Latest Legal Blogs : wills and estates
Joint Ownership of Property and SMSFs
Purchasing a property in a self managed superannuation fund (SMSF) can be a very attractive option for a number of reasons. But what happens if your SMSF does not have enough funds to purchase a property outright? Navigating the rules of the Superannuation Industry (Supervision) Act 1993 (SIS Act) can become a minefield when purchasing a property in an SMSF. Breaching the rules can have unintended consequences and bring about hefty penalties, or worse, a prison sentence. Before you commit to purchasing a property in your SMSF, you should remember these things:- Can I purchase the property in my SMSF jointly with another party? The short answer is yes, however joint acquisitions of property must be done on an arm’s length basis. The following are potential co-owners:- Individual This person might be you or another third party such as a friend that has enough cash to fund the purchase. With another SMSF Two SMSFs can purchase a property together a property as tenants in common. What share in the land is up to the SMSFs. Any rent as well as costs and expenses are then applied according to these percentages. Unit Trust Commonly, a unit trust would acquire the property and the SMSFs would acquire units in the trust. If your SMSF is purchasing a property jointly with another individual or SMSF, you it is advisable to enter into an agreement that records the arms’ length nature of the relationship and includes terms about what happens if one party wants to sell or buy the party’s share or if a Trustee dies or if an SMSF is wound up. Can I purchase the joint owners’ share in the future? Let’s say for example, Fund A runs a mechanic business and purchases a commercial property as tenants in common in equal shares with SMSF, Fund B. The members are related. Generally, section 66 of the SIS Act prevents an SMSF acquiring an asset from a related party of the fund. An exception to this is the Business Real Property Rule (BRP Rule). The SMSFs should enter into a Lease with Fund A’s business to comply with the BRP Rule which will allow Fund A to purchase their parents half of the property in the future. Keep in mind that if for example the property is a residential property then future acquisitions (from related parties) is prohibited. What other options does my SMSF have where it doesn’t have enough cash to buy something? The SIS Act prohibits SMSFs borrowing (except in very limited circumstances). The SIS Act also allows Limited Recourse Borrowing Arrangements which involve the SMSF trustee taking out a loan from a third party lender. The trustee then uses those funds to purchase a single asset to be held in a separate trust. As the name suggests, if the SMSF defaults the lender's rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF (the intention being to preserve retirement benefits for their retirement). LRBAs are not for everyone and we strongly recommend that you obtain advice before entering into one given there are a number of complexities. It is also important to ensure that trustees and advisors understand the correct timing and procedures for implementing one. You should obtain specific advice on the Duty and Land Tax implications with respect to the structure of the borrowing and all transactions contemplated by it. You should also ensure that you have obtained advice of the taxation implications of the arrangement as these can have significant consequences for taxes such as stamp duty, CGT and GST. Before you do anything you should ensure you have letter of offer from a financial institution before you go to the expense of setting up the necessary structures. The big four banks to do not lend to SMSFs. If you cannot find a lender it is possible for related party to obtain a loan and then in turn act as non-recourse lender to the SMSF trustee. The commercial terms must be arms-length terms. The ATO has publishes annually “safe harbour” guidelines to make things clearer. Importantly LRBAs that do not meet the safe harbour terms fully will not automatically be deemed to be dealing on non arm’s length terms. Rather the onus will shift to the trustee to demonstrate that those LRBA terms were entered into and consistent with an arm’s length dealing. If you require any assistance in implementing an LRBA or co-ownership arrangement please contact us.
Is Your SMSF Ready For The End Of The Financial Year (EOFY)?
