Collectables – don’t leave it too late!

If your SMSF has investments in collectables or personal-use assets that were acquired before 1 July 2011, time is running out to ensure your SMSF meets the requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR) for these assets.

From 1 July 2011, investments in collectables and personal-use assets have been subject to strict rules under regulation 13.18AA of the SISR.

Assets considered collectables and personal-use assets include things like artwork, jewellery, antiques, vehicles, boats and wine. Investments in such items must be made for genuine retirement purposes and not provide any present-day benefit.

The rules require that:

  • items can’t be leased to or used by a related party
  • items can’t be stored or displayed in a private residence of a related party
  • decisions about storage must be documented and the written record kept
  • items must be insured in the fund’s name within seven days of acquisition.

In addition, if the item is transferred to a related party, a qualified independent valuation is required.

Investments held before 1 July 2011 have until 1 July 2016 to comply with the rules. If your SMSF has such investments, you need to consider your situation carefully and take appropriate action before 1 July 2016.

Action may include reviewing current leasing agreements, making decisions about storage and arranging insurance cover.

If you are considering disposing of these items, they can be transferred to a related party without a qualified independent valuation, but only if the transfer takes place before 1 July 2016 and the transaction is made on arm’s-length terms.

Trustees have had since July 2011 to make arrangements so we expect you will have ensured the requirements are met before the deadline. If this isn’t the case, you need to take steps now as there are penalties for breaking the rules.

The above has been provided for information purposes only. You should not rely solely on this information when making any investment or tax driven decision. Please refer to the ATO website for full details of the article and obtain advice tailored to your individual financial needs and objectives, from a professional adviser authorised to provide personal investment and taxation advice. The ATO copyright disclaimer states: You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Neither the ATO nor the Commonwealth has endorsed us, or any of the services or products we or our affiliates offer.

SMSFs and transition to retirement pension payments

The ATO is aware of a number of articles and external presentations over the last 12 months which identify how a member of a self-managed super fund (SMSF) in receipt of a transition to retirement income stream (TRIS) can maximise access to the low rate cap amount for super lump sum payments.

In certain circumstances a member can elect under regulation 995-1.03 of the Income Tax Assessment Regulations (ITAR) 1997 to treat a TRIS payment that would otherwise be a super income stream benefit for income tax purposes as a super lump sum for those purposes and therefore access the low rate cap. This cap is reduced by any amount to which the low rate cap was previously applied and in 2015–16 is capped at $195,000. The member must make their election before the payment is made from the SMSF.

If a member chooses to make this election for income tax purposes, it is important to recognise that the nature of the payment from the SMSF does not change for the purposes of the super regulatory law.

If the election is made, the complexity surrounding these transactions in conjunction with the special features of a TRIS, give rise to a number of issues that a trustee needs to consider to ensure the SMSF’s compliance with the superannuation regulatory laws and the income tax laws.

In particular, we remind trustees that:

  • It is the nature of a TRIS payment for superannuation regulatory law purposes that is relevant to a trustee’s compliance with the 10% TRIS payment annual limit.
  • If the TRIS payment is not a lump sum for super regulatory law purposes, it cannot be paid by an in-specie asset transfer.
  • Electing for a TRIS payment to be treated as a super lump sum for income tax purposes may affect the amount of the SMSF’s exempt current pension income for an income year and whether particular fund assets are segregated current pension assets.
  • Electing for a TRIS payment to be treated as a superannuation lump sum for income tax purposes will affect which super-related tax offset/s may apply to the payment.

The above has been provided for information purposes only. You should not rely solely on this information when making any investment or tax driven decision. Please refer to the ATO website for full details of the article and obtain advice tailored to your individual financial needs and objectives, from a professional adviser authorised to provide personal investment and taxation advice. The ATO copyright disclaimer states: You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Neither the ATO nor the Commonwealth has endorsed us, or any of the services or products we or our affiliates offer.

Trustees – online and informed

Are you a new SMSF trustee or is it time to update your knowledge? Do you have clients who are interested in setting up an SMSF or are a new trustee? The ATO has a range of webinars and videos to support you.

SMSF webinars

The ATO regularly schedules free SMSF webinars for trustees. The webinars explain the key roles and responsibilities of a trustee, the rules for accepting contributions and managing fund investments, and when you can access your super and how benefits are taxed.

There’s no need to leave your home or office as you can access the webinars via your computer or mobile device. You can submit questions before each webinar and at any time throughout the live session.

