Wrong! This is one of the biggest misconceptions people have when talking about Superannuation. Superannuation is not an asset of your estate, and as such is not distributed in accordance with your Will. Superannuation is distributed by, and at the discretion of, the Trustee of your Superfund.
Most people have provided their commercial superfund with a non-binding beneficiary nomination, however while it gives the Trustee an idea of who you would like to give the benefit of your superannuation, they are in no way bound by this nomination.
You can however override the discretion afforded to the Trustee of your Superfund by completing a Binding Death Benefit Nomination (BDBN) It is important to ensure that the BDBN is valid. This included having the BDBN signed by two witnesses, be made out in writing to the Trustee and contain a declaration.
In addition to this, your nomination of a beneficiary must be someone who is considered a dependent, ie spouse or child. In the absence of a dependent person or at your election, you can nominate your Legal Personal Representative to be the recipient of your death benefit. In these circumstances, the superannuation will essentially become part of your estate and distributed in line with the wishes set out in your Will. It is important to note that some BDBN’s expire after a period of three years. So it is recommended that you review them regularly
In the absence of a BDBN, the Trustee is required to search for any potential dependent persons, then assess the capacity of the dependent, take into consideration any non-binding nominations and then decide on the distribution to take place. This process can be quite drawn out and the wishes of the deceased are not always upheld.
What if you have a self-managed super fund (SMSF)?
You can still bind the Trustee by completing a BDBN. Unlike other Superfunds a BDBN does not necessarily expire after a period of three (3) years. This however is governed by the rules set out in your Superannuation Fund trust deed. If necessary these rules can be amended so that a BDBN does not expire.
It is important to thoroughly consider your estate plan while you still have capacity to do so. Everingham Solomons have experienced Solicitors who can assist you to plan what happens to your estate or review what you have in place because Helping You is Our Business.
Many readers will be members of Self-Managed Superannuation Funds (SMSFs) and will understand in general terms the limits imposed on SMSFs with respect to the types of investments they can make.
Superannuation legislation prevents s SMSFs from investments in a related party. This is called the ‘in-house asset test’. There are some notable exceptions including that a SMSF can often purchase land and buildings (including farms) upon which the SMSF’s members can conduct their business.
Another prohibition insures that SMSFs cannot use retirement savings accumulated at favourable tax rates to acquire property, for example holiday houses or fast cars, that can be used beneficially by the SMSFs members or family before retirement. This is called the ‘sole purpose test’.
‘Aussiegolfa’ is a horribly aspirational name for the trustee of a SMSF that tested the limits of the sole purpose test in the Federal Court and on appeal.
Aussiegolfa as trustee of the SMSF purchased units in a widely held managed investment scheme called DomaCom. DomaCom purchased various property including student accommodation at Burwood.
Aussiegolfa then acquired a particular class of units in DomaCom, known as the Burwood sub-fund, which were specifically associated with the Burwood accommodation. Other parties related to Aussiegolfa acquired the balance of the majority interest in the Burwood sub-fund.
DomaCom rented out the Burwood accommodation firstly to two tenants unrelated to Aussiegolfa, but then to the daughter of Aussiegolfa’s members. Importantly the daughter paid market rates of rent on the Burwood accommodation, equal to the previous two unrelated tenants.
The primary judge and the Court of Appeal both found that the sub-fund was a distinct trust controlled by Aussiegolfa and its related parties in breach of the in-house asset test.
On appeal the Full Court found that as: the property had previously been tenanted to non-related parties; market rent had been paid by the member’s daughter; and the property was managed by an unrelated entity, the sole purpose test had not been infringed. Any benefit enjoyed by the member’s daughter was merely incidental.
Although it’s unlikely to be an approach widely adopted by advisors, Aussiegolfa supports the proposition that the sole purpose test can be met where a related party has the use of SMSFs assets when market rent is paid.
If you have any commercial law enquiries, contact Everingham Solomons because Helping You is Our Business.
Despite common belief, your superannuation fund doesnot form part of your Estate and is therefore not subject to the terms of your Will. Most superannuation funds allow you to elect to make a binding death benefit nomination which binds the Trustee of your superfund to pay your death benefit to your nominated beneficiaries. If you do not have a binding nomination in place at the time of your death, the Trustee of your fund has the discretion to decide who is to benefit from your super. The Trustee is not bound to follow the directions of your Will, as superannuation is not an asset of the Estate.