With the end of the financial year fast approaching, now is the perfect time to make some final checks and ensure everything is in order for your SMSF before 30 June. The following are some matters that you might want to know more about, particularly if you have taken advantage of some of the COVID-19 relief measures. If there is anything in this paper that you are unsure about, we encourage you to contact me to discuss your specific circumstances in more detail. Contributions From 1 July 2020, if you were under the age of 67 you were able to make voluntary contributions without meeting a work test. This was previously restricted to people below age 65. In addition, if 2020-21 is the first year that you no longer satisfied with the work test, you may still be able to make voluntary contributions under the work test exemption if you had a total superannuation balance (TSB) of less than $300,000 on 30 June 2020. Therefore, it is important to review your contribution strategies before 30 June 2021, to make sure you maximise your contribution opportunities whilst ensuring you are below your contribution caps. Non-concessional (after-tax) contributions are limited to $100,000 for the 2021 financial year and only available if your TSB was less than $1.6m on 30 June 2020. If you were under 65 at any time during the 2020-21 financial year, you can potentially contribute up to three times the non-concessional cap (or $300 000) at once. The maximum bring forward non-concessional contribution amount you can make will depend on your TSB on 30 June 2020. Please note that draft legislation to allow older individuals to make up to three years of non-concessional superannuation contributions under the bring-forward rules, has yet to be passed. Concessional (before-tax) contributions are limited to $25,000 for the 2021 year. You may also be eligible, subject to your TSB, to make larger concessional contributions if you have any unused concessional contribution cap from the 2019 financial year onwards. Where you have made personal contributions and intend to claim a tax deduction in 2020-21, it is important that you reconcile all employer contributions and salary sacrificed amounts to superannuation to make sure you do not breach the annual concessional contributions cap. It is also important to ensure that the relevant notice requirements are met so that you can claim a deduction. These annual limits will increase on 1 July 2021 to $110,000 for non-concessional contributions and $27,500 for concessional contributions. The Government also announced in the latest Federal Budget that the work test will be removed altogether to allow voluntary non-concessional contributions and salary sacrificed contributions to be made up to the age of 75. If passed, these changes are expected to be available from 1 July 2022. Investments & COVID Relief Measures SMSF trustees are required to value the fund’s assets at their market value as at 30 June each year in the annual financial accounts. Although it can be a straightforward process to value assets when it comes to term deposits or listed shares and managed funds, it can be quite difficult to ascertain the value of real estate or private companies and units trusts. When valuing SMSF assets, you must comply with the ATO valuation guidelines for SMSFs. Contact us if you have any questions or require assistance. For the 2020-21 financial year, getting the value of the fund’s assets correct is important in assessing the impact of COVID-19 on your superannuation benefits. It is even more important for SMSFs relying of the ATO’s in-house asset COVID-19 relief. These SMSFs will have till 30 June 2022 to ensure that in-house asset levels are reduced to less than the allowable 5% limit. For those SMSFs that took advantage of the property relief measures the ATO implemented to reduce rent in 2020-21, any form of rental relief must end by 30 June 2021. From 1 July 2021, COVID-19 will not be a valid reason for any rental relief and SMSF trustees will need to ensure that all rent is at an arm’s length rate. For those SMSFs with a limited recourse borrowing arrangement (LRBA), there are additional considerations. Where your SMSF was provided with COVID-19 loan repayment relief to assist in meeting loan repayment obligations, this relief should cease by 30 June 2021. From 1 July 2021, any LRBA should revert to the original terms of the loan to ensure that the arm’s length requirements continue to be met. Where the COVID-19 loan relief has resulted in a variation to the original term of the LRBA, provided that interest continues to accrue on the loan and you repay any deferred principal and interest repayments in accordance with the varied terms, the LRBA will be considered to be consistent with an arm’s length dealing. Meeting new pension requirements To help manage the economic impact of COVID-19, the Government reduced the minimum drawdown requirements by half on account-based pensions and market-linked pensions for 2020-21. The Government recently announced the 50% reduced minimum pension drawdown requirements will be extended for 2021-22. Whether or not you have taken advantage of this reduction, it is important that you reconcile all pension payments received to ensure you do not underpay the minimum pension payment required by 30 June 2021. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax-free. All pension withdrawals for 2020-21 must be paid in cash by 30 June 2021 and cannot be accrued or adjusted using a journal entry so it is important to attend to this as soon as possible. For example, if you are making pension payments via an electronic transfer, you need to ensure that online transfers show the money coming out of the fund’s bank account by no later than 30 June. $1.6 million transfer balance cap and total superannuation balance Ensuring that member’s benefits are shown at market value is important in calculating each member’s TSB and in determining whether a member will exceed their transfer balance cap (TBC). The $1.6 million TBC applies to SMSF members who are receiving a pension and limits the amount of tax-free assets that can support a pension. To track the relevant events against your personal TBC, SMSFs are required to lodge with the ATO a transfer balance account report (TBAR). The TBAR is separate to an SMSF’s annual return and TBAR lodgment obligations, depend on members’ TSBs. With the general TBC set to index to $1.7million on 1 July 2021 it is more important than ever to ensure that all your TBAR lodgments are up to date and that you seek help incorrectly calculating your entitlement to any proportional indexation of the TBC. How can we help? If you have any questions, require assistance, or would like further clarification with any aspect of your end-of-year superannuation matters, please feel free to give me a call to arrange a time to meet and discuss your particular requirements in more detail.
