Category: Superannuation

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Can My SMSF Invest in Cryptocurrencies?

Many clients are now asking their advisors whether the Superannuation (Industry) Supervision Act 1993 (SIS Act) and other laws allow their SMSF to invest in bitcoin or one of the many other types of cryptocurrency.

The short answer is: It depends on your superannuation deed.  

The CCASA superannuation deed contains a residual investment power in clause 5.2 which would allow, subject to the due diligence issues noted below, the fund to invest in cryptocurrencies.

Key due diligence issues to consider before investing in cryptocurrencies

There are several key due diligence issues that all trustees need to consider in order to meet their trustee covenants contained in section 52 of the SIS Act.

LIQUIDITY

What are the liquidity needs of the fund? This relates to the age profile of members and whether they are in accumulation or approaching pension mode. Many cryptocurrencies can’t quickly and easily be converted back to cash when disposed of.

INVESTMENT

What is the investment strategy of the fund? For example, if a fund invested, say, 50% of its available funds in bitcoin, this may raise serious concerns as to whether the trustees are acting prudently for long-term investment or recklessly for short-term speculative gains.

VALUATION

There is not much transparency in the market as to how and why some cryptocurrencies are rising and falling. There is no public register of who owns these assets and who has traded assets.

RISK

There is a risk that bitcoin and other cryptocurrencies are in the middle of a speculative bubble, which has been manufactured by certain key players who have created their own systems and currencies.

What exactly is cryptocurrency and how does it work?

Fans of cryptocurrency believe it’s the money of the future while others are not convinced by the lack of regulation and store of value. Either way, it’s a fascinating concept.

Cryptocurrency started with the launch of a peer-to-peer, decentralised electronic cash system we now know as Bitcoin. It was never meant to be a currency in itself but it paved the way for future currencies and the cryptocurrency movement we see today.

Cryptocurrency is essentially a medium of exchange, or digital cash, that is created and stored electronically in what’s known as a blockchain the technology behind the currency. The blockchain works by monitoring transactions in limited entries in a database, which no one can change without fulfilling specific conditions.

It sounds technical – and it is – but there’s a huge amount of information out there for anyone who’s keen to learn more about cryptocurrencies. The ATO also has some great information on SMSF investing in cryptocurrencies.

As with any investment, if in doubt you should consult a licensed financial services advisor to have them assess your fund and the profile of its members. CCASA can also help to advise you on SMSF compliance.

This information is general in nature and we recommend that you seek legal and/or accounting advice to make the best decisions for your business.

 

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How the 2017 Superannuation Changes Can Affect Your Superannuation Plan

In 2017, superannuation changes were legislated which particularly affect first home buyers and retirees. Their combined intent is to make property more affordable and free up supply. For many, that’s a great outcome! But for individuals and small businesses, these changes may affect your overall wealth planning considerations – so it’s vital to get across the detail.

The 2017 superannuation changes broaden the base of people who can use superannuation as an effective vehicle. It’s long been recommended for retirement planning, and the downsizer contribution strengthens that utility. Now, young people starting out are also encouraged to consider superannuation contributions as part of their overall wealth management strategy.

The changes to superannuation come into effect on 1 July 2018, but understanding them now will help you and your clients position yourselves ahead of the new financial year.

So, let’s take a closer look at how the changes will impact first home buyers and downsizers.

First Home Super Saver Scheme (FHSS)

The FHSS is designed to help potential first home buyers accumulate savings in a concessional tax environment. Eligible first home buyers can make voluntary contributions into their superannuation fund for the purpose of saving for a first home.

Who is eligible?

To be eligible, you must:

  • have not previously owned property in Australia, including investment or commercial properties
  • have not previously released FHSS funds
  • either live or intend to live in the premises you are buying as soon as practicable
  • intend to live in the property for at least six months of the first 12 months you own it

FHSS funds may only be used for residential property that is capable of being lived in, which excludes vacant land. Unfortunately, houseboat and motor home purchases are ineligible.

How do I access the scheme?

You can begin contributing to the FHSS immediately, but you can’t apply for the release of funds until 1 July 2018. Applicants must be 18 years or over to access the funds, but may make contributions before reaching that age.

You may apply for the release of your FHSS funds up to the following amounts:

  • A maximum of $15,000 from any one financial year
  • A maximum of $30,000 in total across all years

When you make the application, the ATO will determine the gross amount for withdrawal and issue an assessment. If you wish to proceed, you have 60 days to request a release authority. The ATO will estimate the tax payable on the concessional contributions and notional earnings (calculated using the 90-day bank bill plus 3%), withhold the estimated tax and remit the balance to you.