What is a binding death benefit nomination?
Your binding death benefit nomination is a legal instrument that binds the Trustee of your superfund to pay your benefit to your nominated beneficiaries. It provides certainty about who will receive your super and any applicable insurance benefits in the event of your death. There are usually two types of death benefit nominations, depending on the terms of your superfund; lapsing and non-lapsing. A lapsing nomination remains in effect for three years from the date it’s first signed, last amended or confirmed. If it lapses, it will then be treated as a non-binding nomination. A non-lapsing nomination won’t expire unless you amend or cancel it.
So who can you nominate?
You can nominate one or more of your dependants and/or your legal personal representative. Your dependents include your spouse, your children or your spouse’s children, any person who was in an interdependency relationship with you at the date of your death and any person who in the opinion of the Trustee, are or were in any way financially dependent on you at the date of your death.
If you nominate your legal personal representative, your superfund members’ benefit will form part of your estate and be distributed in accordance with your will or with the laws governing persons who die without a Will.
The payment of your superannuation death benefit will have tax implications and implications on your Estate so it is important to consult your financial and legal advisors prior to making a non-lapsing binding death benefit nomination.
For more information, please contact the experienced staff at Everingham Solomons because Helping You is Our Business.
Employers failing to pay superannuation could be hit with Court ordered penalties and even 12 months prison stints under draft legislation released recently.
The legislation aims to protect workers superannuation entitlements, while modernising the way the super guarantee is enforced. The introduction of Single Touch Payroll for employers from 1 July 2019 will make it much easier for the Australian Taxation Office to monitor and identify employers who skip their superannuation obligations, rather than the current regime of self-reporting.
The Single Touch Payroll system allows employers to report salaries, wages, PAYG tax and super directly to the ATO from their payroll systems.
This will allow the ATO to access real-time compliance information regarding superannuation payments.
This will support earlier detection and proactive prevention of non-payment of superannuation that is due to employees.
The government has indicated that there will be serious consequences for employers who break the law.
There will be strengthened systems for Director Penalty Notices where directors can become personally liable for unpaid superannuation payments.
Further, the ATO will be able to apply for Court ordered penalties against the employers including up to 12 months imprisonment.
The ATO will also have the power to require employers to undertake compulsory training regarding their payment obligations.
The legislation will also close a loophole that allowed unscrupulous employers to short-change workers who salary sacrifice their salary into their super.
For all your legal needs, consult Everingham Solomons Solicitors, because Helping You is Our Business.
In 2007 superannuation laws were relaxed to allow superannuation funds (“Super Funds”) to borrow money to acquire assets.
At about the same time, a Global Financial Crisis happened. This resulted in there being very little use of these new laws by Super Funds for a few years but with the return of business confidence that changed . It is now very common for Super Funds to borrow, particularly to purchase real estate.
The rules for borrowing by Super Funds are complex but became well understood by financiers and advisors such as financial planners, accountants and solicitors who practiced in the superannuation area.
Advisors soon realized that –
The rules did not require that the lender to the superannuation fund be an external bank ; and
In many cases, it was more cost effective and convenient to bypass external lenders and use internal arrangements with members or associates of the Super Fund who had money available to them to lend.
These internal arrangements were often “win-win” in that they often delivered to the lender a better return than would otherwise be obtained from leaving the money in its bank account and from the borrower’s perspective, avoided some of the costs and frequent delays associated with external arrangements.
In September last year the ATO issued two interpretive decisions that signaled the possibility of assessing the income received by Super Funds from the assets acquired under these sorts of arrangements with penalty tax rates if the ATO considered that the internal loan was not on ‘arm’s length terms’.
The most recent ATO announcement was earlier this month with the issue of what is called a practical compliance guideline (“PSG”). In this document, the ATO sets out its view as to what would be accepted by it as an arm’s length arrangement with regard to loan conditions, including:
Term of the loan
The loan to valuation ratio
The security taken for the loan
The PSG is a surprising document. It would have been expected that the ATO measuring stick would have been the normal requirements of external lenders however in a number of significant respects it is more restrictive than that. One could be forgiven for thinking that the ATO policy was to actively discourage internal funding arrangements rather to provide “practical guidance” in any meaningful respect.
The PSG is not legally binding. It is simply an ATO policy document however it would be prudent to review any existing Super Fund internal loan arrangements and make specific decisions whether to restructure or not.
