Preparing to set up your self managed super fund: Part 2

You’ll need to choose the best way to structure your self managed super fund (SMSF) so it complies with the law and suits you and the other members’ circumstances.

Once you’ve decided to set up an SMSF, you need to:

• decide on the type of trustee for your fund (a company or up to four individuals)
• make sure you (and the other members) are eligible to be a trustee
• check the residency requirements your fund needs to meet to be a complying fund and receive tax concessions.

Structuring your self managed super fund (SMSF)

For your super fund to be an SMSF, it needs to meet several requirements under the super laws.

The requirements are different depending on whether your super fund is one of the following:

• a corporate trustee
• individual trustees
• a single member.

If your super fund has individual trustees, it’s an SMSF if all of the following applies:

• it has four or less members
• each member is a trustee
• no member is an employee of another member, unless they’re related
• no trustee is paid for their duties or services as a trustee

If your fund has a corporate trustee, it’s an SMSF if all of the following applies:

• it has four or less members
• each member of the fund is a director of the company
• each director of the corporate trustee is a member of the fund
• no member is an employee of another member, unless they’re related
• the corporate trustee is not paid for its services as a trustee
• no director of the corporate trustee is paid for their duties or services as director in relation to the fund.

Single member funds

It is possible for you to set up your super fund with only one member. If you have a corporate trustee for a single member fund, the member needs to be one of the following:

• the sole director of the trustee company
• one of only two directors, that is either
• related to the other director
• not an employee of the other director.

You can also have two individual trustees. One trustee needs to be the member and the other needs to be one
of the following:

• a person related to the member
• any other person who does not employ them.

A trustee or director can’t be paid for their services as a trustee or director in relation to the fund.

Types of Trustees

Once you understand how you can structure your self managed super fund, you need to decide on the type of trustee you’ll use.

You can choose either one of the following:

• a corporate trustee
• up to four individual trustees.

A corporate trustee is a company incorporated under the law that acts as a trustee for the fund. Generally, to
be an SMSF, all directors of the company need to be members and all members need to be directors of the
company. If you already have a company, you may choose to use it as trustee.

Your choice of trustee will make a difference to the way you administer your fund and the types of benefi ts it can pay, so you need to make sure it suits your circumstances.

When making your decision, we recommend you:

• discuss your trustee options with an SMSF professional
• consider the benefits and costs of each type of trustee (for your situation).

Trustee eligibility

In most cases, all members of the SMSF need to be trustees, so it’s important to make sure all members are eligible to be a trustee. Generally, anyone 18 years or over and not under a legal disability (such as a bankrupt, minor and people with a mental impairment) can be a trustee of a super fund unless they’re a disqualified person.

A person is disqualifi ed if one of the following applies:

• they have ever been convicted of an offence involving dishonesty
• they have ever been subject to a civil penalty order under the super laws
• they are considered insolvent under administration
• they are an undischarged bankrupt
• they have been disqualified by a regulator (for example, by us or APRA).

Penalties can apply if you act as a trustee while disqualified.

A company can’t be a trustee if one of the following applies:

• they are a responsible officer of the company (such as a director, secretary or executive officer) is a disqualified person
• they are a receiver, official manager or provisional liquidator has been appointed to the company
• action has started to wind up the company.

You’ll need to declare that you and the other trustees or directors, aren’t disqualifi ed when you register your fund with us. In certain circumstances (such as minor dishonesty offences) a disqualifi ed person can apply to us in writing for a waiver.

Minors

Generally, members under 18 years of age can’t be trustees of a super fund. A parent or guardian can be a trustee for a member who’s under 18 years of age and does not have a legal personal representative.

Having a resident fund

To be a complying super fund and receive tax concessions, your fund needs to be a resident regulated super fund at all times during the income year. This means your fund needs to meet the defi nition of an ‘Australian superannuation fund’ for tax purposes.

If your fund is a non-complying fund, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate.

If a member moves or travels overseas for an extended period, this may affect the residency status of the super fund.

For more information about setting up a self managed super fund to to find out whether this is a suitable option for you, speak to one of the financial planners at Intellichoice on 1300 55 10 45.

