Tax and Insurance Updates you cannot Miss

Welcome to the November 2010 newsletter. In this newsletter we will discuss important planning issues that will benefit you and your family. The topics that we will discuss are:

• How can I cover me and my family if I am not able to work?
• Invitation for a complimentary review
• How to transfer up to $3,210,000 in the 2011 year into your SMSF
• GST and your SMSF

How can I cover me and my family if I am not able to work?

There are many advertisements promoting life insurance and the importance to your family. However, if you pay for life insurance personally then the premiums are not tax deductible. Wouldn’t you want to know other possible ways to cover these expenses without you giving up on your lifestyle requirements?

A SMSF is able to claim a deduction on insurance policies to cover its liability to pay death or disability benefits to its members. This would include premiums relating to:

• Life insurance
• Disability insurance such as TPD insurance
• •Income protection insurance

Life insurance

Life insurance is probably the most important type of insurance that your SMSF can pay for because it will assist your family in covering the mortgage and other household expenses if you were to pass away.
In your SMSF the premiums are tax deductible. You can also use the investment earnings in your SMSF to pay for the premiums rather than just relying upon your super contributions to pay for it.

There are some planning opportunities we can discuss with you because:

• The life insurance payout received by a spouse is generally tax-free so it can be used to cover mortgage repayments
• The life insurance payout can also be left in the SMSF to be reinvested for the future in a tax-free environment

The main issue with having life insurance in super is that if the payment is to be paid to an adult child then there may be tax to be paid by your adult children. However, we can discuss with you planning opportunities to eliminate this problem.

TPD insurance

For TPD insurance this benefit is paid to a person because:

• They suffer from ill-health, whether physical or mental
• Where the trustee is reasonably satisfied that the member is unlikely, because of the ill-health, to engage in gainful employment for which the member is reasonably qualified by education, training or experience

This type of insurance cover will not be deductible under your personal name so from a cash flow perspective it may be better to have the deduction in your SMSF depending on your circumstances.

The other important issue to remember is that the TPD insurance can only cover you for your specific occupation. A common example being used is that if you are a trained specialist doctor your SMSF can only claim a deduction for the TPD insurance if it protects you from not working as a GP because your education and training may still allow you to be a GP.

If you are not able to be a GP due to ill-health then your SMSF by law can pay you on the money received on the TPD payout because a “condition of release” has been met which allows your SMSF to pay you due to ill-health. The super laws forbid your SMSF paying out the proceeds of a TPD payout if you can still practice as a GP.

If you would like added protection for being a specialist then you may need a TPD policy under your name. In this situation the policy is not deductible but you have extra protection for you and your family and the payout received will also be tax-free.

Finally there may be a tax liability on the payout of TPD from your SMSF but we can help you with planning opportunities in relation to these matters.

There is a proposal that from 1 July 2011 TPD premiums will only be deductible if the policies have the necessary connection to a liability of the fund to provide disability superannuation benefits to their members only. A disability superannuation benefit is:

• the benefit is paid to a person because he or she suffers from ill-health (whether physical or mental), and
• two legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training

The important issue in the future will be that 2 medical practitioners will need to certify if a payout is allowed.

Income Protection Insurance

The income protection insurance may generally be paid to you for the period you are unable to work to cover your lost wages from having an accident or sickness. Income protection insurance may be deductible under your personal name so from a tax perspective it may be better to have the insurance under your name so that you can claim a personal tax deduction for it.

The other benefit to you and your family by having income protection insurance under your name is that you can use the super contributions to purchase investments rather than pay for insurance that would be deductible under your name anyway.
Insurance is very important for your family. They still have to pay their bills so what will happen to them if you are not around to assist? We can assist you in structuring your insurances in your SMSF to meet your personal needs.

Invitation for a complimentary review

We invite you for a complimentary review of your current insurance policies to ensure you are maximizing your protection for you and your family through our JV insurance specialist. Please contact us for assistance.

How to transfer up to $3,210,000 in the 2011 year into your SMSF

As you may know it is possible to put in money into your super fund from your after tax earnings. The limit is $150,000 per year or $450,000 in advance of 3 years (if you are under 65) and these are called non-concessional contributions and this applies to you and your spouse. There are ways that you and your spouse can contribute more into super, potentially up to $3,210,000 in the 2011 year.

You may be able to increase the amount you put into super which will increase your wealth in the future by making the following contributions and these will not affect your non-concessional contributions limits:

• government co-contributions
• contributions arising from personal injuries
• contributions arising from the small business CGT concessions which are within the person’s CGT cap amount

We will discuss personal injury payments and the CGT cap rules below:

Personal injury payments

A contribution made by you from certain personal injury payments is excluded you’re your non-concessional contributions limits. This means that you can contribute the proceeds of a personal injuries settlement or court order (ie court-ordered damages payments) to a superannuation fund without the contribution being counted in the non-concessional contributions cap.

The main point to remember is that the law requires the contribution to be made within 90 days of the later of the day:

of receipt of the payment from which the contribution is made, or

on which the court order was made.

CGT cap amounts

If you sell an asset relating to your small business you are able to contribute a substantial amount of the money received on the sale to your super fund. This may provide an incentive for you to purchase a property to operate your business from because it can either be sold or transferred into your SMSF:

• Tax-free because there are possibilities in eliminating CGT on the transfer
   
• Transfer nearly the entire property because you are able to utilize the non concessional cap rules and the CGT cap rules to transfer the property

For the 2011 financial year the CGT cap is $1.155 million and this increases every year with inflation. Therefore, if you and your spouse own a property together that you operate your medical practice from it may be possible to transfer up to $3,210,000 of a property into your SMSF in a year.

The main points to remember are that there are other ways to increase the assets in the super fund that do not involve non-concessional contributions. The benefit is that you can put more money into your SMSF so that the investments can grow in a low tax environment. Please contact us for your specific requirements.

GST and your SMSF

A SMSF must register for GST if its “taxable supplies” are more than $75,000 per year and therefore it will be required to lodge Business Activity Statements (BAS). For a SMSF the “taxable supplies” will generally be limited to income from a commercial property.

If an SMSF is registered for GST then the GST on the expenses in running the commercial property can be claimed in the BAS’s which is good from a cash flow perspective.

Please also note that if the fund is registered for GST, then GST must also be charged on outgoings recovered from the tenants of commercial properties such as water, land tax and council fees.

No GST can be claimed on:

• Audit fees
• Fees to prepare tax returns
• Fees to prepare activity statements
• Bank charges
• Residential property purchase and expenses

Your SMSF will generally need to lodge BAS’s if it owns a commercial property and the yearly rental is more than $75,000 per year. Please contact us if you contemplate purchasing a commercial property and we can assist you with planning purposes.

We hope you have enjoyed this article and please contact us for any assistance.


Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.