business is a company, the company will save 27.5% tax on the $50,000 contributed, which means the tax saving will be $13,750, and in turn your SMSF will pay $7,500 in contributions tax. You can already see the difference. If your business is not a company, then your tax saving will be based on your marginal rate of tax for an individual. If you are employees, your employer will contribute the 9.5% compulsory SG, which means that you will be entitled to claim a tax deduction of the difference between $25,000 and what your employer has contributed during the financial year.

      From 1 July 2017, the ATO introduced the fact that an employee can make extra concessional contributions over and above the employer's 9.5% SG, as long as this is up to $25,000. The employee is able to claim this as a tax deduction. Previously, this kind of tax deduction was only available to sole-traders (self-employed) who have their own business, but it is now extended to employees.

      Let us suppose that you both contributed $25,000 each by the end of the financial year, this means a combined total of $50,000, plus the already $60,000 that you have from the rollover benefits from your previous super fund. The total SMSF balance is now $110,000, and can be evenly split between you and your spouse. Please note if your spouse has more, or less in their super than you, then the balance for the two of you needs to be apportioned. For example, if your spouse had $20,000 and you had $40,000 in super prior to rolling over the benefits (combined balance $60,000), then you both contributed the maximum $25,000 each, then you will have a closing balance of $65,000 and your spouse will have a closing balance of $45,000 in your SMSF. This means that your portion of the total SMSF balance is 59% and your spouse portion is 41%.

      There are provisions in the SIS and ATO regulations that allow you to contribute more than $25,000 per year, that is if in previous years you have unused concessional contributions that you can use to catch up. However, please see your professional accountant or financial adviser if you qualify for this provision.

      A third way of adding funds into your SMSF, after the rollover benefits and concessional contributions have been exhausted, is that you can make what we call a non-concessional contribution. This type of contribution represents any after-tax amounts that you can contribute to, and this is not tax deductible, and in turn your SMSF will not pay tax on this, as long as the contribution falls within the maximum cap.

      The maximum cap for a non-concessional contribution is $100,000 per person per year, or up to $300,000 for a period of three years. This means that if you contribute $300,000 this year, you will not be able to make non-concessional contributions until year 4. Let us suppose you both contribute $300,000 now as a non-concessional contribution. This means that your SMSF now has a total of $600,000 non-concessional contributions. Please bear in mind, if you exceed the cap limit, there will be 15% tax payable on the excess of the contributions. Not everyone can make this type of contribution freely. If you are 65-74 years old, you need to meet certain work tests to continue making non-concessional contributions. If you are above 75 years, then none of this contribution is available, except for a downsizer contribution (you can obtain information on this from the ATO website).

      Having set out the types of contributions, let us suppose that you both now have a total super balance of $710,000 ($60,000 from rollover, $50,000 from concessional contributions and $600,000 from non-concessional contributions). Assuming no other activity has occurred up to the end of the financial year, your SMSF will be taxed on 15% of $50,000, which is $7,500, plus the SMSF will need to pay the ATO Supervisory Levy of $518.00. This is because it is the first year in which the SMSF has to lodge a tax return, so the ATO Supervisory Levy is $259.00 multiplied by 2. The total tax payable for the SMSF will be $8,018.00.

      After lodging the first year tax return with the ATO, provided that all the information is correct and there is no material error, then the ATO will issue your SMSF with a complying status, meaning that your SMSF complies with the ATO and qualifies for the taxation concessions, and later on, qualifies for receiving government co-contributions, and paying its members tax-free pensions.

      Another contribution type which is not taxable in the SMSF is the government co-contribution, where the ATO provides up to $500 as a co-contribution into your SMSF. This occurs after you lodge your SMSF Annual Return and also your individual

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