The press is full of stories about buying investment properties through your Self Managed Super Fund.

This article seeks to adress some of the common questions and help you decide where to start.

Can i buy a property in my retail super fund?

No, direct property has to be held inside a Self Managed Super Fund or SMSF?

Is the proces complicated?

Not really, it can be quite daunting as there are number of steps you have to go through with unfamiliar terminology such as establishing a Bare Trust, using limited recourse borrowing and having a corporate trustee. But if you employ a professional financial adviser, accountant and mortgage broker they will be able to guide you through the process.

Can i do what i like with the property?

Absolutely not, there are strict rules that govern who you can purchase property from, how you use it and what you do to the property once you have it.

Where do I start?

The first step would be to sit down with a financial adviser to assess whether this strategy might be suitable for you and what the next step would be.

How much do i need?

This really depends on the value of the property, how much your fund wishes to keep in reserve what contributions are coming into the fund and the commitment  the fund has.

Can I borrow to buy property in my Super Fund?

 The Superannuation Industry (Supervision) Act 1993 (SISA) was amended in September 2007 to permit the use of borrowing similar to instalment warrants for any asset that an SMSF could otherwise invest in.

 What are the advantages of buying a property in my superfund?

}   If you buy a property with your super fund and hold the property until after you retire and your super goes into the pension phase, you pay no tax on either the capital gains if you sell or the rent if you continue to hold your investment.

} Before retirement, capital gains and rent earned by your SMSF are taxed at only 15 per cent (if you hold the property for more than a year, this drops to 10 per cent on capital gains).

} Direct control of your super investments and a real understanding of where your money is invested.

}  Diversification in your portfolio.

What are the disadvantages of buying a property in my superfund?

} Disadvantages

} If you borrow to buy property through your super and you’re negatively geared, the tax offset only applies to other income earned within the fund – not your regular income.

} You can’t live in the property and neither can any friends or family members.  

} You can’t renovate a property purchased through a SMSF while it is still under a loan.

} There are thousands of dollars in set-up costs and there are sometimes higher fees involved in getting a loan through your SMSF.

} Running a SMSF is complicated and penalties for getting things wrong are high. However, you can pay a professional to run it for you.

} Shortfalls have to be made up from super contributions (if possible)

 Disclaimer - This email and attached documents contain general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your financial circumstances. You should assess whether the information is appropriate for you and consider talking to your financial or other professional adviser before making an investment decision.

A Critical illness is a major illness such as Cancer, Heart disease, Stroke, Musculoskeletal, Neurological Disorders, etc.

Advancements In Medical Science

In the past a lot of critical illnesses would have resulted in you becoming totally and permanently disabled, however due to advancements in medical science there is a higher chance that you will be able to recover your pre-illness lifestyle. Unfortunately the cost of treating a critical illness is expensive and as it does not result in you becoming totally and permanently disabled the importance for Critical Illness has increased.

Critical Illness Facts

According to the Cancer Council Australia (2011), approximately 114,000 new cases of cancer were diagnosed in Australia, in 2010.

According to the Cancer Council Australia (2011), more than 60% of cancer patients will survive more than five years after diagnosis.

According to the Cancer Council Australia (2011), one in three females and one in two males will be diagnosed with cancer before the age of 85.

According to the Stroke Foundation (2011), two out of every three people that suffer a first time stroke will be alive one year later.

According to the National Stroke Foundation (2012), about 88% of stroke survivors live at home. Most of them live with a disability

According to Bupa Australia (2011), strokes cost Australians approximately $2.14 billion every year.

Common Misconceptions

Many Australians do not establish Critical Illness insurance because they think that their private health or Total and Permanent Disability (TPD) insurance will cover the critical illness, or they do not require the cover as their partner produces the income. Private Health insurance does help with medical treatment and hospital expenses however it will not assist in the cost for some specialist therapies, or ongoing treatment needs. TPD insurance does cover some of the same illnesses as Critical Illness insurance, however due to advancements in medical science less critical illnesses are resulting in you becoming TPD, therefore the importance of Critical Illness insurance has increased to cover your medical expenses and other unexpected costs. To establish Critical Illness insurance you are not required to be working and according to The Cost of Cancer in NSW (2007) Child care and home help provided by a ‘stay-at-home’ spouse could be worth more than $75,000 per year.

What Is Critical Illness Insurance?

Critical Illness cover is a lump sum benefit that is paid to you in the event of a critical illness. Most Insurance companies cover 40-50 listed critical illness events. The lump sum benefit can be used to cover your medical expenses, treatment costs, rehabilitation, lifestyle modifications and/or debt repayments. This will allow you to remove your financial stress and concentrate on your recovery so you can recover your pre-illness lifestyle.

