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$25,000 concessional cap for everyone as at 1 July 2017

Tue, 11 Jul 2017 21:53:08 +1000

From 1 July 2017, the concessional contribution cap for people aged 49 or over on 30 June 2018 is $25,000. Those under 49, will also have a concessional contribution cap of $25,000.

This could become a surprise for members who aren't aware of the change and continue making contributions in excess of this $25,000 concessional cap. Any amount over the new $25,000 cap will be charged excess tax of 31.5%. It is time to remind your payroll officer to reduce your super contributions if you are salary sacrificing into super.

For example, your salary is $100,000 and your employer makes $9,500 super guarantee contribution into your SMSF. You have instructed your employer to salary sacrifice an extra $25,000 into super. This means your total concessional contribution into super is $34,500. This is over the $25,000 concessional contribution cap. The extra $9,500 is hit by excess contributions tax of $9,500 x 31.5% = $2,992.50. This tax is payable by you as an individual or the SMSF (if you don't have cash).

You can avoid this by taking time in calculating your super guarantee and carefully figure out the amount you want to salary sacrifice. The total concessional super contribution must not be over $25,000.

Mining shares : Gambling or a solid investment

Wed, 17 Jun 2015 21:53:08 +1000

Mining shares are high risk investments especially when they have nothing in the ground. Even if they found something, the next question is the quantity and also the cost of digging it out. Buying these shares just from the hearsay of a friend's friend or some unfounded rumour could mean impulse buying. Greed and impatience play a big role in trustees making such a gamble.

Most mining shares lack liquidity. They are easy to buy. But very difficult to offload. Most have extremely shallow market depth. For example the last trading price of ZZZ shares is $0.05 but the buy and sell spread could be $0.07 to $0.02 respectively. It would be easy to go and buy at $0.07 but if you wanted to sell it quickly, you could be forced to sell at $0.02. This is a loss of ($0.02-$0.07) / $0.07 x 100% = -71.4% !

Mining shares are definitely not for amateur share traders. Even experienced traders should be wary.

There are crooks engaged in PUMP-AND-DUMP sharetrading tactics. They talk up a particular mining share and spread a bit of rumour. Day-traders come in and drive the prices up. Trustees get taken over by greed and buy in. Three or four weeks later the share price plummets 50% to 60%. Massive losses incurred by the SMSF. Some stockbrokers are crooks and encourage CEOs of these small mining companies to release "bad news" announcements that may not be 100% factual just to "short" the shares in the company so that these brokers earn a large profit by shorting the shares. The stock market these days are dominated by BOTs that trade miniscule amounts of shares eg 3, 4 or 7 shares in a company as feelers to gauge where the market is leaning. There is very little trading done by human traders, mum and dad traders. These BOTs are programmed with trigger points to buy or sell shares when the price and volume reaches a certain point. Then with AI, there can be releases of news article in the user's news feed that matches the algorithm of big share trading funds, hedge funds. These fake news can affect the psychology of investors, prompting them to impuilse buy or sell shares. AI driven, targeted stories in users news feed based on their cookies and search history threaten ordinary market forces operating correctly. If users focus on a particular story, the news feed will display more stories with similar characteristics because it predicts that is what users will click and read. The psychological impact causes investors to do things irrationally. In consequence, the market becomes dysfunctional, defies common sense. That is why when investing in shares, one should pick blue chip shares and aim at holding those shares for at least 3-5 years. Market will fluctuate but it will be very expensive of any big hedge fund, share trading group to manipulate in the long run.

Options and CFD trading in mining shares amplify the losses 10 to 1000 times. Don't even go near options and CFDs. There are Trading platforms/Companies that provide CFD/Options software who trade against their clients! They have the access to the clients' portfolio data, know the contract expiry dates and trade against them. This is highly illegal and unethical but difficult for ASIC to catch. Then you have big financial institutions dealing with Dark Pools and high-speed, low volume trading (High Frequency Trading) that manipulate market prices of ordinary shares. Indirectly affecting the prices of CFDs and options. It's a no-win situation for ordinary share investors like you and me. Stay away from "decaying" investments with expiry dates. Big commodities traders use hedges to stabilise prices of volatile commodities. However, using hedges, options and CFD for investment is a foolish trap.