At Everingham Solomons, we have the legal expertise to work with your financial advisors to review these types of arrangements because Helping You is Our Business.
The number of self managed superannuation funds (SMSFs) is increasing exponentially. This growth has been particularly prompted by changed laws allowing SMSFs to borrow to purchase investments such as real estate.
The primary rule of self managed superannuation is a requirement that all the members (a maximum of 4) must either be trustees of the fund or directors of the trustee company if the fund has a corporate trustee.
Normally, trustees must act unanimously. Unless the prospect for dispute or deadlock between trustees is considered and dealt with upfront, disputes will ultimately find their way to the Supreme Court which is all of, very expensive, uncertain and time-consuming.
This means that it necessary in every case to consider how disputes or deadlocks between trustees will be resolved.
The most common type of SMSF is still the “mum and dad” version in which a married or de facto couple are the only persons involved in decision-making. Increasingly however we are also seeing more complicated relationships that present a greater degree of risk that disputes will arise e.g. SMSFs that include children, in-laws, other relatives or business associates.
A properly drafted SMSF deed can provide a process to resolve disputes relatively quickly and inexpensively. For instance, the rules of the SMSF may provide for decisions to be made on the basis of member account balances or by a certain majority of trustees in the event of deadlocks or disputes. Similarly, the Constitution of a corporate trustee might require that decisions of the board of directors of the company can be made on a pre-agreed basis.
The eventual result of a need to resort to a formalised dispute settlement process is generally that one or both of the disputing parties will leave the SMSF and make other ongoing arrangements. Whilst that can be inconvenient in some cases, it is certainly preferable to reaching the same position after a lengthy court battle.
The key points for planning are: –
Always consider at the outset who you share an SMSF with. Even in the best of families, parents and children don’t always see eye to eye particularly as children grow up and form their own relationships and families;
Anticipate and plan for the possibility of disputes. This means that you need to ensure that your SMSF documentation is properly drafted at the outset or, if that opportunity has passed by, have your current structure reviewed by an expert and where necessary restructure.
The laws relating self managed superannuation and trusts generally are complex. At Everingham Solomons we have the experience and expertise to assist you in all your superannuation and trust issues because Helping You is Our Business.
Section 67A allows a Self-Managed Super Fund (“SMSF”) to borrow to acquire an asset subject to strict conditions such as holding the asset in a separate Holding Trust, using a nonrecourse loan and the SMSF must only purchase a single acquirable asset.
It has long been known and the ATO has confirmed that a related party to a member of a SMSF is entitled to lend to that person’s own super fund. For example you can personally or an associated entity can lend to your own SMSF to acquire an asset.
In 2010 the ATO issued an interpretative decision indicating that a related party could charge less than a market rate of interest on a loan to their SMSF, but could not charge more than a market rate.
For many years super fund advisors have operated on the premise that it is okay to allow related party loans to a SMSF to operate on more favourable terms than might, otherwise, be able to be obtained from a commercial lender. Such things as lower or no interest rate, no repayment requirements and no security.
In December 2014, however, the ATO issued a further interpretative decision indicating that a related party must lend to an SMSF on full commercial terms and they must not be more favourable to the SMSF than would be available in the open market.
The problem is that income earned from an SMSF from a property acquired with borrowed funds from a related party at zero interest or other favourable conditions, could be considered “non-arm’s length” income and consequently subject to tax at the maximum tax rate (47%).
It is therefore suggested that a related party who lends to their SMSF, must charge a commercial interest rate, the loan to valuation ratio must be no less than what a bank would permit, there must be adequate security such as a mortgage and there must be regular repayments and perhaps even personal guarantees.
If you are considering lending to your SMSF or you have already done so, then you need to carefully check your documentation to ensure that they are on commercial terms so that income or gains are not potentially deemed to be non-arm’s length and therefore subject to maximum tax rather than the concessionary rate charged normally on a super fund.
At Everingham Solomons, we have the expertise to assist you in these complex issues because Helping You is Our Business.
One of the biggest impediments to transferring property from one party to another is the exorbitant stamp duty costs payable to the State Government on transfer.
Under the current law, it is possible for a member of a self-managed superannuation fund to transfer an asset from his/her personal name into the superannuation fund and only incur nominal stamp duty. That is a significant concession and should be considered.