Superannuation Death Benefit Limitations
If you are an SMSF trustee, you need to take special care when paying death benefits as you are responsible for ensuring that the payment rules are met. Strict rules apply, affecting who can receive a death benefit, the form in which the death benefit can be paid and the timing of such a payment. Firstly, death benefits can only be paid either to dependants of the deceased member or the estate of the deceased. Second, the law limits the group of dependants who are eligible to receive a pension on the death of the deceased member. Finally, trustees must pay a death benefit as soon as possible after the death of the member. Additionally, each death benefit interest can only be paid to each dependant as either: a maximum of two lump sums (an interim and final lump sum), or a pension or pensions in retirement phase, or a combination of both. It is the limit of a maximum of two death benefit lump sums per dependant that trustees need to keep track of to ensure that the cashing rules are not inadvertently breached, especially where the death benefit is being paid as a pension. Given the account-based nature of death benefit pensions that can be paid by an SMSF trustee, an SMSF member is generally afforded the flexibility to nominate to convert a death benefit pension into a lump sum payment. This process is generally referred to as the commutation of a pension although may be subject to specific restrictions found in a trust deed. A partial commutation is where the beneficiary requests to withdraw a lump sum amount less than their total pension entitlement, allowing their death benefit pension to continue. This is common where members withdraw their required minimum drawdown as a pension with any additional income needs met by accessing multiple lump sums from their pension account. This strategy allows the death benefit pension to continue without breaching the superannuation death benefit rules, despite payments in excess of the maximum two lump sum limit. A full commutation will result in the death benefit pension ceasing at the time the member decides to withdraw their entire pension entitlement as a lump sum. Despite the number of lump-sum death benefits previously received, the law allows the beneficiary to roll over the lump sum resulting from a full commutation to another superannuation fund for immediate cashing as a new death benefit pension. However, where a lump sum resulting from the full commutation of a death benefit pension is paid out of the superannuation system, further clarity is being sought from the ATO to ascertain whether or not this will be treated as an additional lump-sum death benefit that would count towards the maximum two lump sum cashing limit. Until further clarity is provided by the ATO, caution needs to be exercised before a death benefit pension is fully commuted and paid to the dependant, especially where the dependant has previously received a lump sum death benefit. As an SMSF trustee, you need to be aware of the restrictions placed on the payment of death benefits to eligible dependants of a deceased member. Trustees who ignore these limitations risk breaching superannuation standards and potentially being liable to be fined by the Regulator. How can we help? If you need assistance with the payment of a death benefit from your SMSF, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
A Trust, the Family Court and sound Estate Planning advice
When considering your estate plan, you will often want protection over your hard earned assets. The creation of a testamentary trust in a will can provide taxation benefits and asset protection. Under this type of (very simple) structure, the ultimate control and legal ownership of the estate assets is held with the trustee. This means that the beneficiaries do not legally own the assets of the trust; they merely have a right to be considered in the distribution of the income or capital of the trust. Protection is afforded against bankruptcy and relationship breakdowns. In the recent case of Bernard & Bernard [2019] FamCA 421 (‘Bernard’) the Family Court considered whether assets held in a testamentary trust should be considered matrimonial property and available for distribution despite the marriage breakdown and divorce proceedings. Generally, the Family Court will consider a number of factors when determining a property division such as:- What assets form part of the ‘property pool’; What assets are held individually or jointly; Whether there are any business assets; Any inheritances received; Superannuation; and Any assets held in trust structures. The Facts of Bernard This case involved proceedings for a property division under section 79 