How Can You Obtain Critical Illness Protection?

You can obtain the relevant protection by calling Southern Cross Wealth Management on 0430 506 608. The first appointment will be at our expense and it can be held in our Fremantle or Balcatta office, at your house or office, over the phone, or via Skype.

References

Cancer Council Australia (2011) Facts and Figures http://www.cancer.org.au/Newsmedia/factsfigures.htm viewed 1 May 2012

Cancer Council Australia (2011) Facts and Figures http://www.cancer.org.au/aboutcancer/FactsFigures.htm viewed 22 May 2012

Stroke Foundation (2011) 10 Things You Should Know About Stroke http://www.strokefoundation.com.au/blog/?p=905 viewed 22 May 2012

National Stroke Foundation (2012) Facts, Figures and Statistics http://www.strokefoundation.com.au/facts-figures-and-stats viewed 1 May 2012

Bupa Australia (2011) Key facts about stroke http://www.bupa.com.au/health-and-wellness/health-information/az-health-information/

stroke#Effects viewed 1 May 2012

Cost of Cancer in NSW (April 2007) A report by Access Economics Pty Limited for The Cancer Council NSW

Important Information

This information is of a general nature only and does not take into account a potential policy owner’s objectives, financial situation or needs. Before making a decision based on this content you should assess the appropriateness of this information having regard to your objectives, financial situation or needs or contact Southern Cross Wealth Management on 0430 506 608 to arrange an appointment.

The UK HMRC announced new rules for QROPS on December 6th, in the form of a consultation period which will end on January 31st.

The main proposed changes are:

• The reporting period to HMRC on events will be extended to 10 years of non-residency after the member transfers into QROPS (previously this was five years.)
• Payments by QROPS to be reported to HMRC within 60 days (this used to be a year.)
• No more than 30% of a QROPS to be taken as a lump sum.
• Reporting duties to continue for any scheme that ceases to be a QROPS
• Jurisdictions must apply the same tax exemption on pensions to residents and non-residents

So what are these changes trying to achieve and who are HMRC targeting.

The HMRC are clearly trying to target schemes and jurisdictions that are promoting strategies to rip money out of the pension environment and avoid tax especially for UK domicile persons.

The next area targeted is the New Zealand environment that allowed members to access 100% of the benefits and was potentially open to non New Zealand residents. By changing the rules so that New Zealand transferees had to be NZ residents this closes the loophole that non NZ residents were trying to exploit. New Zealand was the number one recipient of transfers.

The next area targeted is the tax havens such as Guernsey which is the second most popular destination for QROPS funds.

Tim Bush, director of Carey Group explains: “Guernsey Association of Pension Providers has been working in consultation with the Guernsey income tax authorities. A new draft law is being taken to the states of Guernsey and was debated on 7th of March. We’re very confident this will be passed and we’re very confident as a result of that change to the law, Guernsey will continue to be compliant with the requirements to run QROPS moving forward.”
So what about Australia? We believe that Australian residents aiming for legitimate homes for their pension should still be able to make transfers post April 2012. The 10 year reporting rule will prompt some, especially older members to try and get transfers completed before the April deadline. As Australian registered super funds are specifically mentioned in the draft proposals there should not be any extreme measures that would stop Australian funds continuing to be registered as QROPS.

Southern Cross Wealth Management has years of experience putting in place UK pension transfers for our clients. As we have a detailed understanding of the UK pension market and the Australian system we are able to provide comprehensive analysis of both sides of the transaction allowing our clients to make an informed decision whether a transfer is right for them.

We pride ourselves on being able to make a complex and sometimes baffling comparison a simple and easy to understand process.

In recent years we have seen the amount of pension transfers made to Australia reduce, we were finding that this was predominantly due to the strong Australian dollar  which in effect devalued UK pension benefits significantly. We have overcome this by sourcing a UK QROPS provider that allows some or all of the transferred funds to remain in pounds.

This has allowed clients that believe the currency will move in their favor to hedge their bets and keep the funds in pound sterling while still enjoying the benefits of moving the funds into the  Australian tax system.

While clients should be wary of making decisions based on draft legislation if you are considering a UK pension transfer then be aware of the issues and take advice on how they could effect your future plans.

Who is Eligable – the main criteria (althought there are some exceptions) is that you are recieving family tax benefit part A.

