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Free Webinars - FPA CPD points

Why pay, when you get top quality presentations for free from us?

 

Every wednesday at 11.00 am we run free webinars for not more than 30 minutes.

 

To download Financial Planning Association CPD approval click here

 

To view our previous webcasts and earn free FPA 4.5 CPD hours  click here 

 

For our paid seminars - click here

 

Next Webinar:  11th November at 11.00 am

By Ruchika Sharma LLB, Chartered Secretary, AGIA  

MISTAKES TO AVOID IN SETTING UP A UNIT TRUST

  • What is a Unit trust? Advantages & Dis-advantages of Unit trust;
  • Individual Vs Corporate trustee- which is better? Duties & Powers of a Trustee;
  • Who can be a Beneficiary of a unit trust?

 

 

Parramatta Novotel Hotel - 5th November - $195 - 3 Seats Left

Melbourne Stamford Little Collins St. - 10th November - $195 - 6 Seats Left

Sydney CBD Hilton - 17th November - $195 - 5 Seats Left  

Timings 09:00 am to 05:00 pm

 

Topics

  • How to obtain an Accountants Limited Licence Authority at Zero marginal cost
  • Property Investments – Rules today and going forward
  • Threats to SMSF Auditor Independence & appropriate safeguards
  • Changes in SMSF Space in Year 2015

 

 

 

 

Main Article: Is a Company a Better SMSF Investment Vehicle than a Trust?

- By Mark Wilkinson

 

What structure can I use?

The choices that an SMSF trustee faces about the structures that they can use when about to make a real property investment are numerous.

Property can be purchased and held by a fund:

  • Outright and directly
  • As co-tenants
  • Through a unit trust or company.

So a question asked regularly is, “How would you structure this particular investment.”

The types of questions that should be asked to determine which structure is most appropriate for a fund include:

  • Does the fund currently have investment in a controlled unit trust or company?
    • Is it a pre-11 August 1999 trust or company?
    • Is it a trust or company to which Division 13.3A of the Superannuation Industry (Supervision) Act 1993 applies?
    • Is it a trust or company that is not a related party of the fund member or standard employer sponsor?

 

Click here to learn how to set up a Fixed Unit Trust

 

When is each of these options available?

Pre -99 unit trust or company investment?

Investments in these trusts or companies are exempt from the in-house asset rules contained in Part 8 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

For a trust or company to fall into this category, the following conditions must be met:

  • The fund must have held an original investment in the trust or company before 11 August 1999.
  • Investments made in the trust or company between the 11th of August 1999 and 30 June 2009 must be limited to:
    • The payment of partly paid units or shares that were held on 11 August 1999, and/ or
    • The re-investment of profits derived between 11 August 1999 and 30 June 2009.
    • Alternatively, if the fund had borrowed at 11 August 1999 and had made an election to limit future investments in the trust or company to the amount of that borrowing, then future investments in the company or trust up to the limit was excluded from the in-house asset rules.

Investments made on or after 30 June 2009 in a controlled pre 11 August 1999 trust or company that does not comply with Division 13.3A of the SIS Act are in-house assets and will potentially result in a breach of the in-house asset rules.

The only time that a fund will be able to make future investments post 30 June 2009 in a pre-11 August 1999 trust or company is where that entity has complied with Division 13.3A of the SIS Regulations from the later of:

  • The time of the  fund’s original investment in the trust or company,  or
  • 28 June 2000.

If the trust has complied with Div 13.3A of SIS for that period, then future investments in the entity will be exempt from the in-house asset rules and exempt from Section 66 of SIS which prohibits the purchase of assets from members and related parties.

 

Click here to learn how to set up a new SMSF

 

A Division 13.3A trust or company

Investments in entities that comply with the requirements of Division 13.3A of SIS are exempted from the limitations imposed by the in-house asset rules and the prohibition on the acquisition of assets from related parties.