of the Family Law Act following their separation. The Wife argued that as a beneficiary under a testamentary trust her husband had an interest in the property belonging to the trust and that the Court should have included the assets of the trust in the property pool. The Husband argued that the assets of the trust should not be included in the property pool as he was not a trustee and did not have any control over the assets or income of the trust. The facts of the Bernard case were as follows:- The Husband and Wife married in 1998 and separated in 2015 and eventually divorced in 2017. The Husband’s father made a will in 2012 which created a discretionary testamentary trust for the Husband (the Mr Bernard Family Trust) and one for his sister (the Ms C Bernard Family Trust). The Husband’s father passed away this same year. The Husband’s father’s estate was worth approximately $3.5mil and comprised of bank accounts, shares and commercial and residential property. The father’s will created two testamentary trusts, one for each of his children. The Husband was the trustee for his sister’s trust and his sister was the trustee of his trust and they were the primary beneficiaries of each other’s trusts. In December 2012, the Mr Bernard Trust and the Ms C Bernard Trust conducted business together in partnership for profit through the Bernard Family Will Trust partnership (‘the Q Partnership’). The Q Partnership owned all of the shares of the deceased. Mr Bernard and Ms C did not own any of the deceased’s shares in their personal capacity. The Wife argued that the testamentary trusts created by the deceased’s will were ‘mirror trusts’ and that the assets of the Husband’s trust were his and the assets of the sisters trust were hers. The wife argued that a distribution of the income generated by the Q Partnership had not been distributed for the financial year and that an application could be made that the income must be set aside for the benefit of the primary beneficiary i.e. her former husband which therefore becomes a part of the property pool. The Husband and his sister as trustees made a resolution to deal with the income of the trusts into the future. It was resolved that renovations would need to be completed to the deceased’s commercial property, the V Company would be appointed to carry out those renovations, that the trust would need to keep funds for the renovations and that the trust will need to ‘hold all distributions to beneficiaries, other than the distributions to cover income tax instalments generated by the trust, until completion of the renovations’. The Husband and his sister (who was joined to the proceedings as a second respondent) argued that the resolution made was an enduring resolution and that the undistributed accumulated income was being held for the specified use, namely the renovations to be carried out on the deceased’s commercial property. The Decision The Court ultimately held that the Husband’s testamentary trust should not be included in the property pool. Why? Upon construction of the Trust Deeds, Justice Henderson found the Husband was not the settlor or the trustee of his trust, rather he depended on his sister (the trustee of his trust) to accumulate and exercise her discretion to distribute income of the trust. The Court also found that Mr Bernard and his sister did not purport to exercise control over the assets in their trusts. The Husband was deemed to be a discretionary beneficiary and did not hold any other entitlement and the assets were never matrimonial property as the assets were not acquired during the marriage. This differed to the case of Kennon v Spry were the Court found the husband as the settlor and trustee of the family trust had control over the assets (which were considered assets of the marriage) of the trust. The trusts in the will of the deceased created an obligation for the Husband to act as his sister’s trustee and vice versa. Each of them had an obligation and a duty to each other as primary beneficiaries, as well as the other members of that class including the children, grandchildren and great grandchildren of the deceased. An example of a breach of their duties would include if the sister distributed all the assets and income to the husband but failed to consider the other beneficiaries of that trust. What the case of Bernard demonstrates is that the deceased received sound planning advice to provide the ultimate protection of his assets to ensure his beneficiaries would enjoy their benefit of the estate without the assets becoming subject to a property division. Specialised estate planning advice should be obtained for each individual situation to maximise asset protection and minimise risks.