Before you claim the Education Tax Refund (ETR) you must first have lodged a claim for FTB Part A for the child with the Family Assistance Office (FAO) and had that claim approved. This includes approved claims where you elected to receive a zero fortnightly rate.

What can you claim?

The rules have changed this year to include school uniforms, footwear and sports clothes. They do not necessarily have to have the school crest either. Click here to get more information on what classes as eligible uniform. You can also claim home computer costs, repairs, USB’s, home internet, and stationary.

The key is to keep all of your reciepts, so if you are not sure keep the reciepts and discuss with your tax adviser the next time you get together.

For more information and full eligibility check out the ETR website by clicking here.

From the man who’s firm PIMCO – the worlds largest bond investor coined the phrase the ‘new normal’ during the GFC – he provides a summary of where we have come from and how it all went wrong. He shows where we are at and more importantly whats in store for 2012.

He and his team seem to have hit the nail on the head so many times over the past 10 years that to ignore him is to do so at your peril!

You can read the full article by clicking here 

For the time poor amongst you i have provided some of the edited highlights.

The Old/New Normal
But before ringing in the New Year with a rather grim foreboding, let me at least describe what financial markets came to know as the “old normal.” It actually began with early 20th century fractional reserve banking, but came into its adulthood in 1971 when the U.S. and the world departed from gold to a debt-based credit foundation. Some called it a dollar standard but it was really a credit standard based on dollars and unlike gold with its scarcity and hard money character, the new credit-based standard had no anchor – dollar or otherwise. All developed economies from 1971 and beyond learned to use credit and the expansion of debt to drive growth and prosperity. Almost all developed and some emerging economies became hooked on credit as a substitution for investment in tangible real things – plant, equipment and an educated labor force. They made paper, not things, so much of it it seems, that they debased it. Interest rates were lowered and assets securitized to the point where they could go no further and in the aftermath of Lehman 2008 markets substituted sovereign for private credit until it appears that that trend can go no further either. Now we are left with zero-bound yields and creditors that trust no one and very few countries. The financial markets are slowly imploding – delevering – because there’s too much paper and too little trust. Goodbye “Old Normal,” standby to redefine “New Normal,” and welcome to 2012’s “paranormal.”

A good example would be the reversal of the money market fund business model where operating expenses make it perpetually unprofitable at current yields. As money market assets then decline, system-wide leverage is reduced even if clients transfer holdings to banks, which themselves reinvest proceeds in Fed reserves as opposed to private market commercial paper. Additionally, at the zero bound, banks no longer aggressively pursue deposits because of the difficulty in profiting from their deployment. It is one thing to pursue deposits that can be reinvested risk-free at a term premium spread – two/three/even five-year Treasuries being good examples. But when those front end Treasuries yield only 20 to 90 basis points, a bank’s expensive infrastructure reduces profit potential. It is no coincidence that tens of thousands of layoffs are occurring in the banking industry, and that branch expansion is reversing industry-wide.

Investment Implications
The critical question of course is whether efforts by the ECB, BOE, and Fed will work. Can they reinvigorate animal spirits in the face of “credit” and “zero bound money” risk? We shall see. An investor however should hedge his/her bets until the outcome becomes more obvious.

Government Departments and Agencies

• Austrade
• Australian Bureau of Statistics
• Australian Office of Financial Management
• Australian Securities & Investments Commission
• Australian Taxation Office
• Centrelink
• Commonwealth of Australia Law
• Commonwealth Treasury
• Department of Education, Science and Training
• Department of Education, Employment and Workplace Relations
• Department of Health and Aging
• HECS-HELP
• National Office for Information Economy
• Department of Immigration and Multicultural Affairs

Exchanges

• Australian Stock Exchange (ASX)
• SFE Corporation (Formerly the Sydney Futures Exchange
• Bendigo Stock Exchange
• Stock Exchange of Newcastle

Insurance Sources

• Insurance Council of Australia
• Insurance Ombudsman Service Ltd
• National Insurance Brokers Association (NIBA)
• Risk Management Institution of Australasia (RMIA)
• General Insurance Enquiries & Complaints Scheme (1300 363 683)

Managed Investments Sources

• Morningstar
• Money Management Magazine
• Vanguard Investments
• Neville Ward Direct
• Macquarie Bank

Superannuation Sources

• AUSfund
• Australian Prudential Regulatory Authority
• Lost Superannuation Money
• NSW Office of State Revenue
• NSW public Trustees
• Selecting Super
• Seniors Information
• Super Ratings
• Victorian State Revenue Office

Media Sources

• Australian Financial Review
• British Broadcasting Commission
• Bloomberg
• CBS Market Watch
• Morningstar
• Rainmaker Group
• Reuters

The money market is a subsection of the larger debt market and is known to be the deepest and most liquid. Within the money market, financial firms and corporates engage in borrowing and lending billions of dollars through short-term loans. These short-term loans can have terms of up to one year. Due to the market’s efficiency and efficacy in transmitting liquidity, it is considered to be an integral part of the larger financial system. As a consequence, stress within this market can often be a precursor for impending market volatility.