Aussies put bills on credit cards

Approximately 40% of Australians will rely on credit cards to pay essential bills this quarter. Debt collection agency Prushka said many householders had overspent in the lead-up to Christmas. There has been a 25% lift in the amount of work going to debt collectors.

Reserve Bank figures show consumers spent more than $20 billion on credit and charge cards in November 2009, pushing the average credit card account balance to $3196. According to a Dun & Bradstreet survey, 56 per cent of 18 – 35 year olds expected to use credit cards to pay some of their bills, up 11 per cent on the previous quarterly survey, while nearly half of all families with children thought they'd be paying bills with credit cards - up 8%.

Setting up a self managed super fund: Part 1

Setting up a self managed super fund (SMSF) is about more than taking steps to get it started. You also need to make important decisions about how to structure and run your super fund.

We recommend that you seek professional financial advice before setting up your own super fund. However, we hope to help you gain a better understanding of the essentials by:

1. Helping you understand how you can structure your super fund
2. Provide the steps you will need to take to set up your super fund and start operating it
3. Explain your obligations and responsibilities towards running and operating your self managed super fund
4. Show you where to go for more information

Setting up and operating a self managed super fund (SMSF) is a major financial decision. The responsibility for running the fund and complying with the law rests solely with you as trustees. While SMSFs are great for some people, they don't suit everyone. Managing your own super fund takes time, knowledge, skill and money, so before setting up a SMSF, you should speak with an experienced financial planner who will provide you with more information on what's involved in managing your own fund and what it means to be a trustee.

You need to:

• consider whether you have the time, knowledge and skill to manage your own super and whether you have the assets and money to make the fund viable
• compare the costs and benefits of running an SMSF with other retirement saving options
• make sure you're setting up the fund, solely to pay retirement benefits to members
  

When you set up an SMSF, you will take on the role of either a trustee or a director of a company that is a trustee (called a corporate trustee).

A trustee is a person or company that holds and invests the fund's assets for the benefit of the members' retirement. As a trustee/director, you will be responsible for the following:

• running the fund
• making decisions that affect the retirement interests of each fund member, including yourself

You will also need to comply with all super and tax laws to ensure that the super fund is entitled to tax concessions and members' interests are protected.

You will also need to

• act in the best interests of all fund members when you make decisions
• manage the super fund separately from you own financial affairs
• ensure the money in the super fund is only accessed where the law allows it

Being a trustee gives you the chance to actively manage your own super and make your own investment choices, but it also brings responsibilities. All trustees and directors are equally responsible for managing the fund and making decisions - even if one takes a more active role in its day-to-day running.

Remember that managing your own super fund is a big responsibility and it's important that you make sure it's the best option for you. You can speak to a financial planner at Intellichoice on 1300 55 10 45 for more information about SMSFs. They will be able to work out with you whether this is the best option for you based on your goals and current financial circumstances.

Couples keeping separate accounts

Many young couples are choosing to keep their finances separate and not even operate a joint account to pay for a mortgage in both of their names. Most however, have three accounts - one joint account and two separate accounts.

A Relationships Australia survey found that financial difficulties were nominated as a cause of relationship problems by 40% of people across all income levels. Conflict over money was nominated as a major reason for separation on 35% of divorces.

So sharing savings – and particularly debt - isn’t a decision to take lightly.

Investors still have lots of cash

Investors with self-managed superannuation funds (SMSFs) have increased their allocation to equities from 32% in December 2008 to 42% in December 2009 and reduced their allocation to cash.

According to a Multiport survey, over the last six months SMSFs reduced their cash holdings from 28% to 22%.

"The cash built up over 2008 and remained that way in the first half of 2009, then commenced a shift into equities in good correlation to the rising market over recent months," Multiport chief executive John Mcllroy said.

"The average SMSF still has cash of around $190,000 ready to invest, so there is room for further substantial changes in market participation if greater stability is seen in sharemarkets."

Bank and investor taxes to be slashed

Australia will buck the international trend towards higher taxes on banks and financial institutions and lower financial services taxes under new government proposals unveiled by Minister for Financial Services Chris Bowen on last Friday.


Mr Bowen launched a report into making Australia a regional hub for financial services and increasing the nation’s exports of financial services saying Australia stands out as a safe haven for international investors.

The report recommends the removal of withholding tax on interest income earned by foreign banks in their Australian branches. The report also highlighted that tax law does not allow investors in a unit trust to gain a tax benefit from losses.