The requirements are fairly straight forward but cause major issues for fund trustees if they are breached. If a provision of Regulation 13.22D of SIS is breached, the investment ceases to be exempt from the in-house asset rules and Section 66 of the SIS Act.

It is important to note that trustee corrective action after the fund has breached a provision of Regulation 13.22D of SIS, won’t restore the exemption from the in-house asset rules or exemption from Section 66.

The rules that must be complied with include:

  • The fund has less than five members
  • It does not make a loan to another entity unless it is a deposit with an Australian Deposit taking institution
  • The entity does not borrow
  • The entity does not allow security to be placed on an asset
  • The entity does not run a business
  • The entity does not lease property to a related party unless it is business real property, leased under a legally binding lease
  • If a trustee enters into a legally binding lease of business real property with a related party, then the lease must not cease to be binding, and the property must not stop being business real property while the lease is in existence.
  • Transactions must be on an arm’s length basis

Provided that above rules contained in Division 13.3A are complied with, the fund trustee is not restricted by the in-house asset rules or Section 66 of SIS from transacting in units or shares in companies that comply.

 

Click here to order an Actuarial Certificate for your SMSF for $97.50

 

Non-Controlled Unit Trust

The third category of trust or company investment that may be available is a non-controlled company or trust.

In the case of a trust, it is only considered to be a controlled trust and, therefore, a related party for the purpose of the in-house asset rules where:

  • The fund and related parties control more than 50% of the income or capital of the trust;
  • The fund and related parties acting together can remove the trustee of the trust
  • A trustee of the trust, or a majority of the trustees of the trust, is accustomed or under an obligation or might reasonably be expected to act in accordance with the directions, instructions or wishes of the related parties.

In the case of a company, it is taken to be controlled and therefore a related party where:

  • The fund and related parties can cast or control the casting of more than 50% of the voting power of the company.
  • The directors of the company or a majority of the directors of the company are accustomed or under an obligation or might reasonably be expected to act in accordance with directions, instructions or wishes of the related parties.

 

If a company or a trust is not a controlled entity by virtue of the provisions outlined in Part 8 of the SIS Act, then that entity possesses much greater power to structure its investments in a manner that it thinks fit. Bearing in mind that the “Sole Purpose” test will be imposed on a look through basis on any entity in which a superannuation fund holds an investment.

Investments in non-controlled trusts and companies are not in-house assets. Note however that the fund may not be able to purchase shares or units in these entities from related parties.

 

Click here to learn how to set up an account based pension in your SMSF

 

What are the advantages and disadvantages of each of the above options?

Pre 11 August 99 trusts and companies

 

The major advantage to a fund of investing in a pre-11 August 1999 trust or company is that many of the investment restrictions that would normally apply to a superannuation fund will not apply to an underlying pre 11 August trust or company.

That means that the entity is free to do things like:

  • Borrow from an arm’s length party  to make an investment without having to structure the investment in accordance with Section 67A of the SIS Act
  • Lease non-business real property to a related party under a commercial lease arrangement
  • Use the trust or company property as security for a loan
  • Acquire an asset from a related party.

There are of course exceptions to this rule, the major one being that the regulator will continue to apply the “Sole Purpose Test” on a look through basis to fund investments in underlying entities.

The ATO may also look to apply other provisions to the entity, for example, if a trust derives profits; those profits will be distributed to the unit holder at the end of the financial year. If that distribution is not paid in cash or kind within 12 months of the income being derived, then it is possible that the trust will be treated as having received a loan from the fund, and this loan  will potentially breach the in-house asset rules.

For example, in the case of Montgomery Wools, a fund had invested in an underlying trust. When the trust sold a property that it owned it should have distributed the profits back to the superannuation fund at year end. However, this did not happen with the trustee extending loans to related parties of the fund.

As a result of this transaction, the ATO deemed the fund to be non-complaint on the basis that it had deliberately breached the in-house asset rules and the sole purpose test.