Don’t worry if you can’t make it to a live session or if there are no webinar sessions currently scheduled, as the webinar recordings are also available online. See session dates and times of upcoming webinars and recordings on the link below.

Next step:

SMSF videos

You can also get information about SMSFs by viewing the ATO’s SMSF trustee videos. These short animations cover hot topics and key responsibilities for SMSF trustees, providing information that helps you run your fund and meet your obligations. The ATO has 27 videos available covering a range of topics such as investments, contributions, payments and administration. You can learn a lot in just a few minutes.

Next step:

The above has been provided for information purposes only. You should not rely solely on this information when making any investment or tax driven decision. Please refer to the ATO website for full details of the article and obtain advice tailored to your individual financial needs and objectives, from a professional adviser authorised to provide personal investment and taxation advice. The ATO copyright disclaimer states: You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Neither the ATO nor the Commonwealth has endorsed us, or any of the services or products we or our affiliates offer.

Non arm’s length limited recourse borrowing arrangements (LRBAs) – safe harbour guidelines

The ATO’s Practical Compliance Guideline PCG 2016/5 was published recently. PCG 2016/5 sets out the ‘safe harbour’ terms on which SMSF trustees may structure their LRBAs consistent with an arm’s length dealing. That is, for income tax compliance purposes, the Commissioner accepts that an LRBA structured in accordance with the ‘safe harbour’ terms set out in PCG 2016/5 is consistent with an arm’s length dealing and that the non-arm’s length income (NALI) provisions do not apply purely because of the terms of the borrowing arrangement.

For SMSF trustees with LRBAs which do not meet the ‘safe harbour’ terms in PCG 2016/5 they cannot be assured that the Commissioner will accept the arrangement to be consistent with an arm’s length dealing. However, this does not mean that the arrangement is deemed not to be on arm’s length terms. It merely means that there is no certainty provided under the guidelines in the PCG. Trustees will need to be able to otherwise demonstrate that the LRBA was entered into and maintained on terms consistent with an arm’s length dealing, this may include evidence to show that the terms of the particular LRBA replicate the terms of a commercial loan that is available in the same circumstances.

Further information on limited recourse borrowing arrangements is available on the ATO website at Limited recourse borrowing arrangements – questions and answers

The above has been provided for information purposes only. You should not rely solely on this information when making any investment or tax driven decision. Please refer to the ATO website for full details of the article and obtain advice tailored to your individual financial needs and objectives, from a professional adviser authorised to provide personal investment and taxation advice. The ATO copyright disclaimer states: You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Neither the ATO nor the Commonwealth has endorsed us, or any of the services or products we or our affiliates offer.

SMSF TRUSTEE TRENDS

Amid the lacklustre returns and heightened volatility of the ASX 200 over the past 12 months, one would reasonably assume that investors have changed their approach to markets over the period.

A recent survey, conducted by AMP Capital and Investment Trends, confirms that expectation.

The survey showed that a large number of SMSF trustees have “significantly changed” their asset allocation over the past year, in light of poor returns and global macroeconomic issues which have increased volatility levels.

“How large is the number of trustees who have changed”, you ask.

Answer: 46%

At the same time, 30% of trustees are seeking to diversify their portfolio, with many turning to international shares, and more defensive assets such as fixed interest.

It comes as little surprise that falling confidence in the Australian sharemarket is a core driver of the change.

In the past 12 months we have seen both the banks’ and the big miners’ share prices get hammered, stocks which have traditionally been staples of long-term investors’ portfolios.

25% of trustees said in the survey that they view Australian shares negatively, compared to only 11% in 2015.

One might think that given all the worry about returns and volatility, and the inclination to change asset allocations, the amount of time trustees are spending doing research would have increased.

Not so.

Trustees are spending an average of only 3.4 hours per month researching and selecting their SMSF investments, a decline of 8% compared to 2015.

“We’re seeing an increasing number of trustees wanting investment options that improve their fund’s diversification. However, 83 per cent of investors say they face difficulty managing their SMSF, including a lack of time to research and select the right investments,” said AMP Capital’s head of self-directed wealth and SMSF, Tim Keegan.

“Our research found that 61 per cent of trustees are open to seeking professional advice, which has increased from 46 per cent in 2015,” he added.

Release authority payments

Fairer taxation of excess concessional contributions (FTECC) and refund of non-concessional contributions (RENCC)

We have issued release authority statements to SMSFs with members who have made excess contributions. Some SMSFs are not meeting their obligations with the authority to release excess concessional contributions or non-concessional contributions.