Other tax breaks and incentives for fund managers and banks were also suggested by the government commissioned report by former Macquarie Bank CEO Mark Johnson and Treasury officials.

Meanwhile US President Barrack Obama unveiled plans on Friday for a new punitive tax on the US banking system to collect almost $100 billion from institutions to recoup taxpayer money used to bail out banks during the global financial crisis.

Mr Bowen launched a report into making Australia a regional hub for financial services and increasing the nation’s exports of financial services saying Australia stands out as a safe haven for international investors.

The report recommends the removal of withholding tax on interest income earned by foreign banks in their Australian branches. The report also highlighted that tax law does not allow investors in a unit trust to gain a tax benefit from losses.

Other tax breaks and incentives for fund managers and banks were also suggested by the government commissioned report by former Macquarie Bank CEO Mark Johnson and Treasury officials.

Meanwhile US President Barrack Obama unveiled plans on Friday for a new punitive tax on the US banking system to collect almost $100 billion from institutions to recoup taxpayer money used to bail out banks during the global financial crisis.

Australian wealth survey report

The New Year is almost 2 weeks old and, sadly, many New Year resolutions have already been broken. Amidst the activity and, hopefully, relaxation of the holiday season, it is worthwhile to consider where the last two years have taken us and what is likely to lie ahead for investors in 2010.

The Global Financial Crisis and investors

As 2008 dawned and it became clear that the world faced a genuine financial crisis, many were thrown into panic. Underlying weaknesses in even advanced economies like the USA and the UK were thrown into stark relief. Massive stimulus packages and record low interest rates could not stem the bleeding. Investment banks Bear Sterns and Lehman Brothers collapsed and AIG - once the world's largest insurer - went to the brink.

As the bad news continued, dramatic measures were taken to protect Australia. In February 2009, the Federal Government's AU$42 billion stimulus package was passed in the Senate. Perhaps even more significantly, between August 2008 and February 2009, the Reserve Bank of Australia slashed official cash interest rates by 4%.

This did not stop the announcement in March 2009 that Australia experienced a negative growth of 0.5% in the first quarter - something not seen in Australia in the past 8 years. Furthermore, although growth in the following quarter was slightly positive (thereby avoiding a technical recession), economists were quick to point out that this was largely caused by a decrease in imports and an increasing population, rather than a more productive economy.

As could be expected, investors in more volatile asset classes were hit hard by all of these developments. The S&P/ASX 200 stock market index lost nearly half of its value between late 2007 and early 2009, effectively losing an entire decade's worth of growth. Stories abound of people being forced to abandon retirement plans and of retirees forced to return to work to cover the shortfall in their retirement savings.

Wealth survey reports

All this has caused many Australians to question the adequacy of their retirement plans. In late 2009, Citibank released its 'Australian Wealth Survey'. Among its findings was the worrying fact that around one in two Australians are not confident that their retirement savings will be sufficient to provide for a decent lifestyle post-work. This correlates with the similar findings in the 2009 AMP.NATSEM Income and Wealth Report that many retirement funds will not last for the length of the average retirement.

So where to for investors?

Business collapses have, of course, been occurring since the beginning of time and stock markets will always be subject to dramatic swings. But having an adequate savings and investment strategy is imperative if we are to enjoy a decent lifestyle in retirement.

Investors, particularly those nearing retirement, need to be able to access stable and reliable investment options. In doing so, they should never forget the three immutable rules of investing:

• Rule 1: Never put all your eggs in one basket
• Rule 2: A higher rate of return always equals higher risk
• Rule 3: Getting rich slowly will never go out of fashion.

Intellichoice - a reliable investment partner

At Intellichoice, we are committed to helping you increase your wealth in a safe and fairer way. We ensure that there is no conflict of interests and any recommendations we make for growing your wealth is aligned with your goals and gives you peace of mind.

For more information about our services and how we can assist you with retirement planning, speak to our financial planners at 1300 55 10 45 or visit https://www.intellichoice.com.au/.

5 steps to choosing the right account

There are five steps to choosing the right bank account that will suit your needs and not cost too much in fees and charges.