 

Click here to learn how your SMSF can borrow from you

 

Divison 13.3A trusts

Division 13.3A entities are subject to rules under that Division, which severely limit the investment activity of these companies or trusts.

However, the fact that the shares and units of a complying company or trust are exempt from the in-house asset rules and exempt from the prohibition of purchase under Section 66 of SIS provide some distinct advantages.

It is not uncommon for a trustee of a fund that borrows to purchase an asset, to also to want to borrow to make improvements or change the nature of the asset.

It is not possible for a fund to do this under Section 67A of SIS Act, if the asset is purchased directly by the fund. However, if the fund borrows to purchase an interest in a company or trust and the entity then purchases the asset and either improves it or “replaces it, a breach does not occur. The reason a breach does not occur is that there is no change in the nature of the units or shares after the improvements or changes have been made to the underlying asset.

The disadvantages come from having to comply with the provision of Division 13.3A itself.

For example, the fact that the Div 13.2A entity is unable to borrow and use assets of the entity  as security means that it becomes much more difficult to use a entity such as this as part of a geared SMSF arrangement. For example, to implement a borrowing in conjunction with a Div 13.3A trust, it is common that the lender will lend to a related party of the fund, which then on lends to the trustee of the fund to purchase the units in the unit trust.

Likewise the fact that the entity is not permitted to borrow means that in the case of a trust, the trustee needs to be very careful that any unpaid present entitlement are paid to unit holders within  12 months of the income been determined.

If the distribution is not made, the unpaid present entitlement could be held to be a loan, which would mean that a breach of Regulation 13.33D of the SIS Regulation will occur. This means that the units in the trust will cease to be exempt from the in-house asset rule with the result that the fund trustee may be required to dispose of its interest in the trust.

 

Click here to learn how your SMSF can claim depreciation for its investment property

 

A non-controlled trust or company

The advantage of this type of entity is that, it is not an in-house asset or a related party of the fund which means that funds are not restricted in how much they can invest in these entities. The entity itself is not subject to the SIS Act and Regulations and therefore, can make any investment that a standard company and trust can make.

The disadvantage is a minor one, but one none the less that needs to be considered. “What is the superannuation funds exit strategy?”

To be an uncontrolled trust or company, the unit or shareholders must not be able to;

  • Influence the trustees or directors
  • In the case of the trust, remove the trustee.

These conditions are easy to meet when the direct interest held in the entity is no more than 50% of the shares or units. The question that arises is, what happens when one investor in the company or trust wants to sell or redeem its investment?

The investor that wants to sell its interest would normally consider selling its interest to one of its fellow shareholders/ unit holders. The problem is existing unit holders may not be able to acquire further units or shares without the trust/ company becoming a controlled entity. If the remaining  investors interest increases above 50%, then the entity will become an in-house asset.  

So given that superannuation funds are entities that are designed to dispose of their investments when the need arises to pay a retirement, disability or death benefits, the question that each super fund trustee needs to answer is what will happen if there needs  to be a  change in the underlying ownership of the company or trust?

 

Click here to set up a company for $86 + ASIC Fees

 

Is a Trust a better investment structure than a Company

We have come to the view that if a fund is going to invest through an interposed entity than, in many cases they may be better to use a company.

The main advantage espoused for a trust as an investment vehicle is that the income passes through the trust and is taxed in the hands of the unit holder.

So if we assume that a fund invests in a Div 13.3A trust that invests in commercial property that is leased back to a related party, then the following will occur;

  • The net rent is taxable to the fund at either 15% or zero if in pension mode.
  • The capital gain is assessable to the fund at 10% or zero if in pension mode.

Tax paid by the fund while it remains in accumulation mode, does not give rise to a tax credit and is not refundable if a fund subsequently moves to pension mode.

If we hold the same investment through a Div 13.3A company, the income including the full capital gain is taxed at the company tax rate of 28.5%, this seems to be a significant disadvantage.