You need to pay particular attention to the direction provided in the ATO release authority letter to make sure you’re not incorrectly releasing excess contributions from member accounts directly to individuals directly when the payment should be made to us. If you have made an incorrect payment you will be required to take recovery action to rectify the error.

To help:

  • FTECC-release authority: excess contributions to be paid to us within 7 days of the authority letter issue date and return the completed release authority statement (Nat 71885) to us.
  • RENCC-release authority: excess contributions to be paid to the member within 21 days of the authority letter issue date and the completed release authority statement (Nat 71885) returned to us.

Further information is available on the ATO website at Release authorities

This information has been provided for information purposes only.  You should not rely solely on this information when making any investment or tax driven decision.  Please refer to the ATO website for full details of the article and obtain advice tailored to your individual financial needs and objectives, from a professional adviser authorised to provide personal investment and taxation advice.  The ATO copyright disclaimer states: You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Neither the ATO nor the Commonwealth has endorsed us, or any of the services or products we offer.

Inaction, the worst possible action

The XJO traded with a 52 week high this year of 5996.9 in March 2015, a low of 4918.4 at the end of September 2015. It closed yesterday at 5102, 3.73% above the low. This is a fall of just under 15% off the high, which has seen billions wiped off investor’s portfolios. This can be attributed to the recapitalisation of the big four banks and the commodities rout we’ve seen this year.

The house view since the start of 2015 has been that the banks have had decreasing returns on equity and were overpriced. A great opportunity to exit these names was post the interest rate reduction in February this year, which saw the Commonwealth Bank hit a high of $96.69.

We have been exiting out of the materials sector for the last 18 months, which has proved beneficial for client portfolios.

Major volatility has been seen this year due to the Greece impasse and the volatility on the Shanghai Stock Exchange. Concerns around the slowing growth in China caused Black Monday August 2015, which saw the Dow Jones Fall 1089 points to 15,370.33 as soon as the market opened. Larger cash balances in client portfolios have shielded client portfolios to an extent during this correction.

Portfolios during the GFC lost significant amounts due to the only strategy investors employ is that they will come back and they are holding onto stocks for the 4-5% cash dividends, while they lost 20-30% in market values. Our view is that if there is an avalanche, there is no point being on the mountain.

We will still take positions in companies we feel have significant upside, for example during reporting season. If we believe a company will report well and exceed market expectations, we will take a position. If the company does report well and rallies following the report, we will take the profit during volatile periods and we have had a positive reception from clients in relation to this strategy.

Thus, the worst thing to do during massive volatility is to leave your computer turned off.

Written by Alex Perry, Senior Adviser at Atlantic Pacific Securities (APSEC)

Portfolio health check

Written by ASPEC’s Senior Adviser, Anthony D’Paul

Is your portfolio ugly? We have a model portfolio that turns heads!

Creating a portfolio that looks good in today’s market conditions is an art that takes years of practice. Getting it correct will allow you to attract a lot of attention and you’ll be envied by most. Get it wrong and someone else will bring home the prize.

On Wednesday, the Federal Reserve increased in interest rates in America. What are you going to do to take advantage of this macro event? How committed are you to putting your portfolio in a healthy position?

We have carefully constructed a model portfolio that should help you stand out from the rest of the competition. The benefits of our model portfolio include:

  • diversification;
  • healthy yield potential;
  • general guidelines around percentage allocations within the portfolio;
  • contains a range across large, medium, and small cap stocks;
  • affords you the opportunity to benefit from the upcoming reporting season and the potential increase in interest rates in America; and
  • it tracks the portfolio’s beta relative to the market, and includes stock commentary.
  • For a limited time only we are offering you a free copy of this model portfolio.
    Reporting season is here, why wait, register for your free copy today

    portfolio

    Would you like a complimentary copy of this sample portfolio?
    REGISTER YOUR DETAILS HERE
    http://www.australianstockreport.com.au/portfolio-health-check/

Volatility is opportunity: it’s all about how you look at it.

The ASX/200 started the year at 5,345 and hit a high of 5,996 on 3 March 2015 – if you had sold on this day you would have secured a gain of +10.32%. Contrarily, if you had sold at the low on 29 September 2015 at 4,918 you would have made a loss of -7.98% for the year.If you invested in an ASX200 index linked fund between 2 January 2015 and 2 December 2015, you would be down -3.3% year to date (excluding fees, tax and dividends).