Dying Without A Will and The Intestacy Rules
In Queensland, if you pass away without a Will you are considered to die ‘intestate’. This means someone you might not have wanted as your executor could get to be in charge of your estate and there won’t be a document in place which governs how your assets are to be distributed. Having a valid and up to date Will ensures your assets are distributed to those who you would like to benefit from your estate rather than leave them to the rules imposed by law (which are known as the Intestacy Rules) The Intestacy Rules The rules for dealing with an intestate’s estate are outlined in Part 3 of the Succession Act 1981. The Intestacy Rules govern the distribution of your estate to your next of kin such as your spouse, de facto partner and children or grandchildren. If you are not survived by a spouse or children, then your estate is distributed to your family in the following order:- parents; brothers and sisters; nephews and nieces; grandparents; then uncles, aunts and cousins (no more remote than your first cousins) There are some people who will never benefit from an intestate estate such as your parents-in-law or a step-parent. Grant of Probate v Grant of Letters of Administration An application for a grant of probate is made to the court by an executor appointed by a Will. A grant of probate confirms the validity of a will and that an executor has the authority to deal with the assets of the estate. On the other hand, an application for a grant of letters of administration is made to the court where there is no Will (or where a nominated executor has died or they have renounced i.e. they have decided they do not want to be the executor). Usually, the person with the greatest entitlement to the estate will apply to the court to be granted the formal right to administer. Rule 610 of the Uniform Civil Procedure Rules outlines in descending order of priority, the people who the Court may grant Letters of Administration to which are the deceased’s:- surviving spouse children grandchildren or great-grandchildren parents brothers and sisters children of brothers and sisters grandparents uncles and aunts first cousins anyone else the court may appoint Who gets what? Section 35 of the Act sets out a ‘formula’ of who will benefit from the estate and in what proportions, depending on the circumstances of the intestate. For example, if the intestate is not survived by issue (children) but is survived by one spouse, the spouse is entitled to the whole of the residuary estate. If the intestate is not survived by a spouse, issue or a parent, siblings, nephews and nieces and so forth, then the residuary estate shall be deemed ‘bona vacantia’ and the Crown (i.e. the State of Queensland) will get the lot. This predetermined formula can sometimes prove to be problematic as the intestate’s estate may have to be distributed between more than one surviving spouse or to a relative who did not have much contact with the deceased which may cause significant emotional and financial stress. The Solution? Well that’s easy! Make a valid will and perhaps a superannuation Binding Death Benefit Nomination to ensure your wishes are carried out and there is certainty for all. If you would like to make a valid will just contact us and we can let you know what we require and how much it will cost.
Estate Planning - What is it and why is it so important?
Estate Planning – What is it and why is it so important? The term Estate Planning may be recognized, by some, as just the involvement of a well-documented Will which outlines the wishes of a person after they pass away. However, we can all recognize that life changes, whether planned or unplanned and whilst having a Will is a key element in Estate Planning, there are more elements to consider that become a part of your Estate Plan. No matter what circumstances or what stage of life you are currently in, it is important to organize and maintain an Estate Plan. What is Estate Planning? Estate planning involves more than just a well drafted and carefully considered Will. Estate Planning can be viewed as a “holistic plan” that aims to review the structure of your personal and financial affairs to ensure that you are looked after during your lifetime and that upon your death your assets will be manages and transferred in accordance with your wishes, in the most financially efficient and tax-effective way to the right people. There are a number of elements that need to be considered when organizing your Estate Plan. Such matters to be considered include:- determining if there are sufficient assets in your plan that will meet your wishes. outlining the appropriate transfer of ownership, control, of assets and ensuring that they pass onto the appropriate person or entity; and that the relevant ownership or control passes to the beneficiary at the right time. Depending upon your circumstances and intentions, Estate Planning, involves a consideration (and possible changes to) documents such as Trust Deeds, Power of Attorneys, Shareholder Agreements as well as Wills to ensure that your intended beneficiaries actually benefit from your Estate upon your death. That being said, having an Estate Plan needs to be revised from time to time depending upon changes to your circumstances. Why is having an Estate Plan so important? Estate Planning is considered to be one of the most important things you can do for yourself as well as for your loved ones. Having an Estate Plan is designed to ensure that your affairs will be handled in accordance with your wishes when you pass, allowing you to have that peace of mind that your loved ones will be looked after and your wishes respected. Having a comprehensive Estate Plan allows you to:- ensure your children are looked after and are protected from creditors or future relationships breakdowns; ensure certain consideration are in place, such as tax implications, that may affect your estate; and ensure the legacy of your assets, such as ownership of multiple properties, companies or trusts are dealt with accordingly in line with your wishes. If you wish to talk to one of our lawyers about your Estate Plan please give our office a call to arrange an appointment. It is never too early and never to late to have your affairs in order.