Step 1 - Assess your needs
Step 2 - Weigh up fees
Step 3 - Ask about waivers
Step 4 - Does it meet your needs?
Step 5 - Look into add-ons

Some banks waive monthly fees if you deposit your salary, package your home loan or do a lot of business with the bank. Add-ons such as an online saving account may help you save for that big purchase.

Increasing wealth means higher rates

The per capita wealth of Australians is almost $46,000, up $6,500 in the past three months, according to research from CommSec.

"Financial wealth now stands at the highest levels in two years and further improvement can be expected in 2010, although probably not at the same pace witnessed in the past three months,'' CommSec chief economist Craig James said.

Per capita wealth slumped nearly $20,000 as the global financial crisis took hold. That trend is now reversing.

"The improvement in financial wealth, together with higher house prices and a stronger job market will support consumer spending in 2010,'' Mr James said.

The Reserve Bank highlighted the surge in household wealth in its recent decision to lift interest rates.

Aussies lose $3K per year

Australians cannot account for $59 in cash each week – around one third of their total cash spend and one of the highest proportionately in the world, according to a new survey commissioned by Visa.

The international research surveyed more than 12,000 adults in 12 markets around the world (including 1,003 Australian consumers) asking respondents to estimate their “mystery spending,” or the cash they spend but cannot account for every week.

The survey shows that Australians cannot account for $59 a week, 34 percent of their total $176 cash spend a week and equivalent to $3,068 per person each year.

Credit card debt sneaking up

The average credit card balance is AU$3131.00, slightly higher than it was one year ago, according to new data from the Reserve Bank. Approximately 72% of that balance is accruing interest for the cardholder because it wasn’t paid off within the interest free period.

Last year, the average credit card balance was AU$3127 – of which 71% was accruing interest. While debit card use is increasing, analysts say in dollar terms, credit cards still dominate the market.

If you would like help with budgeting, savings and managing your credit card debt, speak to a financial consultant from Intellichoice today. 

Retiring early is a thing of the past

Retiring early was an option in the boom years of double-digit returns on superannuation. That all halted in 2008, when the financial crisis hit. That meant people in their 50s and 60s were rewriting their life plans to include a lot more work and a lot less retirement.

Super bounced back a lot in 2009, but people are still not retiring in the same numbers as in the past, says Rob Brooks, chief executive of big industry super fund Vision Super.

"The global financial crisis has had a real impact on confidence, two consecutive years of losses, but members are now starting to see their accounts come back. One thing that has happened is benefit payments to members are right down. You can talk to any super fund and I think they will say the same thing - benefit payments are right down because people just aren't retiring."

Not only are members of super funds not retiring and withdrawing money from super, they are not putting money in either. "Over 2009, we did also see a lot of people cutting back on voluntary contributions, but that is starting to come back now," Mr Brooks says.

3 tips to get your debts under control

Finding a solution to controlling your debts means looking at your lifestyle and being prepared to make some changes. Below are 3 tips to help you take control of your money and debt.

1. Get rid of your credit cards

With all the unsolicited offers of easy credit, loans, store cards and credit cards that come through your letter box every day, getting into debt has become so easy. 

• If you have store cards or credit cards, get rid of them! Store cards in particular have high interest rates
• Get into the habit of using cash instead of reaching for your credit card to pay for items
• Do you really need that item? Think before you purchase

2. Get disciplined

• Stop overspending. Before you buy that new outfit, wait a day to find out if it is something you really need. Putting time and space into the equation can often make you realise that you don’t need that new outfit after all – even if you want it. 
• Never impulse buy. Separate life’s necessities from your wants and desires so you can keep impulse buying in check.
• Write down what you spend. Use a budget planner so you can see where your money goes. Seeing it on paper can make you realise where you are going wrong, and help discipline your spending habits.
• The key to any debt management solution is budgeting and repayment plans. Commit as much money as you can to paying off debts with high interest rates.
  

3. Be pro-active

• Firstly pay off debts with high interest rates or that put your home or assets at risk.  
• Find an independent financial adviser to help you formulate a debt management strategy.
  

For independent financial advice or to get more information on debt management, visit www.intellichoice.com.au or speak to one of our financial advsiors by calling 1300 55 10 45 or email info@intellichoice.com.au

New year resolutions add to wealth

Turning your financial goals into new year resolutions increases the chances of success by up to ten times according to new research from the United States.