The ASX200 has had a range of 18.3% for the year and depending on how well you managed risk, captured volatility and positioned your portfolio, you are either up, down or flat / down if you continue to hold.

Over the year we have had numerous macroeconomic events that have triggered extreme volatility in different segments of the market, including:

  • sustained slowing of growth in the world’s two largest economies causing oil to tumble into its longest ever bear market (falling for 337 trading days and declining 57.6% leading WPL & STO to -24% & -40% returns)
  • 50% decline in Chinese GDP from 12% in 2010 to 6.9%, leading to falls in commodities such as Iron Ore (-41%), Copper (-56%) and Coal (-25%) and impacting commodity producers such as FMG (-30.58%), BHP (-38.78%) and RIO (-22.91%) since January.

What macroeconomic themes will play out in 2016 and how will you position accordingly to take advantage of them?
Are you aware of the December 15/16 Federal Open Market Committee meeting and the likely impacts on global equity markets and currencies in the near term and how ASX-listed businesses may be impacted? How do you plan on minimising your downside risk? Will you capture the volatility by using short strategies?

Join us for a short webinar at 6.30pm on Tuesday 22nd December, where we’ll answer these questions and more.

Mark Lennox, head trader at HC Securities will explain:

  • How to capture volatility using derivatives
  • How to manage your downside risk with proper capital/risk management strategies
  • How to utilise our advisers decades worth of experience in your own portfolio

REGISTER YOUR DETAILS HERE
http://www.australianstockreport.com.au/webinar-registration/

China – Hard or Soft

 

Two months ago, as Chinese markets fell off a cliff, Australian Stock Report published an article highlighting why the selloff in China should not to be compared to the 1929 crash in America.

In the time that has since passed we’ve learnt a lot more about what is happening in the Chinese economy….and whilst another Great Depression is unlikely, the signs aren’t particularly healthy.

Growth in China’s investment and factory output in August came in below forecasts, a further indication that the world’s second-largest economy is losing steam.

Factory output grew by 6.1% from the year before – below forecasts of 6.4%.

Growth in fixed-asset investment – largely property – slowed to 10.9% for the year-to-date, a 15-year low.

Growing evidence that the world’s economic powerhouse is slowing down has caused major investment market falls of late.

Other indications that the economy is weakening can be seen in falling car sales and lower imports and inflation.

Chinese manufacturers cut prices at their fastest pace in six years, largely on the back of a drop in commodity prices, which have dropped sharply over the past year as demand from China faltered.

25-year low

Last week, the Chinese Premier, Li Keqiang, said China remained on track to meet all its economic targets for this year despite the economic data.

China has already cut interest rates five times since November to encourage lending and spur economic activity, along with other measures to boost growth.

Premier Li pledged that China would take more steps to boost domestic demand and that it would implement more policies designed to lift imports.

China recently revised down its 2014 growth figures from 7.4% to 7.3% – its weakest showing in nearly 25 years.

Meanwhile, the Chinese authorities said they would take new steps towards a more market-based economic system by offering shares in state-owned businesses to private investors.

The move, which they said would help improve corporate governance and asset management, is planned to take place before 2020.

What lies ahead?

When Chinese Premier Li Keqiang sought to reassure business leaders that the world’s second-largest economy can avoid a hard landing, he acknowledged mounting fears of exactly that, and it appears increasingly likely that the adjustment to slower growth will be painful.

Just six months ago Li set a 2015 economic growth target of “around seven percent”, confidently telling lawmakers that the economy was adjusting to a “new normal”.

But he scrambled to reassure a World Economic Forum meeting last week that China was not heading for a disorderly slump which would shake the global economy.

“If there are signs the economy is sliding out of the proper range we have adequate capability to deal with the situation,” he said. “The Chinese economy will not head for a hard landing.”

Still, gloomy perceptions of China are growing and the signs are troubling: a surprise currency devaluation, persistently weak manufacturing, and rising debt defaults, with a share price collapse to boot.

Government meddling in the stock and currency markets, including police investigations, as well as falling back on pump-priming to support the flagging economy, have raised questions about the leadership’s management and commitment to reforms.

It appears that nothing is working for Chinese leaders at the moment. They can slow the rate of descent, but they can’t change the downward direction of their economy.

China’s technocrats are not providing any confidence to the market at the moment and their next steps will be crucial for the global economy.