Your 2020 End of Financial year (EOFY) Considerations.
The COVID-19 pandemic has affected everyone’s lives, and SMSF trustees are no exception. While the worst of the pandemic is (hopefully) behind us, trustees still have difficult questions to ponder as they focus on how best to position their SMSF in 2020-21, as well as meet their annual regulatory obligations for 2019-20. If there is anything in this paper that you are unsure about, we encourage you to contact us to discuss your specific circumstances in more detail. Meeting new pension requirements To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for these two financial years. This includes ensuring that the minimum pension has been paid for this financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free. Where you have been receiving regular pension payments, it’s likely you may have received more than the required minimum payment for this year. Unless you meet contribution eligibility rules, these funds cannot be returned. It is also important to amend your pension strategies for 2020-21 to reflect the “new” minimum pension standards. Specialist SMSF advice should be sought to help you determine the most effective way to structure benefit payments, please get in contact with me to discuss this further. Contribution changes Before 30 June, you should review your contribution strategies to ensure you have contributed what you intended to and ensure you are below the contribution caps. Non-concessional (after-tax) contributions are limited to $100,000 for the 2019 financial year and concessional (before-tax) contributions are limited to $25,000. These will remain the same for 2020-21. However, SMSF trustees should be aware of the legislation that is slated to pass before the end of the financial year. If passed it will allow people aged between 65 and 66 to make voluntary contributions (previously restricted to people below 65) without meeting a work test. These older individuals will also be able to make up to three years of non-concessional superannuation contributions under the bring-forward rule, so it will pay to get advice in order to maximise their contributions. Investment strategy and property assessment Your fund’s investment strategy is a key consideration on the cusp of 2020-21. It is important to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor. Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine the impact it will have on the overall portfolio to ensure you are investing in line with your strategy. For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations. Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19, meaning less income. All efforts should be focussed on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO have implemented and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and next financial year. $1.6 million transfer balance cap and total superannuation balance A delayed lodgement date of 30 June 2020 is in place for all SMSF trustees as the sector navigates the COVID-19 pandemic. It is important that you, as an SMSF trustee, understand the position of your SMSF at 30 June before taking any actions which could cause you to breach superannuation laws. The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Ensure you are aware of the consequences of excess transfer balances and avoid exceeding the cap. Different total superannuation balance thresholds exist for SMSF. Ensure you are across your fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting. How can we help? If you need assistance when making decisions about your fund before the end of the 2020 financial year, please feel free to give me a call so that we can discuss in more detail.