Who will benefit?

The higher the tax bracket, the more beneficial the FHSS will be. An individual on a marginal tax rate of 34.5% who earns an extra $10,000 will only be able to save $6,550 for their own use after paying 34.5% in tax. The same individual who contributes that $10,000 to their superannuation fund as a pre-tax contribution will pay $1,500 in contributions tax and retain the remaining $8,500 for use towards their first home.

Downsizer Contributions

For retirees wanting to downsize, the 2017 superannuation changes now allow individuals over 65 who sell their principal residence to contribute up to $300,000 each from the sale proceeds into superannuation.

Who is eligible?

The triggering event that creates the ability to contribute is the sale of the principal residence. To be eligible, the residence must:

  • be located in Australia
  • be exempt or partially exempt from CGT as a principal residence
  • be a unit or house with up to two hectares of land, but not a houseboat or mobile home
  • have been owned by at least one of the contributors for at least 10 years

You must be 65 or over to be eligible and the contract for sale must be signed on or after 1 July 2018.

You may only make downsizing contributions on the sale of one home in your lifetime.

What’s the process?

You must make the contribution within 90 days of the receipt of sale proceeds. Contributions can be the lesser of $300,000 per individual, $600,000 per couple, or the total sale proceeds.

A couple can choose to contribute in unequal amounts providing neither exceeds $300,000. For example, on the sale of a house for $400,000 a couple may contribute $150,000 and $250,000 respectively, but not $50,000 and $350,000.

The contribution must be made using the approved downsizer contribution form, which will shortly be available from the ATO. You should check with your super fund or financial advisor to make sure your plan can accept a downsize contribution.

Who will benefit?

The downsizer contributions will help older Australians who have built up a lot of equity in their homes and want to use it for a comfortable retirement.

Individuals do not need to meet the work test, and the contributions do not count towards the non-concessional contribution cap. It does, however, count towards the total super balance and balance cap, currently set at $1.6 million. Be aware that making a downsizer contribution will affect eligibility for the Age Pension, as the contribution moves money from an exempt asset to a non-exempt asset.

There are other things to consider too, as every person’s financial situation is different. Feel free to get in touch with CCASA for advice on how these changes might affect your superannuation plan.

We recommend you seek legal and/or accounting clarification on the best financial options for you and your clients.

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What Do the Latest Superannuation Updates Mean for You and Your Clients?

The most significant changes to superannuation for the last 10 years in Australia are now law. The changes, announced in the May 2016 Budget, were modified in September 2016 and have finally been set out in legislation. We know how important it is to be on top of these laws and have been working with our trusted superannuation advisors over at Bluerock to make sure we can help you navigate the changes effectively.

So, how will the new superannuation legislation in Australia affect you?

Among other things, the changes will determine how you:

  • can contribute to your super
  • create considerations for the management of large capital gains made on investment assets
  • create new estate planning considerations
  • limit the tax concessions available when you get a pension from your fund.

Is superannuation still part of a viable retirement plan?

The team at BlueRock remains confident with the longer-term outlook for one of the best retirement schemes in the world, and while the changes applied are the most significant since 2007, the actual impact of these changes does not undermine the effectiveness of superannuation as a retirement planning and funding vehicle.

How do you maintain superannuation compliance?

Make sure you get advice from experienced superannuation experts. It will save you time and money, and minimise your risk in the future!

The changes took effect on 1 July 2017, and so we recommend you get in touch with a superannuation professional, such as the expert advisory team at BlueRock, for advice on the best approach for your individual situation as soon as you can. We can then help you out with all the documents you need to maintain superannuation compliance and offer further advice when needed.

In light of the recent changes, BlueRock has bolstered their internal superannuation capabilities via the addition of George Karavias as Head of Superannuation. George joins BlueRock with a strong background in superannuation accounting and compliance, with experience at some of Melbourne’s leading advisory firms. He’s also a great guy! Working alongside the BlueRock Accounting and Private Wealth teams, George can assist you with the administration and compliance of your SMSF, while providing technical competency and strategic support from the wider BlueRock advisory group.

In addition to the changes made to superannuation this year, the landscape in which superannuation advice is provided has also significantly changed. From 1 July 2016, all advice regarding superannuation needs to be formulated and documented in a particular manner. This will impact on how BlueRock and CCASA deliver advice to you going forward.

Feel free to get in touch with the team at CCASA to find out what it’s all about.

And rest assured that we have updated the superannuation funds package in our online platform CCASA Docs to reflect the new superannuation legislation. By working with highly qualified lawyers and advisors, we make sure the compliance services you get from CCASA achieve the best results with the minimum risk.

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