However, the difference is that the tax paid by the trust is gone for good, whereas the income tax paid by the company gives rise to a franking credit.

So if the fund member enters pension mode the year after the property is sold, the company can declare a dividend at a time when the dividend is received tax-free by the fund. In other words, the company can control the time of dividend declaration which means that it is possible to reduce the tax paid to zero.

The fact that the company does not need to distribute the net income each year means, that it is up to the directors of the company when the cash needs to be distributed. Accordingly, if the company is a pre-11 August 99 investment, the directors have the capacity to accumulate earnings in the company to pay principal on loan repayments or to carry out repairs on the property.

Finally, the fact that the directors of the company determine when a dividend is declared offers one other advantage. That is, if the shares in the company are segregated to meet pension payments on a particular pension interest, the dividend will inherit the tax treatment of the pension interest that holds the shares.

So if the pension interest holding the shares is a tax-free interest, the dividend will be received tax-free on receipt and will treated as a tax free benefit on distribution to beneficiaries following death of the member.

 

Click here to update your SMSF Trust Deed

 

So what do we learn from this?

That, the opportunity to transfer an interest in a related trust or company remains an important option in structuring your client’s retirement plans. However, it is an area that can be complex and specialist advice should always be obtained.

 

The information is not a recommendation and has been prepared without taking into account the objectives, needs, financial and taxation situation of any particular individual. For this reason any individual should, before acting on the content, consider the appropriateness of it having regard to their personal circumstances, and if necessary seek professional advice. Wilkinson Superannuation and Financial Consulting Pty Ltd and any related entities, do not accept any liability for any loss, damages or outgoings arising out of the use of all or any part of this information. Thisinformation is directed and available for the use of Australian Residents only and must not be used or distributed without the written consent of Wilkinson Superannuation and Financial Consulting Pty Ltd. – Mark Wilkinson -0419 260 437

 

Fees for all our products

 


 

SMSF SUMMER SCHOOL

 

Venue & Cost

Parramatta Novotel Hotel - 5th November - $195 - 3 Seats Left

Melbourne Stamford Little Collins St. - 10th November - $195 - 6 Seats Left

Sydney CBD Hilton - 17th November - $195 - 5 Seats Left  

Timings 09:00 am to 05:00 pm

 

Topics

 

  • How to obtain an Accountants Limited Licence Authority at Zero marginal cost
  • Property Investments – Rules today and going forward
  • Threats to SMSF Auditor Independence & appropriate safeguards
  • Changes in SMSF Space in Year 2015

 

Proposed Agenda

8.30 am: Registration

8.30 am to 9.00 am :  Welcome Tea & Coffee and Networking

9.00 am to 10.30 am:  How to obtain an Accountants Limited Licence Authority at Zero marginal cost

- Manoj Abichandani

Rules on what accountants can advise SMSF trustees are changing from 1st July 2016. There will be a limit on what accountants can do from this date as SMSF will be considered as a financial product under the removal of certain exemptions. To be compliant, you must be RG146 qualified by completing relevant studies AND be licensed under ASIC’s financial services licensing framework. If you wish to continue to work in the SMSF space, you need to act now.

In this power packed presentation, Manoj will tell you what you can and cannot do when these exemptions are removed, what courses you need to do and how you can apply for a licence and describe the most favoured option “Join a dealer group” where accountants will be able to continue to advice as before, without any further costs.

10.30 to 11.00:  Morning Tea and Coffee and Networking

11.00 AM to 12.30 PM:  Property Investments – Rules today and going forward

-  Mark Wilkinson 

There are many ways in which a self-managed superannuation fund can structure a property investment. This session will consider the structures that can be used and the rules that must be complied with to get the most out of a superannuation fund property investment.

