Can You Manage Yourself?

Happy February everyone!  I don't think "Happy New Year" sounds right anymore now that we are in February ... and where did January go already?

Anyway, year 2012 is in full swing and 2011 is over!  We might have seen Aussie Cadel win the Tour de France in 2011 but it was a forgettable year for investors.  This fact was reinforced with me just last week when my neighbour (one up and one across) called me to ask if he could catch up to discuss setting up a Self-Managed Super Fund.  In case you were wondering, he called because it was 8pm, otherwise it would have been a chat on the front lawn.  His primary reason for wanting to set up a Self-Managed Super Fund ..... Control.

When super fund returns are negative, the urge for control is understandable and perfectly rational.  There are of course, a few things to know about Self-Managed Super Funds before jumping in the deep end. This article by Bina Brown in The Sydney Morning Herald does a good job of explaining what you should consider so I won't say it all again here.

What I do want to say about SMSFs is that the administration costs of having one can vary greatly.  Often these costs are billed on an hourly rate and that means that the final bill can come as a surprise.  We prefer a fixed fee service agreement and if you already have an SMSF or are thinking about one, take this as a suggestion: Speak with your accountant about setting a fee so that you know what you can expect to pay.  As a guide, if you have less than ten investments in your fund and you transact infrequently, you should expect to pay no more than $2000 for the accounting and audit costs combined.  How does this compare to the costs of a personal super fund I hear you ask.  This would be equivalent to having around $350,000 - $400,000 in a personal super fund which means there are no real cost savings to have an SMSF for less than $400,000 but of course, there is that control factor.  If you are disgruntled with your super fund return and you think an SMSF is the answer (just like my neighbour), just make sure you know what you are getting yourself into.... and consider how much your time is worth as well.

P.S.  The Sydney Morning Herald article states "since 2007 that DIY funds could borrow to buy residential property. More recently, the ATO clarified that DIY funds could "value add" and increase the worth of a property through renovation..".   As detailed in our News Update post in December, borrowed funds cannot be used for property improvements in an SMSF but can be used for repairs and maintenance.  An SMSF can however use its own funds (not borrowed funds) for improvements.

Image: Salvatore Vuono / FreeDigitalPhotos.net

News Update

As another year draws to a close, we thought it might be useful to sign off for 2011 with a summary of some key announcements that we can all look forward to in 2012, or not, as the case may be.
The Legislative Amendment Bill to increase Superannuation Guarantee (SG) contributions passed the lower house on 23rd November.  This bill also abolished the upper age limit (currently age 70) applying to SG obligations on employers.  The increases to the SG rate are as follows:

• 1 July 2013 to 30 June 2014  9.25%
• 1 July 2014 to 30 June 2015  9.50%
• Then an increase of 0.50% each financial year
• From 1 July 2019  12.0%
  

The current 25% pension drawdown relief for minimum payments from account-based, allocated and market-linked (term allocated) pensions will continue for the 2012/13 financial year.

The superannuation concessional contribution limit of $50,000 for people aged 50 and over will be halved to $25,000 for 2012/13 under current legislation, though the Government is considering legislative change to retain the current (2011/12) $50,000 limit.  Under 50's will continue with the current $25,000 limit for concessional contributions and this won't be indexed until 2014/15 when it is expected to rise to $30,000.

The maximum government co-contribution will be halved to $500 from 1 July 2012.  People with incomes up to $31,920 will be eligible for the maximum with the amount phasing down for incomes up to $46,920.

The tax concessions available on employment termination payments (ETP), as well as the ability to direct all or part of the payment to a superannuation fund under transitional arrangements, will cease on 30 June 2012.   From 1 July 2012, all ETP's will be taxed at the standard rate with no ability to direct these amounts to superannuation.

The Australian Tax Office (ATO) has recently released a draft ruling (SMSFR 2011/D1) defining key concepts that relate to self managed super funds borrowing to invest. This draft ruling clarifies the meaning of a 'single acquirable asset' and confirms that borrowing can be used for repairs and maintenance on the acquired asset but cannot be used to pay for improvements.

Revised impairment tables have been introduced from 1 January 2012 for the assessment of new claims for the Disability Support Pension (DSP) and for current DSP recipients undergoing a medical review.  As a result of this change, it will be potentially more difficult to gain or retain a DSP from 1 January 2012.financial advice
So that's it from us for 2011 and we'll see you back here early next year.  From everyone here at The Trusted Adviser, we wish you the most wonderful Christmas and prosperous 2012!