Just to recap, the main money market instrument is the bank bill. Every day, the largest and most active banks known as ‘prime banks’ engage in borrowing and lending with each other. A common rate is struck for terms up to one year at 10.00am and again at 4.30pm. The rate agreed is known as the bank bill swap rate (BBSW) and is used as a reference rate by market participants.

The BBSW rate is influenced by the market’s expectation of future cash rate movements, a premium assigned for giving up liquidity and a premium to compensate for counterparty risk. When the market is orderly, the BBSW rate will set at close to the expected future cash rate. However, in times of stress, the margin above the expected cash rate can inflate. This is ultimately driven by banks hoarding cash. Constrained supply and increased demand leads to elevated pricing for liquidity.

Below you will observe the significant repricing of this premium above the expected cash rate prior to the collapse of Lehman Brothers in September 2008. You will also notice that this premium remained elevated for some time before equity market volatility (as measured by the VIX index) spiked well above 30%.

Source: Bloomberg, as at 22 November 2011.

The Aus Itraxx credit default swap spread, an instrument that reflects the margin required to insure the credit risk of twenty five investment grade Australian banks and corporates, also lagged the movement of this premium.

Source: Bloomberg, as at 22 November 2011.

If we observe the comparative margin for the money market in Europe, we can see a significant escalation in stress in their money market, an ominous sign indeed.

Source: Bloomberg, as at 22 November 2011.

Should conditions remain stressed in the money market, we can expect further deterioration in the financial markets and as a consequence, the larger economy. However in saying that, if conditions are to improve, it is likely a recovery would be observed in the money market first.

This document has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial or taxation advice or take into account your objectives, financial or taxation situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. This publication contains information contributed by third parties, PIML does not warranty the accuracy or completeness of any information included in this document which was contributed by a third party. PIML accepts no liability for any loss or damage suffered as a result of reliance on this information.

There are many occasions when clients have stated ‘I don’t need any more insurance!’ or ‘ I pay enough taxes, the government can pay for me if something happens’

 However when I tell them  how much they would get they soon change their response. 

As at March 2011 the payments from Centrelink would be the following;

And

 Workers Compensation Payments as at July 2010 (Workcover WA) would be;

(bearing mind the client is ONLY covered if the accident occurs at work)

Here is an example of the maximum cover one of our insurers could provide,

I am sure if consider if you would CHOOSE to live on $469.70 per fortnight your answer would be  no…

This email and attached documents contain general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your financial circumstances. You should assess whether the information is appropriate for you and consider talking to your financial or other professional adviser before making an investment decision.

Transitional concessional contributions cap
The $50,000 transitional concessional contributions cap for individuals aged 50 years or over is scheduled to expire at 30 June 2012. From this date, the standard concessional contributions cap of $25,000 will apply, unless there is a subsequent change in the law.

The Hon Bill Shorten has previously released a discussion paper on the introduction of a $50,000 cap on contributions for individuals aged 50 years or over with total superannuation balances below $500,000.

 Minister Shorten announced on 29 November 2011 that further consultation was required in response to industry feedback regarding compliance costs. As a result no legislation has been released yet regarding this measure.

 There is no certainty that the concessional contribution cap applying from 1 July 2012 for those aged 50 and older will be any higher than $25,000. As a result, consideration should be given to utilising the full $50,000 concessional contributions cap this financial year, where appropriate

This email and attached documents contain general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your financial circumstances. You should assess whether the information is appropriate for you and consider talking to your financial or other professional adviser before making an investment decision.

Industry Super Funds Versus the rest

There has been a lot of pro-active advertising by the industry fund network promoting the value of their own vehicles versus anything that is offered by a financial adviser. The recent reforms have now politisiced the whole super argument. This article looks to separate the two issues and provide some clarity.

Firstly let me explain that due to our unique place in the market place and ability to operate on a fee for service basis and SCWM are happy to recommend industry super funds where appropriate (and have done on numerous occasions.)

Costs – this is usually the first thing that industry funds like to talk about so let’s look at this first.

Let’s look at Australian Super Fund versus a cheap retail fund.