The US researchers found that almost half of the people who turned their plans and goals into a new year’s resolution had reached their goal or were still on track with it six months later. Less than five per cent of people who had goals for the year but did not make them into a specific resolution were still on track with their plan.

However, experts warn that the resolutions must be very specific to bring any worthwhile benefit. It won’t work to simply resolve to “cut back on debt” for example.

Popular new year resolutions include saving money – experts suggest setting up an automatic savings plan with direct debits – and paying off debts – experst recommend paying the high interest credit cards off first.

For more information or help on savings plans, budgeting, debt management or consolidating debts, speak to one of the financial advisors at Intellichoice today.

A guide to salary sacrificing

Salary sacrificing some of your pay to superannuation can be a very tax-effective way to increase your reitrement savings and also reduce your income tax liability. The amount you sacrifice into your super is essentially deducted from your assessable income, which may reduce your income tax liability.

Instead of paying tax at your marginal rate on the money, when you salary sacrifice your pay to super, it becomes a taxable contribution received by the fund. The contribution (plus any future income earned from the investment) is generally taxed at a minimum rate of 15%.

Because of the generous tax concessions, the government restricts concessional contributions (which include superannuation guarantee, salary sacrifice and personal concessional contributions).

An employer can contribute to super on your behalf and claim a tax deduction for an unlimited amount, but if your concessional contributions exceed $50,000 in a year, you'll pay tax at 31.5% (in addition to the 15% tax paid by the super fund) on the excess. You'll receive the tax bill but you'll be allowed to withdraw money from you super fund to pay it.

If you're 50 or older at any time to 30 June 2012, your concessional contribution limit is $100,000 (instead of $50,000) beore excess tax is charged. The $100,000 limit applies for each year you're over 50 until 30 June 2012,w hen it reverts back to $50,000.

Things you should consider
Don't salary sacrifice funds you think you may need before you retire. If you're younger, it may be more beneficial to pay off non-deductible debt (such as your home loan) instead.

If you're older, the reverse could be true. Generally, salary sacrificed funds will have been taxed at 15% and once you retire you can access the funds tax-free and pay off oustanding debts. Make sure you have a written agreement with your employer before making contributions.

If you would like more information about salary sacrifice or whether this is the best option for you to have a financially secure future, speak to one of the financial advisors at Intellichoice first. They will be able to recommend an option that suits your needs based on your current financial circumstances. Speak to one of the financial planners at Intellichoice by calling 1300 55 10 45 email info@intellichoice.com.au or visit www.intellichoice.com.au for more details on the various services and products on offer.

Kick start your finances for the new year

The Christmas break and the quiet January period is the perfect time to get your financial affairs in order.

It can be hard to set time aside during the year and have a good hard look at your finances. That's why the New Year period is ideal as there are usually less distractions and work pressures. While the prospect of getting lost in all the paperwork might seem daunting, it is well worth the effort to review your personal finances and think about what goals you want to achieve and what you want your financial future to look like. Remember, small changes in the way you manage your money now can have big results in the long term.

It can be overwhelming knowing where to start, but below are three key areas where you can start straight away.

Set up a budget
There's nothing complex about doing a simple budget. You can use the free budgeting calculator on the Intellichoice financial planning website to get an idea on your income and expenses and where your money goes.

Check that your debts are under control
While using a credit card can be more convenient then using cash, expenses can quickly add up. You should pay off your credit card in full each month, but if you can't do that, at least try to pay off the minimum amount due so you don't get charged a late payment fee.

If you have too many credit card debts or personal loans, speak to one of the financial planners at Intellichoice about a debt consolidation loan. A debt consolidation loan is a single loan that combines all your debts into one, leaving you with just one repayment.

Review your super
While retirement might seem a long way off, your superannuation is likely to grow into the biggest asset you own after your house. That's why it is important to make sure that you are still on track to achieve your retirement goals. One of the simplest things you can do is to make sure that all your super funds are consolidated into one - so you don't have to double up on super fees etc. You can also speak to one of the financial consultants at Intellichoice about finding lost super.

For more information on how Intellichoice can help you achieve your financial goals for the new year, call 1300 55 10 45 or email us directly on info@intellichoice.com.au.