Unpaid Super: How to Claim Back What is Rightfully Yours
The Superannuation Guarantee Scheme was introduced in 1992 with a mandatory 3 percent contribution rate which required employers to make a contribution to a superfund on the employee’s behalf. However, some employers may underpay or even fail to pay super contributions to an employee’s fund. There are a number of reasons your employer may not be paying adequate contributions to your fund, they may believe they are not responsible for the payments or they may be simply avoiding their obligations. Generally, if you are paid $450.00 or more before tax in a calendar month, your employer is required to pay super on top of your wages. The minimum an employer must pay is called the Super Guarantee (SG). The SG:- is currently 9.5% of an employee’s ordinary time earnings; must be paid at least four times a year by the quarterly due dates; super must be paid and reported electronically in standard format; super must be paid into a complying super fund; and if an employer does not pay the SG on time, they are required to pay the super guarantee charge (SGC). If you think your employer has underpaid or failed to make super contributions, there are steps you can take steps to recover unpaid super from your employer. Ensure you are entitled to be paid super There are a number of ways you can check whether you are entitled to be paid super by your employer. You can:- Talk to your employer and ask how much they’ve paid and which fund they have paid it into (you should also be able to check this on your payslips); If you have a myGov account, you can use the ATO online service to view any super contributions that have been paid into your nominated super fund; or You can check your member statement from your super fund. If you’re not sure, you can use the Australian Taxation Office (AT0) online tool to determine whether you are entitled to paid super (https://www.ato.gov.au/calculators-and-tools/am-i-entitled-to-super/). Reporting your employer and the investigation process If your own enquiries confirm that your employer has not made adequate contributions or has failed to pay your super, you can let the ATO know your employer hasn’t met their super guarantee obligation by using the online reporting tool (https://www.ato.gov.au/calculators-and-tools/report-unpaid-super-contributions-from-my-employer/). You will also need to provide the ATO with your personal details (including your tax file number), the period of your enquiry and your employer’s details (including their ABN). Once your enquiry is lodged, the ATO will commence an investigation into your employer and will keep you updated about the progress of the case by letter or email. Making them pay If the ATO investigates your employer and then ultimately finds your employer has not paid your super, the ATO will send an assessment letter to your employer which states how much they owe to you and when payment was due. If your employer is a company and is placed into external administration or liquidation, there are some cases where the ATO can pursue a director personally for any unpaid super guarantee contributions by issuing a Director Penalty Notice. The ATO will then need to advise you when an administrator or liquidator was appointed and it will be the responsibility of the liquidator to advise if there are sufficient funds to meet your employer’s unpaid SG. Be wary of the time limits Generally, the ATO will not pursue unpaid super enquiries where the complaint is for a period that ended five (5) years ago (e.g. you make a claim for unpaid super for the 2010/11 financial year). If your enquiry is outside of the five year period, the ATO will require original payment summaries or income statements received from your employer for the years in question and any copies of super fund statements for the enquiry period, plus a further six (6) months. To further support your claim, the ATO may also ask you to provide payslips issued by your employer. If you are outside of the time limit and you provide these documents, there is no guarantee your enquiry can be progressed due to the timeframe of the enquiry. If you think your employer has not paid your super, contact the team at Connolly Suthers who can assist you in making a claim.
Rural Business Succession and Dealings with Partnership Property
A Swollen River of Laws Lawyers, Accountants, Rural Business Succession Planners and the like should always take special care when dealing with the sale or gift of enormously valuable grazing and cane farm properties. The lure of not having to pay hundreds of thousands of dollars in transfer duty on the transfer of a farm to a defined relative (under s105 of the Duties Act - the Family Business Concession) motivates many to dive in and start transferring property without considering the complex and swollen river of federal and state revenue laws they have just dived into. The title to land More often than not the land is owned by a partnership and not the owner recorded on the title to the land. Most lay people find this concept difficult to understand let alone believe. I often get looked at strangely but particularly so when I tell someone they do not (personally or individually) really own their farms and what they really own is a non-specific interest in the partnership (which in turn owns land, stock, crop and plant and equipment etc). Partnership property must be held exclusively for the purposes of the partnership. The owner/s shown on the title to the land hold the land on a distinct and separate trust for the partnership. The partners (i.e. the beneficiaries) have special and unique rights under that trust relationship, being their partnership interest. At any point in time that interest will be different (as the values of assets and liabilities fluctuate constantly). The interest of a partner depends on the partnership agreement and the precise time and purpose for which the question is asked. It is also affected by capital and loan accounts recorded in the partnership balance sheet. Before completion of a winding-up, no partner has any specific, fixed or ascertained equitable proprietary interest in any specific asset of the partnership. This body of law was discussed at length by the High Court in a decision published in March 2020 Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7. A 4-1 majority of the High Court confirmed the line of case authority that a partner's interest in a partnership constitutes an equitable chose in action, that is a right to receive a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership. A partner also has a beneficial interest in the totality of the underlying partnership assets but that interest can only be ascertained when the winding-up has been completed and until then it is a non-specific interest. What should you do? Look before you leap. Before diving into any river you should check what is beneath the surface. A confirmation, acknowledgement or agreement by the partners as to how the partnership assets are held may change the nature of the partners’ rights and a change in partners’ rights may be a dutiable transaction under the Duties Act. Pretending land recorded in partnership financial statements for decades is not an asset of the partnership doesn’t work either. Even though a lot of care may be taken in documenting and labeling an arrangement in a certain way (i.e. dressing mutton up as lamb) courts will look through the packaging and examine and determine the true legal position. The results are often surprising and devastating. If a court is going to undertake this exercise, advisors and their clients should do so as well (well before they dive in the river). The duty assessments in Rojoda were issued in 2014 and the High Court delivered its decision in 2020. Who knows what the legal bills were (the taxpayer was ordered to pay the costs of the Commissioner of State Revenue) but the assessment was still payable 6 years later even after winning in the Western Australia Court of Appeal. Are there any other considerations? Of course there are. The same principles apply when you make a Will. If you make a Will gifting land you own to someone but the land is owned by a partnership (or a family trust or an SMSF) the gift fails. It fails because you do not own the land. It is pure and it is simple. No Will should ever be prepared (or any property transferred) without a review of the partnership balance sheet.