Australian Super Fund                                             AMP Flexible Super Core Fund

Administration Fee $78 per annum.                         Administration Fee $78 per annum.

$35 per withdrawal.                                                        No withdrawal fee

MER 0.59% for the Balanced Fund.                           MER of 0.65% for the Balanced fund.

Member protection Fee 0.03% (Can Vary)

Either of these funds can then build in adviser fees to cover the cost of any advice received.

Now let’s look at the politics.

AMP is owned by share holders with profits being distributed to the shareholders, board members appointed and governed by shareholders.

Australian super is owned by the Australian Council of Trade Unions (ACTU) and the Australian Industry Group (Ai Group).

The Australian Super Trustee Board is made up of six member representatives, six employer representatives and one independent director, Mr Bernie Fraser. Directors are appointed by the ACTU and the Ai Group.

At 30 June 2010, the Board included representatives from the ACTU, Australian Industry Group, Australian Manufacturing Workers’ Union (AMWU), the Australian Workers Union (AWU) and Australian Liquor, Hospitality and Miscellaneous Workers Union (LHMU).

Retail super funds have a very transparent investment philosophy based on the manager’s returns versus a benchmark.

Australian super has the largest portion of its investments in Industry Funds Management and Industry Super Property Trust are wholly owned subsidiaries of Industry Super Holdings which is owned by the super funds. There is a list of the connections between these companies and the boards of Australian Super.

They also apply the following reserving policy:

A reserve is the part of the Fund’s assets that is not allocated to members’ accounts when interest is credited. Australian Super maintains reserves which maybe funded partly by retaining a small part of investment earnings that would otherwise be allocated to members’ accounts via crediting rates.

Also in light of recent investment performance queries such as MTAA or Uni super it is time that industry funds become more transparent in these areas.

Related party investments and transactions:

At 30 June 2011 the Fund had: a 32.7% (2010: 32.7%) shareholding in Industry Super Holdings Pty Ltd (ISH), valued at $278.1million (2010: $246.3 million). ISH has a number of subsidiary companies, two of which manage investments on behalf of the Fund.

These are Industry Funds Management Pty Ltd (IFM) and Members Equity Bank.

B Fraser is Chair of ISH. D Whiteley is an employee of Industry Fund Services Pty Ltd, which is a subsidiary of ISH.

In 2011 Australian Super paid management fees directly to IFM of $19,452,718

In 2011 Australian Super paid management fees directly to Members Equity Bank Pty Ltd of $1,471,680

•• A notional 11.1% (2010: 11.1%) shareholding in ISPT Pty Ltd, valued at $0 (2010: $0). ISPT is one of Australia’s leading property managers and manages a range of unlisted property funds on behalf of the Fund and other institutional clients.

The following directors of the Fund were directors of ISPT Pty Ltd during the year ended 30 June 2011: E Rubin (resigned 3 November 2010), and B Daley. N Applewas an alternate director of ISPT Pty Ltd. Also, M Delaney was a director of ISPT Pty Ltd during the year ended 30 June 2011. E Rubin (resigned 3 November 2010), B Daley and M Delaney were directors of IGIPT Pty Ltd, a subsidiary of ISPT, during the year ended 30 June 2011. N Apple and I Silk are alternate directors of IGIPT Pty Ltd

In 2011 Australian Super paid management fees directly to ISPT Pty Ltd of $7,586,201

A 28.7% (2010: 28.7%) shareholding in Superpartners Pty Ltd, valued at $52.602 million (2010: $16.151 million) and nil convertible notes (2010: $20.354million). Superpartners provide member administration and custodial services to the Fund and other institutional clients.

G Ashton was a director of Superpartners Pty Ltd during the year ended 30 June 2011.

Superpartners Pty Ltd received $75,144,000 in fees for the provision of member administration services and custodial services.

•• A 32% (2010: 32.0%) shareholding of ordinary shares valued at $1.215 million (2010: $1.097million) and 105,000 (2010: 105,000) redeemable preference shares in Frontier Investment Consulting Pty Ltd valued at $0.105 million (2010: $0.105 million). Frontier provides investment consulting services to the Fund and other institutional clients. G Ashton was the Chair of Frontier Investment Consulting Pty Ltd during the year ended 30 June 2011.

Frontier Investment Consulting Pty Ltd receives fees from Australian Super for investment consulting services. These fees were $1,752,793 (2010: $1,445,000)

Disclaimer. This article contains general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your financial circumstances. You should assess whether the information is appropriate for you and consider talking to your financial or other professional adviser before making an investment decision. Please reference the author when reproducing this article.