My advise is to stick to the ASX Top 100 and your fund should do well. Share investment is a medium to long term prospect. Winners are those who can hold their shares for 3 to 5 years.

ATO launches SMSF Assist

Sun, 21 Sep 2014 18:44:28 +1000

ATO has launched a new website http://smsfassist.ato.gov.au/ to help people understand SMSF. You can type your questions in directly. There are also dropdown menus covering these topics :

1) Thinking about Self-Managed Superannuation Funds
2) Setting up an SMSF
3) Contributions and rollovers
4) Contributions Types
5) Contributions Limits
6) Investment
7) Investment Ownership
8) Investment Restriction
9) Administration and Reporting
10) Benefit Payments
11) Benefit Types
12) Pensions and Income Stream
13) Commutation
14) Winding Up

Topping up your pension with Centrelink Age Pension

Mon, 07 Nov 2011 21:51:31 +1100

With the Global Financial Crisis decimating superfunds, many members are finding they are not going to have enough super for retirement. Fortunately they have Centrelink's Age Pension to fall back on. So how do you apply for Age Pension? The answer is to visit your nearest Centrelink Office and bring along your proof of ID documents eg passports, utility bills, bank statements and list of assets in the house and list of investments. Centrelink officer will help calculate your age pension entitlement and tell you about other payments that you may qualify.

But on the topic of Age Pension, I have compiled information from Centrelink to help you understand the requirements. Firstly you must be of qualifying age (see the table below) and secondly you must meet the residency requirements. The residency requirements are that you are a citizen or permanent resident living in Australia for a continuous period of at least 10 years. Or if for a number of periods which total more than 10 years, with one of the periods being at least 5 years. If you are a New Zealander, you must be in Australia on 26 Feb 2001, or for 12 months in the two years immediately before that date, or was assessed as "protected" before 26 February 2004.

Date of birth	Women eligible for Age Pension at age	Men eligible for Age Pension at age
before 1 July 1935	60	65
from 1 Jul 1935 to 31 Dec 1936	60.5	65
from 1 Jan 1937 to 30 Jun 1938	61	65
from 1 Jul 1938 to 31 Dec 1939	61.5	65
from 1 Jan 1940 to 30 Jun 1941	62	65
from 1 Jul 1941 to 31 Dec 1942	62.5	65
from 1 Jan 1943 to 30 Jun 1944	63	65
from 1 Jul 1944 to 31 Dec 1945	63.5	65
from 1 Jul 1946 to 30 Jun 1947	64	65
from 1 Jul 1947 to 31 Dec 1948	64.5	65
from 1 Jan 1949 to 30 Jun 1952	65	65
from 1 Jul 1952 to 31 Dec 1953	65.5	65.5
from 1 Jan 1954 to 30 Jun 1955	66	66
from 1 Jul 1955 to 31 Dec 1956	66.5	66.5
from 1 Jan 1957	67	67

If you are of qualifying age, an individual or couple have to pass either Centrelink's ASSET TEST or INCOME TEST.

ASSET TEST

Asset test limit for Full Age Pension. One receives full pension if one's assets are below the limit :

Family situation (Min limit)	For homeowners	For non-homeowners
Single	$186,750	$321,750
Couple (combined)	$265,000	$400,000
Illness separated (couple combined)	$265,000	$400,000
One partner eligible (combined assets)	$265,000	$400,000

If your assets are greater than the minimum limit, your age pension is reduced by $1.50/fortnight for each $1,000. The age pension reduces to nil once your assets reaches Centrelink's maximum limit (see below).

Family situation (Max limit)	For homeowners	For non-homeowners
Single	$690,500	$825,500
Couple (combined)	$1,024,000	$1,159,500
Illness separated (couple combined)	$1,272,500	$1,407,500
One partner eligible (combined assets)	$1,024,500	$1,159,500

The maximum amount of age pension you can get each fortnight is :

Status	Maximum pension rate per fortnight (effective from 20 March 2012)
Single	$695.30*
Couple	$524.10* each

As mentioned previously, the amount is reduced if your assets exceed the minimum limit but is under the maximum limit. $1.50/fortnight for each $1,000.