Once a superannuation fund is placed in pension mode, payments distributed to members are currently treated as tax free and accordingly there can be significant advantages in transferring assets into a self-managed super fund.
The property must be held by the trustee of the super fund solely for the benefit of the persons who transferred the property and for the sole purpose of providing a retirement benefit to the transferring member.
The State Revenue Further Amendment Bill (2014) is currently before the New South Wales Parliament and if passed, will increase the rate of duty from $50.00 to $500.00, which whilst more expensive is much cheaper than stamp duty calculated at normal rates and accordingly still makes such transactions attractive.
As many of our readers would know, self managed super funds can now borrow loan funds provided the purchase by the superannuation fund is effected by a custodian or bare trust company which holds the property for and on behalf of the superannuation fund.
There are exemptions in the Duties Act which enable stamp duty on the bare trust or custodian deed to be paid at a nominal fee of $50.00.
The above mentioned Bill proposes to increase the rate of duty from $50.00 to $500.00 on the bare trust document.
If however a trustees of self-managed super funds wish to avail themselves of the concessional duties, it is important that the documentation associated with such transaction are very carefully drafted to ensure that they meet the requirements of the Duties Act so as only concessional duty is paid. A failure to do so, could result in double stamp duty being payable at full stamp duty rates.
At Everingham Solomons we have the expertise and experience to assist you because Helping You is Our Business.
It depends. It is always important to review the requirements of the Duties Act in each case before assuming that a rural land transfer will be stamp duty free.
Mum and dad have owned a rural property since the 1970s. The farming business is carried on by a proprietary limited company. The shareholders and directors are mum and dad.
As the son and daughter-in-law now run and guide the farming business, mum and dad have decided to transfer part of the farming land to them valued at about $1.5 million. Mum and dad also propose to make the son and daughter-in-law directors of the farming operations company.
As the land was acquired prior to the introduction of Capital Gains Tax, there is no pre-CGT taxation on the transfer of the land.
Will the land however attract stamp duty of about $68,000.00 or will it be stamp duty free under the intergenerational transfer provisions contained in the Duties Act?
In order to obtain the benefit of the exemption, the primary production business must be carried on by the son and daughter-in-law and be continued to be carried on by them or a member of their family.
While the word “member” in relation to the family of the transferee (the son and daughter-in-law) is defined broadly and goes both up and down the family tree, it does not include family owned or controlled entities such as companies and trusts.
Since neither the son nor daughter-in-law will be carrying on the business and as the trading company is not a member of their family, the exemption will not be available. $68,000.00 stamp duty would be incurred if the transaction proceeds.
It is always important to review closely the requirements of the Act in each particular circumstance before proceeding with a family farm transaction.
At Everingham Solomons we have the experience to assist you with all your property needs because Helping You is Our Business.
Borrowing by Self Managed Superannuation Funds (“SMSFs”) has been allowed under strictly controlled circumstances for over five years. Over that time the “grey areas” have gradually become a little clearer both through legislative change and the issue of very detailed rulings by the ATO.
In May this year the ATO issued a new major ruling. It is a very useful document and contains many examples of what the ATO considers can and can’t be done. Some of those examples are particularly relevant to farming properties.
One of the key concepts of the legislation is the concept of borrowing to acquire a “single acquirable asset”. Most farming properties will be comprised in more than one land title. If those titles can be dealt with separately, in many cases the farm will not be regarded as a single acquirable asset even if from a practical viewpoint, it would be unlikely that any part of the farm would be dealt with separately from the other.
If a farm was not regarded as a single acquirable asset, it may still be possible to proceed with a borrowing by breaking up the transaction into separate loans over each title. There will be practical problems in doing that however particularly due to the likely requirements of financiers and the duplication of borrowing expenses.
The ATO ruling also includes some useful examples of the distinction between “repairing” and “maintaining” a farm, which is allowed, and improving the farm which is not . For instance, replacing a section of existing cattle yards or fencing is a permissible repair whereas adding a further set of cattle yards or additional fencing would be an improvement.
Involving your SMSF in a farming business requires expert financial and legal advice. Borrowing is only one of a number of alternatives and there are ongoing operational issues relating to the arrangements between the entity that conducts the farming business and the SMSF.
There are many pitfalls for the inexperienced or ill advised. At Everingham Solomons we have the experience and the expertise to work with you and your financial advisors to achieve the best outcome for you because Helping You is Our Business.