And then came the After..... Is your SMSF adequately diversified?
SMSF trustees need to truly understand diversification and better diversify their portfolios. This is particularly so when along comes something like Covid-19 and then, the inevitable economic recession or once in a life time depression. The benefits of a well-diversified portfolio are numerous but the key ones that SMSF trustees should focus on are the benefits of mitigating volatility and short-term downside investment risks, preserving capital and the long-run benefits of higher overall returns. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSFs can better position themselves for a secure retirement. However, did you know that 82% of SMSF trustees believe that diversification is important but in practice many do not achieve it? This is because half the SMSF population cite barriers to achieving diversification. The top being that it is not a primary goal for SMSF trustees, and they believe they have a lack of funds to implement it. Furthermore, 36% of SMSF trustees say they have made a significant (10%) asset allocation change to their SMSF over the last 12 months. This demonstrates that SMSFs may not be actively restructuring their portfolio on an annual basis to respond to changing market conditions. Another clear problem regarding diversification is the amount of SMSFs with half or more of their SMSF invested in a single investment. SMSF trustees say they primarily invest in shares to achieve diversification in their SMSF, while just a quarter say they invest in at least four asset classes to achieve this. The bias and significant allocation to domestic SMSF equities conversely may highlight the fact that SMSFs are not adequately diversified, especially across international markets and other asset classes. So what can you do? Some of the steps you, with the help of an SMSF Specialist, can take to diversify your retirement savings and control your investments in a disciplined and planned way include: Ensuring there is a clear and demonstrable retirement purposes in the choices you make. Ensuring you have an investment objective and a strategy to achieve that objective in place. Reviewing your portfolio and assessing it against the objectives you have set as often as you feel is necessary. Minimising concentration to any one asset class. Ensuring your Australian share portfolio is sufficiently diversified. Considering the benefits of geographic diversification. Ensuring your cash allocation is appropriate. Considering the benefits of exchange-traded funds, listed investment companies and other digital investment platforms that allow low-cost access to different markets. Always remember to document your actions and decisions, as well as your reasons, and keep them as a record in order to demonstrate that you have satisfied your obligations as a trustee. Given the importance of having an appropriately diversified portfolio and its impacts on quality of life in retirement trustees ought to consider professional assistance in managing this important aspect of an SMSF. How can we help? If you need assistance with diversification with your fund, please feel free to give me a call to arrange a time to meet so that we can discuss your particular circumstances in more detail.
Superannuation death benefit limitations
As an SMSF trustee, you need to take special care when paying death benefits as you are responsible to ensure that the payment rules are met. Strict rules apply, affecting who can receive a death benefit, the form in which the death benefit can be paid and the timing of such a payment. Firstly, death benefits can only be paid either to dependents of the deceased member or the estate of the deceased. Second, the law limits the group of dependents who are eligible to receive a pension on the death of the deceased member. Finally, trustees must pay a death benefit as soon as possible after the death of the member. Additionally, each death benefit interest can only be paid to each dependant as either: a maximum of two lump sums (an interim and final lump sum), or a pension or pensions in retirement phase, or a combination of both.