This complete overview will examine:

  • Whether a  fund can run a business
  • The types of investment structures available
  • The SIS factors that need to be examined
  • The difference between an partnership and a joint venture
  • The benefits of holding a property in a trust or a partnership.

 

12.30 pm to 1.30 pm:  Fully Catered Lunch & Networking

1.30 PM To 3.00 PM:  Threats to SMSF Auditor Independence & appropriate safeguards

– Manoj Abichandani

APS 110 directs all professional body members on how to maintain independence while auditing an SMSF. However an SMSF auditor also needs to seek guidance from Australian auditing standard ASA 220, SISA 128F and SISR 9A.06.

Manoj will discuss Self-Interest, Self review, Advocacy, Familiarity and intimidation threats to independence in an interactive way where SMSF Auditors understand their role as gatekeepers for the regulators and protect trustees from penalties.

3.00 PM To 3.30 pm:   Afternoon Tea & Coffee and Networking

3.30 pm 5.00 pm:  Changes in SMSF Space in Year 2015

- Mark Wilkinson

Mark will provide a full run down of changes in legislation in the year 2015 and bring you up to speed with the new law and what type of conversation you should be having with your clients and what are the new opportunities these new changes have opened up for your clients. 

 

Benefits/learning outcomes

Upon Completion of this session, attendees will be able to

  1. Act upon when the limited licence authority and accountants exemption end
  2. Allow you to put into place the right solution for your practice and clients you serve post 1st July 2016
  3. Completely understand your options when it comes to structuring a property investment through a superannuation fund.
  4. Audit a superannuation fund with complete independence and deny engagements where independence is compromised
  5. Be up to date with all the changes in SMSF legislation in the year 2015

 

Delegates will also receive credit to audit 10 SMSF on cloud worth $165 from www.onlinesmsfaudit.com.au

Or

One SMSF Trust Deed worth $125 from www.trustdeed.com.au

Or

One Bare Trust deed (external lender) worth $165 from www.trustdeed.com.au

And

A Webinar session with Mark Wilkinson in 2016 worth $120  

=Total Value $285 PLUS CPD hours

 

Recommended For

This event is suitable to all accountants and advisers who work in SMSF space, and ASIC approved auditors who want to maintain their current licence with ASIC.

 

CPD Hours

This event will provide 4.5 CPD hours Plus 1.5 CPD for “SMSF Audit” under self-assessment covered under RG 243.88 - 90 requirements. 

 

Attendee Requirements

CANCELLATIONS OR TRANSFERS

If you need to cancel a seminar, you must inform us. However, a substitute participant will be accepted anytime.

Cancellations

More than seven full working days before the seminar:

  • 100% Refund

Within seven working days of the seminar:

  • No refunds will be available for cancellation, although credit to audit 10 SMSF on cloud worth $165 or SMSF trust deed from www.trustdeed.com.au worth $125 will be provided and attendance to Mark Wilkinson SMSF Update Webinar.

 

We reserve the right to cancel our seminars if the minimum numbers of participants are not registered.  If the seminar is cancelled, a full refund will be issued.  The registrant will be contacted by email no later than 1 week upon seminar cancellation.

 

Speakers 

Mr. Mark Wilkinson CA

Mark Wilkinson is a Chartered Accountant SMSF Specialist and is a leading self-managed superannuation fund (SMSF) experts. He provides strategic advice and training to accountants, financial planners and solicitors.

Mark’s experience covers the full gambit of the superannuation industry, including:

  • 15 years experience as a Partner with PKF Chartered Accountants and Deloitte Private.
  • The provision of SMSF  support to professional advisers who are members of his Technical Support Service.

 

Manoj Abichandani SSA SSAud CTA 

 

Manoj has worked in SMSF industry for the past two decades in various capacities including as a tax agent, accountant and SMSF Auditor. He currently works as SMSF Technical Director at www.trustdeed.com.au where he develops new SMSF strategies and advises advisors on complex SMSF matters.

 

 

 

 


 

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