Reviewing your trust deed before 1 July

With changes to Australia’s superannuation rules coming into play on 1 July 2017, self-managed super fund (SMSF) trustees would do well to review their fund’s trust deed.

Despite the fact that maintaining an up-to-date trust deed is a vital aspect of managing a SMSF, many trustees fail to do so, usually due to the time and cost restraints associated.

However, a SMSF trust deed can only ensure compliance and protect the trustee’s interests if it is regularly updated and reflects current superannuation rules.

As part of the super reforms announced in last year’s Federal Budget, tighter superannuation rules will apply from 1 July 2017, including a $1.6 million super balance cap for after-tax contributions; a maximum of up to $25,000 for concessional contributions; and the removal of the current “bring-forward” rule allowing $540,000 of contributions in one year.

According to some industry analysts, these changes are likely to result in many out- of-date trust deeds. But often changes to superannuation legislation provide the perfect opportunity for trustees to review and upgrade their deed.

One of the major changes to super which will affect traditional SMSF trust deeds is the $1.6 million limit on retirement balances, which the Government also wants to make retrospective. This means those who already have more than $1.6 million saved in their superannuation will need to adjust their strategy and trust deed accordingly to meet the new limit.

Updating a SMSF deed will particularly benefit those SMSF members with money locked in the old term-allocated pension and with a pension balance greater than $1.6 million in a mix of term-allocated pension and account-based pension balances. This is because the term- allocated pension can be converted back (in full or in part) to the accumulation phase to remove any excess over the $1.6 million cap.

Another major change to consider is the deed’s death benefit control mechanisms. The new super rules will allow certain death benefits to be rolled over, so it may be worthwhile reviewing whether the SMSF trust deed has sufficient options in the death benefit payment provisions.

SMSF trustees will also need to consider whether their current trust deed will allow for the terms of the trustee’s pension to change without needing to stop and restart the pension.

Many of the upcoming super changes will dramatically affect the strategic landscape of SMSFs in Australia, and some of these changes will challenge old deeds, so, as with any other financial decision, seek professional advice if you are considering updating your trust deed.

Simpler BAS for small businesses

The ATO have introduced a simpler BAS to take effect from 1 July 2017 to help reduce GST compliance costs for small businesses.

From 1 July 2017, small businesses will only need to report GST on sales (1A); GST on purchases (1B) and Total sales (G1) on their BAS.

Businesses will no longer need to report Export sales (G2), other GST free sales (G3), Capital purchases (G10) and Non-capital purchases (G11).

Newly registered small businesses will have the option to report less GST information on a simpler BAS from 19 January 2017.

Small businesses registering from 19 January 2017 will need to do the following:

– Where ‘quarterly’ GST reporting cycle is selected when registering for GST, you will need to select ‘Option 2: Calculate GST quarterly and report annually’ on your rst BAS.

– For those who select a ‘monthly’ GST reporting cycle at registration, you can insert ‘0’ at G2, G3, G10 and G11 on your BAS.

– Where ‘annual’ GST reporting cycle was selected at registration, you can leave G2, G3, G10 and G11 blank on your Annual GST Return.

Adding children to a super fund…

There are financial benefits to including children in a super fund, such as the increased pool of assets created over time that can allow for a greater diversification of assets.

Parents may also choose to invite their children to join their super fund as it allows them to provide their children with a financial education on how to manage money and appreciate the benefits of super.

However, there are a variety of issues to think about before including children in the super fund.

For example, adding children means the super fund will need to cater to a wider range of ages, which can present challenges for parties that have different needs.

Also, all members of a DIY fund with a corporate trustee are expected to be actively involved directors of the fund. This means that the children will also be expected to be directors of the fund and will, therefore, play an important role in the fund’s decision-making.

Although the children may be happy to leave the fund’s investment arrangements as they are, will they be in the future when their circumstances may change?

The handling of situations listed above should be mapped out before children are invited to join the super fund to avoid any arguments or confusion. Get in touch with us today if you’d like to chat further about this option!

 

 

 

Selling an inherited property?

Beneficiaries who inherit a property need to be aware of the various CGT implications associated with owning and selling an inherited property. When someone dies, a capital gain or loss is generally disregarded when a property passes:

• to the deceased person’s executor or other legal personal representative

• to the deceased person’s beneficiary – such as next of kin or a person named in the will

• from the deceased person’s legal personal representative to a beneficiary.

This exception does not apply if the property passes from the deceased to a tax-advantaged entity (such as a charity) or foreign resident. If you inherit a dwelling or other property after CGT started on 20 September 1985 and later sell or otherwise dispose of it, capital gains tax may then apply.

The degree to which CGT applies depends on:

• when the deceased person acquired the property • when they died

• whether the property has been used for income-producing purposes.

 

These rules do not apply to land or a structure you sell separately from the dwelling – they are subject to CGT. Individuals can avoid paying CGT if the property was the deceased person’s main residence and the sale is completed within two years of the date of the deceased person’s death.

CGT may apply if the deceased person’s legal personal representative sells a property as part of winding up their estate.

 

Get in touch with us today to find out more!