* These amounts don't include the PENSION SUPPLEMENT of a maximum of $60.20 a fortnight for singles and $90.80 a fortnight for couples (combined).

INCOME TEST

The income test for pension depends on how much you earn every fortnight. These earnings include deemed income from your assets and financial investments.

Family situation	For full pension/fortnight	For part pension/fortnight
Single	up to $150	less than $1,661
Couple	up to $264	less than $2,542
Illness separated (couple combined)	up to $264	less than $3,286

For a single person, the first $44,600 of your financial investments is deemed to earn income at a rate of 3% per annum, and anything over that is deemed to earn income at a rate of 4.5% per annum.

For couples, the first $74,400 (combined) of you and your partner's financial investment is deemed to earn income at a rate of 3% per annum. Any amount over that is deemed to earn income at a rate or 4.5% per annum. If neither of you is receiving an Age Pension, then the first $37,200 (each person) of your financial investments are deemed to earn income at a rate of 3% per annum and any amount over that is deemed to earn income at a rate of 4.5% per annum.

CONCLUSION

Clear as mud? Try reading this again and it might make some sense. Feel free to contact me if you have questions. info@superfund.me

Divorce and its impact on your SMSF

Mon, 07 Nov 2011 21:49:38 +1100

Nobody is perfect in this world. Why can't we tolerate the faults of another and forgive? Isn't it better to focus on the positive aspect of your relationship. Hardships and difficult times are part of life and both husband and wife have to work on it continuously. In this materialistic world which is exacerbated by our exposure to advertising and movies, money seems to be most important thing in life. Money isn't everything. Love, kindness and patience is far more satisfying in the long run. I encourage couples not to go through the divorce avenue, to forgive and work things out.

But if divorce is what both parties want, then there are consequences to your SMSF. Ideally both parties have a financial agreement in place that set out the assets and liabilities and how to split them. Financial agreement is a cheaper option compared to the legal fees incurred if you decide to go through the Family Law Courts.

The Family Law courts will demand a list of assets and liabilities from the husband, because usually he is the primary income earner. There may be delays because the husband's accountant has to prepare this information. From there the judge decides what percentage of the assets goes to the wife. In most cases, at least 50% of the SMSF balance goes to the wife. The wife of course, will deposit the proceeds into her own superfund.

This can be a headache for the husband, especially when there is a commercial property in their SMSF. How do you split that property, if the wife wants cash, then the SMSF may need to borrow money to cough up the payment or the husband is forced to sell the property to get the cash to pay the wife. If the husband operates his business in that commercial property then this can severely affect his business cashflow. Either way, it can get messy, bogged down with paperwork and both parties lose out because the husband has no cash to pay for child support, etc.

Which is why it is important that couples should think carefully about divorce and avoid it if possible. Love, kindness and patience is what we need.

Your SMSF is not your personal ATM machine.

Mon, 07 Nov 2011 21:44:28 +1100

Some people have the crazy idea that they can withdraw monies from their SMSF anytime. The answer is NO.

There was a case law where the trustees deliberately took money out for two consecutive financial years to help prop up their struggling business. Despite repeated warnings from the superfund's auditor and the trustees promising to rectify the problem but never did, the end-game was disaster. Suffice to say the trustees were taken to court by the Commissioner of Taxation and were handed 5 year jail sentences and hefty $220,000 fines for breaching the sole purpose test. The superfund was also made non-compliant and lost 45% of its balance to the ATO. Trustees were forced to sell their home to pay fines and penalties.

The lesson here is monies in your SMSF stays preserved until you reach your preservation age. Contravention of this preservation rule can lead to the SMSF losing 45% of its balance! The severity, deliberateness, carelessness and quantum of the contravention will affect the court's decision.

So what is your preservation age? Well, it depends on your birth date. This table summarises when one meets the condition of release :


Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 - 30 June 1961	56
1 July 1961 - 30 June 1962	57
1 July 1962 - 30 June 1963	58
1 July 1963 - 30 June 1964	59
After 30 June 1964	60

There are rumours that the government may increase the preservation age to 67 to keep Australians in the workforce longer. Can you picture yourself working at 67? What job will let you do that? With the globalisation of our economy and the business environment rapidly changing, I don't think there are many stable jobs that offer such high level of security. Food for thought my friend.